1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
(Mark One)
/X/ Quarterly report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the quarterly period ended SEPTEMBER 30, 1999 or
------------------
/ / Transition report pursuant to 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 1-12410
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SIMULA, INC.
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(Exact Name of Registrant as Specified in Its Charter)
ARIZONA 86-0320129
- ------------------------------- --------------------------
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
2700 NORTH CENTRAL AVENUE, SUITE 1000, PHOENIX, ARIZONA 85004
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(Address of Principal Executive Offices) (Zip Code)
(602) 631-4005
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(Registrant's Telephone Number, Including Area Code)
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(Former Name, Former Address and Former Fiscal Year, if Changed Since Last
Report)
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)
Yes X No
----------- -----------
(2) has been subject to such filing requirements for the past 90 days.
Yes X No
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Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date:
Class Outstanding at September 30, 1999
- ------------------------------- --------------------------------------------
Common Stock, $.01 par value 10,376,233
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SIMULA, INC.
INDEX
PART I - FINANCIAL INFORMATION
PAGE
----
Item 1 - Financial Statements
Consolidated Balance Sheets
September 30, 1999 and December 31, 1998........................... 2
Consolidated Statements of Operations
Three and Nine Months Ended September 30, 1999 and 1998....... 3
Consolidated Statement of Shareholders' Equity
Nine Months Ended September 30, 1999.......................... 4
Consolidated Statements of Cash Flows
Nine Months Ended September 30, 1999 and 1998................. 5
Notes to Interim Consolidated Financial Statements ................ 6 - 11
Item 2 - Management's Discussion and Analysis of
Results of Operations and Financial Condition............... 12 - 18
PART II - OTHER INFORMATION
Item 2 - Legal Proceedings ................................................ 18
Item 6 - Exhibits and Reports.............................................. 19 - 20
SIGNATURES................................................................. 21
1
3
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
SIMULA, INC.
CONSOLIDATED BALANCE SHEETS
- ------------------------------------------------------------------------------
SEPTEMBER 30, DECEMBER 31,
1999 1998
------------- -------------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 3,669,046 $ 933,462
Contract and trade receivables - Net 31,226,897 27,113,757
Inventories 32,078,170 26,021,433
Deferred income taxes 3,173,000 3,173,000
Prepaid expenses and other 1,801,257 601,614
Net current assets of discontinued operations 4,580,773
------------- -------------
Total current assets 71,948,370 62,424,039
PROPERTY, EQUIPMENT AND LEASEHOLD IMPROVEMENTS - Net 17,985,823 21,494,535
DEFERRED INCOME TAXES 19,061,000 20,550,000
NOTE RECEIVABLE 10,066,805
DEFERRED FINANCING COSTS 2,346,792 2,627,765
INTANGIBLES - Net 3,426,182 3,452,402
OTHER ASSETS 358,453 430,340
------------- -------------
TOTAL $ 125,193,425 $ 110,979,081
============= =============
LIABILITIES & SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Revolving line of credit $ 24,800,000 $ 16,900,000
Trade accounts payable 7,996,897 11,028,062
Other accrued liabilities 9,791,055 7,496,841
Advances on contracts 2,387,276 2,220,737
Current portion of long-term debt 6,695,057 7,530,222
------------- -------------
Total current liabilities 51,670,285 45,175,862
LONG-TERM DEBT - Less current portion 45,482,184 47,233,558
------------- -------------
Total liabilities 97,152,469 92,409,420
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REDEEMABLE CONVERTIBLE 6% SERIES A PREFERRED STOCK,
$.05 par value - issued 6,250 shares 6,250,000
-------------
SHAREHOLDERS' EQUITY
Preferred stock, $.05 par value - authorized
50,000,000 shares; issued 6,250 shares redeemable convertible 6% series
A preferred stock
Common stock, $.01 par value - authorized 50,000,000
shares; issued 10,376,233 and 9,915,391 103,762 99,154
Additional paid-in capital 53,391,038 51,742,593
Accumulated deficit (31,218,842) (33,452,571)
Accumulated other comprehensive income (485,002) 180,485
------------- -------------
Total shareholders' equity 21,790,956 18,569,661
------------- -------------
TOTAL $ 125,193,425 $ 110,979,081
============= =============
See notes to consolidated financial statements
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4
SIMULA, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
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THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------------------ ------------------------------
1999 1998 1999 1998
------------ ------------ ------------ ------------
Revenue $ 33,169,131 $ 23,680,404 $ 99,123,530 $ 71,962,001
Cost of revenue 23,468,135 18,197,029 72,043,888 53,880,615
------------ ------------ ------------ ------------
Gross margin 9,700,996 5,483,375 27,079,642 18,081,386
Administrative expenses 6,278,521 5,138,051 18,272,771 14,225,832
------------ ------------ ------------ ------------
Operating income 3,422,475 345,324 8,806,871 3,855,554
Interest expense (1,711,125) (1,326,708) (5,119,728) (3,730,358)
Interest income 11,381 48,234 35,586 163,309
------------ ------------ ------------ ------------
Earnings (loss) before taxes and discontinued operations 1,722,731 (933,150) 3,722,729 288,505
Income tax (expense) benefit (689,000) 374,000 (1,489,000) (116,000)
------------ ------------ ------------ ------------
Earnings (loss) before discontinued operations 1,033,731 (559,150) 2,233,729 172,505
Discontinued operations:
Loss from discontinued operations, net of tax (2,156,388)
Estimated loss on disposal, net of tax (4,680,000)
------------ ------------ ------------ ------------
Net earnings (loss) 1,033,731 (559,150) 2,233,729 (6,663,883)
Dividends on preferred stock 93,834 205,039
------------ ------------ ------------ ------------
Net earnings (loss) available for common shareholders $ 939,897 $ (559,150) $ 2,028,690 $ (6,663,883)
============ ============ ============ ============
Earnings (loss) per common share - basic:
Earnings (loss) before discontinued operations
per common shareholder $ 0.09 $ (0.06) $ 0.20 $ 0.02
Discontinued operations:
Loss from discontinued operations, net of tax (0.22)
Estimated loss on disposal, net of tax (0.47)
============ ============ ============ ============
Net earnings (loss) per common share $ 0.09 $ (0.06) $ 0.20 $ (0.67)
============ ============ ============ ============
Earnings (loss) per common share - assuming dilution:
Earnings before discontinued operations 0.09 $ 0.20 $ 0.02
Discontinued operations:
Loss from discontinued operations, net of tax (0.21)
Estimated loss on disposal, net of tax (0.46)
------------ ------------ ------------
Net earnings (loss) per common share $ 0.09 $ 0.20 $ (0.65)
============ ============ ============
See notes to consolidated financial statements
3
5
SIMULA, INC.
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
NINE MONTHS ENDED SEPTEMBER 30, 1999
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Additional
Common Stock Paid-in Accumulated
--------------------------
Shares Amount Capital Deficit
----------- ------------ ------------ -------------
BALANCE, January 1, 1999 9,915,391 $ 99,154 $ 51,742,593 $(33,452,571)
Net earnings 2,233,729
Issuance of common shares 188,220 1,882 505,473
Conversion of redeemable convertible
Series A Preferred Stock 252,824 2,528 1,247,472
Conversion of accrued Series A
Preferred Stock dividends 19,798 198 100,539
Preferred stock dividends (205,039)
Currency translation adjustment
------------ ------------ ------------ ------------
BALANCE, September 30, 1999 10,376,233 $ 103,762 $ 53,391,038 $(31,218,842)
============ ============ ============ ============
Accumulated
Other Total
Comprehensive Shareholders' Comprehensive
Income Equity Income
------------- ------------- --------------
BALANCE, January 1, 1999 $ 180,485 $ 18,569,661
Net earnings 2,233,729 $ 2,233,729
Issuance of common shares 507,355
Conversion of redeemable convertible
Series A Preferred Stock 1,250,000
Conversion of accrued Series A
Preferred Stock dividends 100,737
Preferred stock dividends (205,039)
Currency translation adjustment (665,487) (665,487) (665,487)
------------ ------------ ------------
BALANCE, September 30, 1999 $ (485,002) $ 21,790,956 $ 1,568,242
============ ============ ============
See notes to consolidated financial statements
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SIMULA, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
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NINE MONTHS ENDED
SEPTEMBER 30,
----------------------------------
1999 1998
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Cash flows used for operating activities:
Net income (loss) $ 2,233,729 $ (6,663,883)
Adjustment to reconcile net income (loss) to net cash used by operating activities:
Estimated loss on disposal of discontinued operations 7,800,000
Depreciation and amortization 4,264,762 3,350,424
Deferred income taxes 1,489,000 (4,794,000)
Gain on sale of assets (356,809)
Currency translation adjustment (665,487) 334,622
Changes in net assets and liabilities:
Contract and trade receivables - net of advances (3,946,601) (5,368,122)
Inventories (6,056,737) (8,244,235)
Prepaid expenses and other (828,827) 94,513
Other assets 71,887 109,324
Net assets of discontinued operations (4,398,565) (1,366,736)
Trade accounts payable (3,031,165) (358,022)
Other accrued liabilities 764,150 1,576,983
------------ ------------
Net cash used by operating activities (10,460,663) (13,529,132)
------------ ------------
Cash flows used by investing activities:
Purchase of property and equipment (2,147,713) (4,185,179)
Proceeds from the sale of assets 2,960,362
Costs incurred to obtain intangibles (832,916) (334,241)
------------ ------------
Net cash used in investing activities (20,267) (4,519,420)
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Cash flows from financing activities:
Net borrowings under line of credit 7,900,000 10,600,000
Principal payments under other debt arrangements (2,586,539) (1,546,359)
Issuance of common shares 507,355 615,328
Issuance of preferred shares 7,500,000
Preferred stock dividends (104,302)
------------ ------------
Net cash provided by financing activities 13,216,514 9,668,969
------------ ------------
Net increase (decrease) in cash and cash equivalents 2,735,584 (8,379,583)
Cash and cash equivalents at beginning of period 933,462 9,367,031
------------ ------------
Cash and cash equivalents at end of period $ 3,669,046 $ 987,448
============ ============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
In 1999, $1,250,000 of Series A Preferred Stock plus accrued dividends of
$100,737 were exchanged for 272,622 shares of the Company's common stock.
Interest paid $ 4,859,357 $ 4,567,528
============ ============
Taxes paid $ 36,513 $ 6,424
============ ============
See notes to consolidated financial statements
5
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SIMULA, INC.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - BASIS OF PRESENTATION:
The accompanying interim consolidated financial statements of Simula,
Inc. (the "Company") have been prepared in accordance with generally
accepted accounting principles for interim financial information and
with the instructions to Form 10-Q. Accordingly, they do not include
all of the information and notes required by generally accepted
accounting principles for complete financial statements. 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 months ended September 30, 1999 are not necessarily indicative of
the results that may be expected for the year ending December 31, 1999.
NOTE 2 - INVENTORIES:
At September 30, 1999 and December 31, 1998, inventories consisted of
the following.
September 30, December 31,
1999 1998
---- ----
Raw materials $20,515,702 $15,581,952
Work in process 9,293,688 9,077,849
Finished goods 2,268,780 1,361,632
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Total inventories $32,078,170 $26,021,433
=========== ===========
Inventories included in net current assets of discontinued operations
at December 31, 1998 were $6,198,387 and consisted mainly of raw
materials.
NOTE 3 - DEBT:
During the 1999 period, there have been several modifications to the
Senior Credit Agreement. Among other things, these modifications
adjusted the maximum outstanding under its revolving line of credit,
imposed and later rescinded a revolving line of credit adjustment date,
provided for a monthly penalty fee of $100,000 beginning in May and
continuing until disposal of the Company's discontinued operating
segment, adjustment of the fee to $150,000 per month beginning in
August and upon disposal of the segment imposed a monthly credit fee of
$150,000 until all balances under the Senior Credit Agreement have been
retired. In addition, the Company has pledged a security interest in
the notes receivable and related pledge and proxy security agreement
received in conjunction with the sale of the Company's discontinued
rail and mass transit operations. At November 15, 1999, the Company's
revolving line of credit provides for borrowings up to the lesser of
$23 million or the Revolving Line of Credit Borrowing Base (as
defined). At November 15, 1999, available and outstanding borrowings
under the line of credit is $23 million and $22.8 million,
respectively. Issued and outstanding letters of credit under the line
of credit at November 15, 1999 is $200,000.
The Company's Series C 10% Senior Subordinated Convertible Notes (the
"10% Notes") with an outstanding principal balance of $4,750,000
matured on September 15, 1999. In September 1999, the Company paid and
retired $500,000 of the 10% Notes upon maturity and executed a
Modification and Consent Agreement (the "September Modification")
extending the maturity date of the remaining $4,250,000 10% Notes until
October 31, 1999 and adjusted the interest rate to 15% from 10%. In
October 1999, the Company and the 10% Note holders entered into another
Modification and Consent Agreement (the "October Modification) which
further extended the maturity date until December 31, 1999, maintained
the interest rate at 15% and provided for a $40,000 extension payment
payable upon maturity of the agreement. In addition, the October
Modification requires that in the event the Company completes a public
or private financing or sale of assets prior to the Maturity Date, such
proceeds shall be applied as a reduction of the Company's indebtedness
under the 10% Notes.
On October 15, 1999, the Company entered into a $1,000,000 Promissory
Note with it's Chairman of the Board of Directors. The note bears
interest at 12%, matures on October 15, 2000, and provides for a
placement fee of $20,000 to be paid upon maturity or any accelerated
repayment of the note. In addition, the note provides for an
accelerated maturity in the event the Company completes a senior credit
banking agreement, or a public or private offering of debt or equity
securities for proceeds of $10,000,000 or more. Messrs. Townsend,
6
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SIMULA, INC.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
Saunders and Forst, officers of the Company were required to guarantee
the $1,000,000 Promissory Note in the aggregate amount of $200,000.
NOTE 4 - REDEEMABLE CONVERTIBLE PREFERRED STOCK:
On March 29, 1999, the Company completed a private placement to an
accredited investor of $7.5 million of the Company's Series A
Convertible Preferred Stock (the "Series A"). Under the terms of this
offering the Series A bears a dividend rate of 6% per annum payable
quarterly in cash, or in stock that will be valued at 90% of fair
market value at the time of payment. The Series A may be converted into
shares of the Company's Common Stock at any time at 101% of the average
closing price of any 15 out of the 30 consecutive trading days
preceding conversion, up to a specified maximum conversion price (the
"Conversion Cap"). The Conversion Cap for the first twelve months is
$8.60 per share and is subject to an annual adjustment to the lesser of
the then existing Conversion Cap or 130% of the average of the closing
bid prices for 20 consecutive trading days immediately proceeding the
annual adjustment anniversary date. In addition, the first year
Conversion Cap is subject to an interim adjustment on August 1, 1999 if
the Company is unable to consummate the sale of its rail and mass
transit operation for aggregate cash proceeds of at least $7.5 million
by July 31, 1999. The Company was unable to complete the sale
transaction and accordingly the Conversion Cap was adjusted on August
1, 1999 and is $8.04 per share. Conversion of the Series A is limited
to 10% of the initial amount per month, accumulating monthly up to a
maximum of 30% of the accumulated convertible amount in any month. The
Company may require the conversion of the Series A if the market price
of the Company's Common Stock exceeds the Conversion Cap by at least
50% for at least 20 consecutive trading days, subject to the same
conversion limitations imposed upon the Series A holders.
Series A Preferred Stock is subject to a mandatory redemption of the
remaining outstanding shares on May 1, 2004 at which time the Company
is required to redeem all such shares at the greater of 130% of the
preferred stock stated value plus accrued and unpaid dividends, or the
average of the closing bid prices on the ten consecutive trading days
immediately preceding the redemption date. The holders of the Company's
Series A Preferred Stock have the option to require the Company to
redeem all or a portion of the Series A Preferred Stock at a redemption
price equal to 105% of the preferred stock stated value plus accrued
and unpaid dividends if the Company consolidates or merges with or into
another company.
In May 1999, $750,000 of Series A Preferred Stock plus accrued
dividends of $6,904 were exchanged for 157,361 shares of the Company's
common stock. In July 1999, $500,000 of Series A Preferred Stock plus
accrued dividends of $83 were exchanged for 96,926 shares of the
Company's common stock. In September 1999, accrued dividends of $93,750
were satisfied in exchange for 18,335 shares of the Company's common
stock.
NOTE 5 - DISCONTINUED OPERATIONS:
In 1998, the Company's board of directors adopted a plan to dispose of
its rail and mass transit seating operations. Accordingly, the
operating results of these rail and mass transit operations, including
a provision for estimated loss upon disposition, have been segregated
from continuing operations and are reported as discontinued operations.
The Company executed the sale of its rail and mass transit seating
operation on August 31, 1999 under an Asset Purchase and Sale Agreement
dated June 30, 1999, as amended and restated August 31, 1999 and
subsequently on October 21, 1999, a Note Refinancing Agreement was
executed. A former director of the Company wholly owns the acquiring
company. Consideration received consisted of $100,000 cash and a
promissory note for $9,996,000 which matured on October 15, 1999. On
October 21, 1999, the parties entered into the Note Refinancing
Agreement which refinanced the note as two separate notes in the
amounts of $1,996,000 and $8,118,008 and reflects the capitalization of
$118,008 of interest related to the original note into principal
outstanding. The notes each carry an interest rate of 8 1/2% and mature
on October 15, 2004. Interest is required to be paid quarterly
beginning April 2000 on the $1,996,000 promissory note and
semi-annually beginning April 2001 on the $8,118,008 promissory note.
The notes are secured by the underlying assets and a Pledge and Proxy
Security Agreement in the stock of the underlying company and the stock
of Beacon Industries, Inc. which is owned under common control of the
acquirer. Under the an Asset Purchase and Sale Agreement the Company
has retained the liability for claims incurred through August 31, 1999
under its self funded health insurance plan and has agreed to indemnify
the acquiring company for any customary warranty and litigation claims.
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SIMULA, INC.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
Revenues for the rail and mass transit operations were $1,192,478 and
$8,247,294 for the two and eight months ended August 30, 1999,
respectively, and $4,360,279 and $13,093,611 for the three and nine
months ended September 30, 1998, respectively. Interest expense has
been allocated to discontinued operations based on the ratio of the
discontinued operations' net assets to consolidated net assets. General
corporate administrative expenses are not allocated to discontinued
operations.
NOTE 6 - SEGMENT REPORTING
The Company is a holding company for wholly owned subsidiaries which
operate in two business segments. The Commercial Transportation
Products segment includes operations which primarily manufacture
seating systems for domestic and foreign passenger airlines and
includes operations encompassing inflatable restraints and related
technology for automobiles. The Government and Defense segment includes
operations that design and manufacture crash resistant components,
energy absorbing devices, ballistic armor and composites principally in
connection with branches of the United States armed forces procurement.
The remaining segment, entitled Other, represents general corporate
operations.
For the three month period ended September 30, 1999 and 1998,
inter-segment sales were insignificant and total intercompany sales of
$847,747 and $1,453,084, respectively, have been eliminated.
1999
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Commercial Government
Transportation and
Products Defense Other Total
-------- ------- ----- -----
Revenue:
Contract revenue $12,489,890 $12,489,890
Product sales:
Airline seat systems $12,206,257 12,206,257
Automotive safety systems 8,107,959 8,107,959
Other 118,981 118,981
Technology sales and royalties 246,044 246,044
----------- ----------- ---------- -----------
Total revenue $20,560,260 $12,608,871 $ $33,169,131
=========== =========== ========== ===========
Operating (loss) income $3,097,645 $1,174,556 $(849,726) $3,422,475
8
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SIMULA, INC.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
1998
-----------------------------------------------------------------
Commercial Government
Transportation and
Products Defense Other Total
-------- ------- ----- -----
Revenue:
Contract revenue $9,197,525 $9,197,525
Product sales:
Airline seat systems $7,228,730 7,228,730
Automotive safety systems 6,824,035 6,824,035
Other 178,249 $ (6,819) 171,430
Technology sales and royalties 258,684 258,684
----------- ---------- ---------- -----------
Total revenue $14,311,449 $9,375,774 $ (6,819) $23,680,404
=========== ========== ========== ===========
Operating (loss) income $422,001 $354,944 $(431,621) $345,324
For the nine month period ended September 30, 1999 and 1998,
inter-segment sales were insignificant and total intercompany sales of
$3,576,537 and $3,749,955 respectively, have been eliminated.
1999
----------------------------------------------------------------------------
Commercial Government
Transportation and
Products Defense Other Total
-------- ------- ----- -----
Revenue:
Contract revenue $33,978,567 $33,978,567
Product sales:
Airline seat systems $41,029,095 41,029,095
Automotive safety systems 22,538,297 22,538,297
Other 710,894 $ 199,547 910,441
Technology sales and royalties 667,130 667,130
----------- ----------- ------------ -----------
Total revenue $64,234,522 $34,689,461 $ 199,547 $99,123,530
=========== =========== ============ ===========
Operating (loss) income $7,650,583 $2,857,047 $(1,700,759) $8,806,871
9
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SIMULA, INC.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
1998
---------------------------------------------------------------
Commercial
Transportation Government and
Products Defense Other Total
-------- ------- ----- -----
Revenue:
Contract revenue $25,272,287 $25,272,287
Product sales:
Airline seat systems $27,526,826 27,526,826
Automotive safety systems 18,143,314 18,143,314
Other 323,915 $ 1,417 325,332
Technology sales and royalties 694,242 694,242
----------- ----------- ------------ -----------
Total revenue $46,364,382 $25,596,202 $ 1,417 $71,962,001
=========== =========== ============= ===========
Operating (loss) income $4,340,094 $735,386 $(1,219,926) $3,855,554
10
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SIMULA, INC.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
NOTE 7 - EARNINGS PER SHARE:
The following is a reconciliation of the numerators and denominators of
basic and diluted earnings per share computations. Earnings per share
amounts are calculated using only weighted average shares outstanding.
For the three and nine month periods ended September 30, 1999 and the
nine month period ended September 30, 1998, diluted earnings per share
does not include the effects of shares to be issued upon conversion of
the Company's 8% Senior Subordinated Convertible Notes (the "8% Notes")
and the Series C 10% Senior Subordinated Convertible Notes (the "10%
Notes" ) of 2,248,223, 2,251,668 and 2,253,390, respectively, because
the result would be anti-dilutive. For the three month period ended
September 30, 1998, diluted earnings per share does not include the
effects of options to purchase common stock and shares to be issued
upon conversion of the Company's 8% Notes and 10% Notes of 4,308,111
because the result would be anti-dilutive.
Three Months Ended September 30, Nine Months Ended September 30,
1999 1998 1999 1998
---- ---- ---- ----
Income (loss) before discontinued operations $1,033,731 $(559,150) $2,233,729 $ 172,505
Discontinued operations:
Loss from discontinued operations, net of
tax (2,156,388)
Estimated loss on disposal, net of tax (4,680,000)
----------- ----------- ----------- -------------
Net earnings (loss) 1,033,731 (559,150) 2,233,729 (6,663,883)
Dividends on preferred stock 93,834 205,039
----------- ----------- ----------- -------------
Net earnings (loss) available to common
stockholders $939,897 $(559,150) $2,028,690 $(6,663,883)
=========== =========== =========== =============
Basic weighted average shares outstanding 10,301,721 9,880,703 10,090,510 9,868,452
===========
Effect of dilutive securities 1,346,228 964,941 234,095
----------- ----------- -------------
Diluted weighted average shares outstanding 11,647,949 11,055,451 10,102,547
=========== =========== =============
Basic per share amounts:
Earnings (loss) before discontinued
operations per common shareholder $0.09 $ (0.06) $0.20 $0.02
Discontinued operations:
Loss from discontinued operations,
net of tax - - - (0.22)
Estimated loss on disposal, net of
tax - - - (0.47)
----------- ----------- ----------- -------------
Earnings (loss) per common shareholder $0.09 $ (0.06) $ 0.20 $ (0.67)
=========== =========== =========== =============
Diluted per share amounts:
Income before discontinued operations $0.09 $ 0.20 $0.02
Discontinued operations:
Loss from discontinued operations,
net of tax - - (0.21)
Estimated loss on disposal, net of
tax - - (0.46)
----------- ----------- -------------
Net earnings (loss) per common shareholder $0.09 $ 0.20 $ (0.65)
=========== =========== =============
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SIMULA, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION.
GENERAL - The following discussion and analysis provides information that
management of Simula, Inc. (the "Company") believes is relevant to an assessment
and understanding of the Company's results of operations and financial condition
for the three and nine month periods ended September 30, 1999 compared to the
same periods in 1998. This discussion should be read in conjunction with the
Interim Consolidated Financial Statements and the Notes thereto included
elsewhere in this Form 10-Q. Except for the historical information contained
herein, this discussion contains forward looking statements (including
statements in the future tense and statements using the terms "believe,"
"anticipate," "expect," "intend," or similar terms) which are made pursuant to
safe harbor provisions of the Private Securities Litigation Reform Act of 1995.
These forward looking statements involve risks and uncertainties that could
cause the Company's actual results to differ materially form those discussed
herein. See Forward Looking Information and Risks of the Business.
OVERVIEW
The Company designs and manufactures occupant safety systems and
devices engineered to safeguard human life in a wide range of air and ground
transportation vehicles. Utilizing its substantial proprietary technology in
energy-absorbing seating, inflatable restraints, and composite materials, the
Company focuses on reducing injury and increasing survivability in vehicle and
aircraft crashes.
The Company is a holding company for wholly owned subsidiaries which
operate in two business segments. The Commercial Transportation Products segment
includes operations which primarily manufacture seating systems for domestic and
foreign passenger airlines and operations producing inflatable restraints and
related safety technologies for automobiles. The Government and Defense segment
includes technology development and operations that design and manufacture crash
resistant seats and components, energy absorbing devices, and ballistic armor,
principally in connection with United States armed forces procurement. The
remaining segment, entitled Other, represents general corporate operations.
Since its founding in 1975, the Company's historic business has been as
a government and defense contractor. Additionally, commencing with acquisitions
and commercial products development since 1993 has introduced crashworthy
systems for a variety of vehicles and aircraft including its 16g commercial
airliner passenger seat ("16g Seat") and various inflatable restraint systems
for automobiles including the Inflatable Tubular Structure ("ITS(R)").
Management made a strategic decision to enter the commercial aircraft
seating market to bring its proprietary energy-absorbing technologies to a new
industry and take advantage of positive industry trends in 1993. To implement
its decision, the Company completed three acquisitions that allowed it to
develop the necessary infrastructure to support future growth. In August 1993,
the Company acquired Airline Interiors, Inc. (the "Airline Acquisition"), which
was primarily involved with the refurbishment, reupholstery, reconditioning, and
reconfiguring of existing passenger seats. The Airline Acquisition provided
certain FAA certifications, enhanced the Company's management team and customer
base, and provided substantial assembly capacity. During 1994, the Company
acquired Coach & Car Equipment Corporation ("Coach and Car") and Artcraft
Industries Corp. ("Artcraft"). The acquisitions of Coach and Car and Artcraft
are collectively referred to as the 1994 Acquisitions. The 1994 Acquisitions'
existing operations included providing a majority of all manufacturing and
refurbishment of rail and mass transit seating systems in North America. The
1994 Acquisitions provided the Company with substantial large-scale
manufacturing capacity and synergies utilized in the production of its 16g Seat
for airliners.
In 1994, the Company made a strategic decision to enter the inflatable
restraint market for automobiles utilizing its proprietary technology, the
ITS(R). Through 1996, the Company completed its development of this technology
and start-up of its manufacturing facilities. In 1997, the Company began
manufacturing the ITS(R) for sale to BMW, a major European automobile
manufacturer, which began including it in certain models of its automobiles in
1997.
In 1998 the Company adopted a plan to sell its rail and mass transit
seating operations at Coach and Car and Artcraft. The rail and mass transit
seating operation was disposed of August 31, 1999 pursuant to the Amended and
Restated Asset Purchase and Sale Agreement. The company's rail and mass transit
seating operations are reported as discontinued operations.
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SIMULA, INC.
Simula's revenue has historically been derived from three sources:
sales of Company manufactured products; contract research and development for
third parties; and technology sales and royalties. A substantial portion of its
current revenue from the government and defense segment is accounted for under
the percentage of completion method of accounting. Under this method, revenue is
recorded as production progresses so that revenue less costs incurred to date
yields the percentage of gross margin estimated for each contract. Overall gross
margin percentages can increase or decrease based upon changes in estimated
gross margin percentages over the lives of individual contracts.
RESULTS FROM CONTINUING OPERATIONS
Three and Nine Months Ended September 30, 1999 Compared to 1998
Revenue for the three months ended September 30, 1999 increased 40% to
$33.2 million from $23.7 million for the comparable period in 1998. Revenue for
the nine months ended September 30, 1999 increased 38% to $99.1 million from
$72.0 million for the comparable period in 1998. The increases in revenue are
attributable to both of the Company's business segments. Commercial
Transportation Products revenue for the three months ended September 30, 1999
increased 44% to $20.6 million from $14.3 million and for the nine month period
ended September 30, 1999 increased 39% to $64.2 million from $46.4 million for
the comparable periods in 1998. The Commercial Transportation Products revenue
increases are due to increased deliveries of ITS(R) and 16g Seats. Government
and Defense revenue for the three months ended September 30, 1999 increased 34%
to $12.6 million from $9.4 million and for the nine months period ended
September 30, 1999 increased 36% to $34.7 million from $25.6 million for the
comparable periods in 1998. The increase in Government and Defense revenue is
attributable to increased overall contracts.
Gross margin for the three months ended September 30, 1999 increased
77% to $9.7 million from $5.5 million and for the nine months ended September
30, 1999 and increased 50% to $27.1 million from $18.1 million for the
comparable period in 1998. The Commercial Transportation Products gross margin
for the three months ended September 30, 1999 increased 123% to $6.0 million
from $2.7 million and for the nine months ended September 30, 1999 increased 57%
to $16.5 million from $10.5 million for the comparable periods in 1998. Gross
margin as a percent of sales for the Commercial Transportation Products segment
increased to 29% from 19% for the three months ended September 30, 1999 and
increased to 26% from 23% for the nine months ended September 30, 1999 as
compared to the comparable 1998 periods. The substantial improvement in
Commercial Transportation Products gross margin for the three and nine months
ended September 30, 1999 is primarily related to higher costs and lower
production output during the 1998 period related to the 16g Seat as new programs
began into production offset partially by decreases in the gross margins
attained on the ITS(R) due to realization of customer sales volume discounts.
Government and Defense gross margin increased 32% to $3.7 million from $2.8
million and for the nine months ended September 30, 1999 increased 37% to $10.4
million from $7.6 million for the comparable periods in 1998. The increase in
gross margin is attributable to the increases in revenue noted above. Gross
margin as a percent of sales for the three months ended September 30, 1999
decreased to 29% from 30% for the comparable period in 1998. Gross margin as a
percent of sales for the nine months ended September 30, 1999 remained
comparable to the 1998 period of 30%.
Administrative expenses for the three months ended September 30, 1999
increased 22% to $6.3 million from $5.1 million and for the nine months ended
September 30, 1999 increased 28% to $18.3 million from $14.2 million for the
comparable periods in 1998. The overall increase in administrative expenses is
attributable to increases in the support structure to support revenue growth in
the Commercial Transportation Products segment as well as increased legal
expenses related to the Company's litigation with Autoliv (defense of its ITS(R)
patent). The Commercial Transportation Products administrative expenses for the
three months ended September 30, 1999 increased 28% to $2.9 million from $2.3
million and for the nine months ended September 30, 1999 increased 44% to $8.9
million from $6.2 million for the comparable periods in 1998. Commercial
Transportation Products administrative expenses as a percentage of sales for the
three and nine month periods ended September 30, 1999 was 14.2% and 13.8%,
respectively, as compared to 15.9% and 13.3% for the three and nine month
periods ended September 30, 1998, respectively. Government and Defense
administrative expenses for the three month period ended September 30, 1999
decreased 3% to $2.5 million from $2.4 million for the comparable 1998 period.
Government and Defense administrative expenses for the nine month period ended
September 30, 1999 increased 10% to $7.5 million from $6.8 million for the
comparable period in 1998 and is principally related to increases during the
first quarter of internally funded research and development and pre-production
parachute costs. Administrative expenses as a percentage of sales for the three
and nine month periods ended September 30, 1999 was 20% and 22%, respectively,
as compared to 26% and 27% for the three and nine month periods ended
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SIMULA, INC.
September 30, 1998, respectively. The improvement in administrative expenses as
a percentage of sales is attributable to increased revenues of the segment.
Interest expense increased 29% to $1.7 million from $1.3 million for
the three months ended September 30, 1999 and 1998, respectively, and increased
37% to $5.1 million from $3.7 million for the nine month period ended September
30, 1999 and 1998, respectively. The increase in interest expense is primarily
attributable to increased outstanding borrowing.
The effective income tax rate for the three and nine month periods
ended September 30, 1999 and 1998 approximated the Company's combined statutory
rate of 40%.
DISCONTINUED OPERATIONS
In 1998, the Company's board of directors adopted a plan to dispose of
its rail and mass transit seating operations. Accordingly, the operating results
of these rail and mass transit operations, including a provision for estimated
loss upon disposition, have been segregated from continuing operations and have
been reported as discontinued operations. The Company executed the sale of its
rail and mass transit seating operation on August 31, 1999 under an Asset
Purchase and Sale Agreement dated June 30, 1999, as amended and restated August
31, 1999 and subsequently on October 21, 1999, a Note Refinancing Agreement was
executed. A former director of the Company wholly owns the acquiring company.
The Asset Purchase and Sale Agreement and Note Refinancing Agreement
provided for a total purchase price of $10,096,000 to be satisfied by two
promissory notes and the application of $100,000 earnest deposit received prior
to closing. The first note in the amount of $1,996,000 requires quarterly
installments of interest commencing in April 2000. The second note, for
$8,118,008 includes capitalized interest from August 31, 1999 to October 21,
1999 of $118,008 and requires semi-annual payments of interest commencing April
2001. Both notes carry interest at 8 1/2% and mature in October 2004 at which
time the outstanding principal and accrued interest is due. As security for the
notes, the Company has a lien on the assets and has received a pledge of stock
held by the former director in the successor corporation and in Beacon
Industries, a corporation under common control of the acquirer. The successor
corporation is negotiating a senior credit facility with a third party lender,
and if obtained, the indebtedness to the Company may be subordinated to such
senior secured debt. Until maturity of the notes, the Company will receive
monthly financial reports and a Company executive shall serve on the successor
board of directors.
Revenues for the rail and mass transit operations were $1,192,478 and
$8,247,294 for the two and eight months ended August 30, 1999, respectively, and
$4,360,279 and $13,093,611 for the three and nine months ended September 30,
1998, respectively.
LIQUIDITY AND CAPITAL RESOURCES
The Company defines liquidity as the ability to access cash to meet
operating and capital needs. The Company's primary source of cash in the 1999
period was from financing activities.
The Company's liquidity and ability to fund working capital and debt
service requirements during the next year will be dependent upon improved cash
flow from operating units and obtaining replacement financing of its bank line
of credit under a Senior Credit Agreement, and replacement financing of $4.3
million in its 10% Senior Subordinated Notes (the "10% Notes"). The 10% Notes
were originally due September 15, 1999 and have been extended until December 31,
1999. The Company previously anticipated cash proceeds related to the sale of
the company's discontinued operation would be sufficient to satisfy the
Company's obligation to reduce its revolving line of credit under its Senior
Credit Agreement, meet the required debt service on the 10% Notes upon maturity
and provide some working capital. The Company completed the sale of its
discontinued rail and mass transit operation, however, the terms of the
transaction were modified and the purchase price was paid by the issuance of two
promissory notes to the Company due in April 2004.
The Company is investigating a number of financing alternatives. In
November the Company retained nationally recognized financial advisors and is
implementing a program to address its short and long term liquidity requirements
and debt structure. The Company believes that the program will significantly
improve its liquidity within 90 days of this filing.
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SIMULA, INC.
The Company is also investigating potential asset and technology sales and
licensing. The Company may also seek to obtain additional capital should demand
for its products exceed current capacity. The raising of additional capital in
public or private markets will be primarily dependent upon prevailing market
conditions and demand for the Company's technologies and products.
Financing activities provided $13.2 million of cash during the nine
months ended September 30, 1999 as compared to $9.7 million during the
comparable period in 1998. Cash provided from financing activities during the
1999 period includes $7.5 million received for the issuance of redeemable
preferred stock and $7.9 million in net borrowings under the Company's line of
credit partially offset by $2.6 million of principal payments made under other
debt arrangements for scheduled principal reductions. Cash provided from
financing activities during the 1998 period includes $10.6 million in net
borrowing under the Company's line of credit partially offset by $1.5 million of
principal payments made under other debt arrangements for scheduled principal
reductions.
During the 1999 period, there have been several modifications to the
Senior Credit Agreement. Among other things, these modifications adjusted the
maximum outstanding under its revolving line of credit, imposed and later
rescinded a revolving line of credit adjustment date, provided for a monthly
penalty fee of $100,000 beginning in May and continuing until disposal of the
Company's discontinued operating segment, adjustment of the fee to $150,000 per
month beginning in August and upon disposal of the segment imposed a monthly fee
of $150,000 until all balances under the Senior Credit Agreement have been
retired. In addition, the Company has pledged a security interest in the notes
receivable and related pledge and proxy security agreement received in
conjunction with the sale of the Company's discontinued rail and mass transit
operations. At November 15, 1999, the Company's revolving line of credit
provides for borrowings up to the lesser of $23 million or the Revolving Line of
Credit Borrowing Base (as defined). At November 15, 1999, available and
outstanding borrowings under the line of credit is $23 million and $22.8
million, respectively. Issued and outstanding letters of credit under the line
of credit at November 15, 1999 is $200,000.
The Company's 10% Notes originally matured on September 15, 1999. On
September 15, 1999, the Company retired $500,000 of its 10% Notes and negotiated
a Modification and Consent Agreement which extended the remaining $4,250,000 in
10% Notes until October 31, 1999 and adjusted the interest rate to 15%. A Second
Modification and Consent Agreement for a further extension of repayment for the
remaining 10% Notes until December 31, 1999. The Second Modification and Consent
Agreement maintained the 15% interest rate, provided for an extension fee of
$40,000 to be paid upon maturity at December 31, 1999 and requires application
of proceeds received from a public or private financing or sale of assets prior
to maturity.
On October 15, 1999, the Company executed a $1 million Promissory Note
to Stanley Desjardins its Chairman of the Board of Directors. The proceeds were
applied to working capital. The term of the note is for one year and accrues
interest at a rate of 12% payable upon maturity. The note provides for
accelerated maturity in the event the Company completes a senior credit banking
agreement, or a public or private offering of debt or equity securities for
proceeds of $10 million or more. A placement fee of $20,000 is also required to
be paid upon maturity or any accelerated repayment of the note. The Chairman
required certain officers of the Company to guarantee the $1,000,000 Promissory
Note in the aggregate amount of $200,000. Messrs. Townsend, Saunders and Forst
and their respective spouses provided signed personal quarantees.
The Company's liquidity is impacted by the nature of the billing
provisions under its contracts. Generally, in the early period of contracts,
cash expenditures and accrued profits are greater than allowed billings while
contract completion results in billing previously unbilled costs and profits.
Contract and trade receivables, net of advances on contracts, increased
approximately $3.9 million for the nine months ended September 30, 1999 due
principally to increased sales volume in all segments of the business.
Operating activities required the use of $10.5 million of cash during
the nine months ended September 30, 1999, compared to the use of $13.5 million
of cash during the same period in 1998. Cash used by operating activities in the
1999 period was primarily used to increase accounts receivable (discussed above)
and inventories, decrease in accounts payable and funding of discontinued
operations current operating losses. The increase in inventories is due to
increases in 16g Seat and Government and Defense segment inventory necessary to
support anticipated future deliveries and inventories in the Government and
Defense segment primarily related to timing of material deliveries. The decrease
in accounts payable is attributable to usage of cash generated from increased
sales volume.
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SIMULA, INC.
Investing activities required the use of $20,267 of cash during the
nine months ended September 30, 1999, compared to use of $4.5 million of cash
during the same period in 1998. The decrease in cash used by investing
activities is primarily due to net proceeds of $2.9 million received under a
sale and leaseback of a subsidiary office and development facility and of the
sale of certain technology intangibles, inventory and related production
equipment. The 1999 cash proceeds received was partially offset by $2.3 million
in purchases of various production equipment as compared to equipment purchases
of $4.2 million during the comparable period in 1998. The decrease in equipment
purchases is due to a higher level of investing in additional production
capacity in the company's Commercial Transportation Products segment to meet
increased demand for the 16g Seat and the ITS(R) during the 1998 period.
INFLATION
The Company does not believe that it is significantly impacted by
inflation.
RESEARCH AND DEVELOPMENT
The Company's research and development occurs under fixed-price,
government-funded contracts and Company-sponsored efforts. Historically,
research and development efforts have fluctuated based upon available
government-funded contracts and available Company funding. The Company
anticipates that future fluctuations may also occur as a result of efforts to
expand its inflatable restraint, commercial airliner and helicopter seating, and
other technologies.
SEASONALITY
The Company does not believe that it is currently significantly
impacted by seasonal factors.
YEAR 2000 MATTERS
Background
The Year 2000 issue is the result of computer programs being written
using two digits rather than four to define an applicable year. Any computer
programs or equipment that have time-sensitive software or embedded chips may
recognize a date using "00" as the year 1900 rather than the year 2000. This
could result in a system failure or miscalculations causing disruptions in
commerce, including among other things, a temporary inability to process
transactions, send invoices, or engage in similar normal business activities.
The Company employs a number of information technology ("IT") systems
in its operations, including computer networking systems, hardware and software,
financial systems, and other similar systems. The Company also employs a number
of non-IT devices such as building security and safety devices, and other
devices containing embedded electronic circuits. Both IT systems and non-IT
devices are subject to potential failure due to the Year 2000 issue.
The Company's Year 2000 Plan
In 1996, the Company initiated a plan for the conversion from existing
accounting software to new state-of-the-art, Year 2000-compliant, manufacturing
and accounting systems at each of its operating companies. That conversion is
part of an overall plan (the "Year 2000 Plan") the Company has developed to
achieve Year 2000 readiness. The Year 2000 Plan is intended to remediate the
Year 2000 issue in all categories of systems and electronic devices in use by
the Company, including IT and non-IT devices, so that the Company may continue
its operations without interruption or with minimal disruption. The Year 2000
Plan also includes communication with critical third parties such as customers,
vendors and other business partners to determine the expected degree of Year
2000 compliance of those parties and to monitor their progress toward Year 2000
readiness. The Year 2000 Plan includes the following phases: 1) assessment, 2)
remediation, 3) testing, and 4) implementation.
The Company is in the remediation phase with regard to its state of
readiness relative to non-IT devices containing embedded circuitry. The Company
is in the process of communicating with the manufacturers of non-IT
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SIMULA, INC.
devices containing embedded circuitry and to date has fully assessed (confirmed
that such devices are Year 2000 compliant or upgraded the devices as needed)
substantially all of such devices. The assessed devices are in various stages of
remediation, testing and implementation. Completion thru implementation is
expected during the forth quarter of 1999.
The Company is also in the assessment phase with regard to third
parties with which the Company has a material relationship. In connection with
this assessment, the Company has appointed a Year 2000 Program Manager at each
of its subsidiaries, and has made or is making written inquiries of its
customers and suppliers. This process is not yet complete. While the Company has
not been made aware of any problems that would materially impact the Company's
operations, there can be no assurance that one or more material third parties
will not have Year 2000 problems that materially impact the Company's business
in some fashion. Various agencies of the U.S. government and military branches
of the U.S. armed forces are significant customers of the Company. As of the
date of this report, the Company has received conflicting data as to the state
of any of such customers' Year 2000 readiness. Therefore, the Company is unsure
at this time the extent, if any, that any entity of the U.S. government with
whom the Company has a material relationship will have internal Year 2000 issues
which may materially impact the Company's business.
The Company continues to be in the implementation phase with regard to
its IT systems. IT systems are compliant in accordance with the most recent
updated provided by the manufacturers.
Selection of a remediation tool set for desktop personal computers and
servers was completed in February 1999. The tool was implemented in June 1999
and results are being used to remediate Year 2000 deficiencies highlighted by
its application.
In addition to the internal assessment and remediation efforts being
conducted by the Company pursuant to the Year 2000 Plan as described above, the
Company has engaged the services of a third party consultant to review Year 2000
matters on a subsidiary-by-subsidiary basis. The consultant commenced work in
January 1999. The consultants work is complete and the Company has incorporated
the findings into its implementation plan.
Costs
The Company has incurred significant costs in connection with its
conversion, beginning in 1996, to the state-of-the-art manufacturing and
accounting systems discussed above. An incidental benefit of this conversion is
that such systems are Year 2000-compliant.
In addition to the foregoing, the costs associated with the Company's
Year 2000 Plan, including the on-going systems conversions described above, are
expensed as incurred and to date have not been, and are not anticipated to be,
material to the Company's financial position or results of operations.
Risks of Year 2000 Failure
The failure on any party's part to correct a material Year 2000 problem
could result in an interruption in, or a failure of, certain normal business
activities or operations. Such failures could materially and adversely affect
the Company's results of operations, liquidity and financial condition. The
Company has not developed a formal written contingency plan for dealing with
potential Year 2000 issues in general. The risks associated with each particular
system not being Year 2000 compliant are analyzed in connection with the
Company's assessment of Year 2000 issues as described above, and contingency
plans will be effected by the Company on a case-by-case basis as the need
arises.
Due to the general uncertainty inherent in the Year 2000 issue,
resulting in large part from the uncertainty of the Year 2000 readiness of
material third party suppliers and customers, the Company is unsure at this time
the extent, if any, that it might be materially adversely impacted by Year 2000
issues.
Readers are cautioned that forward-looking statements contained in this
Year 2000 discussion should be read in conjunction with the Company's
disclosures under the heading "Forward Looking Information and Risks of the
Business" below.
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SIMULA, INC.
FORWARD LOOKING INFORMATION AND RISKS OF THE BUSINESS
Projected operating results and capital needs will be affected by a
wide variety of factors which could adversely impact revenues, profitability and
cash flows. The Company's liquidity and available working capital will be
dependent upon improved cash flow from operating units and obtaining replacement
financing for the Company's Senior Credit Agreement and 10% Notes due December
31, 1999. Factors and risks that may affect results include those described in
the Company's registration statements and periodic reports filed with the U.S.
Securities and Exchange Commission. In addition, other factors include, but are
not limited to contract mix and shifting production and delivery schedules;
amount of resources committed to independent research and development from time
to time; success in building strategic alliances with large prime contractors
and first tier suppliers to OEMs; the level of orders which are received and can
be shipped and invoiced in a quarter; customer order patterns and seasonality;
the cyclical nature of the industries and markets addressed by the Company's
products; the level and makeup of military expenditures; technological changes;
increased costs attributable to changes in government regulations and
certifications for transport vehicles; competition and competitive pressures on
pricing; and economic conditions in the United States and worldwide markets
served by the Company.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
In February 1998, the Company filed a complaint in United States
District Court for the District of Arizona against Autoliv, Inc. seeking
injunctive relief from alleged anti-competitive acts and practices by Autoliv.
The complaint alleged numerous unlawful actions taken by Autoliv in connection
with a license from the Company to market and distribute the Company's ITS(R).
In 1998, the District Court stayed the proceedings and ruled that the dispute
between the parties was a contractual one and was subject to arbitration
pursuant to a contract provision. The Company disagreed and appealed the order
to the United States Court of Appeals for the Ninth Circuit. In April 1999, this
Court ruled that the proper jurisdiction for this dispute is arbitration. No
court has ruled on the merits of the Company's claims. In May 1999, the Company
commenced a proceeding for international arbitration. This arbitration is
proceeding in the ordinary course.
On November 3, 1998, the Company filed a separate complaint against
Autoliv in the United States District Court for the District of Delaware seeking
injunctive relief and damages for patent infringement. The Company's complaint
alleges that Autoliv developed, offered, and sold a side impact head protection
device in the United States that infringes the patent that Simula owns for the
ITS(R). This litigation is pending.
In addition, the Company is involved in other litigation in the
ordinary course of business from time to time. The Company presently is not a
party to any threatened or pending litigation, the negative outcome of which
would be material to the Company.
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ITEM 6. EXHIBITS AND REPORTS.
(a) The following Exhibits are included pursuant to Item 601 of Regulation S-K.
No. Description Reference
--- ----------- ---------
2.1 Amended and Restated Asset Purchase Agreement for the sale of Coach and Car Equipment (14)
Corporation, a wholly-owned subsidiary of the Company, dated August 31, 1999 and Note
Refinancing Agreement dated October 21, 1999
3.1 Articles of Incorporation of Simula, Inc., as amended and restated (4)
3.2 Bylaws of Simula, Inc., as amended and restated (1)
4.2 Indenture dated December 17, 1993, as amended (2)
4.5 Supplemental Indenture No. 2 dated September 12, 1996, entered into in connection with the
Company's issuance of Series C 10% Senior Subordinated Convertible Notes (6)
4.6 Supplemental Indenture No.3, effective March 14, 1997, amending the Indenture of Simula,
Inc. dated December 17, 1993 (7)
4.7 Indenture dated April 1, 1997, in connection with the Company's issuance of the 8% Senior
Subordinated Convertible Notes due May 1, 2004 (7)
4.8 Certificate of Designation, Preferences, Rights and Privileges of the Company's $7,500,000
Series A Preferred Stock (12)
*4.9 Amendment No. 2 to Supplemental Indenture No. 2 and Modification and Consent Agreement
each dated September 15, 1999 extending the maturity date of the Series C 10% Senior
Subordinated Convertible Notes
*4.10 Amendment No. 3 to Supplemental Indenture No. 2 and Second Modification and Consent
Agreement each dated October 31, 1999 extending the maturity date of the Series C 10%
Senior Subordinated Convertible Notes
10.11 1992 Stock Option Plan, as amended effective September 15, 1998 (10)
10.12 1992 Restricted Stock Plan (1)
10.21 1994 Stock Option Plan, as amended effective September 15, 1998 (10)
10.24 Senior Credit Agreement with Bank One, Arizona, N.A. and Imperial Bank, Arizona dated
November 6, 1998 (10)
10.25 Modification Agreement with Bank One, Arizona, N.A. and Imperial Bank, Arizona dated
February 12, 1999 (11)
10.26 Simula, Inc. Employee Stock Purchase Plan (4)
10.29 Form of Change of Control Agreements, as amended and restated, between the Company and
Donald W. Townsend, Bradley P. Forst, and James A. Saunders (9)
10.30 Form of Employment Agreements between the Company and Donald W. Townsend, Bradley P.
Forst, and James A. Saunders (8)
10.31 Modification Agreement No. 2 with Bank One, Arizona, N.A. and Imperial Bank, Arizona dated
April 28, 1999 (12)
10.32 Form of Employment Agreement between the Company and James C. Dodd (12)
10.33 Form of Change of Control Agreement between the Company and James C. Dodd (12)
10.34 Modification Agreement No. 3 with Bank One, Arizona, N.A. and Imperial Bank, Arizona dated
June 28, 1999 (13)
10.35 Modification Agreement No. 4 with Bank One, Arizona, N.A. and Imperial Bank, Arizona dated
July 28, 1999 (13)
*10.36 Modification Agreement No. 5 with Bank One, Arizona, N.A. and Imperial Bank, Arizona dated
September 29, 1999
*10.37 Modification Agreement No. 6 with Bank One, Arizona, N.A. and Imperial Bank, Arizona dated
October 19, 1999
*10.38 Modification Agreement No. 7 with Bank One, Arizona, N.A. and Imperial Bank, Arizona dated
November 1, 1999
*10.39 Promissory Note between the Company and Stanley P. Desjardins dated October 15, 1999 and
Guarantees by Don and Nelda Townsend, James and Linda Saunders and Bradley and Teresa Forst
dated November 2, 1999
18. Preference Letter re: change in accounting principles (5)
21. Subsidiaries of the Company (8)
24. Powers of Attorney - Directors (8)(11)
*27. Financial Data Schedule
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SIMULA, INC.
* Filed herewith.
(1) Filed with Registration Statement on Form S-18, No. 33-46152-LA, under
the Securities Act of 1933, effective April 13, 1992.
(2) Filed with Registration Statement on Form SB-2, No. 33-61028 under the
Securities Act of 1933, effective December 10, 1993.
(3) Filed with Registration Statement on Form SB-2, No. 33-87582, under the
Securities Act of 1933, effective December 28, 1994.
(4) Filed with Definitive Proxy on May 14, 1996, for the Company's Annual
Meeting of Shareholders held on June 20, 1996.
(5) Filed with report on Form 10-Q/A for the quarter ended June 30, 1996.
(6) Filed with report on Form 10-K for the year ended December 31, 1996.
(7) Filed with registration Statement on Form S-3, No. 333-13499, under the
Securities Act of 1993, effective April 24, 1997.
(8) Filed with report on Form 10-K for the year ended December 31, 1997.
(9) Filed with report on Form 10-Q for the quarter ended March 31, 1998.
(10) Filed with report on Form 10-Q for the quarter ended September 30,
1998.
(11) Filed with report on Form 10-K for the year ended December 31, 1998.
(12) Filed with report on Form 10-Q for the quarter ended March 31, 1999.
(13) Filed with report on Form 10-Q for the quarter ended June 30, 1999.
(14) Filed with report on Form 8-K, under the Securities Act of 1993,
effective October 25, 1999.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report on Form 10-Q for the quarter ended
September 30, 1999 to be signed on its behalf by the undersigned thereunto duly
authorized.
SIMULA, INC.
DATE: November 15, 1999 /s/ Donald W. Townsend
-----------------------------------
DONALD W. TOWNSEND
President
Chief Executive Officer
/s/ James C. Dodd
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JAMES C. DODD
Executive Vice President
Chief Financial Officer
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EXHIBIT INDEX
No. Description Reference
--- ----------- ---------
2.1 Amended and Restated Asset Purchase Agreement for the sale of Coach and Car Equipment (14)
Corporation, a wholly-owned subsidiary of the Company, dated August 31, 1999 and Note
Refinancing Agreement dated October 21, 1999
3.1 Articles of Incorporation of Simula, Inc., as amended and restated (4)
3.2 Bylaws of Simula, Inc., as amended and restated (1)
4.2 Indenture dated December 17, 1993, as amended (2)
4.5 Supplemental Indenture No. 2 dated September 12, 1996, entered into in connection with the
Company's issuance of Series C 10% Senior Subordinated Convertible Notes (6)
4.6 Supplemental Indenture No.3, effective March 14, 1997, amending the Indenture of Simula,
Inc. dated December 17, 1993 (7)
4.7 Indenture dated April 1, 1997, in connection with the Company's issuance of the 8% Senior
Subordinated Convertible Notes due May 1, 2004 (7)
4.8 Certificate of Designation, Preferences, Rights and Privileges of the Company's $7,500,000
Series A Preferred Stock (12)
*4.9 Amendment No. 2 to Supplemental Indenture No. 2 and Modification and Consent Agreement
each dated September 15, 1999 extending the maturity date of the Series C 10% Senior
Subordinated Convertible Notes
*4.10 Amendment No. 3 to Supplemental Indenture No. 2 and Second Modification and Consent
Agreement each dated October 31, 1999 extending the maturity date of the Series C 10%
Senior Subordinated Convertible Notes
10.11 1992 Stock Option Plan, as amended effective September 15, 1998 (10)
10.12 1992 Restricted Stock Plan (1)
10.21 1994 Stock Option Plan, as amended effective September 15, 1998 (10)
10.24 Senior Credit Agreement with Bank One, Arizona, N.A. and Imperial Bank, Arizona dated
November 6, 1998 (10)
10.25 Modification Agreement with Bank One, Arizona, N.A. and Imperial Bank, Arizona dated
February 12, 1999 (11)
10.26 Simula, Inc. Employee Stock Purchase Plan (4)
10.29 Form of Change of Control Agreements, as amended and restated, between the Company and
Donald W. Townsend, Bradley P. Forst, and James A. Saunders (9)
10.30 Form of Employment Agreements between the Company and Donald W. Townsend, Bradley P.
Forst, and James A. Saunders (8)
10.31 Modification Agreement No. 2 with Bank One, Arizona, N.A. and Imperial Bank, Arizona dated
April 28, 1999 (12)
10.32 Form of Employment Agreement between the Company and James C. Dodd (12)
10.33 Form of Change of Control Agreement between the Company and James C. Dodd (12)
10.34 Modification Agreement No. 3 with Bank One, Arizona, N.A. and Imperial Bank, Arizona dated
June 28, 1999 (13)
10.35 Modification Agreement No. 4 with Bank One, Arizona, N.A. and Imperial Bank, Arizona dated
July 28, 1999 (13)
*10.36 Modification Agreement No. 5 with Bank One, Arizona, N.A. and Imperial Bank, Arizona dated
September 29, 1999
*10.37 Modification Agreement No. 6 with Bank One, Arizona, N.A. and Imperial Bank, Arizona dated
October 19, 1999
*10.38 Modification Agreement No. 7 with Bank One, Arizona, N.A. and Imperial Bank, Arizona dated
November 1, 1999
*10.39 Promissory Note between the Company and Stanley P. Desjardins dated October 15, 1999 and
Guarantees by Don and Nelda Townsend, James and Linda Saunders and Bradley and Teresa Forst
dated November 2, 1999
18. Preference Letter re: change in accounting principles (5)
21. Subsidiaries of the Company (8)
24. Powers of Attorney - Directors (8)(11)
*27. Financial Data Schedule
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* Filed herewith.
(1) Filed with Registration Statement on Form S-18, No. 33-46152-LA, under
the Securities Act of 1933, effective April 13, 1992.
(2) Filed with Registration Statement on Form SB-2, No. 33-61028 under the
Securities Act of 1933, effective December 10, 1993.
(3) Filed with Registration Statement on Form SB-2, No. 33-87582, under the
Securities Act of 1933, effective December 28, 1994.
(4) Filed with Definitive Proxy on May 14, 1996, for the Company's Annual
Meeting of Shareholders held on June 20, 1996.
(5) Filed with report on Form 10-Q/A for the quarter ended June 30, 1996.
(6) Filed with report on Form 10-K for the year ended December 31, 1996.
(7) Filed with registration Statement on Form S-3, No. 333-13499, under the
Securities Act of 1993, effective April 24, 1997.
(8) Filed with report on Form 10-K for the year ended December 31, 1997.
(9) Filed with report on Form 10-Q for the quarter ended March 31, 1998.
(10) Filed with report on Form 10-Q for the quarter ended September 30,
1998.
(11) Filed with report on Form 10-K for the year ended December 31, 1998.
(12) Filed with report on Form 10-Q for the quarter ended March 31, 1999.
(13) Filed with report on Form 10-Q for the quarter ended June 30, 1999.
(14) Filed with report on Form 8-K, under the Securities Act of 1993,
effective October 25, 1999.