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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
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FORM 10-Q
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(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED June 30, 2002, or
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO .
COMMISSION FILE NUMBER 0-18863
ARMOR HOLDINGS, INC.
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(Exact name of registrant as specified in its charter)
DELAWARE 59-3392443
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
1400 MARSH LANDING PARKWAY, SUITE 112
JACKSONVILLE, FLORIDA 32250
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (904) 741-5400
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Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No _
The number of shares outstanding of the registrant's Common Stock as of
August 8, 2002 is 29,324,547.
ARMOR HOLDINGS, INC.
FORM 10-Q
INDEX
Page
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS......................................... 3
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS................ 20
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK............................................ 31
PART II - OTHER INFORMATION................................................
ITEM 1. LEGAL PROCEEDINGS............................................ 33
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY
HOLDERS...................................................... 33
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K............................. 34
SIGNATURES 35
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
The accompanying unaudited condensed consolidated financial statements
of Armor Holdings, Inc. and its wholly-owned subsidiaries include all
adjustments (consisting only of normal recurring accruals and the elimination of
all material intercompany accounts and transactions) which management considers
necessary for a fair presentation of operating results as of June 30, 2002 and
for the three-month and six-month periods ended June 30, 2002 and June 30, 2001.
These unaudited condensed consolidated financial statements should be
read in conjunction with the financial statements included in our Annual Report
on Form 10-K for the year ended December 31, 2001.
3
ARMOR HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
JUNE 30, 2002 DECEMBER 31, 2001
(UNAUDITED) *
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 36,509 $ 47,489
Accounts receivable (net of allowance for
doubtful accounts of $1,384 and $1,620) 53,683 50,119
Costs and earned gross profit in excess of billings 3,149 5,451
Inventories 60,638 50,553
Prepaid expenses and other current assets 14,691 8,947
Current assets of discontinued operations (Note 2) 38,277 37,562
-------- --------
Total current assets 206,947 200,121
PROPERTY, PLANT AND EQUIPMENT (net
of accumulated depreciation of $10,371 and
$8,096) 36,698 36,704
GOODWILL (net of accumulated amortization
of $4,024 and $4,024) 90,216 86,808
PATENTS, LICENSES AND TRADEMARKS
(net of accumulated amortization of $2,078 and
$1,930) 7,154 6,695
Long-term assets of discontinued operations (Note 2) 51,712 50,341
OTHER ASSETS 6,058 7,388
-------- --------
TOTAL ASSETS $398,785 $388,057
======== ========
* Condensed from audited financial statements.
See notes to condensed consolidated financial statements.
4
ARMOR HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (CONTINUED)
(IN THOUSANDS, EXCEPT FOR SHARE DATA)
JUNE 30, DECEMBER 31,
2002 2001
--------- ------------
(UNAUDITED) *
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt $ 1,754 $ 1,773
Short-term debt 577 709
Accounts payable 19,816 21,444
Accrued expenses and other current liabilities 20,009 24,514
Income taxes payable 4,159 --
Current liabilities of discontinued operations (Note 2) 10,068 8,958
--------- ---------
Total current liabilities 56,383 57,398
Long-term liabilities of discontinued operations (Note 2) 269 415
LONG-TERM DEBT, less current portion 4,004 4,225
--------- ---------
Total liabilities 60,656 62,038
COMMITMENTS AND CONTINGENCIES
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; 33,466,549 and 33,065,904 issued and
31,240,664 and 30,857,019 outstanding at
June 30, 2002 and December 31, 2001,
respectively 335 331
Additional paid-in capital 304,632 301,995
Retained earnings 61,780 51,745
Accumulated other comprehensive loss (4,708) (4,473)
Treasury stock (23,910) (23,579)
--------- ---------
Total stockholders' equity 338,129 326,019
--------- ---------
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY $ 398,795 $ 388,057
========= =========
* Condensed from audited financial statements.
See notes to condensed consolidated financial statements.
5
ARMOR HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30, JUNE 30, JUNE 30
2002 2001 2002 2001
--------- --------- --------- ---------
REVENUES:
Products $ 43,057 $ 38,100 $ 82,002 $ 68,268
Mobile Security 28,548 -- 59,207 --
--------- --------- --------- ---------
Total Revenues 71,605 38,100 141,209 68,268
--------- --------- --------- ---------
COSTS AND EXPENSES:
Cost of sales 48,904 22,235 96,534 40,213
Operating expenses 12,781 7,898 24,194 15,541
Amortization 32 539 151 1,046
Integration and other non-recurring
charges 1,720 301 3,117 713
--------- --------- --------- ---------
OPERATING INCOME 8,168 7,127 17,213 10,755
Interest expense, net 284 775 326 1,428
Other income, net -- -- (64) --
--------- --------- --------- ---------
INCOME FROM CONTINUING OPERATIONS BEFORE
PROVISION FOR INCOME TAXES 7,884 6,352 16,951 9,327
PROVISION FOR INCOME TAXES 3,060 2,503 6,560 3,675
--------- --------- --------- ---------
INCOME FROM CONTINUING OPERATIONS 4,824 3,849 10,391 5,652
--------- --------- --------- ---------
DISCONTINUED OPERATIONS (NOTE 2):
(LOSS) INCOME FROM DISCONTINUED OPERATIONS (817) 362 (574) (7,081)
INCOME TAX BENEFIT (68) (87) (218) (2,331)
--------- --------- --------- ---------
(LOSS) INCOME FROM DISCONTINUED OPERATIONS (749) 449 (356) (4,750)
--------- --------- --------- ---------
NET INCOME $ 4,075 $ 4,298 $ 10,035 $ 902
========= ========= ========= =========
NET INCOME/(LOSS) PER COMMON SHARE - BASIC
INCOME FROM CONTINUING OPERATIONS $ 0.15 $ 0.17 $ 0.33 $ 0.25
(LOSS) INCOME FROM DISCONTINUED OPERATIONS (0.02) 0.02 (0.01) (0.21)
--------- --------- --------- ---------
BASIC EARNINGS PER SHARE $ 0.13 $ 0.19 $ 0.32 $ 0.04
========= ========= ========= =========
See notes to condensed consolidated financial statements.
6
NET INCOME/(LOSS) PER COMMON SHARE - DILUTED
INCOME FROM CONTINUING OPERATIONS $ 0.15 $ 0.16 $ 0.32 $ 0.24
(LOSS) INCOME FROM DISCONTINUED OPERATIONS (0.02) 0.02 (0.01) (0.20)
------ ------ ------ -------
DILUTED EARNINGS PER SHARE $ 0.13 $ 0.18 $ 0.31 $ 0.04
====== ====== ====== =======
- -
WEIGHTED AVERAGE SHARES - BASIC 31,193 23,007 31,112 22,934
====== ====== ====== =======
WEIGHTED AVERAGE SHARES - DILUTED 32,110 23,682 32,044 23,670
====== ====== ====== =======
See notes to condensed consolidated financial statements.
7
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
ARMOR HOLDINGS, INC. AND SUBSIDIARIES (UNAUDITED)
(IN THOUSANDS)
SIX MONTHS ENDED
--------------------
JUNE 30, JUNE 30,
2002 2001
-------- --------
CASH FLOWS FROM OPERATING ACTIVITIES:
Income from continuing operations $ 10,391 $ 5,648
Adjustments to reconcile income from continuing operations to cash used in
operating activities:
Depreciation and amortization 2,705 2,354
Loss on disposal of fixed assets 110 --
Deferred income taxes 508 (933)
Changes in operating assets and liabilities, net of acquisitions:
Increase in accounts receivable (987) (3,381)
Increase in inventories (9,885) (6,591)
Increase in prepaid expenses and other assets (5,343) (8,381)
Decrease in accounts payable, accrued
expenses and other current liabilities (6,338) (345)
Increase in income taxes payable 4,988 3,749
-------- --------
Net cash used in operating activities (3,851) (7,880)
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of patents and trademarks (32) --
Purchase of property and equipment (1,764) (2,112)
Additional consideration for purchased businesses (2,029) (2,411)
Proceeds from sale of equity securities -- 843
Purchase of businesses, net of cash acquired (3,380) --
-------- --------
Net cash used in investing activities (7,205) (3,680)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from the exercise of stock options 2,728 2,700
Repurchases of treasury stock (331) (667)
Proceeds from issuance of treasury shares for the exercise
of stock options -- 696
Cash paid for offering costs (326) --
Repayments of long-term debt (275) --
Borrowings under line of credit 14,202 25,982
Repayments under line of credit (14,299) (18,027)
-------- --------
Net cash provided by financing activities 1,699 10,684
-------- --------
Effect of exchange rate changes on cash and cash equivalents 79 2
Net cash used in discontinued operations (2,678) (1,402)
-------- --------
NET DECREASE IN CASH AND CASH EQUIVALENTS (11,956) (2,276)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 53,719 7,257
-------- --------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 41,763 $ 4,981
======== ========
CASH AND CASH EQUIVALENTS, END OF PERIOD
CONTINUING OPERATIONS $ 36,509 $ 937
DISCONTINUED OPERATIONS 5,254 4,044
-------- --------
$ 41,763 $ 4,981
======== ========
See notes to condensed consolidated financial statements.
8
ARMOR HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1 - BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements
of Armor Holdings, Inc. and its wholly-owned subsidiaries (the "Company", "we",
"us") have been prepared in accordance with generally accepted accounting
principles for interim information and the instructions to Form 10-Q and Rule
10-01 of Regulation S-X., and do not include all the information and footnotes
required by generally accepted accounting principles for complete financial
statements. In the opinion of management, all adjustments (consisting only of
normal recurring accruals and the elimination of all material intercompany
accounts and transactions) considered necessary by management to present a fair
presentation have been included. The results of operations for the three and six
month periods are not necessarily indicative of the results to be expected for
the full year and should be read in conjunction with the consolidated financial
statements and notes thereto included in our Annual Report on Form 10-K for the
year ended December 31, 2001.
As discussed in Note 2 and elsewhere in this Form 10-Q, the
Company announced its intention to sell its ArmorGroup Services Division (the
"Services Division"). As a result, the assets and liabilities of the Services
Division have been classified as assets and liabilities of discontinued
operations on the Company's balance sheet and the results of its operations
classified as income from discontinued operations in the accompanying unaudited
condensed consolidated financial statements. Certain prior year amounts have
been reclassified to conform to this presentation.
NOTE 2 - DISCONTINUED OPERATIONS
On July 15, 2002, we announced plans to sell the ArmorGroup Services
Division and the retention of Merrill Lynch & Company to assist in the sale. In
accordance with Statement of Accounting Standards 144, Accounting for Impairment
or Disposal of Long-Lived Assets, the assets and liabilities of the Services
Division have been classified as held for sale, with its operating results in
the current and prior periods reported as discontinued operations for the three
and six month periods ended June 30, 2002 and 2001. USDS, Inc., a small
subsidiary providing certain training services, formerly reported as a part of
ArmorGroup Services is not included in the amounts classified as assets held for
sale. The assets and liabilities as well as the operating results of USDS, Inc.
have been reclassified to Armor Holdings Products where management oversight
currently resides.
Management does not expect to incur a loss on the disposal of the
Services Division. The actual results on disposal of the Services Division may
differ from management's estimates and the difference could be material.
9
ARMOR HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-CONTINUED
(UNAUDITED)
The following is a summary of the operating results of the discontinued
operations for the three and six months ended June 30, 2002 and 2001 were as
follows:
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, 2002 JUNE 30, 2001 JUNE 30, 2002 JUNE 30, 2001
------------- ------------- ------------- -------------
(IN THOUSANDS) (IN THOUSANDS)
Revenue $ 26,259 $ 23,956 $ 50,526 $ 44,662
Cost of sales 18,907 16,172 36,110 29,494
Operating expenses 8,052 5,676 14,566 11,576
Amortization expenses -- 349 -- 732
Restructuring and related charges -- 1,259 -- 9,959
Integration and other non-recurring
charges 94 61 389 123
-------- -------- -------- --------
Operating (loss) income (794) 439 (539) (7,222)
Interest expense, net 39 69 93 86
Other (income) expense net (16) 8 (58) (227)
-------- -------- -------- --------
(Loss) income from discontinued operations
before income tax benefit (817) 362 (574) (7,081)
Income tax benefit (68) (87) (218) (2,331)
-------- -------- -------- --------
(Loss) income from discontinued
operations $ (749) $ 449 $ (356) $ (4,750)
======== ======== ======== ========
10
ARMOR HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-CONTINUED
(UNAUDITED)
The following is a summary of assets and liabilities of discontinued
operations:
JUNE 30, DECEMBER 31,
2002 2001
-------- ------------
(IN THOUSANDS)
Assets
Cash and cash equivalents $ 5,254 $ 6,230
Accounts receivable, net 23,040 24,040
Other current assets 9,983 7,292
------- -------
Total current assets 38,277 37,562
Property, plant and equipment, net 9,278 9,358
Goodwill, net 36,871 36,865
Other assets 5,563 4,118
------- -------
Total assets of discontinued operations $89,989 $87,903
======= =======
Liabilities
Current portion of long-term debt $ 277 $ 282
Short-term debt 747 681
Accounts payable 2,460 2,692
Accrued expenses and other current liabilities 6,584 5,303
------- -------
Total current liabilities 10,068 8,958
Long-term debt 269 415
------- -------
Total liabilities of discontinued operations $10,337 $ 9,373
======= =======
11
ARMOR HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-CONTINUED
(UNAUDITED)
NOTE 3 - COMPREHENSIVE INCOME
The components of comprehensive income, net of tax benefits of $253,000
and $272,000 for the three months ended June 30, 2002 and 2001, respectively,
and $223,000 and $489,000 for the six months ended June 30, 2002 and 2001,
respectively, are listed below:
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30, JUNE 30, JUNE 30,
2002 2001 2002 2001
-------- -------- -------- --------
(IN THOUSANDS) (IN THOUSANDS)
Net income $ 4,075 $ 4,298 $ 10,025 $ 902
Other comprehensive loss:
Foreign currency translations, net
of tax 30 (505) (235) (909)
-------- -------- -------- --------
Comprehensive income (loss): $ 4,105 $ 3,793 $ 9,790 $ (7)
======== ======== ======== ========
12
ARMOR HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-CONTINUED
(UNAUDITED)
NOTE 4 - INVENTORIES
Inventories are stated at the lower of cost or market using the
first-in, first-out (FIFO) method and are summarized as follows:
JUNE 30, 2002 DECEMBER 31, 2001
------------- -----------------
(IN THOUSANDS)
Raw material $ 35,866 $ 28,796
Work-in-process 11,783 12,941
Finished goods 12,989 8,816
------------- ----------------
Total inventories $60,638 $ 50,553
============= ================
NOTE 5 - ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES
Accrued expenses and other current liabilities are summarized as
follows:
JUNE 30, 2002 DECEMBER 31, 2001
------------- -----------------
(IN THOUSANDS)
Accrued expenses and other current liabilities $ 13,679 $ 16,987
Deferred consideration for acquisitions 876 525
Customer deposits 5,454 7,002
------------- -----------------
Total accrued expenses and other current liabilities $ 20,009 $ 24,514
============= =================
13
ARMOR HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-CONTINUED
(UNAUDITED)
NOTE 6 - INFORMATION CONCERNING BUSINESS SEGMENTS AND GEOGRAPHICAL SALES
We are a leading manufacturer and provider of security products,
vehicle armor systems and training services. Our products and services are used
by military, law enforcement, security and corrections personnel throughout the
world, as well as governmental agencies, multinational corporations and
non-governmental organizations. Our continuing operations are organized and
operated under two business segments: Armor Holdings Products and Armor Mobile
Security. Our Services Division has been classified as discontinued operations
and is no longer included in this presentation (See Note 2).
Armor Holdings Products. Our Armor Holdings Products division
manufactures and sells a broad range of high quality equipment marketed under
brand names that are well known and respected in the military and law
enforcement communities. Products manufactured by this division include body
armor, tactical armor, hard armor, duty gear, less-lethal munitions, anti-riot
products, police batons, forensic products and weapon maintenance products.
USDS, Inc., a small subsidiary providing certain training services formerly
reported as a part of ArmorGroup Services is not included in the amounts
classified as assets held for sale or discontinued sales and have been
reclassified to Armor Holdings Products where management oversight currently
resides.
Armor Mobile Security. Our Armor Mobile Security division manufactures
and installs ballistic and blast protection armoring systems for military
vehicles, commercial vehicles, military aircraft and missile components. Under
the brand name O'Gara-Hess & Eisenhardt ("O'Gara"), we are the sole-source
provider to the U.S. military for the supply of armoring and blast protection
systems as well as maintenance services for the High Mobility Multi-purpose
Wheeled Vehicle (HMMWV, commonly known as the Humvee). Additionally, we have
been subcontracted to develop a ballistically armored and sealed truck cab for
the High Mobility Artillery Rocket System (HIMARS) currently in development for
the U.S. Army. We armor a variety of commercial vehicles including limousines,
sedans, sport utility vehicles, commercial trucks and cash-in-transit vehicles,
to protect against varying degrees of ballistic and blast threats. The Armor
Mobile Security division was created in connection with our acquisition of
O'Gara on August 22, 2001 (the "O'Gara acquisition").
We have invested substantial resources outside of the United States and
plans to continue to do so in the future. The Armor Mobile Security division has
invested substantial resources in Europe 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, currency risks, 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 us and our operating companies. We do not have political risk
insurance in the countries in which we currently conduct business. Moreover,
applicable agreements relating to our
14
ARMOR HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-CONTINUED
(UNAUDITED)
interests in our operating companies are frequently governed by foreign law. As
a result, in the event of a dispute, it may be difficult for us to enforce our
rights. Accordingly, we may have little or no recourse upon the occurrence of
any of these developments.
Revenues, operating income and total assets for each of our continuing
segments are as follows:
SIX MONTHS ENDED
JUNE 30, 2002 JUNE 30, 2001
------------- -------------
(IN THOUSANDS)
Revenues:
Products $ 82,002 $ 68,268
Mobile Security 59,207 --
--------- ---------
Total revenues $ 141,209 $ 68,268
========= =========
Operating income (loss):
Products $ 14,814 $ 13,121
Mobile Security 6,113 --
Corporate (3,714) (2,366)
--------- ---------
Total operating income $ 17,213 $ 10,755
========= =========
Total assets:
Products $ 166,966 $ 141,679
Mobile Security 103,315 --
Corporate 38,515 14,973
--------- ---------
Total assets $ 308,796 $ 156,652
========= =========
15
ARMOR HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-CONTINUED
(UNAUDITED)
The following unaudited information with respect to revenues, operating
income from continuing operations (geographic operating income from continuing
operations before amortization expense and integration and other non-recurring
charges) and total assets to principal geographic areas are as follows:
SIX MONTHS ENDED
JUNE 30, 2002 JUNE 30, 2001
------------- -------------
(IN THOUSANDS)
Revenues:
North America $101,434 $ 53,724
South America 9,775 1,120
Africa 1,036 490
Europe/Asia 28,964 12,934
-------- --------
Total revenue $141,209 $ 68,268
======== ========
Geographic operating income:
North America $ 14,803 9,615
South America 649 372
Africa 336 171
Europe/Asia 4,693 2,356
-------- --------
Total geographic operating income $ 20,481 $ 12,514
======== ========
Total assets:
North America $278,553 $150,598
South America 6,503 --
Africa -- --
Europe/Asia 23,740 6,054
-------- --------
Total assets $308,796 $156,652
======== ========
A reconciliation of consolidated geographic operating income from
continuing operations to consolidated operating income from continuing
operations follows:
SIX MONTHS ENDED
JUNE 30, 2002 JUNE 30, 2001
------------- -------------
(IN THOUSANDS)
Consolidated geographic operating income $ 20,481 $ 12,514
Amortization (151) (1,046)
Integration and other non-recurring charges (3,117) (713)
-------- --------
Operating income $ 17,213 $ 10,755
======== ========
16
ARMOR HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-CONTINUED
(UNAUDITED)
NOTE 7. EARNINGS PER SHARE
The following details the numerators and denominators of the basic and
diluted earnings per share computations for net income from continuing
operations:
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, 2002 JUNE 30, 2001 JUNE 30, 2002 JUNE 30, 2001
------------- ------------- ------------- -------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Numerator for basic and diluted earnings
per share:
Net Income from continuing operations $4,824 $3,849 $ 10,391 $5,652
------ ------ -------- ------
Denominator for basic earnings per share -
weighted average shares outstanding: 31,193 23,007 31,112 22,934
Effect of shares issuable under stock option
and stock grant plans, based on the
treasury stock method 917 675 932 736
------ ------ -------- ------
Denominator for diluted earnings per share-
Adjusted weighted average shares outstanding 32,110 23,682 32,044 23,670
------ ------ -------- ------
Basic earnings per share from continuing operations $0.15 $0.17 $0.33 $0.25
====== ====== ====== ======
Diluted earnings per share from continuing operations $0.15 $0.16 $0.32 $0.24
====== ====== ====== ======
17
ARMOR HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-CONTINUED
(UNAUDITED)
NOTE 8. NEW ACCOUNTING PRONOUNCEMENTS
In June 2001, the Financial Accounting Standards Board (FASB) issued
SFAS No. 141, "Business Combinations." SFAS No. 141 requires that the purchase
method of accounting be used for all business combinations initiated after June
30, 2001. This statement specifies that certain acquired intangible assets in a
business combination be recognized as assets separately from goodwill and that
existing intangible assets and goodwill be evaluated for these new separation
requirements. The adoption of this statement did not have a material impact on
our consolidated financial statements.
In June 2001, the FASB issued SFAS No. 142, "Goodwill and Other
Intangible Assets." SFAS No. 142 changes the accounting for goodwill from an
amortization method to an impairment-only approach. Amortization of goodwill,
including goodwill recorded in past business combinations, ceased upon adoption
of this statement. In addition, this statement requires that goodwill be tested
for impairment at least annually at the reporting unit level. We implemented
SFAS No. 142 on January 1, 2002. In connection with the adoption of SFAS 142,
the Company completed the transitional goodwill impairment test that compared
the fair value of each reporting unit to its carrying value and determined that
no impairment exists. The goodwill resulting from acquisitions made by us
subsequent to June 30, 2001 was immediately subject to the non-amortization
provisions of SFAS 142. Had we been accounting for goodwill under SFAS 142 for
all periods presented, our net income and earnings per share would have been as
follows:
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30, JUNE 30, JUNE 30,
2002 2001 2002 2001
--------- --------- ---------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Reported net income $ 4,075 $ 4,298 $ 10,035 $ 902
Add back goodwill amortization, net of tax -- 732 -- 1,477
--------- --------- ---------- ---------
Actual/pro forma adjusted net income $ 4,075 $ 5,030 $ 10,035 $ 2,379
========= ========= ========== =========
Basic earnings per share
Reported basic earnings per share $ 0.13 $ 0.19 $ 0.32 $ 0.04
Goodwill amortization, net of tax -- 0.03 -- 0.06
--------- --------- ---------- ---------
Actual/pro forma basic earnings per share $ 0.13 $ 0.22 $ 0.32 $ 0.10
========= ========= ========== =========
Diluted earnings per share
Reported diluted earnings per share $ 0.13 $ 0.18 $ 0.31 $ 0.04
Goodwill amortization, net of tax -- 0.03 -- 0.06
--------- --------- ---------- ---------
Actual/pro forma diluted earnings per share $ 0.13 $ 0.21 $ 0.31 $ 0.10
========= ========= ========== =========
18
ARMOR HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-CONTINUED
(UNAUDITED)
In August 2001, the FASB issued Statement of Financial Accounting
Standards No. 143, "Accounting for Asset Retirement Obligations" (SFAS 143).
SFAS 143 establishes accounting standards for recognition and measurement of a
liability for an asset retirement obligation and the associated asset retirement
cost. SFAS 143 requires the recognition of the fair value of a liability for an
asset retirement obligation in the period in which it is incurred if a
reasonable estimate of fair value can be made. If a reasonable estimate of fair
value cannot be made in the period the asset retirement obligation is incurred,
the liability shall be recognized when a reasonable estimate of fair value can
be made. The fair value of a liability for an asset retirement obligation is the
amount at which that liability could be settled in a current transaction between
willing parties, that is, other than in a forced or liquidation transaction.
SFAS 143 is effective for financial statements issued for fiscal years beginning
after June 15, 2002. The provisions of SFAS 143 will become effective for us on
January 1, 2003. The effects of adopting this standard will not have a material
effect on the Company.
In October 2001, the FASB issued Statement of Financial Accounting
Standards No. 144, "Accounting for the Impairment or Disposal of Long-Lived
Assets" (SFAS 144). SFAS 144 establishes a "primary-asset" approach to determine
the cash flow estimation period for a group of assets and liabilities that
represents the unit of accounting for a long-lived asset to be held and used.
SFAS 144 requires that a long-lived asset to be (1) abandoned, (2) exchanged for
a similar productive asset, or (3) distributed to owners in a spin-off be
considered held and used until it is abandoned, exchanged, or distributed. SFAS
144 requires (1) that spin-offs and exchanges of similar productive assets to be
recorded at the lower of carrying value or fair value, and that such assets be
classified as held and used until disposed of and (2) that any impairment loss
resulting from a spin-off or exchange of similar productive assets be recognized
upon asset disposition. SFAS 144 also states that the total assets and total
liabilities of discontinued business segments shall be presented in separate
captions in assets and liabilities. SFAS 144 also provides that future losses,
if any, of discontinued business segments shall be reported as incurred.
Effective January 1, 2002, we adopted SFAS 144. The reclassification of the
Services Division to discontinued operations has been accounted for under this
statement.
In April 2002, the FASB issued Statement of Financial Accounting
Standards No. 145, "Recission on FASB 4, 44 and 64, Amendment of FASB Statement
No. 13 and Technical Corrections" (SFAS 145). Under SFAS 145, gains and losses
related to the extinguishment of debt should no longer be segregated on the
income statement from continuing operations. The provisions of SFAS 145 are
effective for fiscal years beginning after May 15, 2002 with early adoption
encouraged. The effects of adopting this standard will not have a material
effect on the Company.
NOTE 9. SUBSEQUENT EVENT
On August 14, 2002, we acquired all of the outstanding stock of
B-Square, Inc. ("B-Square" or the "Company"). Based in Fort Worth, Texas,
B-Square is a leading designer, manufacturer and marketer of quality aluminum
and steel sight mounts, tools and accessories for the law enforcement, military
and sporting goods (hunting and target shooting) markets. In addition to the
B-Square brand, the Company sells sight mounts under the Lynx and Hillver brand
names.
We paid $2.9 million in cash, with a portion of the purchase price
deferred. B-Square had $2.8 million in revenues for its fiscal year ended
December 31, 2001. We expect the acquisition to be accretive to earnings per
share in 2003.
19
ARMOR HOLDINGS, INC. AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following is a discussion of the results of operations and analysis
of financial condition for the three and six months ended June 30, 2002. The
results of operations for purchase business combinations are included since
their effective acquisition dates. The following discussion may be understood
more fully by reference to the financial statements, notes to the financial
statements, and management's discussion and analysis contained in our Annual
Report on Form 10-K for the year ended December 31, 2001, as filed with the
Securities and Exchange Commission.
CRITICAL ACCOUNTING POLICIES:
Revenue Recognition. We record revenue from our Armor Holdings Products
Division at the time of shipment. Returns are minimal and do not materially
effect the financial statements. We record training service revenue as the
services are performed over the term of the contract.
We record revenue from our Mobile Security Division when the vehicles
are shipped, except a) for larger commercial contracts typically longer than
four months in length b) the contract for the delivery of HMMWVs to the U.S.
Government which continues through 2005. Revenue from such contracts is
recognized on the percentage of completion, units-of-work performed method.
HMMWV units sold to the U.S. Government are considered complete when the onsite
Department of Defense officer finishes the inspection of the HMMWV and approves
it for delivery. Should such contracts be in a loss position, the entire
estimated loss would be recognized for the balance of the contract at such time.
Current contracts are profitable.
Foreign Currency Translation. In accordance with Statement of Financial
Accounting Standard No. 52, "Foreign Currency Translation," assets and
liabilities denominated in a foreign currency are translated into U.S. dollars
at the current rate of exchange as of the balance sheet date and revenues and
expenses are translated at the average monthly exchange rates. The cumulative
change in the translation adjustment, which represents the effect of translating
assets and liabilities of our foreign operations, was pre-tax loss of
approximately $7.1 million as of June 30, 2002 and $6.1 million as of December
31, 2001.
Discontinued Operations. In accordance with Statement of Financial
Accounting Standards No. 144, "Accounting for the Impairment or Disposal of
Long-Lived Assets" (SFAS 144), a component classified as held for sale is
reported in discontinued operations when the following conditions are met: (a)
the operations and cash flows of the component have been (or will be) eliminated
from the ongoing operations of the entity as a result of the disposal
transaction and (b) the entity will not have any significant continuing
involvement in the operations of the component after the disposal transaction.
In a period in which a component of an entity either has been disposed of or is
classified as held for sale, the income statement for current and prior periods
reports the results of operations of the component, including any gain or loss
recognized in accordance with paragraph 37, in discontinued operations. The
results of discontinued operations, less applicable income taxes (benefit), is
reported as a separate component of income before extraordinary items and the
cumulative effect of accounting changes (if applicable). The assets and
liabilities of a disposal group classified as held for sale is presented
seperately in the asset and liability sections, respectively, of the statement
of financial position.
NEW ACCOUNTING PRONOUNCEMENTS:
In June 2001, the Financial Accounting Standards Board (FASB) issued
SFAS No. 141, "Business Combinations." SFAS No. 141 requires that the purchase
method of accounting be used for all business combinations initiated after June
30, 2001. This statement specifies that certain acquired intangible assets in a
business combination be recognized as assets separately from goodwill and that
existing intangible assets and goodwill be evaluated for these new separation
requirements. The adoption of this statement did not have a material impact on
our consolidated financial statements.
In June 2001, the FASB issued SFAS No. 142, "Goodwill and Other
Intangible Assets." SFAS No. 142 changes the accounting for goodwill from an
amortization method to an impairment-only approach. Amortization of goodwill,
including goodwill recorded in past business combinations, ceased upon adoption
of this statement. In addition, this statement requires that goodwill be tested
for impairment at least annually at the reporting unit level. We implemented
SFAS No. 142 on January 1, 2002. In connection with the adoption of SFAS 142,
the Company completed a transitional goodwill impairment test that compared
the fair value of each reporting unit to its carrying value and determined
that no impairment exists. The goodwill resulting from acquisitions made
by us
20
ARMOR HOLDINGS, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS - CONTINUED
subsequent to June 30, 2001 was immediately subject to the non-amortization
provisions of SFAS 142. Had we been accounting for goodwill under SFAS 142 for
all periods presented, our net income and earnings per share would have been as
follows:
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, 2002 JUNE 30, 2001 JUNE 30, 2002 JUNE 30, 2001
------------- ------------- ------------- -------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Reported net income $ 4,075 $ 4,298 $ 10,035 $902
Add back goodwill amortization, net of tax -- 732 -- 1,477
------ ------ ------ ------
Actual/pro forma adjusted net income $ 4,075 $ 5,030 $ 10,035 $2,379
======= ====== ====== ======
Basic earnings per share
Reported basic earnings per share $ 0.13 $ 0.19 $ 0.32 $ 0.04
Goodwill amortization, net of tax -- 0.03 -- 0.06
------ ------ ------ ------
Actual/pro forma basic earnings per share $ 0.13 $ 0.22 $ 0.32 $ 0.10
======= ====== ====== ======
Diluted earnings per share
Reported diluted earnings per share $ 0.13 $ 0.18 $ 0.31 $ 0.04
Goodwill amortization, net of tax -- 0.03 -- 0.06
------ ------ ------ ------
Actual/pro forma diluted earnings per share $ 0.13 $ 0.21 $ 0.31 $ 0.10
======= ====== ====== ======
In August 2001, the FASB issued Statement of Financial Accounting
Standards No. 143, "Accounting for Asset Retirement Obligations" (SFAS 143).
SFAS 143 establishes accounting standards for recognition and measurement of a
liability for an asset retirement obligation and the associated asset retirement
cost. SFAS 143 requires the recognition of the fair value of a liability for an
asset retirement obligation in the period in which it is incurred if a
reasonable estimate of fair value can be made. If a reasonable estimate of fair
value cannot be made in the period the asset retirement obligation is incurred,
the liability shall be recognized when a reasonable estimate of fair value can
be made. The fair value of a liability for an asset retirement obligation is the
amount at which that liability could be settled in a current transaction between
willing parties, that is, other than in a forced or liquidation transaction.
SFAS 143 is effective for financial statements issued for fiscal years beginning
after June 15, 2002. The provisions of SFAS 143 will become effective for us on
January 1, 2003. The effects of adopting this standard will not have a material
effect on the Company.
In October 2001, the FASB issued Statement of Financial Accounting
Standards No. 144, "Accounting for the Impairment or Disposal of Long-Lived
Assets" (SFAS 144). SFAS 144 establishes a "primary-asset" approach to determine
the cash flow estimation period for a group of assets and liabilities that
represents the unit of accounting for a long-lived asset to be held and used.
SFAS 144 requires that a long-lived asset to be (1) abandoned, (2) exchanged for
a similar productive asset, or (3) distributed to owners in a spin-off be
considered held and used until it is abandoned, exchanged, or distributed. SFAS
144 requires (1) that spin-offs and exchanges of similar productive assets to be
recorded at the lower of carrying value or fair value, and that such assets be
classified as held and used until disposed of and (2) that any impairment loss
resulting from a spin-off or exchange of similar productive assets be recognized
upon asset disposition. SFAS 144 also states that the total assets and total
liabilities of discontinued business segments shall be presented in separate
captions in assets and liabilities. SFAS 144 also provides that future losses,
if any, of discontinued business segments shall be reported as incurred.
Effective January 1, 2002, we adopted SFAS 144. The reclassification of the
Services Division to discontinued operations has been accounted for under this
statement.
In April 2002, the FASB issued Statement of Financial Accounting
Standards No. 145, "Recission on FASB 4, 44 and 64, Amendment of FASB Statement
No. 13 and Technical Corrections" (SFAS 145). Under SFAS 145, gains and losses
related to the extinguishment of debt should no longer be segregated on the
income statement from continuing operations. The provisions of SFAS 145 are
effective for fiscal years beginning after May 15, 2002 with early adoption
encouraged. The effects of adopting this standard will not have a material
effect on the Company.
21
ARMOR HOLDINGS, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS - CONTINUED
RESULTS OF OPERATIONS
THREE MONTHS ENDED JUNE 30, 2002 COMPARED TO THREE MONTHS ENDED JUNE 30, 2001.
Net income. Net income decreased $223,000 to $4.1 million for the three
months ended June 30, 2002 compared to $4.3 million for the three months ended
June 30, 2001. Net income for the three months ended June 30, 2002 includes
income from continuing operations of $4.8 million and a loss from discontinued
operations of $749,000, compared to income from continuing operations of $3.9
million and income from discontinued operations of $447,000 for the three months
ended June 30, 2001.
CONTINUING OPERATIONS
Products revenues. Products division revenues increased $5.0 million,
or 13%, to $43.1 million in the three months ended June 30, 2002, compared to
$38.1 million in the three months ended June 30, 2001. For the three months
ended June 30, 2002, Products division revenue increased 9% internally,
including year over year changes in acquired businesses, and 4% due to the
acquisitions of Identicator, Inc. ("Identicator"), Guardian Personal Security
Products, Inc. ("Guardian"), Speedfeed, Inc. ("Speedfeed") and The Foldable
Products Group ("Foldable"), all of which were completed subsequent to June 30,
2001. Products division includes revenue of $3.8 million and $1.1 million and
operating income of $425,000 and $289,000 for the three months ended June 30,
2002 and June 30, 2001, respectively for USDS, Inc, which was previously
reported as Service Division revenue.
Mobile Security revenues. Mobile Security division revenues totaled
$28.5 million in the three months ended June 30, 2002. The Mobile Security
division was created through the acquisition of O'Gara which was completed on
August 22, 2001. For the three months ended June 30, 2002, Mobile Security
Division revenue increased 33.8% internally from approximately $21.3 million
during the three months ended June 30, 2001 under prior ownership.
Cost of sales. Cost of sales increased $26.7 million, or 119.9%, to
$48.9 million for the three months ended June 30, 2002 compared to $22.2 million
for the three months ended June 30, 2001. This increase was due primarily to the
O'Gara acquisition as well as overall revenue growth months ended June 30, 2002
compared to the three months ended June 30, 2001. As a percentage of total
revenues, cost of sales increased to 68.3% of total revenues for the three
months ended June 30, 2002 from 58.4% for the three months ended June 30, 2001.
This increase as a percentage of total revenues was primarily due to lower
average gross margins in the Mobile Security division.
Operating expenses. Operating expenses increased $4.9 million, or
61.8%, to $12.8 million
22
ARMOR HOLDINGS, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS - CONTINUED
(17.8% of total revenues) for the three months ended June 30, 2002 compared to
$7.9 million (20.7% of total revenues) for the three months ended June 30, 2001.
This increase was primarily due to the operating expenses associated with the
operations of O'Gara, acquired in August 2001, which were not included in the
three months ended June 30, 2001, as well as internal growth of the business.
Operating expenses as a percent of sales decreased because the Mobile Security
division operates with a lower level of operating expenses as a percentage of
sales than does the Products division.
Amortization. Amortization expense decreased $507,000, or 94.1%, to
$32,000 for the three months ended June 30, 2002 compared to $539,000 for the
three months ended June 30, 2001. This decrease results from the implementation
of SFAS 142, which eliminated goodwill amortization for all acquisitions
completed after July 1, 2001, as well as for all fiscal years ending after
January 1, 2002. Remaining amortization expense is related to patents and
trademarks with finite lives.
Integration and other non-recurring charges. Integration and other
non-recurring charges increased $1.4 million, or 471.4%, to $1.7 million for the
three month period ended June 30, 2002 compared to $301,000 in the three months
ended June 30, 2001. These charges relate primarily to the integration of
O'Gara, but also include certain non-recurring expenses related to the
integration of our body armor operations, as well as costs related to the
integration of Identicator, Guardian, Speedfeed and Foldable Products, all of
which were acquired subsequent to June 30, 2001.
Operating income. Operating income from continuing operations increased
$1.0 million to $8.2 million for the three months ended June 30, 2002 compared
to $7.1 million in the three months ended June 30, 2001 due to the factors
discussed above.
Interest expense, net. Interest expense, net decreased $491,000, or
63.4% to $284,000 for the three months ended June 30, 2002 compared to $775,000
for the three months ended June 30, 2001. This decrease was due primarily to the
repayment of long-term debt under our revolving credit facility with the net
proceeds of the secondary common stock offering completed in December 2001.
Income from continuing operations before provision for income taxes.
Income from continuing operations before provision for income taxes increased by
$1.5 million to $7.9 million for the three months ended June 30, 2002 compared
to $6.4 million for the three months ended June 30, 2001 due to the reasons
discussed above.
Provision for income taxes. Provision for income taxes was $3.1 million
for the three months ended June 30, 2002 compared to a provision of $2.5 million
for the three months ended June 30, 2001. The effective tax rate for the three
months ended June 30, 2002 was 38.8% compared to 39.4% for the three months
ended June 30, 2001. This decrease is due to the cessation of amortization of
non-deductible goodwill for book purposes as well as an increase in the income
earned in foreign jurisdictions with lower overall tax rates resulting primarily
from the acquisition of O'Gara. Our effective tax rate for the three months
ended June 30, 2002 reflects management's expectation of effective tax rates for
the 2002 fiscal year. Our expected effective tax rate for fiscal 2002 is not
necessarily indicative of what our actual effective rate will be due to the
changing concentration and mix of income in the various countries in which we
continue to operate.
Income from continuing operations. Income from continuing operations
increased $975,000 to $4.8 million for the three months ended June 30, 2002
compared to $3.8 million for the three months ended June 30, 2001 due to the
factors discussed above.
23
ARMOR HOLDINGS, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS - CONTINUED
DISCONTINUED OPERATIONS
Services revenues. Services division revenue increased $2.3 million, or
9.6%, to $26.3 million for the three months ended June 30, 2002 compared to
$24.0 million for the three months ended June 30, 2001. For the three months
ended June 30, 2002, revenue increased 9.6% due to the acquisition of
International Training, Inc. ("ITI"), which was acquired as part of the
acquisition of O'Gara and is included in the Services division from the date of
acquisition.
Cost of sales. Cost of sales increased $2.7 million, or 16.9%, to $18.9
million for the three months ended June 30, 2002 compared to $16.2 million for
the three months ended June 30, 2001. This increase was due primarily to the
acquisition of ITI. As a percentage of total revenue, cost of sales increased to
72.0% of total revenues for the three months ended June 30, 2002 from 67.5% for
the three months ended June 30, 2001. This increase in cost of sales as a
percentage of total revenue was primarily due to the weakness in the Integrated
Systems business resulting in poor margins, the loss of high margin oil industry
security work in Latin America and the scaling down of business in the
Democratic Republic of Congo.
Operating expenses. Operating expenses increased $2.4 million, or
41.9%, to $8.1 million (30.7% of total revenues) for the three months ended June
30, 2002 compared to $5.7 million (23.7% of total revenues) for the three months
ended June 30, 2001. This increase was due to internal growth, additional
operating expenses associated with ITI's operations, acquired in August 2001,
and certain severance and non-recurring charges in Latin America and the
Democratic Republic of Congo.
Amortization. Amortization expense decreased $349,000, or 100%, to $0
for the three months ended June 30, 2002 compared to $349,000 for the three
months ended June 30, 2001. This decrease was a result of the implementation of
SFAS 142, which eliminated goodwill amortization for acquisitions completed
after July 1, 2001 and for fiscal years beginning January 1, 2002.
Restructuring and related charges. The Services division incurred $1.3
million of restructuring and related charges for the three month period ended
June 30, 2001 related to the January 2001 restructuring plan. In January 2001,
our Services division approved a restructuring plan to close its U.S.
investigative businesses, realign the division's organization, eliminate excess
facilities and reduce overhead in its businesses worldwide. In connection with
this restructuring plan, the division performed a review of its long-lived
assets to identify potential impairments. Pursuant to this restructuring plan,
ArmorGroup i) eliminated 26 employees, primarily from its investigative
businesses, ii) eliminated an additional 24 employees from its security
business, iii) incurred lease and other exit costs as a result of the closure of
its investigative businesses, and iv) wrote-down the value of both tangible and
intangible assets as a result of the impairment review. Most of the significant
actions contemplated by the restructuring plan have been completed.
As of June 30, 2002, we had a remaining liability of $304,000 relating
to lease termination costs. The remaining liability has been classified as
accrued expenses and other current liabilities in liabilities of discontinued
operations on the consolidated balance sheet.
Integration and other non-recurring charges. Integration and other
non-recurring charges increased $33,000, or 54.1%, to $94,000 for the three
months ended June 30, 2002 compared to $61,000 for the
24
ARMOR HOLDINGS, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS - CONTINUED
three months ended June 30, 2001. These charges reflect certain integration
expenses associated with integrating ITI into the ArmorGroup Services division.
Operating (loss) income. Operating losses were $794,000 for the three
months ended June 30, 2002, compared to operating income of $439,000 for the
three months ended June 30, 2001 due to the factors discussed above. Operating
income for the three months ended June 30, 2001 included $1.3 million of costs
associated with the January 2001 restructuring plan.
Interest expense, net. Interest expense, net decreased $30,000, or
43.5%, to $39,000 for the three months ended June 30, 2002 compared to $69,000
for the three months ended June 30, 2001. This decrease was due to reduced
utilization of the services division's line of credit.
Other income, net. Other income, net, was $16,000 for the three months
ended June 30, 2002, compared to other expense, net of $8,000 for the three
months ended June 30, 2001.
(Loss) income from discontinued operations before benefit for income
taxes. Losses from discontinued operations before benefit for income taxes were
$817,000 for the three months ended June 30, 2002 compared to income from
discontinued operations before benefit for income taxes of $362,000 for the
three months ended June 30, 2001 due to the reasons discussed above.
Income tax benefit. Income tax benefit was $68,000 for the three months
ended June 30, 2002 compared to a benefit of $85,000 for the three months ended
June 30, 2001. The effective tax rate for the three months ended June 30, 2002
was a benefit of 8.3% compared to a benefit of 23.5% for the three months ended
June 30, 2001. The decrease in benefit includes the benefits associated with the
cessation of amortization of non-deductible goodwill for book purposes. Our
expected effective tax rate for fiscal 2002 is not necessarily indicative of
what our actual effective rate will be due to the changing concentration and mix
of income in the various countries in which we operate. The increase in the
effective tax rate for the three months ended June 30, 2002 is due to the higher
level of income for the three months ended June 30, 2002 compared to same period
in fiscal 2001.
(Loss) income from discontinued operations. Losses from discontinued
operations were $749,000 for the three months ended June 30, 2002 compared to
income from discontinued operations of $449,000 for the three months ended June
30, 2001 due to the factors discussed above.
SIX MONTHS ENDED JUNE 30, 2002 COMPARED TO SIX MONTHS ENDED JUNE 30, 2001.
Net income. Net income increased $9.1 million to $10.0 million for the
six months ended June 30, 2002 compared to $902,000 for the six months ended
June 30, 2001. Net income for the six months ended June 30, 2002 includes income
from continuing operations of $10.4 million and a loss from discontinued
operations of $356,000 compared to income from continuing operations of $5.6
million and loss from discontinued operations of $4.8 million for the six months
ended June 30, 2001. Loss from discontinued operations for the six months ended
June 30, 2001 included $10.0 million of costs associated with the January 2001
restructuring plan.
25
ARMOR HOLDINGS, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS - CONTINUED
CONTINUING OPERATIONS
Products revenues. Products division revenues increased $13.7 million,
or 20.1%, to $82.0 million for the six months ended June 30, 2002, compared to
$68.3 million for the six months ended June 30, 2001. This increase is due to
internal revenue growth of 14.9% (including year over year changes in acquired
businesses) and 5.2% growth from the acquisitions of Identicator, Inc.
("Identicator"), Guardian Personal Security Products, Inc. ("Guardian"),
Speedfeed, Inc. ("Speedfeed") and The Foldable Products Group ("Foldable"),
which were all completed subsequent to June 30, 2001. Products division includes
revenue of $7.3 million and $2.5 million and operating income of $803,000 and
$583,000 for the six months ended June 30, 2002 and June 30, 2001, respectively
for USDSI, Inc, which was previously reported as Service Division revenue.
Mobile Security revenues. Mobile Security division revenues totaled
$59.2 million for the six months ended June 30, 2002. The Mobile Security
division was created through the acquisition of O'Gara which was completed
August 22, 2001. For the six months ended June 30, 2002, Mobile Security
Division revenue increased 24.1% internally from approximately $47.7 million
during the six months ended June 30, 2001 under prior ownership.
Cost of sales. Cost of sales increased $56.3 million, or 140.1%, to
$96.5 million for the six months ended June 30, 2002 compared to $40.2 million
for the six months ended June 30, 2001. This increase was due primarily to the
O'Gara acquisition as well as overall revenue growth for the six months ended
June 30, 2002 compared to the six months ended June 30, 2001. As a percentage of
total revenues, cost of sales increased to 68.4% of total revenues for the six
months ended June 30, 2002 from 58.9% for the six months ended June 30, 2001.
This increase as a percentage of total revenues was primarily due to lower
average gross margins in the Mobile Security division.
Operating expenses. Operating expenses increased $8.7 million, or
55.6%, to $24.2 million (17.1% of total revenues) for the six months ended June
30, 2002 compared to $15.5 million (22.8% of total revenues) for the six months
ended June 30, 2001. This increase was primarily due to the operating expenses
associated with the operations of O'Gara, acquired in August 2001, which were
not included in the six months ended June 30, 2001, as well as the internal
growth of the business. Operating expenses as a percent of sales decreased
because the Mobile Security division operates with a lower level of operating
expenses as a percentage of sales than does the Products division.
Amortization. Amortization expense decreased $895,000, or 85.6%, to
$151,000 for the six months ended June 30, 2002 compared to $1.0 million for the
six months ended June 30, 2001. This decrease was a result of the implementation
of SFAS 142, which eliminates goodwill amortization for acquisitions completed
after July 1, 2001 and for fiscal years beginning January 1, 2002. The remaining
amortization is related to patents and trademarks with finite lives.
Integration and other non-recurring charges. Integration and other
non-recurring charges increased $2.4 million, or 337.2%, to $3.1 million for the
six months ended June 30, 2002 compared to $713,000 for the six months ended
June 30, 2001. These charges relate primarily to the integration of O'Gara, but
also include certain non-recurring expenses related to the integration of our
body armor operations, as well as costs related to the integration of
Identicator, Guardian, Speedfeed and Foldable Products, all of which were
acquired subsequent to June 30, 2001.
26
ARMOR HOLDINGS, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS - CONTINUED
Operating income. Operating income increased $6.5 million to $17.2
million for the six months ended June 30, 2002 compared to $10.8 million for the
six months ended June 30, 2001 due to the factors discussed above.
Interest expense, net. Interest expense, net decreased $1.1 million, or
77.2%, to $326,000 for the six months ended June 30, 2002 compared to $1.4
million for the six months ended June 30, 2001. This decrease was due primarily
to the repayment of long-term debt under our revolving credit facility with the
net proceeds of the secondary common stock offering completed in December 2001.
Other income, net. Other income, net, was $64,000 for the six months
ended June 30, 2002 related primarily to foreign exchange gains.
Income from continuing operations before provision for income taxes.
Income from continuing operations before provision for income taxes increased by
$7.6 million to $17.0 million for the six months ended June 30, 2002 compared to
$9.3 million for the six months ended June 30, 2001 due to the reasons discussed
above.
Provision for income taxes. Provision for income taxes was $6.6 million
for the six months ended June 30, 2002 compared to a provision of $3.7 million
for the six months ended June 30, 2001. The effective tax rate for the six
months ended June 30, 2002 was 38.7% compared to 39.4% for the six months ended
June 30, 2001. This decrease is due to the cessation of amortization of
non-deductible goodwill for book purposes as well as an increase in the income
earned in foreign jurisdictions with lower overall tax rates resulting primarily
from the acquisition of O'Gara. Our effective tax rate for the six months ended
June 30, 2002 reflects management's expectation of our effective tax rate for
the 2002 fiscal year. Our expected effective tax rate for fiscal 2002 is not
necessarily indicative of what our actual effective rate will be due to the
changing concentration and mix of income in the various countries in which we
continue to operate.
Income from continuing operations. Income from continuing operations
increased by $4.7 million to $10.4 for the six months ended June 30, 2002
compared to $5.6 million for the six months ended June 30, 2001 due to the
factors discussed above.
SIX MONTHS ENDED JUNE 30, 2002 COMPARED TO SIX MONTHS ENDED JUNE 30, 2001.
DISCONTINUED OPERATIONS
Services revenues. The Services division revenues increased $5.9
million, or 13.1%, to $50.5 million for the six months ended June 30, 2002
compared to $44.7 million for the six months ended June 30, 2001. For the six
months ended June 30, 2002, revenue increased 4.2% internally, including year
over year changes in acquired businesses, and 8.6% from the acquisition of
International Training, Inc. ("ITI"), which was acquired as part of the
acquisition of O'Gara and is included in the Services division from the date of
acquisition.
Cost of sales. Cost of sales increased $6.6 million, or 22.4%, to $36.1
million for the six months ended June 30, 2002 compared to $29.5 million for the
six months ended June 30, 2001. This increase was due primarily to internal
revenue growth and the acquisition of ITI. As a percentage of total revenues,
cost of sales increased to 71.4% of total revenues for the six months ended June
30, 2002 from
27
ARMOR HOLDINGS, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS - CONTINUED
66.0% for the six months ended June 30, 2001. This increase as a
percentage of total revenues was primarily due weak Integrated Systems revenues
resulting in poor margins coupled with the loss of high margin oil industry
security work in Latin America and the scaling down of business in the
Democratic Republic of Congo.
Operating expenses. Operating expenses increased $3.0 million, or
25.8%, to $14.6 million (28.8% of total revenues) for the six months ended June
30, 2002 compared to $11.6 million (25.9% of total revenues) for the six months
ended June 30, 2001. This increase was primarily due to growth in the overall
business as well as to additional operating expenses associated with the
operations of ITI, acquired in August 2001. The increase in operating expenses
as a percent of sales resulted from lower foreign exchange gains in 2002
compared to 2001.
Amortization. Amortization expense decreased $732,000, or 100%, to $0
for the six months ended June 30, 2002 compared to $732,000 for the six months
ended June 30, 2001. This decrease was a result of the implementation of SFAS
142, which eliminates goodwill amortization for acquisitions completed after
July 1, 2001 and for fiscal years beginning January 1, 2002.
Restructuring and related charges. The Services division incurred $10.0
million of restructuring and related charges for the six months ended June 30,
2001 related to the January 2001 restructuring plan. In January 2001, our
ArmorGroup Services division approved a restructuring plan to close its U.S.
investigative businesses, realign the division's organization, eliminate excess
facilities and reduce overhead in its businesses worldwide. In connection with
this restructuring plan, the division performed a review of its long-lived
assets to identify potential impairments. Pursuant to this restructuring plan,
ArmorGroup i) eliminated 26 employees, primarily from its investigative
businesses, ii) eliminated an additional 24 employees from its security
business, iii) incurred lease and other exit costs as a result of the closure of
its investigative businesses, and iv) wrote-down the value of both tangible and
intangible assets as a result of the impairment review. Most of the significant
actions contemplated by the restructuring plan have been completed.
As of June 30, 2002, we had a remaining liability of $304,000 relating
to lease termination costs after first and second quarter utilization of
reserves for lease related costs of ($50,000). The remaining liability has been
classified in accrued expenses and other current liabilities in liabilities of
discontinued operations on the consolidated balance sheet.
Integration and other non-recurring charges. Integration and other
non-recurring charges increased $266,000, or 216.3%, to $389,000 for the six
month period ended June 30, 2002 compared to $123,000 for the six months ended
June 30, 2001. These charges reflect certain integration expenses associated
with integrating ITI into the ArmorGroup Services division.
Operating loss. Operating losses decreased $6.7 million to $539,000 for
the six months ended June 30, 2002 compared to a loss of $7.2 million for the
six months ended June 30, 2001 due to the factors discussed above. Losses for
the six months ended June 30, 2001 included $10.0 million of costs associated
with the January 2001 restructuring plan, which included a $7.4 million
write-off of goodwill due to impairment associated with the January 2001
restructuring plan.
Interest expense, net. Interest expense, net increased by $7,000, or
8.1%, to $93,000 in the six months ended June 30, 2002 compared to $86,000 in
the six months ended June 30, 2001. This decrease was due primarily to higher
loan outstandings.
28
ARMOR HOLDINGS, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS - CONTINUED
Other income, net. Other income, net, was $58,000 in the six months ended
June 30, 2002, compared to other income, net of $227,000 for the six months
ended June 30, 2001. Other income, net for the six months ended June 30, 2002
was primarily foreign exchange gains. Other income, net for the six months ended
June 30, 2001 was primarily resulted from the sale of our investment in JSGS.
Loss from discontinued operations before benefit for income taxes. Loss
from discontinued operations before benefit for income taxes decreased by $6.5
million to $574,000 in the six months ended June 30, 2002 compared to $7.1
million in the six months ended June 30, 2001 due to the reasons discussed
above.
Income tax benefit. Income tax benefit was $218,000 in the six months
ended June 30, 2002 compared to a provision of $2.3 million in the six months
ended June 30, 2001. The effective tax rate for the six months ended June 30,
2002 was 37.9% compared to a provision of 32.9% for the six months ended June
30, 2001. The increase in our effective tax rate for the six months ended June
30, 2002 includes the benefits associated with the cessation of amortization of
non-deductible goodwill for book purposes and is due primarily to the increase
in the proportion of domestic income to total income from discontinued
operations resulting from ITI, acquired in August 2001 as part of the O'Gara
acquisition. The effective tax rate reflects management's expectation of our
effective tax rate for the 2002 fiscal year. Our expected effective tax rate for
fiscal 2002 is not necessarily indicative of what our actual effective rate will
be due to the changing concentration and mix of income in the various countries
in which we operate.
Loss from discontinued operations. Losses from discontinued operations were
$356,000 for the six months ended June 30, 2002 compared to $4.8 million for the
six months ended June 30, 2001 due to the factors discussed above.
LIQUIDITY AND CAPITAL RESOURCES
On August 22, 2001, we entered into an Amended and Restated Credit
Agreement (the "Credit Agreement") with Bank of America, Canadian Imperial Bank
of Commerce, First Union National Bank, Suntrust Bank, Republic Bank, Keybank
National Association, and ING (U.S.) Capital LLC. Pursuant to the Credit
Agreement, the lenders established a $120,000,000 line of credit for our benefit
expiring on February 12, 2004. The Credit Agreement, among other things,
provides for (i) total maximum borrowings of $120,000,000 and (ii) the
capability for borrowings in foreign currencies. All borrowings under the Credit
Agreement bear interest at either (i) a base rate, plus an applicable margin
ranging from .000% to .375%, depending on certain conditions, (ii) a eurodollar
rate, plus an applicable margin ranging from 1.125% to 1.875%, depending on
certain conditions, or (iii) with respect to foreign currency loans, a fronted
offshore currency rate, plus an applicable margin ranging from 1.125% to 1.875%,
depending on certain conditions. In addition, the Credit Agreement includes both
negative and affirmative covenants customary for a credit facility of this
nature, such as a limitation on capital expenditures, foreign indebtedness,
minimum fixed charge coverage and a restriction against paying dividends.
The Credit Agreement also provides that Bank of America will make
swing-line loans to us of up to $5,000,000 for working capital purposes and will
issue letters of credit on our behalf of up to $20,000,000. As of June 30, 2002
we had no outstanding borrowings under our Credit Facility, and Bank of America
had issued $11.2 million in letters of credit on our behalf under the Credit
Agreement. All indebtedness under the Credit Agreement will mature on February
12, 2004. On June 30, 2002, we had approximately $4 million in long-term debt,
net of current portion, for continuing operations, consisting primarily of $2.8
million in industrial development revenue bonds.
In March 2002, our Board of Directors approved a stock repurchase program
that allows us to repurchase up to 10% of our outstanding shares. Through August
12, 2002, we have repurchased 1.9 million shares of our common stock under this
program at an average price per share of $13.46. We expect to continue our
policy of repurchasing our common stock at opportune intervals. In addition, our
Credit Agreement permits us to repurchase shares of our common stock if the
Company's ratio of Consolidated Total Indebtedness to Consolidated EBTIDA (as
such terms are defined in the Credit Agreement) for any rolling twelve month
period is less than 2:00 to 1, and there is no limitation under the Credit
Agreement on the amount of stock that we can repurchase within these guidelines.
Working capital, excluding amounts relating to discontinued operations, was
$122.4 million and $114.1 million as of June 30, 2002 and December 31, 2001,
respectively.
Our spending for our fiscal 2002 capital expenditures for our continuing
operations is expected to be approximately $8.0 million, of which we have
already spent approximately $1.8 million through six months ending June 30,
2002. Our spending for our fiscal 2002 capital expenditures for our discontinued
operations is expected to be approximately $2.1 million, of which we have
already spent approximately $900,000 through six months ending June 30, 2002.
Such expenditures include, leasehold improvements, information technology and
communications infrastructure equipment and software, and manufacturing
machinery and equipment.
We anticipate that the cash generated from operations, cash on hand, net
proceeds from our stock offering completed in December 2001 and borrowings under
the Credit Agreement will enable us to meet 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.
29
ARMOR HOLDINGS, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS - CONTINUED
FORWARD LOOKING AND CAUTIONARY STATEMENTS
Except for the historical information and discussions contained herein,
statements contained in this Form 10-Q may constitute "forward looking
statements" within the meaning of the Private Securities Litigation Reform Act
of 1995. These statements involve a number of risks, uncertainties and other
factors that could cause actual results to differ materially, including, but not
limited to, our failure to continue to develop and market new and innovative
products and services and to keep pace with technological change; competitive
pressures; failure to obtain or protect intellectual property rights; the
ultimate effect of various domestic and foreign political and economic issues on
our business, financial condition or results of operations; quarterly
fluctuations in revenues and volatility of stock prices; contract delays; cost
overruns; our ability to attract and retain key personnel; currency and customer
financing risks; dependence on certain suppliers; changes in the financial or
business condition of our distributors or resellers; our ability to successfully
manage acquisitions, alliances and integrate past and future business
combinations; regulatory, legal, political and economic changes and other risks,
uncertainties and factors inherent in our business and otherwise discussed
elsewhere in this Form 10-Q and in our other filings with the Securities and
Exchange Commission or in materials incorporated therein by reference.
30
ARMOR HOLDINGS, INC. AND SUBSIDIARIES
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
ITEM 3. 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 relate primarily to borrowings under our credit facilities and
our short-term monetary investments. To the extent that, from time to time, we
hold short-term money market instruments, there is a market rate risk for
changes in interest rates on such instruments. To that extent, there is inherent
rollover 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 our interest rate risk profile. We do not use derivative
financial instruments to hedge this interest rate risk. However, in the future,
we may consider the use of financial instruments to hedge 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. Where appropriate
and to partially manage our foreign currency risk related to those payments we
receive payment from customers in local currencies in amounts sufficient to meet
our local currency obligations. We do not use derivatives or other financial
instruments to hedge foreign currency risk.
RISKS ASSOCIATED WITH INTERNATIONAL OPERATIONS
We do business in numerous countries, including emerging markets in
Africa, Asia, South America, Russia, and CIS. We have invested substantial
resources outside of the United States and plan to continue to do so in the
future. Our 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
31
ARMOR HOLDINGS, INC. AND SUBSIDIARIES
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
significant adverse effect on economic conditions in a developing country or may
otherwise have a material adverse effect on us and our operating companies. We
do not have political risk insurance in the countries in which we currently
conducts business, but periodically analyze the need for and cost associated
with this type of policy. Moreover, applicable agreements relating to our
interests in our operating companies are frequently governed by foreign law. As
a result, in the event of a dispute, it may be difficult for the us to enforce
our rights. Accordingly, we may have little or no recourse upon the occurrence
of any of these developments.
32
ARMOR HOLDINGS, INC. AND SUBSIDIARIES
PART II
ITEM 1. LEGAL PROCEEDINGS
Reference is made to Item 3, Legal Proceedings, in our Annual Report on
Form 10-K for the year ended December 31, 2001 for a description of legal
proceedings.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
We held our annual meeting of stockholders on June 18, 2002 for the
purpose of electing directors, approving the 2002 Stock Incentive Plan and
ratifying the appointment of PricewaterhouseCoopers LLP as independent
accountants.
Each of management's nominees for directors, as listed in the proxy
statement, was elected with the number of votes set forth below.
FOR WITHHELD/
AGAINST
Warren B. Kanders 22,768,833 7,537,458
Jonathan M. Spiller 29,625,971 680,320
Burtt R. Ehrlich 29,706,271 600,020
Nicholas Sokolow 29,710,371 595,920
Thomas W. Strauss 29,710,371 595,920
Alair A. Townsend 29,710,371 595,920
Stephen B. Salzman 29,710,371 595,920
Mr. Salzman resigned from our Board of Directors on June 26, 2002. On
July 3, 2002, our Board of Directors appointed Deborah A. Zoulas to serve as a
member of the Board of Directors.
The other matters voted upon at the annual meeting were approved with
the number of votes set forth below:
FOR AGAINST WITHHELD BROKER
NON-VOTES
Approval of 2002 Stock Incentive Plan 17,572,857 8,566,865 23,369 4,143,200
Ratification of PricewaterhouseCoopers
LLP as independent accountants
27,739,844 2,559,635 6,812 -0-
33
ARMOR HOLDINGS, INC. AND SUBSIDIARIES
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
The following exhibits are filed as part of this quarterly report on
Form 10-Q.
99.1 Written Statement by the Chief Executive Officer and Chief
Financial Officer of Armor Holdings, Inc.
(b) Reports on Form 8-K. No reports on Form 8-K have been filed during
the quarter for which this report is filed.
34
ARMOR HOLDINGS, INC. AND SUBSIDIARIES
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: August 14, 2002
/s/ Robert R. Schiller
-------------------------------------
Robert R. Schiller
Executive Vice President and Chief Financial Officer
Dated: August 14, 2002
35