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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2000 OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 For the transition period from _______ to ________
COMMISSION FILE NUMBER 0-18863
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ARMOR HOLDINGS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 59-3392443
(STATE OR OTHER JURISDICTION OF INCORPORATION OR ORGANIZATION) (IRS EMPLOYER IDENTIFICATION NO.)
1400 MARSH LANDING PARKWAY, SUITE 112
JACKSONVILLE, FLORIDA 32250
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
(904) 741-5400
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
Title of each class: Common Stock, $0.01 par value
Name of each exchange on which registered: New York Stock Exchange
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
None
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 twelve 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 [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of the Registrant's knowledge, if definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K [ x ]
The aggregate market value of voting and non-voting common equity held
by non-affiliates of the Registrant as of March 9, 2001 (based on the closing
sale price of the Common Stock on the New York Stock Exchange on such date) was
$387,443,712.
The number of shares of the Registrant's Common Stock outstanding as of
March 9, 2001 was 22,916,106.
DOCUMENTS INCORPORATED BY REFERENCE
The Registrant's Proxy Statement for its Annual Meeting of Stockholders
to be held on June 19, 2001, are incorporated by reference into Part III hereof.
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TABLE OF CONTENTS AND
CROSS REFERENCE SHEET
Page Number
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PART I Item 1. Description of Business
Company Overview 1
Industry Overview 2
Information concerning Business Segments and
Geographical Sales 3
Key Strengths 3
Growth Strategy 5
Acquisitions 6
Products and Services 8
Customers 12
Marketing and Distribution 12
Product Manufacturing and Raw Materials 14
Backlog 15
Competition 15
Employees 16
Patents and Trademarks 16
Government Regulations 16
Environmental Matters 16
Item 2. Properties 17
Item 3. Legal Proceedings 18
Item 4. Submission of Matters to a Vote of Security Holders 14
PART II Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters 19
Item 6. Selected Financial Data 21
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations 21
Item 7.A Quantitative and Qualitative Disclosures About
Market Risk 28
Item 8. Financial Statements and Supplementary Data 29
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure 30
PART III Item 10. Directors and Executive Officers of the Registrant 30
Item 11. Executive Compensation 30
Item 12. Security Ownership of Certain Beneficial Owners
and Management 30
Item 13. Certain Relationships and Related Transactions 30
PART IV Item 14. Exhibits, Financial Statements and Schedules,
and Reports on Form 8-K 30
PART I
ITEM 1. DESCRIPTION OF BUSINESS
COMPANY OVERVIEW
We are a leading manufacturer of security products for law enforcement
personnel around the world through our Armor Holdings Products division. We are
also a leading global provider of security risk management service to
multi-national corporations and governmental agencies through our ArmorGroup
Services division. Armor Holdings Products manufactures and sells a broad range
of high quality branded law enforcement equipment and has leading market
positions in several of the product categories in which we compete. Such
products include: ballistic resistant vests and tactical armor, hard armor,
police batons, forensic, fingerprint and evidence collection equipment,
less-lethal munitions, holsters and duty gear, anti-riot products, narcotics
identification kits and specialty lubricants, cleaners and preservatives and
military weapon maintenance systems. These products are sold primarily to law
enforcement agencies through a worldwide network of over 500 distributors and
sales agents, including approximately 350 in the United States. ArmorGroup
Services division provides sophisticated security planning and risk management,
humanitarian support, demining, and mine awareness training, electronic security
systems integration, computer forensic, consulting and training services, as
well as intellectual property asset protection, business intelligence and
investigative services. We provide these services to multi-national corporations
and governmental and non-governmental agencies across 38 countries. We believe
significant opportunities exist to grow our company and extend our global
infrastructure through geographic expansion and strategic acquisitions of
related businesses in the fragmented security risk management services and
products industry.
Armor Holdings Products Division. Our Armor Holdings Products division
manufactures and sells a broad range of high quality branded law enforcement
equipment, such as ballistic resistant vests and tactical armor, hard armor,
less lethal munitions, police batons, forensic, fingerprint and evidence
collection equipment, anti-riot products including tear gas and distraction
grenades, narcotics identification kits, custom-built armored vehicles,
specialty lubricants, cleaners and preservatives and military weapon maintenance
systems and holsters and duty gear. Our products are marketed under brand names
that are well-known and respected in the law enforcement community such as
American Body Armor, Safariland, Defense Technology, Federal Laboratories,
MACE(R), PROTECH, NIK(R) Public Safety, Break-Free, Monadnock Lifetime Products
and Lightning Powder. We sell our manufactured products primarily to law
enforcement agencies through a worldwide network of over 500 distributors and
sales agents including approximately 350 in the United States. Our extensive
distribution capabilities and commitment to customer service and training have
enabled us to become a leading provider of security equipment to law enforcement
agencies. We believe there are significant opportunities to grow our
manufacturing business through the acquisition and development of new product
lines, expansion into new territories and further development of sales to
specialized government and military agencies. In addition, management believes
that consistent demand for our premium products at attractive margins will
continue because our products are critical to the safety and effectiveness of
our customers.
ArmorGroup Services Division. ArmorGroup provides a broad range of
sophisticated security risk management solutions to multi-national corporations
in diverse industries such as natural resources, financial services and consumer
products, and to governmental and non-governmental agencies such as the U.S.
Department of State, the United Nations and the World Bank. Our clients
typically have personnel and other investments in unstable and often violent
areas of the world. Through our offices on five continents, we provide our
multi-national clients with a diversified portfolio of security solutions to
assist them in mitigating risks in their operations around the world. Our highly
trained, multi-lingual and experienced security personnel work closely with our
clients to create and implement solutions to complex security problems. These
services include the design and implementation of risk management plans and
security systems, provision of security specialists and training of security
personnel. We also provide our multi-national clients with specialized
investigative services enhanced by our global network. These services include
intellectual property asset protection and related investigative services
ranging from protecting companies against counterfeiting, patent infringements,
product tampering and extortion to identifying unethical supplier activities. In
addition, we provide business intelligence, fraud investigation, computer
forensic and asset tracing and recovery services to financial services
companies, law firms and other entities worldwide. We believe that many of our
security services, while often representing a small portion of our clients'
overall cost of doing business, are critical to our clients' success. We believe
this creates a consistent demand for our premium services at attractive margins.
INDUSTRY OVERVIEW
We participate in the global security risk management industry through the
manufacture of security products marketed to law enforcement and correctional
personnel and by providing specialized security services to multi-national
corporations and governmental agencies. Increasingly, governments, businesses,
and individuals have recognized the need for our products and services to
protect them from the risks associated with white-collar crime, fraud, physical
attacks and threats of violence. In general, the need for protection against
these risks is confirmed by a variety of statistics. For example, according to
the American Society for Industrial Security, damages from intellectual property
thefts result in estimated losses of $250 billion annually for U.S.-based
companies. In addition, fraud costs U.S. organizations over $400 billion
annually according to a recent estimate by the Association of Certified Fraud
Examiners. The number of casualties resulting from terrorist incidents increased
from 317 in 1991 to 2,963 in 1996, and in 1997, 73% of all international
terrorist incidents targeted businesses compared to 53% in 1992. Corporate
governance and legal imperatives are driving corporations to seek enhanced
standards of risk management.
Manufactured Security Products Market. Certain industry studies estimate
that worldwide expenditures for private sector security products will grow at a
compounded annual rate of 7.9% from approximately $14 billion in 1990 to
approximately $60 billion in 2010. Although these statistics do not correlate
directly to our product lines, we believe that the increased spending in the
private security sector is indicative of a greater demand for our products in
the law enforcement, correctional, and governmental sectors.
In response to an increased emphasis on safety and protection, the number
of active police officers has increased significantly over the past several
years. By 1996 there were approximately 738,000 full-time sworn law enforcement
officers in the U.S. In 1993, a U.S. Department of Justice survey of local
police departments indicated that 65% of such organizations have purchased body
armor for all of their officers, 60% supply their officers with pepper spray,
35% supply their officers with tear gas and 10% maintain inventories of stun
grenades and less-lethal projectiles. In addition, the U.S. prison population
has doubled since 1985 to approximately 1.8 million inmates in 1998. We believe
this rise in the prison population has spurred demand from institutional
correctional facilities for manufactured security products.
Specialized Security Services Market. In response to these security
problems, corporations are increasingly contracting experienced private
companies to handle their security services. Industry studies demonstrate that
the worldwide security services market has been growing at a rate of 8.0%
annually from 1995 to 2000. Total revenues for the worldwide market have reached
$61.8 billion and is expected to continue to grow to $87.9 billion by 2005.
Management believes that demand by multi-national corporations and governmental
agencies operating in developing nations for security services such as risk
assessment, crisis management, guard force management, security force
organization and executive protection is likely to increase as these entities
continue to establish operations and manufacturing facilities in foreign and
developing countries. These services are mission-critical to our client's
businesses and ArmorGroup enjoys premium positioning offering the potential for
sustained high margins.
The U.S. has been the target of several deadly terrorists attacks directed
toward U.S. Department of State personnel and facilities around the world. In
1998, U.S. embassies in Nairobi, Kenya and Dar Es Salaam, Tanzania were bombed,
resulting in over 235 deaths and over 5,000 injuries. The U.S. government's
response to these threats also supports the increased emphasis on protection
against security risks. With our global network of overseas offices and our
broad portfolio of security services and products, we believe that we are well
positioned to participate in expected increases in security-related spending at
U.S. diplomatic facilities around the world. Demand for corporate investigative
services continues to grow as corporations react to the need to protect their
assets against the growing threats of international fraud, counterfeiting and
piracy of intellectual property. Client companies require sophisticated
investigative solutions including computer-based techniques and strong
cross-border capabilities. ArmorGroup is able to deliver these key requirements.
INFORMATION CONCERNING BUSINESS SEGMENTS AND GEOGRAPHICAL SALES
For information concerning our business segments, please refer to Note 7 to
our Consolidated Financial Statements included elsewhere in this report.
KEY STRENGTHS
We believe that the following key strengths will enable us to continue to
increase sales to existing and new customers, expand our service and
product offerings, enter new markets, increase our profitability and capitalize
on industry trends:
Broad Portfolio of Services and Products. We offer a broad portfolio of
security services and products, enabling us to provide comprehensive solutions
to our customers' security needs. We strive to enhance our position as a single
source provider of global security services to our clients and believe that our
worldwide infrastructure enables us to follow our governmental and
multi-national corporate clients to new geographical markets as well as
cross-sell additional services to these customers. Similarly, our extensive
product distribution network allows us to provide our customers a broad array of
complementary manufactured law enforcement equipment. Through strategic
acquisitions and internal growth, we expect to continue to expand our service
and product offerings.
Strong Client Base and Extensive Distribution Network. ArmorGroup Services
has a global footprint, and currently operates in 38 countries that enables it
to serve a client base representing governmental agencies and approximately 500
multi-national corporations worldwide. Armor Holdings Products has a broad, full
service network of approximately 350 domestic distributors and 150 international
agents to sell our portfolio of manufactured law enforcement equipment. The
quality and scope of our products and the strength of our brand names has
enabled us to establish one of the largest distribution networks in the industry
and engendered the loyalty of our distributors. We work closely with our
distributors and agents to respond to and anticipate the needs of end-users,
which we believe allows us to maintain our market leadership position. We
believe that the diversity of our clients' end-markets, the continued
globalization of our clients and the strength of our distribution relationships
minimize our dependence on any particular product, market, or customer.
Strong Brands with Leading Market Positions. Product lines are marketed
under brand names widely recognized in law enforcement, such as American Body
Armor, NIK(R), Defense Technology, Federal Laboratories, MACE(R), Safariland and
others. Due to the life-protecting nature of the products in the markets that we
serve, end-users prefer to purchase premium products with brand names that have
solid reputations for quality and which provide high levels of performance. The
strength of our brand names has contributed to our leading market positions in
several of the product categories in which we compete, including body armor
(Xtreme(TM) and Zero-G(TM)), aerosol defense sprays (MACE(R)), less-lethal
munitions (Defense Technology and Federal Laboratories),police batons (Monadnock
and Auto-Lock(TM)), forensic and evidence collection (Lightning Powder and
Redwop(TM)), duty gear (Safariland)and weapon cleaning systems (Break-Free(R)).
Proven Track Record of Identifying, Completing and Integrating
Acquisitions. Since January 1996, we have completed 24 acquisitions in the
security services and products industry. We employ a disciplined approach to
evaluating acquisition opportunities and integrating the operations of acquired
businesses. We believe that these acquisitions have strengthened our market
position, leveraged our distribution network and expanded our service and
product offerings. Further, we believe that our performance-based compensation
plan enables us to retain strong managers of acquired businesses and provides
for timely and efficient integration of acquired operations.
GROWTH STRATEGY
Our strategic objective is to be the leading global provider of security
risk management services and products to multi-national corporations,
governmental agencies and law-enforcement personnel. We expect the demand for
security risk management services and products to continue to grow and we seek
to capitalize on this growth by offering a comprehensive array of premium
security risk management services and law enforcement equipment throughout the
world. We intend to enhance our leadership position through strategic
acquisitions by creating a broad portfolio of services and products to satisfy
all of our customers' increasingly complex security needs. By establishing a
critical mass of services and a broad base of customers, we have built in the
capacity to perform multiple aspects of our clients' threat analyses and
security provisions on a comprehensive basis. We plan to continue to execute
this growth strategy primarily through internal expansion of our existing
businesses and through strategic acquisitions of businesses offering
complementary services, markets, and customer bases. The following elements
define our growth strategy:
Pursue Strategic Acquisitions. The security risk management services and
products industry is highly fragmented and characterized primarily by smaller,
geographically restricted single-service or product providers. We believe,
however, that many clients in the industry would prefer to deal with a
consolidated entity that can provide a broad spectrum of services and/or
products in the security risk management industry with coverage of their needs
across entire regions, or globally. As a result, we selectively pursue
acquisitions that complement and expand our service and product offerings and
provide access to new geographic markets, additional distribution channels and
new client relationships.
Broaden Service Offerings to Existing Client Base. We broaden our existing
service offerings through strategic acquisitions and develop a comprehensive
range of security risk management offerings with a global network of service
providers. We intend to continue to market our expanded offerings by increasing
penetration of our existing client base with sales of additional services.
Expand Client Base. We expand our client base by offering a complete array
of security risk management services to our service clients, particularly those
involved in the petrochemical and mineral extraction industries, branded product
industries, and financial services industries as they expand their commercial
activities throughout the world. In addition, we market our expanded offerings
to new clients referred to us by our existing clients. Client referrals have
historically provided significant growth opportunities for us with minimal
incremental marketing expense.
Expand Distribution Network and Product Offering. We leverage our
distribution network by expanding our range of branded law enforcement equipment
through the acquisition of niche defensive security products manufacturers and
by investing in the development of new and enhanced products which complement
our existing offerings. A broader product line enables us to strengthen our
relationship with our distributors and add additional quality distributors, and
enhances our brand appeal with military, law enforcement and other end users.
Continue Global Expansion. We expand the scope of our service and product
offerings by serving existing customers who are expanding geographically,
acquiring complementary assets and capabilities and extending our distribution
network into new territories. We target those regions where emerging market
conditions or political instability create demand for our services or where
increased regulation, political instability or growth of prison populations
create a demand for our products. Many existing clients are pursuing rapid
global expansion strategies which may also provide access to new territories and
prospective new client relationships.
ACQUISITIONS
We have pursued a strategy of growth by acquiring businesses and assets
that complement our existing operations. We use several criteria to evaluate
prospective acquisitions including whether the business to be acquired (1)
broadens the scope of the services or products we offer or the geographic areas
we serve, (2) offers attractive margins, (3) is accretive to earnings, and
(4)offers the opportunity to enhance profitability by improving the efficiency
of our operations. Since January 1996, we have consummated 24 acquisitions.
Acquisition History. The following table summarizes certain information
concerning the acquisitions we have closed since 1996.
ARMOR HOLDINGS PRODUCTS
Approximate Annual
Year Revenues Prior to
Company Acquired Products Acquisition
------- -------- -------- -----------
(In MILLIONS)
NIK Public Safety Product 1996 Portable narcotic $2.2
Line identification kits under the
NIK(R) brand name
Defense Technology 1996 Less-lethal and anti-riot $8.9
Corporation of America products under the brand names
Defense Technology(R), Def-Tech(R),
Distraction Device(R)
Supercraft (Europe) Limited 1997 High visibility garments $5.7
Law Enforcement Division of 1998 Tear gas and pepper sprays $7.0
Mace Security Security under the brand name MACE(R)
International, Inc.
PROTECH Armored Products of 1998 Hard armor, and vehicle armor $5.0
Massachusetts, Inc. under the brand name PROTECH(TM)
Safariland Ltd., Inc. 1999 Law enforcement products under $47.0
the brand names Safariland(TM),
Safari Armor(TM), Duty Gear(R), and
Safari Gear(R), Zero-G(TM), Nylok(R)
Break-Free, Inc. 2000 Specialty lubricants and $3.0
military weapon maintenance
systems
Monadnock Lifetime Products 2000 Police batons, flexible $5.0
handcuffs
Lightning Powder 2000 Forensic equipment, fingerprint $4.0
evidence collection equipment,
crime scenes supplies
ARMORGROUP SERVICES
Approximate Annual
Year Revenues Prior to
Company Acquired Service Offerings Acquisition
------- -------- ----------------- -----------
(In MILLIONS)
DSL Group Limited 1997 Security risk management and $31.1
consulting services worldwide
Gorandel Trading Limited 1997 Security risk management and $6.4
consulting services in Russia
Low Voltage Systems 1998 Electronic security systems $2.0
Technology, Inc. integration
Asmara Limited 1998 Investigation, asset tracing $1.8
and due diligence
CDR International Limited 1998 Intellectual property asset $3.8
protection
Alarm Protection Services, 1998 Alarm monitoring, systems $2.5
Inc. integration, and physical
security in Uganda
The Parvus Company 1999 Global business intelligence $1.1
Alarm Systems Holding 1999 Electronic security systems $6.0
Company integration
Fire Alarm Service 1999 Electronic security systems $6.0
Corporation integration
Technisec 2000 Electronic security systems $0.5
integration
New Technologies, Inc. 2000 Computer forensics and $1.5
information technology security
Network Audit Systems 2000 Information Technology security N/A
Special Clearance 2000 Landmine risk reduction services $1.5
Services
OVG/Traquair 2000 Global business intelligence $2.0
Alpha B 2000 Security risk management N/A
consulting in Russia
PRODUCTS AND SERVICES
Armor Holdings Products
Body Armor. We manufacture and sell a wide array of armor products under
the leading brand names American Body Armor, PROTECH and Safariland which are
designed to protect against bodily injury caused by bullets, knives and
explosive shrapnel. Our principal armor products are ballistic resistant vests,
sharp instrument penetration armor, hard armor such as anti-riot gear, shields
and upgrade armor plates, and bomb protective gear. Our line of ballistic
protective vests provides varying levels of protection depending upon the
configuration of ballistic materials and the standards (domestic or
international) to which the armor is built. We primarily sell ballistic
resistant vests, under the brand names Xtreme(TM) and Zero-G(TM). Our body armor
products that are manufactured in the United States are certified under
guidelines established by the National Institute of Justice.
We offer two types of ballistic resistant armor, concealable armor and
tactical armor. Concealable armor, which generally is worn beneath the user's
clothing, is our basic line of body armor. These vests are often sold with a
shock plate, which is an insert designed to improve the protection of vital
organs from sharp instrument attack and to provide enhanced blunt trauma
protection. Tactical armor is worn externally and is designed to provide
protection over a wider area of a user's body and defeat higher levels of
ballistic threats. The vests, which are usually manufactured with hard armor
ballistic plates that provide additional protection against rifle fire, are
designed to afford the user maximum protection. Tactical armor may be purchased
with enhanced protection against neck and shoulder injuries. Tactical armor is
offered in a variety of styles, including tactical assault vests, tactical
police jackets, floatation vests, high-coverage armor and flak jackets.
Our sharp instrument penetration armor is designed primarily for use by
personnel in correctional facilities and by other law enforcement employees who
are primarily exposed to threats from knives and other sharp instruments. These
vests are constructed with special blended fabrics, as well as, flexible woven
fabrics and are available in both concealable and tactical models. In addition,
these vests can be combined with ballistic armor configurations to provide both
ballistic and sharp instrument penetration protection.
We manufacture several hard armor products under the PROTECH brand name.
PROTECH products include ballistic shields, and other personal protection
accessories and armor products for helicopters, automobiles and riot control
vehicles.
We also manufacture a variety of hard armor ballistic shields primarily
for use in tactical clearance applications. These shields are manufactured
using a variety of ballistic fibers, polyethylene ballistic materials, ballistic
steel, ballistic glass or a combination of any one or more of these materials.
Other hard armor products include barrier shields and blankets. These products
allow tactical police officers to enter high threat environments with maximum
ballistic protection.
Other specialty products that we manufacture include armored press vests,
executive vests, raincoats and fireman turnout coats. These specialty products
can be custom designed to provide various levels of ballistic protection. We
also distribute a variety of items manufactured by others, including gas masks,
helmets, goggles and face-shields.
Duty Gear. We are a leading supplier of duty gear to law enforcement
personnel in the United States. Uniformed police officers require a wide
assortment of duty gear, which typically includes items such as belts, safety
holsters, handcuff and flashlight holders and related accessories. We
manufacture and sell under the widely recognized Safariland brand duty gear
(Safari-Laminate(TM)),NYLOK(R) (nylon) duty gear and accessories. Duty gear
represents a very attractive market and one in which brand appeal, safety and
quality dictate demand. Replacement sales represent significant recurring demand
for duty gear.
Less-Lethal Products. Under the Defense Technology, First Defense(TM),
Federal Laboratories and MACE(R) brands, we manufacture and sell a complete line
of less-lethal, anti-riot and crowd control products designed to assist law
enforcement and military personnel in handling situations that do not require
the use of deadly force. These products, which generally are available for use
only by authorized public safety agencies, include pepper sprays, tear gas,
specialty impact munitions and diversionary devices.
Through the acquisition of the assets of the law enforcement division of
Mace Security International, Inc., we acquired the exclusive license to use the
MACE(R) brand in connection with the manufacturing and sale of MACE(R) aerosol
sprays to law enforcement entities worldwide. We also manufacture pepper sprays
containing the active ingredient Oleoresin Capsicum, a cayenne pepper extract.
Our pepper spray formula is patented and carries the trademark name of First
Defense. The products range from small "key-ring" and hand-held units to large
volume canisters for anti-riot and crowd control applications.
Our tear gases are manufactured using Orthochlorabenzalmalononitrile ("CS")
and Chloroacetophenone ("CN"). These products are packaged in hand-held or
launchable grenades, both pyrotechnic and non-pyrotechnic, as well as in 37 mm,
40 mm and 12 gauge munitions. The munitions include barricade rounds, blast
dispersions and pyrotechnic canisters. We hold a patented design covering two of
our non-pyrotechnic grenades.
We manufacture a wide range of specialty impact munitions that can be used
against either individual targets or in anti-riot and crowd control situations.
These products, which range from single projectiles, such as bean bags, rubber
balls, sponge rounds, wood and rubber batons, to multiple projectile products
containing rubber pellets, rubber balls or foam, can be fired from standard 12
gauge shotguns, 37 mm gas guns and 40 mm launchers.
We also manufacture a patented and trademarked device that is used for
dynamic entries by specially trained forces where it is necessary to divert the
attention of individuals away from an entry area. This product, which carries
the trademark name of Distraction Device(TM), emits a loud bang and brilliant
flash of light when used.
Narcotic Identification, Fingerprint and Evidence Equipment. We assemble
and market portable narcotic identification kits under the NIK(R) brand name
which are used in the field by law enforcement personnel to identify a variety
of controlled substances, including Ecstasy, cocaine, marijuana, heroin and
methamphetamine. We also assemble and market evidence collection kits and
evidence tape, and have the exclusive rights to distribute Flex-Cuf(R)
disposable restraints.
We manufacture and distribute a more extensive line of evidence
collection equipment under our brand name Lightning Powder. These products, such
as fingerprint powders, dusting brushes, and lifting tape are used to collect
latent fingerprints. Other supplies for evidence collection that we distribute
include bags, tapes, stone casting equipment and high-powered, distortion-free
magnifying glasses.
Police batons. We manufacture police batons of wood, alloy steel,
acetate, aluminum and polycarbonate products under our brand name Monadnock.
Branded products include our trademarked, patent pending new Auto-Lock(TM) baton
and our Friction Lock baton. Our batons are manufactured in a variety of lengths
for different intended users including patrol officers, detectives, corrections,
and smaller portable units. Our manufacturing specifications are the highest in
the market place and set the standard in the industry.
ArmorGroup Services
Our ArmorGroup Services division provides a broad range of sophisticated
security risk management services to multi-national corporations and to
governmental and non-governmental agencies, including the following services:
Security Planning, Advice and Management. We believe we are the world's
leading provider of specialized security risk management services. We operate in
high risk and hostile environments characterized by rapid economic growth,
political instability, diminished law-and-order, emerging market conditions
and/or significant natural resources, such as Africa, South America, Central
Asia, Russia and the former CIS. The core of our service business is the
creation and implementation of risk management plans and solutions to complex
security problems in high risk areas through detailed and targeted analysis of
potential threats to security, assistance in the secure design of facilities,
the provision of highly qualified specialists with extensive international
experience in practical security applications and on-going training of security
personnel and client personnel with respect to preventive security measures. We
also provide humanitarian support and our work for post conflict reconstruction
includes a specialized mine clearance capability. We provide a full range of
services including surveys, technical advice, explosive ordinance disposal (EOD)
and mine awareness training for local communities. We are proud of the
contribution we have made saving lives and to performing successful regional
reconstruction across several continents.
We offer security solutions that involve law enforcement training, security
consultation services and experienced security personnel who act as planners,
trainers, managers, advisors, instructors and liaison personnel. We also provide
teams of security consultants and advisors many of who are British Special Air
Services veterans. We provide security services including risk assessment,
project organization and management, equipment, training and management of
existing guard forces, system design, procurement and installation, crisis
management, VIP protection, specialist training and evacuation planning. On-site
guards are supervised, managed and trained by our professional security staff.
Our clients are multi-national corporations in industries including
petrochemical and natural resource extraction, manufacturing, travel and
financial services. Additionally, we serve governmental and non-governmental
agencies.
Security Systems Integration. We are a provider of security systems
specializing in the design, integration, maintenance and technical support of
sophisticated electronic and computer-driven security and fire alarm systems. We
specialize in high-speed analog and digital transmission designs for life
safety, communication, alarm, closed circuit television, access control,
television and security systems. These systems are installed in airports, banks,
government buildings, hospitals, prisons, universities, stores, office
buildings, telecommunication centers, radio and television stations, and similar
locations. Our clients include multi-national companies, major contractors,
embassies, and high commissions.
Intellectual Property Asset Protection. We provide a full range of
consulting and investigative services specializing in worldwide intellectual
property asset protection for multi-national corporations with products that
have valuable brand name recognition. Our services range from protecting
companies against counterfeiting, patent infringements, product tampering, gray
market distribution, and extortion to identifying unethical supplier activities
such as the use of child labor. These services are provided by
professionals with extensive backgrounds in related areas, including trade and
customs law. We offer brand protection and often work with our clients during
product development to establish trademark and patent protection strategies and
work to protect the brand throughout its lifecycle. Our clients include
multi-national branded product companies involved in tobacco, sportswear,
spirits, and pharmaceuticals, as well as financial services and insurance
companies.
Investigation and Due Diligence. We provide fraud investigation, asset
tracing, computer forensic, due diligence, litigation research, political risk
analysis and other business intelligence services to multi-national and
financial services companies worldwide. We rely on our network of business
intelligence contacts, many proprietary and public databases, and our experience
in gathering and deciphering hard to find information. We are enhancing our
capabilities in this area through acquisitions. Our professionals have various
backgrounds including experience in financial, due diligence and foreign
intelligence services. Our clients include investment and commercial banks,
insurance companies, law firms and other multi-national companies.
CUSTOMERS
Armor Holdings Products. In 2000, we sold approximately 83% of our
products in the U.S., with the balance sold internationally. The primary
end-users of our products are law enforcement agencies, local police
departments, state correctional facilities, highway patrols and sheriffs'
departments.
ArmorGroup Services. Our principal security services clients include
multi-national corporations that have significant investments in remote and
hostile areas of the world. We currently serve clients in over 15 industries
including petrochemical, mining, branded products, financial services, insurance
and legal. Other significant clients include the United
Nations, governmental embassies including certain of those belonging to the
United States, projects funded by the World Bank and the European Commission and
a variety of banking, finance, aid and humanitarian organizations and companies
engaged in international trade and commerce.
No customer accounts for more than 10% of total sales in fiscal 2000.
Our ten largest customers account for approximately 19% of total sales for the
fiscal 2000.
MARKETING AND DISTRIBUTION
Armor Holdings Products. As a result of our history of providing
high-quality and reliable armor, duty gear, less-lethal products and narcotic
identification and evidence equipment, we enjoy excellent name recognition and a
strong reputation in the law enforcement equipment industry. The central element
of our marketing strategy is to capitalize on our name recognition and
reputation amongst our customers by positioning ourselves as a global provider
of many of the premier security risk management services and law enforcement
equipment that our customers may need. By positioning ourselves in this manner,
we can capitalize on our existing customer base and our extensive global
distribution network, maximize the benefits of our long
history of supplying security-related products around the world and leverage our
leadership position in the security risk management services and products
markets. When entering a foreign market, we penetrate the market by offering the
most comprehensive range of products and services available in the security
industry. We tailor our marketing strategy to each geographic area of the world
and will often tailor our product offering by country. There are opportunities
for cross-marketing of military and law enforcement products, which could
strengthen the image of each product group. We believe that our ability to
cross-market our security risk management services and products will enhance our
position as an integrated provider of an extensive assortment of such services
and products.
In addition, we have designed comprehensive training programs to provide
initial and continuing training in the proper use of our various products. These
training programs, offered by The Training Academy for Technology and Tactics,
are typically conducted by trained law enforcement and military personnel we
hire for such purpose. Certain of our training programs also contribute to
revenues. Training programs are an integral part of our customer service. In
addition to enhancing customer satisfaction, we believe that they also help
breed customer loyalty and brand awareness, so that we may sell additional
products to the same customer. Our marketing efforts are further augmented by
our involvement with and support of several important law enforcement
associations, including the National Tactical Officer's Association, the
International Law Enforcement Firearms Instructors, the American Society of Law
Enforcement Trainers and the International Association of Chiefs of Police.
Our distribution strategy involves the utilization of a worldwide
distribution network of approximately 350 domestic distributors and 150
international agents, as well as 17 domestic regional sales managers who
promote our products but refer customers to a local distributor for purchasing.
We further reinforce distributor loyalty by offering price discounts to high
volume distributors. We believe that relationships with our distributors are
strong. The distributors benefit from their association with us due to the
quality our manufactured products, the scope of our product line, the high
degree of service we provide and the distributor's opportunity to participate
profitably in the sale of our products.
We seek to expand our distribution network. As we identify and acquire
businesses that fit strategically into our existing product and service
portfolio, we maximize our distribution network by offering additional products
and services. Recent acquisitions have opened new channels of global
distribution to parts of the world not previously penetrated and have enabled us
to more fully exploit our extensive access to multi-national corporations, whose
security service needs in unstable countries may in the future require security
products that complement the services provided. The addition of these new
distribution channels will allow us to take advantage of our various units'
distribution networks by offering a wider variety of products, thereby
increasing operating efficiencies.
We are strategically selling our product on the World Wide Web. We have
created a secured website targeting government agencies exclusively.
GSA-Buy.com, launched in 2000, contains an on-line catalog and secured
transaction platform for all Armor Holdings Products Division GSA contracts. We
are also selling a small array of our concealable and competition holsters to
the consumer market on Holsters.com. All of the products offered on this
website are targeted to consumer markets and do not infringe on our strong
relationships with our distributor network.
ArmorGroup Services. As we have expanded our service offerings, more active
marketing has become an integral part of our growth efforts. In addition to
sourcing new business from client referrals, we continue to follow our clients
into new geographic areas where there exist significant security risks. We
rarely enter a country without a substantial contract for services already in
place. Once established in a country, we seek to expand our service offerings
and our customer base through active marketing. As we have integrated new
services our professionals have increasingly relied on active marketing to
generate new business. We have fostered the cross selling of our services by
physically locating our professionals in common space and educating our
professionals about all of our service business lines. Further, a rebranding
effort has been completed in order to market our services under the ArmorGroup
brand. A comprehensive web presence has been established (www.armorgroup.com) as
a key marketing tool for the business and with potential to deliver risk
information services on-line. We are focusing on clients in high growth
industries where the need for investigation, brand protection and other security
services are critical to success. The industries we are targeting include
financial services, imaging supplies, insurance, natural resource extraction,
and global consumer brands.
PRODUCT MANUFACTURING AND RAW MATERIALS
The primary raw materials used in manufacturing ballistic resistant
garments are various ballistic fibers, including Kevlar, Twaron and
SpectraShield. Kevlar, an aramid fiber, is a patented product of E.I. du Pont de
Nemours Co., Inc. ("Du Pont") and is only available from Du Pont and its
European licensee. SpectraShield is a high strength polyethylene product of
Honeywell, Inc. We also use Twaron, an aramid fiber product of Akzo-Nobel Fibers
B.V. We purchase these fibers directly from the manufacturers, and from weaving
companies who convert the raw fibers into ballistic fabric. We believe that we
enjoy a good relationship with these weaving companies. However, if necessary,
we believe that we could readily find replacement weavers. We also use
Spectrashield and Kevlar in our hard and vehicle armor products. Additionally,
we use polycarbonates, acrylics, ballistic quality steel, ceramics, and
ballistic glass. We are aware of multiple suppliers for these materials and
would not anticipate a significant impact if we were to lose any suppliers. We
do not manufacture equipment used in our security systems integration business.
We obtain from several sources the raw materials we use in the production
of chemical agents. The raw chemicals used in the production of CS tear gas are
readily obtainable with the exception of Malononitrile, for which sources are
limited. If we were unable to obtain Malononitrile, or if there were a material
increase in the price of Malononitrile, our production of CS tear gas could be
severely curtailed. The remainder of the chemicals and piece parts used by us
are readily available from other suppliers. Although we manufacture armor on an
order-by-order basis, we do maintain reasonable inventories of our less-lethal
and anti-riot products.
We purchase other raw materials used in the manufacture of our various
products from a variety of sources and additional sources of supply of these
materials are readily available. We also own several molds, which are used
throughout our less-lethal product line.
We adhere to strict quality control standards and conduct extensive product
testing throughout our manufacturing process. Raw materials are also tested to
ensure quality. We have obtained ISO 9001 certification for our
Jacksonville manufacturing operation for body armor and narcotic identification
kits, our Wyoming manufacturing facility for less-lethal products, and our
Safariland facility in Ontario, CA for body armor and duty gear holsters and
accessories. We have obtained ISO 9002 certification for our Westhoughton,
England manufacturing facility for body armor and high visibility garments. ISO
standards are promulgated by the International Organization of Standardization
and have been adopted by more than 100 countries worldwide. We obtain ISO
certification by successfully completing an audit certifying our compliance with
a comprehensive series of quality management and quality control standards.
BACKLOG
At December 31, 2000, we had unfilled customer orders of approximately $8.5
million compared with approximately $15.0 million of such orders at December 31,
1999. These orders were shipped in the first quarter of 2001.
COMPETITION
The market for our products is highly competitive and we compete in a
variety of fields with competitors ranging from small businesses to
multi-national corporations. In the body armor business, we compete by
providing superior design, engineering and production expertise in our line of
fully-integrated ballistic and blast protective wear. Our principal competitors
in this market include Point Blank Body Armor, Inc., Second Chance Body Armor,
Inc. and Rabin-Tex. In the less-lethal product industry we compete by providing
a broad variety of less-lethal products with unique features and formulations
which we believe afford us a competitive advantage over our competitors. The
principal competitive factors for all of our products are quality of engineering
and design, reputation in the industry, production capability and capacity,
price and ability to meet delivery schedules.
The security services industry is highly competitive, and we compete in a
variety of fields with competitors ranging from small business to multi-national
corporations. Within the security services industry we compete on the basis of
the quality of services provided, ability to provide national and international
services and range of services offered, as well as price and reputation. Our
security services also face a wide variety of competition in different areas,
although there is no single organization that competes directly with us
globally. Our principal competitors in this market include The Kroll-O'Gara
Company, The Wackenhut Corporation, Securitas AB, Pinkerton's, Inc., Control
Risks Group, Electronic One and Tyco International, Ltd. and its subsidiary ADT.
Our primary competitors in supplying security services to the petrochemical and
mining industries are local security companies, in-house security programs and
small consultancy companies. Our primary competitors in the embassy and
international agency protection business are local companies and large manned
guarding companies including The Wackenhut Corporation, Securicor, Group 4
Securitas (International) B.V. and ICTS International, N.V. As the countries
within
which we operate become more mature and stable, competition is likely to
increase.
EMPLOYEES
As of January 31, 2001, we have a total of approximately 6,348
employees, of which approximately 969 were employed at Armor Holdings Products,
12 employees at our corporate location and approximately 5,367 were employed at
ArmorGroup Services.
Approximately 23 employees employed by our Supercraft subsidiary are
represented by the General Municipal Boilermaker and Allied Trade Union. Also,
our Low Voltage Systems subsidiary has 4 employees covered under a collective
bargaining agreement and are represented by the International Brotherhood of
Electrical Workers. None of our remaining employees are represented by unions or
covered by any collective bargaining agreements. We have not experienced any
work stoppages or employee related slowdowns and believe that the relationship
with our employees is good.
PATENTS AND TRADEMARKS
We currently own numerous issued U.S. and foreign patents and pending
patent applications relating to our product lines as well as several registered
and unregistered trademarks relating to our products. The trademarks include
Gold Series GSX, Xtreme, Def-Tec Products, Distraction Device, NIK, Identidrug,
Federal Laboratories and First Defense. We also have an exclusive license to use
the MACE(R) trademarks in the law enforcement market. Although we do not believe
that our ability to compete in any of our product markets is dependent solely on
our patents and trademarks, we do believe that the protection afforded by our
intellectual property provides us with important technological and marketing
advantages over our competitors. Although we have protected our technologies to
the extent that we believe appropriate, the measures taken to protect our
proprietary rights may not deter or prevent unauthorized use of our
technologies. In other countries, our proprietary rights may not be protected to
the same extent as in the United States.
GOVERNMENT REGULATIONS
We are subject to federal licensing requirements with respect to the sale
in foreign countries of certain of our products. In addition, we are obligated
to comply with a variety of federal, state and local regulations, both
domestically and abroad, governing certain aspects of our operations and the
workplace. We are also regulated by the U.S. Bureau of Alcohol, Tobacco, and
Firearms as a result of our manufacturing of certain destructive devices and by
the use of ethyl alcohol in certain products. We also ship hazardous goods, and
in doing so, must comply with the regulations of the U.S. Department of
Transportation for packaging and labeling. We are also subject to certain
regulations promulgated by, among others, the U.S. Departments of Commerce and
State and the U.S. Environmental Protection Agency.
ENVIRONMENTAL MATTERS
We are subject to federal, state, and local laws and regulations governing
the protection of the environment, including those regulating discharges to the
air and water, the management of wastes, and the control of
noise and odors. While we always strive to operate in compliance with these
requirements, we cannot assure you that we are at all times in complete
compliance with all such requirements. Like all companies, we are subject to
potentially significant fines or penalties if we fail to comply with
environmental requirements. Although we have made and will continue to make
capital expenditures in order to comply with environmental requirements, we do
not expect material capital expenditures for environmental controls in 2001.
However, environmental requirements are complex, change frequently, and could
become more stringent in the future. Accordingly, we cannot assure you that
these requirements will not change in a manner that will require material
capital or operating expenditures or will otherwise have a material adverse
effect on us in the future.
We are also subject to environmental laws requiring the investigation and
cleanup of environmental contamination. We may be subject to liability,
including liability for cleanup costs, if contamination is discovered at one of
our current or former facilities or at a landfill or other location where we
have disposed wastes. The amount of such liability could be material. We use
Orthochlorabenzalmalononitrile ("CS") and Chloroacetophenone ("CN") chemical
agents in connection with our production of tear gas. These chemicals are
hazardous, and could cause environmental damage if not handled and disposed of
properly.
ITEM 2. PROPERTIES
Our principal facilities consist of the following:
Location Principal Use Owned or Approximate Size Products Manufactured
-------- ------------- Leased ---------------- ---------------------
------
Jacksonville, Florida Manufacturing, distribution, Owned (1) 14 acres Body Armor
corporate accounting 70,000 sq. ft. Narcotic ID Kits
Break-Free
Casper, Wyoming Manufacturing, warehouse Owned (2) 66 acres Tear gas, Pepper
Office 72,234 sq. ft. Spray, Less-than-
Lethal Munitions
Westhoughton, England Sales, manufacturing Owned 44,000 sq. ft. High visibility
Garments
London, England Sales, office Leased (3) 9,964 sq. ft. ArmorGroup Services
Ontario, California Manufacturing, distribution, office Owned 117,500 sq. ft. Body Armor
Duty gear
Automotive accessories
Pittsfield, Manufacturing Leased (4) 36,000 sq. ft. Hard armor
Massachusetts Vehicle armor
Tijuana, Mexico Manufacturing Leased (5) 31,452 sq. ft. Duty gear
Body armor
Fitzwilliam, Manufacturing, office, warehouse Leased (6) 22,848 sq. ft. Police batons
New Hampshire
Salem, Oregon Manufacturing Leased (7) 14,000 sq. ft. Forensic
(1) We have the capacity to expand the building facility to 250,000 sq. ft.
(2) We own four properties at this location.
(3) We pay a combined annual rent of(pound)225,790. The leases for the
property expire in March 2002 and March 2008.
(4) We leased two facilities in Pittsfield Massachusetts one for 16,000 sq.
ft. at an annual rent of $46,800, for which the lease expires in April
2003. On April 1, 1999, we leased an additional 20,000 sq. ft. for an
additional rental of $39,360 under a lease expiring March 31, 2002. We
have entered into negotiations regarding the possible exercise of an
option to purchase this facility in 2001.
(5) We pay an annual rent of $143,412. This lease expires on August 2002.
(6) We pay an annual rent of $24,000. This lease expires on November 2004.
(7) We pay an annual rent of $87,000. This lease expires on November 2001.
We also lease an average of 2,000 square feet at each of 21 WORLDWIDE
LOCATIONS, AT AN AGGREGATE ANNUAL RENTAL OF APPROXIMATELY $550,000 HAVING TERMS
EXPIRING FROM 1 TO 10 YEARS.
We believe our manufacturing, warehouse and office facilities are
suitable, adequate and afford sufficient manufacturing capacity for our current
and anticipated requirements. We believe we have adequate insurance coverage for
our properties and their contents.
ITEM 3. LEGAL PROCEEDINGS
On January 16, 1998, our ArmorGroup Services division ceased operations
in the country of Angola. The cessation of operations in Angola was dictated by
that government's decision to deport all of our expatriate management and
supervisors. As a result of the cessation of operations in Angola, our Armor
Group Services division is involved in various disputes with SHRM S.A.("SHRM"),
its minority joint venture partner relating to the Angolan business. On March 6,
1998, SIA (a subsidiary of SHRM) filed a complaint against Defense Systems
France, SA ("DSF") before the Commercial Court of Nanterre (Tribunal de Commerce
de Nanterre) seeking to be paid an amount of $577,286 corresponding to an
alleged debt of DSIA to SIA. On, June 27, 2000, the judge of the Paris
Commercial Court ruled SHRM did not provide evidence required to establish its
standing and the proceedings brought by SHRM were cancelled. On October 3, 2000,
a winding up petition was served by DSF against DSIA. On October 31, 2000, SHRM
filed a counterclaim seeking to have this winding up petition dismissed. On
November 28, 2000, SHRM appealed the judgement rendered by the Paris Commercial
Court on June 27, 2000 claiming that the Paris Commercial Court no longer has
jurisdiction over the case. The
procedure before the Nanterre Commercial Court is still pending, awaiting a
decision on the liquidation of DSIA.
In November 2000, we disclosed that we had provided for settlement of
our lawsuit with Second Chance Body Armor, Inc. and other claims for
approximately $2.0 million, including legal costs, which were accrued for in the
third quarter.
In addition to the above, we, in the normal course of our business, are
subject to claims and litigation in the areas of product and general liability.
We believe that we have adequate insurance coverage for most claims that are
incurred in the normal course of business. In such cases, the effect on our
financial statements is generally limited to the amount of our insurance
deductibles. Management does not believe at this time that any such claims have
a material impact on our financial position, operations and liquidity.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of security holders during the
last quarter of fiscal 2000.
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Our common stock, par value $.01 per share (the "Common Stock") is traded
under the symbol "AH" on the New York Stock Exchange (the "NYSE"). Prior to May
7, 1999, our common stock was traded under the symbol "ABE" on the American
Stock Exchange (the "AMEX"). The following table sets forth the range of high
and low sales prices for our Common Stock on the NYSE and the AMEX for fiscal
years 2000 and 1999 and for the first quarter of fiscal year 2001 (through March
23, 2001).
HIGH LOW
---- ---
2001
1st Quarter................................... $17.72 $14.60
2000
1st Quarter................................... 13.38 10.00
2nd Quarter................................... 14.69 8.63
3rd Quarter .................................. 18.13 13.00
4th Quarter .................................. 17.69 13.56
1999
1st Quarter................................... 14.94 11.13
2nd Quarter................................... 13.69 9.25
3rd Quarter .................................. 11.06 8.50
4th Quarter .................................. 13.13 8.94
HOLDERS
As of March 26, 2001, we had approximately 2,730 stockholders of record.
Holders of shares held in "nominee" or street names are included in this number.
DIVIDENDS
We have never declared or paid cash dividends on our Common Stock. We
intend to retain future earnings, if any, for use in the operations of our
business including working capital, repayment of indebtedness, capital
expenditures and general corporate purposes. We do not anticipate paying any
cash dividends on our Common Stock in the foreseeable future. In addition, we
are restricted from paying dividends on our Common Stock pursuant to our Credit
Agreement. See Item 7, "Management's Discussion and Analysis of Financial
Condition and Results of Operations-Liquidity and Capital Resources" and Note 6
to Consolidated Financial Statements.
RECENT SALES OF UNREGISTERED SECURITIES
The following information relates to sales or issuances of unregistered
securities by us during fiscal 2000. All of these sales or issuances of
securities were made in reliance upon an exemption from the registration
provisions of the Securities Act of 1933, as amended, set forth in Sections 4(2)
and/or 4(b) thereof and the rules and regulations under the Securities Act,
including Regulation D, as transactions by an issuer not involving any public
offering and/or sales to a limited number of purchasers who were acquiring such
securities for their own account for investment purposes and not with a view to
the resale or distribution thereof.
New Technologies
On March 10, 2000, we issued 119,914 unregistered shares of our Common
Stock valued at the time at $1,324,090 as part of the purchase price of New
Technologies.
Special Clearance Services
On March 7, 2000, we issued 45,455 unregistered shares of our Common
Stock valued at the time at $498,110 as part of the purchase price of Special
Clearance Services.
Network Audit Systems
On April 11, 2000, we issued 27,196 unregistered shares of our Common
Stock valued at the time at $271,960 as part of the purchase price of Network
Audit Systems. On November 27, 2000, we issued an additional 9,068 shares of our
Common Stock valued at the time at $145,088 as part of the contingent purchase
price of Network Audit Systems.
STOCK OPTION PLANS
During fiscal 2000, we granted options to various employees and directors to
purchase an aggregate of 185,000 shares of Common Stock under the 1999 Option
Plan at exercise prices ranging from $10.25 to $17.00 per share. These options
vest equally over a period of three years from the date of the grant. The
vesting of the options may be accelerated in the event of the occurrence of
certain events.
ITEM 6. SELECTED FINANCIAL DATA
FINANCIAL OVERVIEW
FIVE-YEAR SUMMARY
The table below sets forth a summary of our results of operations and
financial condition as of and for the periods then ended.
2000 1999 1998 1997 1996
---- ---- ---- ---- ----
(Amounts in thousands,
except per share amounts)
Total Revenues $220,955 $156,664 $97,207 $78,314 $30,967
Net Income 17,048 13,196 8,596 3,158 689
Basic Earnings Per Share $0.75 $0.63 $0.53 $0.23 $0.09
Diluted Earnings Per Share $0.73 $0.61 $0.50 $0.21 $0.08
Total Assets $225,957 $178,562 $94,353 $75,487 $49,530
Long-Term Obligations 39,360 2,699 344 11 5,780
Stockholders' Equity 166,771 157,883 75,102 64,598 24,875
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
This Management's Discussion and Analysis of Financial Condition and
Results of Operations contains forward-looking statements within the meaning of
Section 27A of the Securities Act and Section 21E of the Exchange Act.
Statements that are predictive in nature, that depend upon or refer to future
events or conditions or that include the words such as "expects", "anticipates",
"intends", "plans", "believes", "estimates", "could be" and similar expressions
are forward looking statements. Although we believe that these statements are
based upon reasonable assumptions, we can give no assurance that our goals will
be achieved. See "Forward Looking Statements."
Our actual results may differ from those expressed or implied in
forward-looking statements. We believe that we are subject to a number of risk
factors, including: the inherent unpredictability of currency fluctuations;
competitive actions, including pricing; the ability to realize cost reductions
and operating efficiencies, including the ability to implement headcount
reduction programs timely and in a manner that does not unduly disrupt business
operations and the ability to identify and to realize other cost-reduction
opportunities; and general economic and business conditions. Any forward-looking
statements in this report should be evaluated in light of these and other
important risk factors listed in this Management's Discussion and Analysis of
Financial Condition and Results of Operations and elsewhere in this Annual
Report on Form 10-K including the accompanying financial statements.
COMPANY OVERVIEW
We are a leading global provider of security risk management services and
products to multi-national corporations, governmental agencies and law
enforcement personnel through our two operating divisions -- ArmorGroup Services
and Armor Holdings Products. Our ArmorGroup Services division provides
sophisticated security planning and risk management, electronic security systems
integration, consulting and training services, as well as intellectual property
asset protection, business intelligence and investigative services. We provide
these services to multi-national corporations and governmental and
non-governmental agencies through our offices in 38 countries. Our Armor
Holdings Products division manufactures and sells a broad range of high quality
branded law enforcement equipment and has a leading market position in several
of the product categories in which we compete. Such products include ballistic
resistant vests and tactical armor, less-lethal munitions, anti-riot products,
police batons, forensic, fingerprint and evidence collection equipment, and
narcotics identification kits. These products are sold primarily to law
enforcement agencies through a worldwide network of over 500 distributors and
sales agents including approximately 350 in the United States. We believe
significant opportunities exist to grow our company and extend our global
infrastructure through geographic expansion and strategic acquisitions of
related businesses in the fragmented security risk management services and
products industry.
ACQUISITIONS
We have pursued a strategy of growth through acquisition of businesses and
assets that complement our existing operations. We use several criteria to
evaluate prospective acquisitions including whether the business to be acquired:
o broadens the scope of the services or products we offer or the geographic
areas we serve,
o offers attractive operating margins,
o is accretive to earnings, and
o offers the opportunity to enhance profitability by improving the efficiency
of our operations.
RESULTS OF OPERATIONS
The following table sets forth selected statement of operations data as a
percentage of total revenues for the periods indicated:
- --------------------------------------------------------------------------------
FISCAL YEAR
- --------------------------------------------------------------------------------
1998 1999 2000
---- ---- ----
- --------------------------------------------------------------------------------
Revenue
- --------------------------------------------------------------------------------
Products .................................... 47% 62% 61%
- --------------------------------------------------------------------------------
Services .................................... 53% 38% 39%
- --------------------------------------------------------------------------------
Total revenues ................................. 100% 100% 100%
- --------------------------------------------------------------------------------
Interest (income) expense, net ................. (1)% 0% 1%
- --------------------------------------------------------------------------------
Operating income ............................... 13% 13% 12%
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Provision for income taxes ...................... 5% 5% 4%
- --------------------------------------------------------------------------------
Net income ..................................... 9% 8% 8%
- --------------------------------------------------------------------------------
EBITDA ......................................... 16% 15% 16%
- --------------------------------------------------------------------------------
FISCAL 2000 AS COMPARED TO FISCAL 1999
Product revenues. Product revenues increased by $38.6 million, or 40.0%, to
$135.3 million in fiscal 2000 compared to $96.7 million in fiscal 1999. This
increase was primarily due to strong internal growth, including year over year
increases or decreases of businesses acquired during the previous year, of 20.4%
as well as the inclusion of full year results for Safariland and other 1999
acquisitions, and the acquisitions of BreakFree, Monadnock and Lightning Powder
in fiscal 2000. All of these acquisitions were accounted for as purchases and
accordingly the results of their operations are included only for the period
after acquisition.
Service revenues. Service revenues increased by $25.7 million, or 42.8%, to
$85.6 million in fiscal 2000 compared to $60.0 million in fiscal 1999. This
increase was primarily due to strong internal growth, including year over year
increases or decreases of security businesses acquired during the previous year,
of 23.6% as well as the inclusion of full year results for Alarm Systems Holding
Company and Fire Alarm Service Corporation in fiscal 1999, and the acquisitions
of NTI, NAS, Alpha B, OVG, SCS, Technisec and Traquair in fiscal 2000. All of
these acquisitions were accounted for as purchases and accordingly the results
of their operations are included only for the period after acquisition.
Cost of sales. Cost of sales increased by $43.1 million, or 45.6%, to
$137.5 million in fiscal 2000 compared to $94.4 million in fiscal 1999. This
increase was primarily due to increased revenues in fiscal 2000 compared to
fiscal 1999. As a percentage of total revenues, cost of sales increased to 62.2%
in fiscal 2000 from 60.3% in fiscal 1999.
Operating expenses. Operating expenses increased by $13.3 million, or
36.0%, to $50.3 million in fiscal 2000 compared to $37.0 million in fiscal 1999.
This increase was primarily due to the increased revenues from our products and
services division as well as the acquisitions which were completed in 2000. As a
percentage of sales, operating expenses decreased to 22.8% of sales in fiscal
2000 compared to 23.6% in fiscal 1999.
Amortization. Amortization expense increased by $1.0 million, or 39.2%, to
$3.4 million in fiscal 2000 compared to $2.5 million in fiscal 1999. This
increase was primarily due to additional amortization of intangible assets
acquired as a result of the acquisitions completed during fiscal 2000, as well
as a full year of amortization relating to the 1999 acquisitions.
Equity in earnings of investees. Equity in earnings of investees decreased
by $92,000, or 51.4%, to $87,000 in fiscal 2000 compared to $179,000 in fiscal
1999. The equity in earnings of investees is comprised of a 20% investment in
Jardine Securicor Gurkha Services Limited ("JSGS"), a Hong Kong joint venture
company. We sold this investment in fiscal 2000 (see Other Income).
Integration and other non-recurring charges. Integration and other
non-recurring charges increased by $0.7 million, or 28.1% to $3.3 million in
fiscal 2000 compared to $2.6 million in fiscal 1999 and are related to the
integration of the acquired companies. These costs include relocation expenses
for equipment and employees, severance costs as well as charges for integrating
our sales and marketing efforts.
Operating income. Operating income increased by $6.1 million, or 29.8%, to
$26.5 million compared to $20.4 million in fiscal 1999 due to the reasons
discussed above.
Interest expense (income). Net interest expense was $1.9 million in fiscal
2000 compared to net interest income of $17,000 in fiscal 1999. The increase was
primarily due to interest on debt incurred to fund acquisitions and make
purchases under our stock repurchase plan.
Other income. Other income was $1.8 million in fiscal 2000 compared to $0.8
million in fiscal 1999. The increase was primarily due to the gain of
approximately $1.7 million recognized on the sale of our investment in JSGS in
fiscal 2000.
Income taxes. The provision for income taxes increased by $1.3 million, or
16.7%, to $9.3 million in fiscal 2000, compared to $8.0 million in fiscal 1999.
The provision was based on the Company's U.S. federal and state statutory income
tax rates of approximately 37% for its U.S.-based companies and a 10.6% blended
effective tax rate for foreign operations. The effective tax rate for the
Company's foreign operations is not necessarily indicative of expected future
rates due to the changing concentration and mix of income in the various
countries in which the Company operates. The effective tax rate for 2000 and
1999 was 35.4% and 37.8%, respectively. The decrease in the Company's effective
tax rate is a result of the increased amount of income earned in jurisdictions
whose statutory tax rates are below those in the United States, as a percentage
of operating income.
Net income. Net income increased approximately $3.9 million or 29.2%, to
$17.0 million in fiscal 2000 compared to $13.2 million in fiscal 1999. This
increase was primarily due to the combination of acquisitions, internal growth,
and to the factors discussed above.
FISCAL 1999 AS COMPARED TO FISCAL 1998
Product revenues. Product revenues increased by $51.1 million, or 111.9%,
to $96.7 million in fiscal 1999 compared to $45.6 million in fiscal 1998. This
increase was primarily due to the acquisition of Pro-Tech and Fed Labs in 1998
and Safariland Ltd., Inc. in 1999, as well as strong internal growth. These
acquisitions were accounted for as purchases and the results of their operations
are recorded only for the period the Company owned them.
Service revenues. Service revenues increased by $8.4 million, or 16.3%, to
$60.0 million in fiscal 1999 compared to $51.6 million in fiscal 1998. This
increase was primarily due to the acquisitions and integration of LST, Asmara,
CDR, APS, acquired in 1998, Parvus, Alarm Systems Holding Company and Fire Alarm
Service Corporation acquired in 1999. 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 $32.8 million, or 53.2%, to $94.4
million in fiscal 1999 compared to $61.6 million in fiscal 1998. This increase
was primarily due to increased revenues in fiscal 1999 compared to
fiscal 1998. As a percentage of total revenues, cost of sales decreased to 60.2%
in fiscal 1999 from 63.4% in fiscal 1998 reflecting a greater proportion of
total revenue generated by our Armor Holdings Products division in fiscal 1999,
which has higher gross margins than our ArmorGroup Services division. Both
divisions improved their gross margins in 1999 by lowering costs through greater
efficiencies and by concentrating on higher margin investigative business in the
Services Division.
Operating expenses. Operating expenses increased by $15.1 million, or
68.9%, to $37.0 million (23.6% of total revenues) in fiscal 1999 compared to
$21.9 million (22.5% of total revenues) in fiscal 1998. This increase was
primarily due to the increased revenues from our Armor Holdings Products
division which has higher sales and marketing expenses than the revenues from
the ArmorGroup Services division, and the acquisitions of Safariland, Parvus,
ASH and FAS which were completed in 1999.
Amortization. Amortization expense increased by $1.1 million, or 82.9%, to
$2.5 million in fiscal 1999 compared to $1.3 million in fiscal 1998. This
increase was primarily due to additional amortization of intangible assets
acquired as a result of the Safariland, Parvus, ASH and FAS acquisitions during
fiscal 1999 which would not have been reflected in fiscal 1998.
Equity in earnings of investees. Equity in earnings of investees decreased
by $534,000, or 74.9%, to $179,000 in fiscal 1999 compared to $713,000 in fiscal
1998. The decrease in earnings was primarily due to losses incurred by Jardine
Securicor Gurkha Services Limited ("JSGS"), a Hong Kong joint venture company,
on its operations in India. This office was subsequently closed.
Merger, integration and other non-recurring charges. Merger, integration
and other non-recurring charges increased by $2.6 million to $2.6 million in
1999, and related to the integration of the acquired companies. These costs
include relocation expenses for equipment and employees, severance costs as well
as charges for integrating our sales and marketing efforts. The Company did not
incur such charges in 1998.
Operating income. Operating income increased by $7.4 million, or 56.7%, to
$20.4 million in fiscal 1999 compared to $13.0 million in fiscal 1998 primarily
due to the factors discussed above.
Interest expense. Net Interest expense was $17,000 in fiscal 1999 compared
to net interest income of $625,000 in fiscal 1998. This increase was primarily
due to amortization of fees associated with the $60 million bank credit
agreement completed in February, 1999, as well as interest on debt acquired as
part of the purchased companies.
Other income. Non-operating income increased by $788,000 to $816,000 in
fiscal 1999 compared to $28,000 in fiscal 1998 and is primarily due to the gain
on the sale of stock in MACE Security International. We acquired warrants as
part of the acquisition of certain assets of the Law Enforcement Divisions of
MACE Security International in July of 1998.
Income taxes. Provision for income taxes increased by $2.9 million, or
57.6%, in fiscal 1999, to $8.0 million, compared to $5.1 million in fiscal 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. The effective tax
rate for the Company's foreign operations is not necessarily indicative of
continued tax rates due to a continually changing concentration of income in
each country in which the Company operates. The increase in the Company's
effective tax rate is a result of the increased amortization of the goodwill
generated by the Safariland, Parvus, ASH and FAS acquisitions that is not tax
deductible.
Net income. Net income increased approximately $4.6 million or 53.5%, to
$13.2 million in fiscal 1999 compared to $8.6 million in fiscal 1998. This
increase was primarily due to a combination of the acquisitions made during the
year being successfully integrated, and to the factors discussed above.
QUARTERLY RESULTS
Set forth below is certain unaudited quarterly financial data for each of
our last eight quarters and such data expressed as a percentage of our revenue
for the respective quarters. The information has been derived from unaudited
financial statements that, in the opinion of management, include all adjustments
(consisting only of normal recurring adjustments) necessary to fairly present
such quarterly information in accordance with generally accepted accounting
principles. The operating results for any quarter are not necessarily indicative
of the results to be expected for any future period.
QUARTER ENDED
- --------------------------------------------------------------------------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
- -----------------------------------------------------------------------------------------------------------------------------------
Mar 31 Jun30 Sept30 Dec 31 Mar 31 Jun30 Sept30 Dec 31
1999 1999 1999 1999 2000 2000 2000 2000
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
Revenues
- -----------------------------------------------------------------------------------------------------------------------------------
Services $12,815 $12,847 $16,693 $17,603 $18,418 $21,414 $22,570 $23,210
- -----------------------------------------------------------------------------------------------------------------------------------
Products 14,025 26,064 28,398 28,219 31,448 34,053 34,548 35,294
------ ------ ------ ------ ------ ------ ------ ------
- -----------------------------------------------------------------------------------------------------------------------------------
Total Revenue 26,840 38,911 45,091 45,822 49,866 55,467 57,118 58,504
- -----------------------------------------------------------------------------------------------------------------------------------
OPERATING INCOME 3,818 4,264 6,345 5,973 6,624 7,437 4,570 7,852
- -----------------------------------------------------------------------------------------------------------------------------------
INTEREST EXPENSE(INCOME),NET (44) (6) (41) 108 47 539 600 709
- -----------------------------------------------------------------------------------------------------------------------------------
OTHER INCOME (EXPENSE)
- -----------------------------------------------------------------------------------------------------------------------------------
Provision for Income taxes 1,635 1,738 2,484 2,146 2,499 3,248 1,459 2,136
- -----------------------------------------------------------------------------------------------------------------------------------
Net income 2,740 2,835 3,902 3,719 4,080 5,536 2,460 4,973
- -----------------------------------------------------------------------------------------------------------------------------------
Earnings per common share
- -----------------------------------------------------------------------------------------------------------------------------------
Basic .17 .14 .16 .16 .18 .25 .11 .22
- -----------------------------------------------------------------------------------------------------------------------------------
Diluted .16 .14 .16 .15 .17 .24 .11 .21
- -----------------------------------------------------------------------------------------------------------------------------------
Weighted average common shares
outstanding
- -----------------------------------------------------------------------------------------------------------------------------------
Basic 16,284 20,082 23,884 23,593 23,034 22,595 22,442 22,503
- -----------------------------------------------------------------------------------------------------------------------------------
Diluted 17,476 20,839 24,473 24,300 23,733 23,350 23,351 23,414
- -----------------------------------------------------------------------------------------------------------------------------------
Revenues
- -----------------------------------------------------------------------------------------------------------------------------------
Products 52% 67% 63% 62% 63% 61% 60% 60%
- -----------------------------------------------------------------------------------------------------------------------------------
Services 48% 33% 37% 38% 37% 39% 40% 40%
--- --- --- --- --- --- --- ---
- -----------------------------------------------------------------------------------------------------------------------------------
Total revenue 100% 100% 100% 100% 100% 100% 100%
- -----------------------------------------------------------------------------------------------------------------------------------
Operating income 14% 11% 14% 13% 14% 17% 8% 13%
- -----------------------------------------------------------------------------------------------------------------------------------
Interest expense (income), net 0% 0% 0% 0% 0% 1% 1% 1%
- -----------------------------------------------------------------------------------------------------------------------------------
Provision for income taxes 6% 4% 6% 5% 5% 6% 3% 4%
- -----------------------------------------------------------------------------------------------------------------------------------
Net income 10% 7% 9% 8% 9% 10% 5% 9%
- -----------------------------------------------------------------------------------------------------------------------------------
LIQUIDITY AND CAPITAL RESOURCES
Historically, we have funded operations through cash flow from operations,
debt, and equity financing, including a May 1999 public offering of $63.5
million of our common stock. On February 12, 1999, we entered into a Credit
Agreement as Borrower, CIBC, Inc. ("CIBC"), Bank of America, N.A. ("BofA"),
First Union National Bank ("First Union") and SunTrust Bank, North Florida, N.A.
("SunTrust"), as lenders (collectively referred to as the "lenders"),
NationsBank, as Documentation Agent and Canadian Imperial Bank of Commerce, as
Administrative Agent (the "Credit Agreement"). On February 25, 2000, we amended
this credit agreement with our lenders. Pursuant to the Credit Agreement, as
amended, the lenders established a five-year $100,000,000 line of credit (the
"Credit Agreement") for our benefit. Our indebtedness under the Credit Agreement
is evidenced by Five Year (three years remaining) Revolving Credit Notes of up
to $100,000,000. All borrowings under the Credit Agreement bear interest at
either (1) the base rate, plus an applicable margin ranging from .000% to .375%
depending on certain conditions, or the eurodollar rate, plus an applicable
margin ranging from 1.125% to 1.875% depending on certain conditions. In
addition, the Credit Agreement provides that Bank of America will make
swing-line loans of up to $5,000,000 available to us to be used for working
capital purposes. CIBC, Inc. and Bank of America, N.A. will also issue letters
of credit of up to $10,000,000 to us. As of March 16, 2001, we had $32,980,770
outstanding under the credit agreement.
As of December 31, 2000, we had working capital of $68.1 million. As of
December 31, 1999, we had working capital of $54.3 million which reflected the
proceeds of our public offering in May 1999.
We anticipate that cash generated from operations and borrowings under the
Credit Agreement will enable us to meet our liquidity, working capital and
capital expenditure requirements during the next 12 months. We may however
require additional financing to pursue our 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 us or on a basis that is not dilutive to our stockholders.
Our spending for fiscal 2000 on capital expenditures was $7.8 million,
compared to $3.4 million in 1999. Such expenditures include, among other things,
leasehold improvements, computer equipment and software, and manufacturing
machinery and equipment.
RECENTLY ISSUED ACCOUNTING STANDARD
The Company will adopt SFAS 133. "Accounting for Derivative Instruments
and Hedging Activities", as amended by SFAS No. 137 and 138, on January 1, 2001.
The Statement establishes accounting and reporting standards requiring that
every derivative instrument (including certain derivative instruments embedded
in other contracts) be recorded in the balance sheet as either an asset or
liability measured at its fair value. SFAS 133 requires that changes in the
derivative's fair value be recognized currently in earnings unless specific
hedge accounting criteria are met. The Company does not currently have
derivative instruments and accordingly, FAS 133, as amended, is not expected to
impact the Company's financial position, results of operations or cash flows.
In March 2000, the FASB issued FASB Interpretation No. 44 ("FIN 44"),
"Accounting for Certain Transactions Involving Stock Compensation - an
Interpretation of APB Opinion No. 25." FIN 44 clarifies the application of APB
Opinion No. 25 and, among other issues, clarifies the following: the definition
of an employee for purposes of applying APB Opinion No. 25; the criteria for
determining whether a plan qualifies as a noncompensatory plan; the accounting
consequence of various modifications to the terms of previously fixed stock
options or awards; and the accounting for an exchange of stock compensation
awards in a business combination. The adoption of FIN 44 did not have an impact
on the Company's financial position, results of operations or cash flows.
RECENTLY ISSUED STAFF ACCOUNTING BULLETIN
In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin No. 101 ("SAB 101"). SAB 101 provides guidance on the
recognition, presentation and disclosure of revenue in the financial statements,
and is effective in the fourth quarter of 2000. SAB 101 did not
have a material impact on our results of operations, financial position or cash
flows for the year ended December 31, 2000.
FORWARD LOOKING STATEMENTS
We believe that it is important to communicate our expectations to our
investors. Accordingly, this report contains discussion of events or results
that have not yet occurred or been realized. You can identify this type of
discussion, which is often termed "forward-looking statements", by such words
and phrases as "expects", "anticipates", "intends", "plans", "believes",
"estimates" and "could be". Execution of acquisition strategies, expansion of
product lines and increase of distribution networks or product sales are as,
among others, whose future success may be difficult to predict. You should read
forward-looking statements carefully because they discuss our future
expectations, contain projections of our future results of operations or of our
financial position, or state other expectations of future performance. The
actions of current and potential new competitors, changes in technology,
seasonality, business cycles and new regulatory requirements are factors that
impact greatly upon strategies and expectations and are outside our direct
control. There may be events in the future that we are not able accurately to
predict or to control. Any cautionary language in this report provide examples
of risks, uncertainties and events that may cause our actual results to differ
from the expectations we express in our forward-looking statements. Before you
invest in our common stock, you should be aware that the occurrence of certain
of the events described in this report could adversely affect our business,
results of operations and financial position.
INFLATION
We believe that the relatively moderate rates of inflation in recent years
have not had a significant impact on our revenue or profitability.
Historically, we have been able to offset any inflationary effects by either
increasing prices or improving cost efficiencies.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
As a result of our global operating and financial activities, we are
exposed to changes in raw material prices, interest rates and foreign currency
exchange rates which may adversely affect our results of operations and
financial position. In seeking to minimize the risks and/or costs associated
with such activities, we manage exposure to changes in raw material prices,
interest rates and foreign currency exchange rates through our regular operating
and financing activities. We do not utilize financial instruments for trading or
other speculative purposes, nor do we utilize leveraged financial instruments or
other derivatives.
MARKET RATE RISK
The following discussion about our market rate risk involves
forward-looking statements. Actual results could differ materially from those
projected in the forward-looking statements. We are exposed to market risk
related to changes in interest rates, foreign currency exchange rates and equity
security price risk. We do not use derivative financial instruments for
speculative or trading purposes.
Interest Rate Risk. Our exposure to market rate risk for changes in
interest rates relates primarily to borrowings under our Credit Agreement and
our short-term monetary investments. Borrowings under Credit Agreement are
variable based upon the lender's base rate or Eurodollar rate. Assuming our
current level of borrowings, a hypothetical one-percentage point increase in the
base rate or Eurodollar rate would increase our annual interest expense by
approximately $330,000. There is a market rate risk for changes in interest
rates earned on short-term money market instruments. There is inherent roll-over
risk in the short-term money market instruments as they mature and are renewed
at current market rates. The extent of this risk is not quantifiable or
predictable because of the variability of future interest rates and business
financing requirements. However, there is no risk of loss of principal in the
short-term money market instruments, only a risk related to a potential
reduction in future interest income. Derivative instruments are not presently
used to adjust the Company's interest rate risk profile. We do not use
derivative financial instruments to hedge this interest rate risk.
Foreign Currency Exchange Rate Risk. The majority of our business is
denominated in U.S. dollars. There are costs associated with our operations in
foreign countries that require payments in the local currency. We partially
manage our foreign currency risk related to those payments by maintaining
operating accounts in these foreign countries, and by having several customers
pay us in those same currencies.
Equity Security Price Risk. We hold a small portfolio of marketable-equity
traded securities that are subject to market price volatility. Equity price
fluctuations of plus or minus 10% would have had a $80,000 impact on the value
of these securities in 2000. We held no such securities in 1999.
RISKS ASSOCIATED WITH INTERNATIONAL OPERATIONS
The Company does business in numerous countries, including emerging
markets in Africa, Asia, South America, Russia, and CIS. The Company has
invested substantial resources outside of the United States and plans to
continue to do so in the future. The Company's international operations are
subject to the risk of new and different legal and regulatory requirements in
local jurisdictions, tariffs and trade barriers, potential difficulties in
staffing and managing local operations, potential imposition of restrictions on
investments, potentially adverse tax consequences, including imposition or
increase of withholding and other taxes on remittances and other payments by
subsidiaries, and local economic, political and social conditions. Governments
of many developing countries have exercised and continue to exercise substantial
influence over many aspects of the private sector. Government actions in the
future could have a significant adverse effect on economic conditions in a
developing country or may otherwise have a material adverse effect on the
Company and its operating companies. The Company does not have political risk
insurance in the countries in which it currently conducts business, but does
periodically analyze the need for and cost associated with this type of policy.
Moreover, applicable agreements relating to the Company's interests in its
operating companies are frequently governed by foreign law. As a result, in the
event of a dispute, it may be difficult for the Company to enforce its rights.
Accordingly, the Company may have little or no recourse upon the occurrence of
any of these developments.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The response to this item is incorporated by reference from our consolidated
financial statements and notes thereto which are attached hereto beginning on
page F-1. Certain selected quarterly financial data is set forth under Item 7 of
this Report.
"Any Schedules to the financial statements that may be required pursuant to
the applicable accounting regulations of the Commission, which are not shown
in the Financial Statements or the Notes hereto, and which are applicable to
the registrant will be filed within 120 days following the close of the
registrant's fiscal year."
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
There have been no changes in or disagreements with accountants on
accounting or financial disclosure matters during the periods covered by this
annual report on Form 10-K.
PART III
The information called for pursuant to this Part III, Items 10, 11, 12
and 13, is incorporated by reference from the Company's definitive proxy
statement which the Company intends to file with the Securities and Exchange
Commission not later than 120 days after the end of the fiscal year ended
December 31, 2000.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
ITEM 11. EXECUTIVE COMPENSATION
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS AND SCHEDULES, AND REPORTS ON FORM 8-K
(a) 1. Financial Statements
The following Financial Statements of the Company (which appear
beginning at sequential page number F-1) are included herein:
Reports of Independent Certified Public Accountants
Consolidated Balance Sheets
Consolidated Income Statements
Consolidated Statements of Stockholders' Equity
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
2. Financial Statement Schedules
Schedules for which provision is made in the applicable accounting
regulations of the Commission have been omitted because they are not
applicable or the required information is shown in the Financial
Statements or the Notes thereto.
(b) Reports on Form 8-K
No reports on Form 8-K have been filed in the last quarter.
(c) Exhibits
The following Exhibits are hereby filed as part of this Annual
Report on Form 10-K:
EXHIBIT
NO. DESCRIPTION
- ------- -----------
+2.1 Order confirming Debtor's Third Amended and Restated Plan of
Reorganization with the Third Amended and Restated Plan of
Reorganization attached thereto (incorporated by reference
from Exhibit 2 to our Form 8-K, Current Report, dated October
1, 1993).
+2.2 Asset Purchase Agreement, dated as of July 2, 1996, between the
Company, NIK, Ivers-Lee and LFC No. 46 Corp. (filed as Exhibit 2.1
to our Form 8-K, Current Report, dated July 30, 1996 and
incorporated herein by reference).
+2.3 Asset Purchase Agreement, dated as of August 23, 1996, between
the Company, DTC, Robert L. Oliver, Sandra A. Oliver and DTCoA
(filed as Exhibit 2.1 to our Form 8-K, Current Report, dated
October 9, 1996 and incorporated herein by reference).
+2.4 Agreement and Plan of Merger, dated July 23, 1996, by and between
American Body Armor & Equipment, a Florida corporation, and
the Company (filed as Exhibit 2.1 to our Form 8-K, Current
Report, dated September 3, 1996 and incorporated herein by
reference).
+2.5 Share Acquisition Agreement, dated as of April 7, 1997, between
Bodycote, AHL and the Company (filed as Exhibit 2.1 to our
Form 8-K, Current Report, dated April 22, 1997 and
incorporated herein by reference).
+2.6 Agreement for the Sale and Purchase of the Whole of the Issued
Share Capital of DSL, dated April 16, 1997, between the
company, AHL, NatWest Ventures Nominees Limited and Others and
Martin Brayshaw (filed as Exhibit 2.2 to our Form 8-K, Current
Report, dated April 22, 1997 and incorporated herein by
reference).
+2.7 Share Acquisition Agreement, dated as of June 9, 1997, between
the Company, Strontian Holdings Limited, Alpha-A Limited and
Others (filed as Exhibit 2.1 to our Form 8-K, Current Report,
dated June 24, 1997 and incorporated herein by reference).
+2.8 Stock Purchase Agreement by and among Armor Holdings, Inc., The
Neale A. Perkins Trust, The Scott T. O'Brien and Victoria S.
O'Brien Revocable Trust, The David M. Holmes and Katherine C.
Holmes Revocable Trust, Neale A. Perkins, David M. Holmes, Scott
T. O'Brien and Safariland Ltd., Inc. dated as of April 12, 1999
(filed as Exhibit 2.8 to Amendment No. 1 to our Registration
Statement on Form S-3 filed with the Commission on April 15, 1999
and incorporated herein by reference).
+3.1 Certificate of Incorporation of the Company (filed as Exhibit 3.1
to Form 8-K, Current Report of the Company, dated September 3,
1996 and incorporated herein by reference).
+3.2 Certificate of Merger of American Body Armor & Equipment, Inc., a
Florida corporation, and the Company (filed as Exhibit 3.2 to
Form 8-K, Current Report of the Company, dated September 3,
1996 and incorporated herein by reference).
+3.3 Bylaws of the Company (filed as Exhibit 3.3 to Form 8-K, Current
Report of the Company, dated September 3, 1996 and
incorporated herein by reference).
+3.4 Amendment to Bylaws of the Company (incorporated by reference to
Exhibit 3.3.2 to our Form 10-K Annual Report for the fiscal
year ended December 31, 1998 (the "98 10-K)).
+10.1 Credit Agreement (the "Credit Agreement"), dated as of
February 12, 1999, among the Company, CIBC, NationsBank, First
Union and SunTrust, as lenders, Canadian Imperial Bank of
Commerce, as Administrative Agent and NationsBank, as
Documentation Agent, in the aggregate principal amount of
$60,000,000 (filed as Exhibit 5.1 to Form 8-K, Current Report
of the Company, filed with the Commission on March 10, 1999
and incorporated herein by reference).
+10.2 364-Day Revolving Credit Note, dated February 12, 1999, in the
principal amount of up to $4,166,667 made by the Company in
favor of First Union (filed as Exhibit 5.2 to Form 8-K,
Current Report of the Company, filed with the Commission on
March 10, 1999 and incorporated herein by reference).
+10.3 364-Day Revolving Credit Note, dated February 12, 1999, in the
principal amount of up to $4,166,667 made by the Company in
favor of SunTrust (filed as Exhibit 5.3 to Form 8-K, Current
Report of the Company, filed with the Commission on March 10,
1999 and incorporated herein by reference).
+10.4 364-Day Revolving Credit Note, dated February 12, 1999, in the
principal amount of up to $5,833,333 made by the Company in
favor of NationsBank (filed as Exhibit 5.4 to Form 8-K,
Current Report of the Company, filed with the Commission on
March 10, 1999 and incorporated herein by reference).
+10.5 364-Day Revolving Credit Note, dated February 12, 1999, in the
principal amount of up to $5,833,333 made by the Company in
favor of CIBC (filed as Exhibit 5.5 to Form 8-K, Current
Report of the Company, filed with the Commission on March 10,
1999 and incorporated herein by reference).
+10.6 Five Year Revolving Credit Note, dated February 12, 1999, in the
principal amount of up to $8,333,333 made by the Company in
favor of First Union (filed as Exhibit 5.6 to Form 8-K,
Current Report of the Company, filed with the Commission on
March 10, 1999 and incorporated herein by reference).
+10.7 Five Year Revolving Credit Note, dated February 12, 1999, in the
principal amount of up to $8,333,333 made by the Company in
favor of SunTrust (filed as Exhibit 5.7 to Form 8-K, Current
Report of the Company, filed with the Commission on March 10,
1999 and incorporated herein by reference).
+10.8 Five Year Revolving Credit Note, dated February 12, 1999, in the
principal amount of up to $11,666,667 made by the Company in
favor of NationsBank (filed as Exhibit 5.8 to Form 8-K,
Current Report of the Company, filed with the Commission on
March 10, 1999 and incorporated herein by reference).
+10.9 Five Year Revolving Credit Note, dated February 12, 1999, in the
principal amount of up to $11,666,667 made by the Company in
favor of CIBC (filed as Exhibit 5.9 to Form 8-K, Current
Report of the Company, filed with the Commission on March 10,
1999 and incorporated herein by reference).
+10.10 Borrower Pledge Agreement, dated as of February 12, 1999, made
by the Company in favor of Canadian Imperial Bank of Commerce
as Administrative Agent for the Lenders (filed as Exhibit 5.10
to Form 8-K, Current Report of the Company, filed with the
Commission on March 10, 1999 and incorporated herein by
reference).
+10.11 Security Deed, dated February 12, 1999, made by the Company in
favor of Canadian Imperial Bank of Commerce as Administrative
Agent for the Lenders (filed as Exhibit 5.11 to Form 8-K,
Current Report of the Company, filed with the Commission on
March 10, 1999 and incorporated herein by reference).
+10.12 Subsidiaries Guarantee, dated as of February 12, 1999, made by
the Company in favor of Canadian Imperial Bank of Commerce as
Administrative Agent for the Lenders (filed as Exhibit 5.12 to
Form 8-K, Current Report of the Company, dated March 10, 1999
and incorporated herein by reference).
+10.13 First Amendment, dated as of October 26, 1999, to the Credit
agreement.
+10.14 Second Amendment, dated as of February 25, 2000, to the Credit
Agreement.
@+10.15 Amended and Restated Employment Agreement between Jonathan M.
Spiller and the Company, dated as of January 1, 1999 (incorporated
by reference to Exhibit 10.5 to our 98 10-K).
@+10.16 Amended and Restated Employment Agreement between Robert R.
Schiller and the Company, dated as of January 1, 1999
(incorporated by reference to Exhibit 10.6 to the 98 10-K).
@+10.17 Employment Agreement between Stephen E. Croskrey and the
Company, dated as of February 8, 1999 (incorporated by
reference to Exhibit 10.7 to the 98 10-K).
@+10.18 Employment Agreement between Warren B. Kanders and the Company,
dated as of January 1, 1999 (incorporated by reference to
Exhibit 10.9 to the 98 10-K).
+10.19 Form of Registration Rights Agreement, dated April 16, 1997,
between the Company and the Vendors of DSL (filed as Exhibit
10.3 to Form 8-K, Current Report of the Company, dated April
22, 1997 and incorporated herein by reference).
+10.20 Form of Option for 300,000 shares of Common Stock, dated May 15,
1996 granted to Richmont Capital Partners I, L.P. (filed as
Exhibit 10.34 to Registration Statement No. 333-28879 on Form
S-1 of the Company and incorporated herein by reference).
+10.21 Agreement, dated as of April 21, 1998, amending Option, dated
May 15, 1996, granted to Richmont Capital Partners I, L.P. for
300,000 shares of Common Stock (incorporated by reference to
Exhibit 10.33 to the 98 10-K).
+10.22 Form of Indemnification Agreement for Directors of the
Registrant, dated September 21, 1993 (filed as Exhibit 10.4 to
Form 10-KSB, Annual Report of the Company for the fiscal year
ended December 31, 1993 and incorporated herein by reference).
+10.23 Form of Indemnification Agreement for Officers of the
Registrant, dated February 28, 1994 (filed as Exhibit 10.5 to
Form 10-KSB, Annual Report of the Company for the fiscal year
ended December 31, 1993 and incorporated herein by reference).
**+10.24 American Body Armor & Equipment, Inc. 1994 Incentive Stock Plan
(incorporated by reference from Form S-8 filed on October 10,
1994, Reg. No. 33-018863).
**+10.25 American Body Armor & Equipment, Inc. 1994 Directors Stock Plan
(incorporated by reference from Form S-8 filed on October 31,
1994, Reg. No. 33-018863).
**+10.26 Armor Holdings, Inc. Amended and Restated 1996 Stock Option
Plan (incorporated by reference from the Company's 1997
Definitive Proxy Statement with respect to the Company's 1997
Annual Meeting of Stockholders, held June 12, 1997, as filed
with the Commission on May 27, 1997).
**+10.27 Armor Holdings Inc. Amended and Restated 1996 Non-Employee
Directors Stock Option Plan (incorporated by reference from
the Company's 1997 Definitive Proxy Statement with respect to
the Company's 1997 Annual Meeting of Stockholders, held June
12, 1997, as filed with the Commission on May 27, 1997).
**+10.28 Armor Holdings, Inc. 1998 Stock Option Plan (incorporated by
reference to Exhibit 10.19 to the 98 10-K).
**+10.29 Armor Holdings, Inc. 1999 Stock Incentive Plan (incorporated
by reference from Appendix A to the Company's 1999 Definitive
Proxy Statement with respect to the Company's 1999 Annual
Meeting of Stockholders, as filed with the Commission on May
21, 1999).
+10.30 Lease for the Company's former primary facility located in
Yulee, Florida, dated July 26, 1993, effective May 1, 1993
(filed as Exhibit 28.1 to Form 10-KSB, Annual Report of the
Company, for the fiscal year ended December 31, 1993 and
incorporated herein by reference).
+10.31 Agreement, dated as of March 8, 1999, between the Company and
Kanders & Company, Inc (incorporated by reference to Exhibit
10.21 to the 98 10-K).
*23.1 Consent of PricewaterhouseCoopers LLP.
..------------------------
* Filed herewith.
+ Incorporated herein by reference.
** This Exhibit represents a management contract.
# This Exhibit represents a compensatory plan.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
ARMOR HOLDINGS, INC.
Report of Independent Certified Public Accountants ........ F-2
Consolidated Balance Sheets ............................... F-3
Consolidated Income Statements ............................ F-4
Consolidated Statements of Stockholders' Equity
and Comprehensive Income............................... F-5
Consolidated Statements of Cash Flow ...................... F-6
Notes to the Consolidated Financial Statements............. F-7 -- F-24
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders of
Armor Holdings, Inc.:
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of income, stockholders' equity and comprehensive
income, and cash flows present fairly, in all material respects, the financial
position of Armor Holdings, Inc. and its subsidiaries at December 31, 2000 and
1999, and the results of their operations and their cash flows for each of the
three years in the period ended December 31, 2000 in conformity with accounting
principles generally accepted in the United States of America. These financial
statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We did not audit the 1998 financial statements of Defence Systems
Colombia S.A., a wholly owned subsidiary, which statements reflect total
revenues of $13,266,000 for the year ended December 31, 1998. Those statements
were audited by other auditors whose report thereon has been furnished to us,
and our opinion expressed herein, insofar as it relates to the amounts included
for Defence Systems Colombia S.A. is based solely on the report of the other
auditors. We conducted our audits of these statements in accordance with
auditing standards generally accepted in the United States of America, which
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
PricewaterhouseCoopers LLP
March 31, 2001
Jacksonville, Florida
1
ARMOR HOLDINGS INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31, 1999 AND DECEMBER 31, 2000
(IN THOUSANDS, EXCEPT FOR SHARE DATA)
DECEMBER 31, DECEMBER 31,
1999 2000
---------------- ------------
ASSETS
Current Assets:
Cash and cash equivalents......................................................... $ 13,246 $ 7,257
Accounts receivable (net of allowance for doubtful accounts of $1,691
and $1,133).................................................................. 35,132 44,590
Inventories....................................................................... 16,452 23,675
Prepaid expenses and other current assets......................................... 7,611 13,313
-------- --------
Total current assets.................................................................. 72,441 88,835
Property and equipment, net........................................................... 16,367 24,590
Goodwill (net of accumulated amortization of $3,593 and $6,451)....................... 74,586 95,649
Patents, licenses and trademarks (net of accumulated amortization of
$1,124 and $1,518)................................................................ 7,008 6,907
Investment in unconsolidated subsidiaries............................................. 514 -
Other assets.......................................................................... 7,646 9,976
-------- --------
Total assets.......................................................................... $178,562 $225,957
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt................................................. $ 359 $ 1,072
Short term debt .................................................................. 1,924 1,157
Accounts payable, accrued expenses and other current liabilities.................. 14,261 18,159
Income taxes payable.............................................................. 1,616 322
-------- --------
Total current liabilities............................................................. 18,160 20,710
Long-term debt, less current portion.................................................. 2,340 38,288
-------- --------
Total liabilities..................................................................... 20,500 58,998
Commitments and contingencies (Note 8)
Minority interest..................................................................... 179 188
Stockholders' equity:
Preferred stock, $.01 par value, 5,000,000 shares authorized; no shares issued
and outstanding.................................................................. - -
Common stock, $.01 par value; 50,000,000 shares authorized; 24,513,830 and
25,063,534 issued; 23,302,958 and 22,685,475 outstanding at December 31, 1999
and December 31, 2000, respectively............................................. 245 250
Additional paid-in capital........................................................ 145,480 150,254
Retained earnings................................................................. 26,615 43,663
Accumulated other comprehensive loss.............................................. (1,351) (1,684)
Treasury stock.................................................................... (13,106) (25,712)
-------- --------
Total stockholders' equity..................................................... 157,883 166,771
-------- --------
Total liabilities and stockholders' equity ........................................... $178,562 $225,957
======== ========
The accompanying notes are an integral part of these consolidated financial
statements.
2
ARMOR HOLDINGS INC. AND SUBSIDIARIES
CONSOLIDATED INCOME STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1998, 1999 AND 2000
(IN THOUSANDS, EXCEPT FOR PER SHARE DATA)
----------------------------------------
1998 1999 2000
----------------------------------------
Revenues:
Products............................................. $45,644 $ 96,706 $135,343
Services............................................. 51,563 59,958 85,612
------- -------- --------
Total revenues......................................... 97,207 156,664 220,955
------- -------- --------
Costs and expenses:
Cost of sales....................................... 61,638 94,407 137,499
Operating expenses................................. 21,915 37,004 50,341
Amortization........................................ 1,347 2,463 3,429
Integration and other non-recurring charges......... - 2,569 3,290
Equity in earnings of investees..................... (713) (179) (87)
------- -------- --------
Operating income....................................... 13,020 20,400 26,483
Interest (income) expense net....................... (625) 17 1,896
Other income........................................ 28 816 1,803
------- -------- --------
Income before provision for income taxes 13,673 21,199 26,390
Provision for income taxes.......................... 5,077 8,003 9,342
------- -------- --------
Net income............................................. $ 8,596 13,196 17,048
======= ======== ========
Basic earnings per share............................ $ 0.53 $ 0.63 $ 0.75
======= ======== ========
Diluted earnings per share.......................... $ 0.50 $ 0.61 $ 0.73
======= ======== ========
The accompanying notes are an integral part of these consolidated financial
statements.
3
ARMOR HOLDINGS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY AND COMPREHENSIVE INCOME
YEARS ENDED DECEMBER 31, 1998, 1999 AND 2000
(IN THOUSANDS)
COMMON STOCK ACCUMULATED
-------------- ADDITIONAL OTHER
PAR PAID-IN RETAINED COMPREHENSIVE TREASURY
SHARES VALUE CAPITAL EARNINGS LOSS STOCK TOTAL
---------------- ----------- --------- ---------------- ---------- -----------
Balance, December 27, 1997.. 16,023 $160 $61,496 $4,823 $(353) $(1,528) $64,598
Exercise of stock options.... 149 2 170 172
Issuance of stock for
acquisitions.............. 326 3 3,742 3,745
Recovery of acquisition
escrow shares due to
settlement of lawsuit .... (1,788) (1,788)
Comprehensive income:
Net income................ 8,596
Foreign currency
translation adjustments,
net of taxes of $120.... (221)
Total comprehensive
income ............... 8,375
------ ---- -------- ------- ------- -------- --------
Balance, December 31, 1998... 16,498 $165 $ 65,408 $13,419 $ (574) $ (3,316) $75,102
Exercise of stock options.... 298 3 1,087 1,090
Issuance of common
stock..................... 6,125 61 61,563 61,624
Issuance of stock for
acquisitions........... 1,593 16 17,422 17,438
Repurchase of stock.......... (9,790) (9,790)
Comprehensive income:
Net income................ 13,196
Foreign currency
translation adjustments,
net of taxes of $418 ..... (777)
Total comprehensive
income................ 12,419
------ ---- -------- ------- ------- -------- --------
Balance, December 31, 1999... 24,514 $245 $145,480 $26,615 $(1,351) $(13,106) $157,883
Exercise of stock options.... 333 3 1,470 1,473
Tax benefit from exercises
of options................ 867 867
Issuance of stock for
acquisitions.............. 217 2 2,437 2,439
Repurchase of stock.......... (12,606) (12,606)
Comprehensive income:
Net income ............... 17,048
Foreign currency
translation adjustments,
net of taxes of $179 ... (333)
Total comprehensive
income ............... 16,715
------ ---- -------- ------- ------- -------- --------
Balance, December 31, 2000... 25,064 $250 $150,254 $43,663 $(1,684) $(25,712) $166,771
====== ==== ======== ======= ======= ======== ========
The accompanying notes are an integral part of these consolidated financial
statements.
4
ARMOR HOLDINGS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOW
YEARS ENDED DECEMBER 31, 1998, 1999 AND 2000
(IN THOUSANDS)
YEAR ENDED
--------------------------------------------------
1998 1999 2000
--------------- -------------- ---------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income........................................................... $8,596 $13,196 $17,048
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization....................................... 2,654 4,570 6,591
Deferred income taxes............................................... 1,842 486 290
Equity in earnings of investee...................................... (713) (179) (87)
Gain on sale of investment in investee.............................. - - (1,734)
Loss on disposal of property and equipment.......................... - - 110
Changes in operating assets and liabilities, net of acquisitions:
Increase in accounts receivable................................... (2,848) (4,884) (7,815)
Increase in inventories........................................... (786) (3,323) (4,862)
Decrease (increase) in prepaid expenses and other assets.......... (4,737) 756 (6,120)
Decrease in accounts payable, accrued liabilities and
other current liabilities..................................... (500) (6,762) (2,562)
Increase (decrease) in income taxes payable....................... 162 (717) 177
Increase (decrease) in minority interest.......................... (105) 66 9
-------- -------- --------
Net cash provided by operating activities............................ 3,565 3,209 1,045
-------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment................................. (3,301) (3,414) (7,833)
Purchase of patents, licenses and trademarks....................... (3,448) - (83)
Purchase of businesses, net of cash acquired....................... (12,068) (36,677) (19,243)
Dividends received from equity investee............................ 478 115 87
Proceeds from the sale of investment in investee................... - - 2,568
Purchases of equity securities..................................... - - (1,682)
Proceeds from the sale of equity securities........................ - - 857
Other fees paid related to acquisitions............................ (685) - -
Advances to stockholders........................................... (1,677) - -
-------- -------- --------
Net cash used in investing activities................................ (20,701) (39,976) (25,329)
-------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock............................. - 61,624 -
Proceeds from the exercise of stock options........................ 172 1,090 1,473
Repurchases of treasury shares..................................... - (9,790) (12,606)
Deferred loan costs................................................ - - (256)
Net repayments of long-term debt................................... (367) (5,105) (867)
Repayments of debt assumed in acquisitions......................... - - (1,329)
Borrowings under lines of credit................................... 5,041 57,868 76,097
Repayments under lines of credit................................... - (61,686) (43,884)
-------- -------- --------
Net cash provided by financing activities............................ 4,846 44,001 18,628
-------- -------- --------
Effect of exchange rate changes on cash.............................. (221) (777) (333)
-------- -------- --------
Net increase (decrease) in cash and cash equivalents................ (12,511) 6,457 (5,989)
Cash and cash equivalents, beginning of period....................... 19,300 6,789 13,246
-------- -------- --------
Cash and cash equivalents, end of period............................ $ 6,789 $ 13,246 $ 7,257
======== ======== ========
The accompanying notes are an integral part of these consolidated financial
statements.
5
ARMOR HOLDINGS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BACKGROUND AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
THE COMPANY AND NATURE OF BUSINESS -- Armor Holdings, Inc. (the
"Company"or "Armor") is a global provider of security risk management services
and products to multi-national corporations, governmental agencies and law
enforcement personnel through two operating divisions - Armor Holdings Products
and ArmorGroup Services.
Armor Holdings Products Division. Armor Holdings Products division manufactures
and sells a broad range of high quality branded law enforcement equipment, such
as ballistic resistant vests and tactical armor, hard armor, less lethal
munitions, police batons, forensic, fingerprint and evidence collection
equipment, anti-riot products including tear gas and distraction grenades,
narcotics identification kits, custom-built armored vehicles, specialty
lubricants, cleaners and preservatives and military weapon maintenance systems
and holsters and duty gear. These products are marketed under brand names that
are well-known and respected in the law enforcement community such as American
Body Armor, Safariland, Defense Technology, Federal Laboratories, MACE(R),
PROTECH, NIK(R) Public Safety, Break-Free, Monadnock Lifetime Products and
Lightning Powder. Armor Holdings Products division sells manufactured products
primarily to law enforcement agencies through a worldwide network of over 500
distributors and sales agents including approximately 350 in the United States.
Extensive distribution capabilities and commitment to customer service and
training have enabled us to become a leading provider of security equipment to
law enforcement agencies.
ArmorGroup Services Division. ArmorGroup Services division provides a broad
range of sophisticated security risk management solutions to multi-national
corporations in diverse industries such as natural resources, financial services
and consumer products, and to governmental and non-governmental agencies such as
the U.S. Department of State, the United Nations and the World Bank. Clients
typically have personnel and other investments in unstable and often violent
areas of the world. Through ArmorGroup Services offices on five continents,
ArmorGroup Services provides its multi-national clients with a diversified
portfolio of security solutions to assist them in mitigating risks in their
operations around the world. ArmorGroup Services' highly trained, multi-lingual
and experienced security personnel work closely with our clients to create and
implement solutions to complex security problems. These services include the
design and implementation of risk management plans and security systems,
provision of security specialists and training of security personnel. ArmorGroup
Services provides its multi-national clients with specialized investigative
services enhanced by its global network. These services include intellectual
property asset protection and related investigative services ranging from
protecting companies against counterfeiting, patent infringements, product
tampering and extortion to identifying unethical supplier activities. In
addition, ArmorGroup Services provides business intelligence, fraud
investigation, computer forensic and asset tracing and recovery services to
financial services companies, law firms and other entities worldwide.
6
ARMOR HOLDINGS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BACKGROUND AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
PRINCIPLES OF CONSOLIDATION -- The consolidated financial statements
include the accounts of the Company and its wholly-owned subsidiaries. In
consolidation, all material intercompany balances and transactions have been
eliminated. Results of operations of companies acquired in transactions
accounted for under the purchase method of accounting are included in the
financial statements from the dates of the acquisition.
CASH AND CASH EQUIVALENTS -- The Company considers all highly liquid
investments purchased with original maturities of three months or less to be
cash equivalents.
CONCENTRATION OF CREDIT RISK - Financial instruments that potentially
subject the Company to concentrations of credit risk consist primarily of cash
and cash equivalents and trade accounts receivable. The Company maintains its
cash and cash equivalents with what it believes to be various high quality
banks. Amounts held in individual banks may periodically exceed, for brief time
periods, federally insured amounts. The Company's accounts receivable consist of
amounts due from customers and distributors located throughout the world.
International product sales generally require cash in advance or confirmed
letters of credit on United States ("U.S.") banks. The Company maintains
reserves for potential credit losses. As of December 31, 1999 and 2000,
management believes that the Company had no significant concentrations of credit
risk.
INVENTORIES -- Inventories are stated at the lower of cost or market
determined on the first-in, first-out ("FIFO") method.
FAIR VALUE OF FINANCIAL INSTRUMENTS -- The carrying value of cash and cash
equivalents, accounts receivable, other receivables, accounts payable, and short
and long-term debt approximates fair value at December 31, 1999 and 2000.
PROPERTY AND EQUIPMENT -- Property and equipment are carried at cost less
accumulated depreciation. Upon disposal of property and equipment, the
appropriate accounts are reduced by the related cost and accumulated
depreciation. The resulting gains and losses are reflected in consolidated
earnings. Depreciation is computed using the straight-line method over the
estimated lives of the related assets as follows:
Buildings and improvements ............. 5 - 39 years
Machinery and equipment ................ 3 - 7 years
GOODWILL -- Goodwill represents the excess of the purchase price over the
fair value of the net assets acquired in a purchase business combination.
Goodwill and other intangible assets are stated on the basis of cost and are
amortized, principally on a straight-line basis, over the estimated future
periods to be benefited (20 to 40 years).
PATENTS, LICENSES AND TRADEMARKS -- Patents, licenses and trademarks were
acquired through acquisitions accounted for by the purchase method of
accounting. Such assets are amortized on a straight line basis over their
remaining lives of 10 to 40 years.
7
ARMOR HOLDINGS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BACKGROUND AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
REORGANIZATION VALUE IN EXCESS OF AMOUNTS ALLOCABLE TO IDENTIFIABLE ASSETS
- -- This intangible asset, included in other assets, is amortized on a
straight-line basis over twenty-five years. The net asset at December 31, 1999
and 2000 amounted to approximately $1,511,000 and $1,355,000, respectively.
IMPAIRMENT - Long-lived assets including certain identifiable intangibles,
and the goodwill related to those assets, are reviewed for impairment whenever
events or changes in circumstances indicate that the carrying amount of the
asset in question may not be recoverable including, but not limited to, a
deterioration of profits for a business segment that has long-lived assets, and
when other changes occur which might impair recovery of long-lived assets.
Management has reviewed the Company's long-lived assets and has determined that
there are no events requiring impairment loss recognition. The method used to
determine the existence of an impairment would be undiscounted operating cash
flows estimated over the remaining amortization period for the related
long-lived assets. Impairment is measured as the difference between fair value
and unamortized cost at the date impairment is determined.
RESEARCH AND DEVELOPMENT -- Research and development costs are included in
operating expenses as incurred and for the years ended December 31, 1998, 1999
and 2000, approximated $738,000, $1,559,000, and $2,590,000, respectively.
ESTIMATES -- The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts in the financial statements and
accompanying notes. Significant estimates inherent in the preparation of the
accompanying consolidated financial statements include the carrying value of
long-lived assets, valuation allowances for receivables, inventories and
deferred income tax assets, liabilities for potential litigation claims and
settlements; and contract contingencies and obligations. Actual results could
differ from those estimates.
INCOME TAXES -- The Company accounts for income taxes pursuant to
Statement of Financial Accounting Standards ("SFAS") No. 109, "Accounting for
Income Taxes". Under the asset and liability method specified thereunder,
deferred taxes are determined based on the difference between the financial
reporting and tax bases of assets and liabilities. Deferred tax liabilities are
offset by deferred tax assets relating to net operating loss carryforwards and
deductible temporary differences. Future benefits obtained from utilization of
net operating loss carryforwards or from the reduction in the income tax asset
valuation allowance existing on September 20, 1993 have been and will be applied
to reduce reorganization value in excess of amounts allocable to identifiable
assets. At December 31, 1999 and 2000, the Company's consolidated foreign
subsidiaries have unremitted earnings of approximately $6 million and $10
million, respectively on which the Company has not recorded a provision for
United States Federal income taxes since these earnings are considered to be
permanently invested. Such foreign earnings have been taxed according to the
regulations existing in the countries in which they were earned.
REVENUE RECOGNITION -- The Company records service revenue as the service
is provided on a contract by contract basis. Revenues are recorded at the time
of shipment of products or performance of services. Revenues from service
contracts are recognized over the term of the contract. Returns are minimal and
do not materially effect financial statements.
8
ARMOR HOLDINGS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BACKGROUND AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
ADVERTISING - The Company expenses advertising costs as expense in the
period in which they are incurred.
EARNINGS PER SHARE - Basic earnings per share is computed by dividing net
income by the weighted-average number of common shares outstanding. Diluted
earnings per share is computed by dividing net income by the weighted-average
number of common shares outstanding compounding the effects of all potentially
dilutive common stock equivalents, principally options, except in cases where
the effect would be anti-dilutive.
COMPREHENSIVE INCOME AND FOREIGN CURRENCY TRANSLATION -- In accordance
with SFAS No. 130, "Reporting Comprehensive Income", assets and liabilities
denominated in a foreign currency are translated into U.S. dollars at the
current rate of exchange existing at year-end and revenues and expenses are
translated at the average monthly exchange rates. The cumulative translation
adjustment, net of tax, which represents the effect of translating assets and
liabilities of the Company's foreign operations is recorded as a reduction of
equity of $1,351,000 and $1,684,000 for the years ended December 31, 1999 and
2000, respectively, and is classified as accumulated other comprehensive loss.
The current year change in the accumulated amount, net of tax, is included as a
component of comprehensive income.
RECLASSIFICATIONS -- Certain reclassifications have been made to the 1998
and 1999 financial statements in order to conform to the presentation adopted
for 2000. These reclassifications had no effect on net income or retained
earnings.
AICPA STATEMENT OF POSITION 98-5 (SOP 98-5) -- The Company adopted the
American Institute of Certified Public Accountants (AICPA) Statement of Position
SOP 98-5, "Reporting on the Costs of Start-Up Activities, " on January 1, 1999.
SOP 98-5 requires the expensing of start-up costs, defined as pre-opening,
pre-operating and pre-contract type costs. The adoption of SOP 98-5 did not have
a material impact on the consolidated results of operations, financial position
or cash flows.
RECENT ACCOUNTING PRONOUNCEMENTS
In the fourth quarter of 2000, the Company adopted SEC Staff Accounting
Bulletin: No. 101 (SAB No. 101) - Revenue Recognition. The reporting
requirements under SAB No. 101 did not have an impact on the Company's
consolidated results of operations, financial position or cash flows.
The Company will adopt SFAS 133. "Accounting for Derivative Instruments
and Hedging Activities", as amended by SFAS No. 137 and 138, on January 1, 2001.
The Statement establishes accounting and reporting standards requiring that
every derivative instrument (including certain derivative instruments embedded
in other contracts) be recorded in the balance sheet as either an asset or
liability measured at its fair value. SFAS 133 requires that changes in the
derivative's fair value be recognized currently in earnings unless specific
hedge accounting criteria are met. The Company does not currently have
derivative instruments and accordingly, FAS 133, as amended, is not expected to
impact the Company's financial position, results of operations or cash flows.
9
ARMOR HOLDINGS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BACKGROUND AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
In March 2000, the FASB issued FASB Interpretation No. 44 ("FIN 44"),
"Accounting for Certain Transactions Involving Stock Compensation - an
Interpretation of APB Opinion No. 25." FIN 44 clarifies the application of APB
Opinion No. 25 and, among other issues, clarifies the following: the definition
of an employee for purposes of applying APB Opinion No. 25; the criteria for
determining whether a plan qualifies as a noncompensatory plan; the accounting
consequence of various modifications to the terms of previously fixed stock
options or awards; and the accounting for an exchange of stock compensation
awards in a business combination. The adoption of FIN 44 did not have an impact
on the Company's financial position, results of operations or cash flows.
2. BUSINESS COMBINATIONS
The Company has completed numerous purchase business combinations for cash
and/or shares of the Company's common stock and assumption of liabilities in
certain cases. In the three years in the period ended December 31, 2000, the
following acquisitions were made:
(in thousands, except shares issued)
Total Shares Value of
Consideration Issued Shares
------------------ --------------- ----------------
1998
- ----
Low Voltage Systems Technology, Inc. (January) $750 18,519 $188
Asmara Limited (April) $3,000 36,846 $415
Pro-Tech Armored Products of Massachusetts, Inc. (April) $1,600 42,592 $485
CDR International Ltd. (June) $2,500 210,460 $2,457
Alarm Protection Services, Inc. (July) $1,215 17,429 $200
Law Enforcement Division of Mace Security International (July) $4,600 -- --
1999
- ----
Safariland Ltd., Inc. (April) $45,000 300,752 $4,000
The Parvus Company (May) $1,300 64,876 $754
Alarm Systems Holding Company and Fire Alarm Service Corporation
(June) $12,700 1,226,021 $12,669
Additional purchase price paid/issued for acquisition earnouts $18,475 1,096 $17,438
Aggregate 2000 acquisitions $22,483 191,845 $2,094
Additional purchase price paid/issued for acquisition earnouts $1,316 24,064 $345
10
ARMOR HOLDINGS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2. BUSINESS COMBINATIONS - CONTINUED
Businesses acquired are included in consolidated results from the date of
acquisition. Pro forma results for the 2000 acquisitions are not presented as
they would not differ by a material amount from actual results. The following
unaudited pro forma consolidated results are presented to show the results on a
pro forma basis as if the 1998 and 1999 acquisitions had been made as of the
beginning of the years acquired; also as if made at the beginning of 1998 for
the 1999 acquisitions:
1998 1999
-------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Revenues............................................ $152,275 $173,973
Net income.......................................... $ 8,235 $ 13,321
Basic and diluted earnings per share................ $ 0.44 $ 0.59
Weighted average shares............................. 18,775 22,140
3. INVENTORIES
The components of inventory as of December 31, 1999 and 2000 are as
follows:
1999 2000
-------- --------
(IN THOUSANDS)
Raw materials....................................... $ 8,812 $13,756
Work-in-process..................................... 1,243 1,999
Finished goods...................................... 6,397 7,920
------- -------
$16,452 $23,675
======= =======
4. PROPERTY AND EQUIPMENT
Property and equipment as of December 31, 1999 and 2000 are summarized as
follows:
1999 2000
-------- --------
(IN THOUSANDS)
Land................................................ $ 1,330 $ 3,312
Buildings and improvements.......................... 7,536 10,394
Machinery and equipment............................. 13,780 21,030
-------- --------
Total............................................... 22,646 34,736
Accumulated depreciation............................ (6,279) (10,146)
-------- --------
$ 16,367 $ 24,590
======== ========
Depreciation expense for the years ended December 31, 1998, 1999 and 2000 was
approximately $1,409,000, $2,107,000, and $3,162,000 respectively. In the
statement of operations for the years ended December 31, 1998, 1999 and 2000,
depreciation expense in the income statement has been reduced by $131,000,
$130,000 and $130,000, respectively for the amortization of the proceeds
received under an economic development grant received from the Department of
Housing and Urban Development.
11
ARMOR HOLDINGS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
5. ACCOUNTS PAYABLE, ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES
Accounts payable, accrued expenses and other current liabilities as of
December 31, 1999 and 2000 are summarized as follows:
1999 2000
-------- --------
(IN THOUSANDS)
Trade and other payables............................ $5,717 4,432
Accrued expenses.................................... 6,382 6,914
Additional purchase price for acquisition earnouts.. - 3,000
Deferred consideration for acquisitions............. - 1,550
Other............................................... 2,162 2,263
------- -------
$14,261 $18,159
======= =======
6. DEBT
December 31, December 31,
1999 2000
---------- ---------
(IN THOUSANDS)
Credit facility (a) ............................................................ $ -- $ 32,981
Note to former shareholder, payable every four months in installments of
$95 through April 2000 with an imputed rate of interest of 10.0%............ 87 --
Ontario Industrial Development Authority Variable Rate Demand Industrial
Development Revenue Bonds, Series 1989 payable in annual installments of $200
to $300, through August 1, 2014, with interest paid monthly at varying rates -- 3,300
Note payable for purchase of business, discounted at 8.5%, requiring varying
principal payments through June 30, 2003 ..................................... -- 548
Note payable for purchase of software, payable in annual installments of
$125, with a fixed interest rate of 8.0% .................................... -- 350
Note to former officer payable in monthly principal and interest installments
of $7 through December 31, 2009 with an imputed interest rate of 9.25% ........ 505 469
Minimum guaranteed royalty to former officer payable in monthly principal and
interest installments of $4 through August 2005, with an imputed interest
rate of 9.2% ................................................................. 219 188
Minimum guaranteed royalty to former officer payable in monthly principal and
interest installments of $36 through April 2005, with an imputed interest
rate of 7.35% ............................................................... 1,888 1,524
------- --------
$ 2,699 $ 39,360
Less current portion............................................................ (359) (1,072)
------- --------
$ 2,340 $ 38,288
======= ========
(a) Credit Facility - On February 25, 2000, the Company amended its
existing credit agreement with Canadian Imperial Bank of Commerce, Inc.
("CIBC"), Bank of America, N.A. ("BofA"), First Union National Bank ("First
Union") and SunTrust Bank, North Florida, N.A. ("SunTrust") as lenders, BofA as
Documentation Agent, and CIBC as Administrative Agent (the "Credit Agreement").
Pursuant to the Credit Agreement, as amended, the several lenders established a
five-year $100,000,000 line of credit (the "Credit Facility") for the Company's
benefit.
12
ARMOR HOLDINGS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
6. DEBT - CONTINUED
The Company's indebtedness under the Credit Facility is evidenced by Five Year
(three years remaining) Revolving Credit Notes of up to $100,000,000. All
borrowings under the Credit Facility bear interest at either (1) the base rate,
plus an applicable margin ranging from .000% to .375% depending on certain
conditions, or the eurodollar rate, plus an applicable margin ranging from
1.125% to 1.875% depending on certain conditions. In addition, the Credit
Facility provides that BofA will make swing- line loans of up to $5,000,000
available to the Company to be used by the Company for working capital purposes.
CIBC, Inc. and BofA will also issue letters of credit of up to $10,000,000 to
the Company. At December 31, 2000, the Company had $32,980,770 outstanding under
the line of credit and approximately $3,804,000 outstanding in letters of
credit. The Company had no such borrowing outstanding at December 31, 1999.
As part of the credit agreement, all of the Company's direct and indirect
domestic subsidiaries agreed to guarantee the Company's obligations under the
credit agreement pursuant to a guarantee by certain subsidiaries. The credit
agreement is collateralized by (1) a pledge of all of the issued and outstanding
shares of stock of certain domestic subsidiaries of the Company pursuant to a
pledge agreement and (2) a pledge of 65% of the issued and outstanding shares of
the Company's foreign subsidiary, Armor Holdings Limited, organized under the
laws of England and Wales. In addition, the Company is restricted from paying
dividends
Maturities of long-term debt are as follows:
YEAR ENDED (IN THOUSANDS)
2001.............................. $ 1,072
2002.............................. 835
2003.............................. 861
2004.............................. 33,875
2005.............................. 362
Thereafter........................ 2,355
-------
$39,360
The Company's subsidiary Defense Systems Limited maintains a $2 million
overdraft facility with a variable interest rate requiring monthly interest
payments. This overdraft facility expires March 31, 2001. The overdraft facility
had an outstanding balance of approximately $1.9 million and $1.2 million for
the years ended December 31, 1999 and 2000 respectively.
7. INTEGRATION AND OTHER NON-RECURRING ITEMS
As a result of its acquisition program, the Company incurred integration
costs of approximately $2.6 million and $3.3 million for the years ending
December 31, 1999 and 2000, respectively. These costs related to the relocation
of assets and personnel, severance costs, systems integration, domestic and
international tax restructuring as well as integrating the sales and marketing
functions for the companies acquired during the period.
13
ARMOR HOLDINGS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
8. COMMITMENTS AND CONTINGENCIES
EMPLOYMENT CONTRACTS -- The Company is party to several employment
contracts at year ending December 31, 2000 with certain members of management.
Such contracts are for varying periods and include restrictions on competition
after termination. These agreements provide for salaries, bonuses and other
benefits and also specify and delineate the granting of various stock options.
LEGAL/LITIGATION MATTERS - On January 16, 1998, our ArmorGroup Services
division ceased operations in the country of Angola. The cessation of operations
in Angola was dictated by that government's decision to deport all of our
expatriate management and supervisors. As a result of the cessation of
operations in Angola, our Armor Group Services division is involved in various
disputes with SHRM S.A.("SHRM"), its minority joint venture partner relating to
the Angolan business. On March 6, 1998, SIA (a subsidiary of SHRM) filed a
complaint against Defense Systems France, SA ("DSF") before the Commercial Court
of Nanterre (Tribunal de Commerce de Nanterre) seeking to be paid an amount of
$577,286 corresponding to an alleged debt of DSIA to SIA. On, June 27, 2000, the
judge of the Paris Commercial Court ruled SHRM did not provide evidence required
to establish its standing and the proceedings brought by SHRM were cancelled. On
October 3, 2000, a winding up petition was served by DSF against DSIA. On
October 31, 2000, SHRM filed a counterclaim seeking to have this winding up
petition dismissed. On November 28, 2000, SHRM appealed the judgement rendered
by the Paris Commercial Court on June 27, 2000 claiming that the Paris
Commercial Court no longer has jurisdiction over the case. The procedure before
the Nanterre Commercial Court is still pending, awaiting a decision on the
liquidation of DSIA.
SETTLEMENTS -- In November of 2000, without either admitting or denying
the accusations, the Company settled its lawsuit with Second Chance Body Armor,
Inc. and other lawsuits for approximately $2.0 million, including legal costs.
The dispute that led to the Second Chance Body Armor lawsuit was filed in 1994
and related to allegations of trademark infringement that were purported to have
occurred during the period 1984 to 1994.
OTHER -- In addition to the above, the Company, in the normal course of
business, is subjected to claims and litigation in the areas of product and
general liability. Management believes it has adequate insurance coverage in the
areas of product and general liability. Management does not believe any of such
claims will have a material impact on the Company's financial statements.
9. INVESTMENT IN UNCONSOLIDATED SUBSIDIARIES
At December 31, 1999, the Company had a 20% investment in Jardine
Securicor Gurkha Services Limited ("JSGS") for which the equity method of
accounting for investments was used. On May 31, 2000, the Company sold its
investment in JSGS for a pre-tax gain of approximately $1.7 million included in
other income. The Company recognized equity in earnings of investee of $87,000
for the five months ended May 31, 2000, the date of the sale.
14
ARMOR HOLDINGS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
10. INFORMATION CONCERNING BUSINESS SEGMENTS AND GEOGRAPHICAL SALES
The Company is a leading global provider of security risk management
services and products to multi-national corporations, governmental agencies and
law enforcement personnel through two operating divisions -- ArmorGroup Services
and Armor Holdings Products. The ArmorGroup Services division provides
sophisticated security planning and risk management, electronic security systems
integration, consulting and training services, as well as intellectual property
asset protection, business intelligence and investigative services. The Armor
Holdings Products division manufactures and sells a broad range of high quality
branded law enforcement equipment.
The Company has invested substantial resources outside of the United
States and plans to continue to do so in the future. Substantially all of the
operations of the services segment is conducted in emerging markets in Africa,
Asia and South America. These operations are subject to the risk of new and
different legal and regulatory requirements in local jurisdictions, tariffs and
trade barriers, potential difficulties in staffing and managing local
operations, potential imposition of restrictions on investments, potentially
adverse tax consequences, including imposition or increase of withholding and
other taxes on remittances and other payments by subsidiaries, and local
economic, political and social conditions. Governments of many developing
countries have exercised and continue to exercise substantial influence over
many aspects of the private sector. Government actions in the future could have
a significant adverse effect on economic conditions in a developing country or
may otherwise have a material adverse effect on the Company and its operating
companies. The Company does not have political risk insurance in the countries
in which it currently conducts business. Moreover, applicable agreements
relating to the Company's interests in it operating companies are frequently
governed by foreign law. As a result, in the event of a dispute, it may be
difficult for the Company to enforce its rights. Accordingly, the Company may
have little or no recourse upon the occurrence of any of these developments.
Revenues, income from operations (before amortization, equity in earnings,
integration expenses and interest income, net) and total assets for each of our
segments for the years ended December 31, 1998, 1999 and 2000, were as follows:
1998 1999 2000
-------- -------- --------
(IN THOUSANDS)
Revenues:
Services............................ $ 51,563 $ 59,958 $ 85,612
Products............................ 45,644 96,706 135,343
-------- -------- --------
Total revenues................. $ 97,207 $156,664 $220,955
======== ======== ========
Income from operations:
Services............................ $ 6,695 $ 6,894 $ 9,842
Products............................ 8,717 21,195 29,879
Corporate........................... (1,758) (2,836) (6,606)
-------- -------- --------
Total income from operations... $ 13,654 $ 25,253 $ 33,115
======== ======== ========
15
ARMOR HOLDINGS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
10. INFORMATION CONCERNING BUSINESS SEGMENTS AND GEOGRAPHICAL SALES - CONTINUED
1998 1999 2000
-------- -------- --------
(IN THOUSANDS)
Total assets:
Services............................. $ 41,531 $ 65,134 $ 88,361
Products............................. 45,470 103,092 128,000
Corporate............................ 7,352 10,696 9,596
-------- -------- --------
Total assets................... $ 94,353 $178,922 $225,957
======== ======== ========
The following financial information with respect to sales to principal
geographic areas for the years ended December 31, 1998, 1999 and 2000 is as
follows:
1998 1999 2000
----------- ----------- ------------
Revenues:
North America....................... $36,596 $ 94,847 $144,966
South America....................... 16,484 16,246 17,941
Africa.............................. 18,932 17,987 18,153
Europe/Asia......................... 24,668 27,584 36,869
Other............................... 527 -- 3,026
------- -------- --------
Total revenues................. $97,207 $156,664 $220,955
======= ======== ========
Income from operations:
North America....................... $ 6,464 $ 16,938 $ 23,753
South America....................... 2,344 2,855 3,223
Africa.............................. 4,220 2,645 5,124
Europe/Asia......................... 502 2,815 288
Other............................... 124 -- 727
------- -------- --------
Total income from operations... $13,654 $ 25,253 $ 33,115
======= ======== ========
Total assets:
North America....................... $47,881 $142,375 $163,047
South America....................... 4,477 5,673 6,974
Africa.............................. 4,892 3,001 14,447
Europe/Asia......................... 37,103 27,873 41,489
------- -------- --------
Total assets................... $94,353 $178,922 $225,957
======= ======== ========
11. INCOME TAXES
Income tax expense (benefit) for the years ended December 31, 1998,
1999, and 2000 consisted of the following:
1998 1999 2000
---------- ---------- ----------
(IN THOUSANDS)
Current
Domestic.............................. $2,638 $6,059 $8,270
Foreign............................... 2,641 1,458 782
------ ------- ------
Total current........................ $5,279 $ 7,517 $9,052
------ ------- ------
Deferred
Domestic.............................. $ 107 $ 597 676
Foreign............................... (309) (111) (386)
------ ------- ------
Total deferred..................... $ (202) $ 486 $ 290
------ ------- ------
Total provision for income taxes.. $5,077 $ 8,003 $9,342
====== ======= ======
16
ARMOR HOLDINGS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
11. INCOME TAXES - CONTINUED
Significant components of the Company's net deferred tax asset as of
December 31, 1999 and 2000 are as follows:
1999 2000
---------- ----------
(IN THOUSANDS)
Deferred tax assets:
Reserves not currently deductible............ $ 1,428 $1,383
Operating loss carryforwards................. 3,063 3,263
Research and development and other .......... 551 426
---------- ----------
5,042 5,072
Deferred tax asset valuation allowance............ (75) (75)
---------- ----------
Deferred tax asset, net of valuation allowance.... $ 4,967 $ 4,997
Deferred tax liability:
Property and equipment ..................... (310) (630)
========== ==========
Net deferred tax asset ........................... $ 4,657 $ 4,367
========== ==========
The components giving rise to the net deferred tax asset described above
have been included in the accompanying consolidated balance sheet as of December
31, 1999 and 2000 are as follows:
1999 2000
---------- -----------
Other current assets ................ $1,306 $1,620
Other assets......................... 3,351 2,747
---------- -----------
Total deferred tax assets............ $4,657 $4,367
========== ===========
The following reconciles the income tax expense computed at the Federal
statutory income tax rate to the provision for income taxes recorded in the
income statement for the years ended December 31, 1998, 1999 and 2000:
1998 1999 2000
---------- ---------- ----------
Provision for income taxes at statutory Federal rate 34.0% 35.0% 35.0%
State and local income taxes, net of Federal benefit 1.8% 1.6% 1.3%
Foreign income taxes 1.5% 0.8% (4.2%)
Other non-deductible items (0.1%) 0.4% 3.3%
---------- ---------- ----------
37.2% 37.8% 35.4%
========== ========== ==========
The decrease in effective tax rate indicated above for foreign taxes is a
result of the Company's re-estimation of foreign tax liabilities and the related
U.S. liability as a result of the Company's execution of certain reorganization
and other strategic plans.
17
ARMOR HOLDINGS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
12. STOCKHOLDERS' EQUITY - CONTINUED
Effective with the change in control of the Company by Kanders Florida
Holdings, Inc. on January 18, 1996, the utilization of the United States portion
of the NOL became restricted to approximately $300,000 per year. As of December
31, 2000, the Company had U.S. and foreign NOLs of approximately $10,400,000.
The U.S. portion of the net NOLs expire in varying amounts in fiscal years 2006
to 2019. At December 31, 2000, the Company also has tax credits of $426,000
subject to certain limitations due to the acquisition of Safariland, LTD. These
credits will expire in varying amounts in fiscal years to 2019.
PREFERRED STOCK -- On July 16, 1996, the Company's shareholders authorized
a series of preferred stock with such rights, privileges and preferences as the
Board of Directors shall from time to time determine. The Company has not issued
any of this preferred stock.
STOCK OPTIONS AND GRANTS -- In 1994, the Company implemented an incentive
stock plan and an outside directors' stock plan. These plans collectively
provide for the granting of options to certain key employees as well as
providing for the grant of common stock to outside directors and to all full
time employees. Pursuant to such plans, 1,050,000 shares of common stock were
reserved and made available for distribution. The option prices of stock which
may be purchased under the incentive stock plan are not less than the fair
market value of common stock on the dates of the grants. Effective January 19,
1996, all stock grants awarded under the 1994 incentive stock plan were
accelerated and considered fully vested.
In 1996, the Company implemented an incentive stock plan and an outside
directors' stock plan. These plans collectively provide for the granting of
options to certain key employees and directors. Pursuant to such plans, as
amended, 2,200,000 shares of common stock were reserved and made available for
distribution. The option prices of stock which may be purchased under the
incentive stock plan are not less than the fair market value of common stock on
the dates of the grants.
During 1998, the Company implemented a new non-qualified stock option
plan. Pursuant to the new plan, 725,000 shares of common stock were reserved and
made available for distribution. On January 1, 1999, the Company distributed all
725,000 shares allocated under the plan. In 1999, the Company implemented the
1999 Stock Incentive Plan (the "1999 Plan"). The Company reserved 2,000,000
shares of its Common Stock for the 1999 Plan. The 1999 Plan provides for the
granting to employees, officers, directors, consultants, independent contractors
and advisors of the Company. The option prices of stock which may be purchased
under the 1999 Plan are not less than the fair market value of common stock on
the dates of the grants.
Effective January 1, 1996, the Company adopted SFAS No. 123, "Accounting
for Stock-Based Compensation" ("SFAS 123"). SFAS 123 establishes a fair value
based method of accounting for stock-based employee compensation plans; however,
it also allows an entity to continue to measure compensation cost for those
plans using the intrinsic value based method of accounting prescribed by
Accounting Principles Board ("APB") Opinion No. 25, "Accounting for Stock Issued
to Employees." Under the fair value based method, compensation cost is measured
at the grant date based on the value of the award and is recognized over the
service period, which is usually the vesting period. Under the intrinsic value
based method, compensation costs is the excess, if any, of the quoted market
price of the stock at the grant date or other measurement date over the amount
an employee must pay to acquire the stock. The Company has elected to continue
to account
18
ARMOR HOLDINGS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
12. STOCKHOLDERS' EQUITY - CONTINUED
for its employee stock compensation plans under APB Opinion No. 25 with pro
forma disclosures of net earnings and earnings per share, as if the fair value
based method of accounting defined in SFAS No. 123 had been applied.
If compensation cost for stock option grants had been determined based on
the fair value on the grant dates for 1998 1999 and 2000 consistent with the
method prescribed by SFAS No. 123, the Company's net earnings and earnings per
share would have been adjusted to the pro forma amounts for the years ended
December 31, 1998, 1999 and 2000 as indicated below:
1998 1999 2000
------------- -------------- ------------
Net earnings........................ As reported $ 8,596 $ 13,196 $ 17,048
Pro forma $ 7,844 $ 11,375 $ 16,245
Diluted earnings per share.......... As reported $ 0.50 $ 0.61 $ 0.73
Pro Forma $ 0.45 $ 0.52 $ 0.70
Under SFAS 123, the fair value of each option grant is estimated on the
date of grant using the Black-Scholes option-pricing model with the following
weighted-average assumptions for the years ended December 31, 1998, 1999 and
2000:
1998 1999 2000
----------- ---------- ---------
Expected life of option............. 3 yrs 3 yrs 4 yrs
Dividend yield...................... 0% 0% 0%
Volatility.......................... 31.9% 35.8% 30.9%
Risk free interest rate............. 5.50% 5.76% 5.76%
The weighted average fair value of options granted during 1998, 1999 and
2000 are as follows:
1998 1999 2000
---------------------- ----------- -------------
(IN THOUSANDS, EXCEPT FOR FAIR VALUE OF OPTIONS)
Fair value of each option granted................... $2.89 $ 3.48 $4.79
Total number of options granted..................... 286 1,871 185
Total fair value of all options granted............. $ 827 $6,511 $886
Outstanding options, consisting of ten-year incentive and non-qualified
stock options, vest and become exercisable over a three year period from the
date of grant. The outstanding options expire ten years from the date of grant
or upon retirement from the Company, and are contingent upon continued
employment during the applicable ten-year period.
19
ARMOR HOLDINGS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
12. STOCKHOLDERS' EQUITY - CONTINUED
A summary of the status of stock option grants as of December 31, 2000 and
changes during the years ending on those dates is presented below:
WEIGHTED
AVERAGE
OPTIONS EXERCISE PRICE
------------- ---------------------
Outstanding at December 27, 1997............... 2,041,000 $ 5.69
Granted........................................ 286,450 10.32
Exercised...................................... (148,582) 1.11
Forfeited...................................... (101,667) 10.12
---------
Outstanding at December 31, 1998............... 2,077,201 6.46
Granted........................................ 1,871,000 11.14
Exercised...................................... (298,277) 3.65
Forfeited...................................... (104,666) 9.54
---------
Outstanding at December 31, 1999............... 3,545,258
Granted........................................ 185,000 14.37
Exercised...................................... (333,075) 4.57
Forfeited...................................... (102,344) 10.98
---------
Outstanding at December 31, 2000............... 3,294,839
=========
Options exercisable at December 31, 2000....... 2,192,109
=========
The following table summarizes information about stock options outstanding as of
December 31, 2000:
12/31/2000 REMAINING
OPTIONS OPTIONS LIFE IN
EXERCISE PRICE OUTSTANDING EXERCISABLE YEARS
--------------- --------------- -------------
0.97..................................... 19,166 19,166 3.5
1.05..................................... 109,429 109,429 5.0
3.75..................................... 150,000 150,000 5.0
6.06..................................... 150,000 150,000 5.7
6.75..................................... 20,000 20,000 6.0
6.94..................................... 12,000 12,000 5.7
7.38..................................... 15,000 15,000 5.7
7.50..................................... 375,000 375,000 5.4
7.81..................................... 10,000 10,000 6.0
8.00..................................... 75,000 75,000 5.8
9.00..................................... 10,000 10,000 6.3
9.25..................................... 115,000 72,333 7.7
9.50..................................... 10,000 10,000 6.3
20
ARMOR HOLDINGS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
12. STOCKHOLDERS' EQUITY - CONTINUED
9.69...................................... 225,625 115,209 8.5
9.94...................................... 3,000 2,000 7.6
10.00...................................... 5,000 1,667 8.6
10.19...................................... 86,000 28,668 8.5
10.25...................................... 20,000 6,667 8.6
10.31...................................... 2,000 667 8.5
10.44...................................... 147,000 115,665 7.3
10.56...................................... 3,334 1,111 8.4
10.63...................................... 16,667 8,334 7.9
10.72...................................... 8,334 - 7.0
11.00...................................... 154,800 148,133 6.7
11.19...................................... 63,834 43,560 7.9
11.31...................................... 725,000 375,001 8.0
11.63...................................... 3,000 1,000 8.3
11.88...................................... 7,000 333 7.5
12.00...................................... 50,000 50,000 6.7
12.03...................................... 25,000 8,333 8.9
12.19...................................... 25,000 - 8.1
12.25...................................... 11,450 7,299 7.4
12.69...................................... 150,000 50,000 8.3
12.85...................................... 44,800 44,800 6.2
13.13...................................... 10,000 3,334 8.2
13.19...................................... 309,000 116,667 8.6
13.50...................................... 10,000 3,333 8.0
14.44...................................... 30,000 10,000 8.2
14.83...................................... 22,400 22,400 6.2
16.31...................................... 6,000 - 9.8
17.00...................................... 60,000 - 10.0
------------ ------------
Total....................................... 3,294,839 2,192,109
============ ============
Remaining non-exercisable options as of December 31, 2000 become exercisable as
follows:
2001................................ 584,413
2002................................ 473,317
2003................................ 45,000
EARNINGS PER SHARE -- The following details the earnings per share
computations on a basic and diluted basis for the years ended December 31,
1998, 1999 and 2000:
1998 1999 2000
------------ ------------ -----------
Numerator for basic and diluted earnings per share:
Net income available to common shareholders............. $ 8,596 $ 13,196 $ 17,048
------------ ------------ -----------
Denominator:
Basic earnings per share weighted average shares
outstanding............................................ 16,165 21,006 22,630
21
ARMOR HOLDINGS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
12. STOCKHOLDERS' EQUITY - CONTINUED
1998 1999 2000
------------ ------------ -----------
Effect of dilutive securities:
Effect of shares issuable under stock option and
stock grant plans, based on the treasury stock
Method.................................................. 1,189 696 726
------- ------- -------
Denominator for diluted earnings per share --
Adjusted weighted-average shares........................ 17,354 21,702 23,356
------- ------- -------
Basic earnings per share.................................... $ 0.53 $ 0.63 $ 0.75
======= ======= =======
Diluted earnings per share.................................. $ 0.50 $ 0.61 $ 0.73
======= ======= =======
13. SUPPLEMENTAL CASH FLOW INFORMATION:
1998 1999 2000
------------ ------------ -----------
Cash paid during the year for:
Interest................................................. $ 273 $ 993 $ 1,809
======== ======== ========
Income taxes............................................. $ 4,724 $ 8,418 $ 8,935
======== ======== ========
Acquisitions of businesses, net of cash acquired:
Fair value of assets acquired............................ $10,578 $20,476 $ 6,142
Goodwill................................................. 11,732 50,859 24,100
Liabilities assumed...................................... (10,072) (17,220) (8,560)
Stock issued............................................. (3,746) (17,438) (2,439)
------------ ------------ -----------
Total cash paid.......................................... $ 8,492 $ 36,677 $ 19,243
======== ======== ========
Debt assumed in acquisition of property.................. $ - $ - $ 3,500
Note payable issued for equipment.... ................... $ - $ - $ 500
14. QUARTERLY RESULTS (UNAUDITED)
The following table presents summarized unaudited quarterly results of
operations for the Company for fiscal 1999 and 2000. The Company believes all
necessary adjustments have been included in the amounts stated below to present
fairly the following selected information when read in conjunction with the
Consolidated Financial Statements and Notes thereto included elsewhere herein.
Future quarterly operating results may fluctuate depending on a number of
factors. Results of operations for any particular quarter are not necessarily
indicative of results of operations for a full year or any other quarter.
FISCAL 1999
------------------------------------------------------------------
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
------- ------- ------- -------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Revenue........................................ $26,840 $38,911 $45,091 $45,822
Gross profit................................... $10,550 $15,716 $17,850 $18,141
Net income..................................... $2,740 $2,835 $3,902 $3,719
Basic earnings per share....................... $ 0.17 $ 0.14 $0.16 $ 0.16
Diluted earnings per share..................... $ 0.16 $ 0.14 $ 0.16 $ 0.15
22
ARMOR HOLDINGS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
14. QUARTERLY RESULTS (UNAUDITED) - CONTINUED
FISCAL 2000
------------------------------------------------------------------
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
------- ------- ------- -------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Revenue......................................... $49,866 $55,467 $57,118 $58,504
Gross profit.................................... 18,758 21,110 21,773 21,815
Net income...................................... $4,080 $5,536 2,460 4,972
Basic earnings per share........................ $0.18 $0.25 $0.11 $0.22
Diluted earnings per share...................... $0.17 $0.24 $0.11 $0.21
15. EMPLOYEE BENEFIT PLANS
In October 1997, the Company formed a 401(k) plan, (the "Plan") which
provides for voluntary contributions by employees and allows for a discretionary
contribution by the Company in the form of cash. The Company made a contribution
of approximately $243,000 to the Plan in 2000. There were no such contributions
in 1999 or 1998.
16. RELATED PARTY TRANSACTIONS
The Company subcontracts for certain security guard services with Alpha,
Inc., wholly owned by a shareholder of the Company, who is also a director of
Gorandel Trading Limited. In fiscal 1998, 1999 and 2000, security guard service
fees of approximately $5,204,000; $3,392,000; and $2,444,000 respectively, were
paid to Alpha. In August of 2000, The purchase price was approximately $1.0
million in cash consisting of both a current and deferred portion.
On January 1, 1999, the Company entered into an agreement with Kanders &
Company, Inc. to provide investment banking and financial advisory services to
the Company. The specific details of such services and compensation to be paid
to Kanders & Co. will be determined by the parties on a case by case basis.
Warren B. Kanders, Chairman of the Board of the Company, is the sole stockholder
of Kanders & Company, Inc.
17. OPERATING LEASES
The Company is party to certain real estate, equipment and vehicle leases.
Several leases include options for renewal and escalation clauses. In most
cases, management expects that in the normal course of business leases will be
renewed or replaced by other leases. Approximate total future minimum annual
lease payments under all noncancelable leases are as follows:
Year (In thousands)
- ---- --------------
2001 ............................... $1,256
2002 ............................... 808
2003 ............................... 613
2004 ............................... 512
2005 ............................... 232
Thereafter ......................... 362
------
$3,783
======
The Company incurred rent expense of approximately $485,000, $1,152,000,
and $1,523,700 during the years ended December 31, 1998, December 31, 1999 and
December 31, 2000.
23
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: March 31, 2001
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated:
/s/ Jonathan M. Spiller /s/ Warren B. Kanders
- - ---------------------------------- ----------------------------------
Jonathan M. Spiller Warren B. Kanders
President and Chief Executive Chairman of the Board of Directors
Officer and Director March 31, 2001
Principal Executive Officer
March 31, 2001
/s/ Robert R. Schiller /s/ Nicholas Sokolow
- ----------------------------------- ----------------------------------
Robert R. Schiller Nicholas Sokolow
Executive Vice President Director
and Chief Financial Officer March 31, 2001
March 31, 2001
/s/ Burtt R. Ehrlich /s/ Thomas W. Strauss
- ----------------------------------- ----------------------------------
Burtt R. Ehrlich Thomas W. Strauss
Director Director
March 31, 2001 March 31, 2001
/s/ Alair A. Townsend /s/ Stephen B. Salzman
- ----------------------------------- ----------------------------------
Alair A. Townsend Stephen B. Salzman
Director Director
March 31, 2001 March 31, 2001
The following Exhibits are hereby filed as part of this Annual Report on Form
10-K:
EXHIBIT
NO. DESCRIPTION
- ------- -----------
+2.1 Order confirming Debtor's Third Amended and Restated Plan of
Reorganization with the Third Amended and Restated Plan of
Reorganization attached thereto (incorporated by reference
from Exhibit 2 to our Form 8-K, Current Report, dated October
1, 1993).
+2.2 Asset Purchase Agreement, dated as of July 2, 1996, between
the Company, NIK, Ivers-Lee and LFC No. 46 Corp. (filed as
Exhibit 2.1 to our Form 8-K, Current Report, dated July 30,
1996 and incorporated herein by reference).
+2.3 Asset Purchase Agreement, dated as of August 23, 1996, between
the Company, DTC, Robert L. Oliver, Sandra A. Oliver and DTCoA
(filed as Exhibit 2.1 to our Form 8-K, Current Report, dated
October 9, 1996 and incorporated herein by reference).
+2.4 Agreement and Plan of Merger, dated July 23, 1996, by and
between American Body Armor & Equipment, a Florida
corporation, and the Company (filed as Exhibit 2.1 to our Form
8-K, Current Report, dated September 3, 1996 and incorporated
herein by reference).
+2.5 Share Acquisition Agreement, dated as of April 7, 1997,
between Bodycote, AHL and the Company (filed as Exhibit 2.1 to
our Form 8-K, Current Report, dated April 22, 1997 and
incorporated herein by reference).
+2.6 Agreement for the Sale and Purchase of the Whole of the Issued
Share Capital of DSL, dated April 16, 1997, between the
company, AHL, NatWest Ventures Nominees Limited and Others and
Martin Brayshaw (filed as Exhibit 2.2 to our Form 8-K, Current
Report, dated April 22, 1997 and incorporated herein by
reference).
+2.7 Share Acquisition Agreement, dated as of June 9, 1997, between
the Company, Strontian Holdings Limited, Alpha-A Limited and
Others (filed as Exhibit 2.1 to our Form 8-K, Current Report,
dated June 24, 1997 and incorporated herein by reference).
+2.8 Stock Purchase Agreement by and among Armor Holdings, Inc.,
The Neale A. Perkins Trust, The Scott T. O'Brien and Victoria
S. O'Brien Revocable Trust, The David M. Holmes and Katherine
C. Holmes Revocable Trust, Neale A. Perkins, David M. Holmes,
Scott T. O'Brien and Safariland Ltd., Inc. dated as of April
12, 1999 (filed as Exhibit 2.8 to Amendment No. 1 to our
Registration Statement on Form S-3 filed with the Commission
on April 15, 1999 and incorporated herein by reference).
+3.1 Certificate of Incorporation of the Company (filed as
Exhibit 3.1 to Form 8-K, Current Report of the Company, dated
September 3, 1996 and incorporated herein by reference).
+3.2 Certificate of Merger of American Body Armor & Equipment,
Inc., a Florida corporation, and the Company (filed as Exhibit
3.2 to Form 8-K, Current Report of the Company, dated
September 3, 1996 and incorporated herein by reference).
+3.3 Bylaws of the Company (filed as Exhibit 3.3 to Form 8-K,
Current Report of the Company, dated September 3, 1996 and
incorporated herein by reference).
+3.4 Amendment to Bylaws of the Company (incorporated by reference
to Exhibit 3.3.2 to our Form 10-K Annual Report for the fiscal
year ended December 31, 1998 (the "98 10-K)).
+10.1 Credit Agreement (the "Credit Agreement"), dated as of
February 12, 1999, among the Company, CIBC, NationsBank, First
Union and SunTrust, as lenders, Canadian Imperial Bank of
Commerce, as Administrative Agent and NationsBank, as
Documentation Agent, in the aggregate principal amount of
$60,000,000 (filed as Exhibit 5.1 to Form 8-K, Current Report
of the Company, filed with the Commission on March 10, 1999
and incorporated herein by reference).
+10.2 364-Day Revolving Credit Note, dated February 12, 1999, in the
principal amount of up to $4,166,667 made by the Company in
favor of First Union (filed as Exhibit 5.2 to Form 8-K,
Current Report of the Company, filed with the Commission on
March 10, 1999 and incorporated herein by reference).
+10.3 364-Day Revolving Credit Note, dated February 12, 1999, in the
principal amount of up to $4,166,667 made by the Company in
favor of SunTrust (filed as Exhibit 5.3 to Form 8-K, Current
Report of the Company, filed with the Commission on March 10,
1999 and incorporated herein by reference).
+10.4 364-Day Revolving Credit Note, dated February 12, 1999, in the
principal amount of up to $5,833,333 made by the Company in
favor of NationsBank (filed as Exhibit 5.4 to Form 8-K,
Current Report of the Company, filed with the Commission on
March 10, 1999 and incorporated herein by reference).
+10.5 364-Day Revolving Credit Note, dated February 12, 1999, in the
principal amount of up to $5,833,333 made by the Company in
favor of CIBC (filed as Exhibit 5.5 to Form 8-K, Current
Report of the Company, filed with the Commission on March 10,
1999 and incorporated herein by reference).
+10.6 Five Year Revolving Credit Note, dated February 12, 1999, in
the principal amount of up to $8,333,333 made by the Company
in favor of First Union (filed as Exhibit 5.6 to Form 8-K,
Current Report of the Company, filed with the Commission on
March 10, 1999 and incorporated herein by reference).
+10.7 Five Year Revolving Credit Note, dated February 12, 1999, in
the principal amount of up to $8,333,333 made by the Company
in favor of SunTrust (filed as Exhibit 5.7 to Form 8-K,
Current Report of the Company, filed with the Commission on
March 10, 1999 and incorporated herein by reference).
+10.8 Five Year Revolving Credit Note, dated February 12, 1999, in
the principal amount of up to $11,666,667 made by the Company
in favor of NationsBank (filed as Exhibit 5.8 to Form 8-K,
Current Report of the Company, filed with the Commission on
March 10, 1999 and incorporated herein by reference).
+10.9 Five Year Revolving Credit Note, dated February 12, 1999, in
the principal amount of up to $11,666,667 made by the Company
in favor of CIBC (filed as Exhibit 5.9 to Form 8-K, Current
Report of the Company, filed with the Commission on March 10,
1999 and incorporated herein by reference).
+10.10 Borrower Pledge Agreement, dated as of February 12, 1999, made
by the Company in favor of Canadian Imperial Bank of Commerce
as Administrative Agent for the Lenders (filed as Exhibit 5.10
to Form 8-K, Current Report of the Company, filed with the
Commission on March 10, 1999 and incorporated herein by
reference).
+10.11 Security Deed, dated February 12, 1999, made by the Company in
favor of Canadian Imperial Bank of Commerce as Administrative
Agent for the Lenders (filed as Exhibit 5.11 to Form 8-K,
Current Report of the Company, filed with the Commission on
March 10, 1999 and incorporated herein by reference).
+10.12 Subsidiaries Guarantee, dated as of February 12, 1999, made by
the Company in favor of Canadian Imperial Bank of Commerce as
Administrative Agent for the Lenders (filed as Exhibit 5.12 to
Form 8-K, Current Report of the Company, dated March 10, 1999
and incorporated herein by reference).
+10.13 First Amendment, dated as of October 26, 1999, to the Credit
agreement.
+10.14 Second Amendment, dated as of February 25, 2000, to the Credit
Agreement.
@+10.15 Amended and Restated Employment Agreement between Jonathan M.
Spiller and the Company, dated as of January 1, 1999
(incorporated by reference to Exhibit 10.5 to our 98 10-K).
@+10.16 Amended and Restated Employment Agreement between Robert R.
Schiller and the Company, dated as of January 1, 1999
(incorporated by reference to Exhibit 10.6 to the 98 10-K).
@+10.17 Employment Agreement between Stephen E. Croskrey and the
Company, dated as of February 8, 1999 (incorporated by
reference to Exhibit 10.7 to the 98 10-K).
@+10.18 Employment Agreement between Warren B. Kanders and the
Company, dated as of January 1, 1999 (incorporated by
reference to Exhibit 10.9 to the 98 10-K).
+10.19 Form of Registration Rights Agreement, dated April 16, 1997,
between the Company and the Vendors of DSL (filed as Exhibit
10.3 to Form 8-K, Current Report of the Company, dated April
22, 1997 and incorporated herein by reference).
+10.20 Form of Option for 300,000 shares of Common Stock, dated May
15, 1996 granted to Richmont Capital Partners I, L.P. (filed
as Exhibit 10.34 to Registration Statement No. 333-28879 on
Form S-1 of the Company and incorporated herein by reference).
+10.21 Agreement, dated as of April 21, 1998, amending Option, dated
May 15, 1996, granted to Richmont Capital Partners I, L.P. for
300,000 shares of Common Stock (incorporated by reference to
Exhibit 10.33 to the 98 10-K).
+10.22 Form of Indemnification Agreement for Directors of the
Registrant, dated September 21, 1993 (filed as Exhibit 10.4 to
Form 10-KSB, Annual Report of the Company for the fiscal year
ended December 31, 1993 and incorporated herein by reference).
+10.23 Form of Indemnification Agreement for Officers of the
Registrant, dated February 28, 1994 (filed as Exhibit 10.5 to
Form 10-KSB, Annual Report of the Company for the fiscal year
ended December 31, 1993 and incorporated herein by reference).
**+10.24 American Body Armor & Equipment, Inc. 1994 Incentive Stock
Plan (incorporated by reference from Form S-8 filed on October
10, 1994, Reg. No. 33-018863).
**+10.25 American Body Armor & Equipment, Inc. 1994 Directors Stock
Plan (incorporated by reference from Form S-8 filed on October
31, 1994, Reg. No. 33-018863).
**+10.26 Armor Holdings, Inc. Amended and Restated 1996 Stock Option
Plan (incorporated by reference from the Company's 1997
Definitive Proxy Statement with respect to the Company's 1997
Annual Meeting of Stockholders, held June 12, 1997, as filed
with the Commission on May 27, 1997).
**+10.27 Armor Holdings Inc. Amended and Restated 1996 Non-Employee
Directors Stock Option Plan (incorporated by reference from
the Company's 1997 Definitive Proxy Statement with respect to
the Company's 1997 Annual Meeting of Stockholders, held June
12, 1997, as filed with the Commission on May 27, 1997).
**+10.28 Armor Holdings, Inc. 1998 Stock Option Plan (incorporated by
reference to Exhibit 10.19 to the 98 10-K).
**+10.29 Armor Holdings, Inc. 1999 Stock Incentive Plan (incorporated
by reference from Appendix A to the Company's 1999 Definitive
Proxy Statement with respect to the Company's 1999 Annual
Meeting of Stockholders, as filed with the Commission on May
21, 1999).
+10.30 Lease for the Company's former primary facility located in
Yulee, Florida, dated July 26, 1993, effective May 1, 1993
(filed as Exhibit 28.1 to Form 10-KSB, Annual Report of the
Company, for the fiscal year ended December 31, 1993 and
incorporated herein by reference).
+10.31 Agreement, dated as of March 8, 1999, between the Company and
Kanders & Company, Inc (incorporated by reference to Exhibit
10.21 to the 98 10-K).
*23.1 Consent of PricewaterhouseCoopers LLP.
- --------------------------
* Filed herewith.
+ Incorporated herein by reference.
** This Exhibit represents a management contract.
# This Exhibit represents a compensatory plan.