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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
------ ------ ------ ------ ------ ------ ------ ------
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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
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Diluted .16 .14 .16 .15 .17 .24 .11 .21
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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