<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
(Mark One)
---
X Quarterly report pursuant to Section 13 or 15(d) of the
--- Securities Exchange Act of 1934
For the quarterly period ended JUNE 30, 1997 or
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---
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 1-12410
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SIMULA, INC.
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(Exact Name of Registrant as Specified in Its Charter)
ARIZONA 86-0320129
- ----------------------------------- ----------------------------
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
2700 N. CENTRAL AVENUE, SUITE 1000, PHOENIX, ARIZONA 85004
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(Address of Principal Executive Offices) (Zip Code)
(602) 631-4005
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(Registrant's Telephone Number, Including Area Code)
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(Former Name, Former Address and Former Fiscal Year, if Changed Since
Last Report)
Indicate by check mark whether the registrant:
(1) has filed all reports required to be filed by Section 13 or 15 (d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or for such
shorter period that the registrant was required to file such reports)
Yes X No
-------- --------
(2) has been subject to such filing requirements for the past 90 days.
Yes X No
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Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date:
Class Outstanding at June 30, 1997
------------------------- ----------------------------
Common Stock, $.01 par value 9,063,280
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SIMULA, INC.
INDEX
<TABLE>
<CAPTION>
PART I - FINANCIAL INFORMATION
PAGE
Item 1 - Financial Statements
<S> <C>
Consolidated Balance Sheets
June 30, 1997 and December 31, 1996................................................2
Consolidated Statements of Operations
Three and Six Months Ended June 30, 1997 and 1996..................................3
Consolidated Statement of Shareholders' Equity
Six Months Ended June 30, 1997 ....................................................4
Consolidated Statements of Cash Flows
Six Months Ended June 30, 1997 and 1996............................................5
Notes to Interim Consolidated Financial Statements .......................................6
Item 2 - Management's Discussion and Analysis of
Results of Operations and Financial Condition......................................7 - 10
PART II - OTHER INFORMATION
Item 4 - Submission of Matters to a Vote of Security Holders ............................................11
Item 5 - Other - Recent Events ..........................................................................11
Item 6 - Exhibits and Reports............................................................................12 - 13
SIGNATURE ..........................................................................................14
</TABLE>
1
<PAGE> 3
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
SIMULA, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1997 1996
------------- ------------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 13,115,244 $ 1,298,741
Contract and trade receivables - Net 28,199,475 25,016,156
Inventories 23,703,695 15,644,157
Income taxes receivable 158,963 1,089,564
Deferred income taxes 3,763,000 3,763,000
Prepaid expenses and other 1,196,081 1,050,215
------------- ------------
Total current assets 70,136,458 47,861,833
PROPERTY, EQUIPMENT AND LEASEHOLD IMPROVEMENTS - Net 26,515,714 23,356,025
DEFERRED INCOME TAXES 2,147,000 1,782,000
DEFERRED FINANCING COSTS 3,966,931 928,728
INTANGIBLES - Net 10,665,899 10,964,139
OTHER ASSETS 1,988,851 1,647,537
------------- ------------
TOTAL $ 115,420,853 $ 86,540,262
============= ============
LIABILITIES & SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Revolving line of credit $ 6,900,000
Trade accounts payable $ 9,647,532 9,200,214
Other accrued liabilities 5,584,998 4,019,534
Current portion of long-term debt 4,249,933 4,536,508
------------- ------------
Total current liabilities 19,482,463 24,656,256
LONG-TERM DEBT - Less current portion 58,548,977 24,696,509
------------- ------------
Total liabilities 78,031,440 49,352,765
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SHAREHOLDERS' EQUITY
Preferred stock, $.05 par value - authorized
50,000,000 shares; no shares issued or outstanding
Common stock, $.01 par value - authorized 50,000,000
shares; issued 9,063,280 and 8,992,598 shares 90,633 89,926
Additional paid-in capital 39,775,204 39,031,453
Retained deficit (2,514,132) (1,966,296)
Currency translation adjustment 37,708 32,414
------------- ------------
Total shareholders' equity 37,389,413 37,187,497
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TOTAL $ 115,420,853 $ 86,540,262
============= ============
</TABLE>
See notes to interim consolidated financial statements.
2
<PAGE> 4
SIMULA, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
-------------------------------- --------------------------------
1997 1996 1997 1996
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
REVENUE $ 20,065,365 $ 19,615,830 $ 37,891,188 $ 36,358,342
COST OF REVENUE 13,663,941 15,478,516 26,428,046 27,794,969
------------ ------------ ------------ ------------
GROSS MARGIN 6,401,424 4,137,314 11,463,142 8,563,373
ADMINISTRATIVE EXPENSES 5,078,744 4,186,174 10,133,959 8,076,618
------------ ------------ ------------ ------------
OPERATING INCOME (LOSS) 1,322,680 (48,860) 1,329,183 486,755
INTEREST EXPENSE (1,463,706) (459,568) (2,415,346) (791,251)
INTEREST INCOME 173,327 173,327
------------ ------------ ------------ ------------
INCOME (LOSS) BEFORE TAXES 32,301 (508,428) (912,836) (304,496)
INCOME TAX (EXPENSE) BENEFIT (14,000) 203,000 365,000 121,000
------------ ------------ ------------ ------------
INCOME (LOSS) BEFORE CUMULATIVE EFFECT
OF A CHANGE IN ACCOUNTING PRINCIPLE 18,301 (305,428) (547,836) (183,496)
CUMULATIVE EFFECT ON PRIOR YEARS (TO
DECEMBER 31, 1995) OF CHANGING
ACCOUNTING FOR PRE-CONTRACT COSTS (3,239,948)
------------ ------------ ------------ ------------
NET INCOME (LOSS) $ 18,301 ($ 305,428) ($ 547,836) ($ 3,423,444)
============ ============ ============ ============
Per share amounts:
Income (loss) before cumulative effect
of a change in accounting principle $ -- ($ 0.03) ($ 0.06) ($ 0.02)
Cumulative effect on prior years (to
December 31, 1995) of changing
accounting for pre-contract costs (0.36)
------------ ------------ ------------ ------------
Net income (loss) $ -- ($ 0.03) ($ 0.06) ($ 0.38)
============ ============ ============ ============
Weighted average shares outstanding 9,423,286 8,939,346 9,020,105 8,916,287
============ ============ ============ ============
</TABLE>
See notes to interim consolidated financial statements.
3
<PAGE> 5
SIMULA, INC.
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
SIX MONTHS ENDED JUNE 30, 1997
<TABLE>
<CAPTION>
Class A
---------------------------- Additional Currency Total
Issued Common Stock Paid-in Retained Translation Shareholders'
Shares Amount Capital Deficit Adjustment Equity
------------ ------------- ------------- --------------- ----------- --------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, JANUARY 1, 1997 8,992,598 89,926 $ 39,031,453 ($1,966,296) $ 32,414 $ 37,187,497
Issuance of common shares 70,682 707 743,751 744,458
Currency translation adjustment 5,294 5,294
Net loss (547,836) (547,836)
----------- ------------- ------------ ------------- ----------- --------------
BALANCE, JUNE 30, 1997 9,063,280 $ 90,633 $ 39,775,204 $ (2,514,132) $ 37,708 $ 37,389,413
=========== ============= ============ ============= =========== ==============
</TABLE>
See notes to interim consolidated financial statements.
4
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SIMULA, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
SIX MONTHS ENDED
--------------------------------
JUNE 30, 1997 JUNE 30, 1996
------------ ------------
<S> <C> <C>
OPERATING ACTIVITIES:
Net loss ($ 547,836) ($ 3,423,444)
Adjustment to reconcile net loss to net cash used by
operating activities:
Depreciation and amortization 2,060,680 1,375,119
Deferred income taxes (365,000)
Currency translation adjustment 5,294
Cumulative effect of change in accounting 5,399,948
Changes in net assets and liabilities:
Contract and trade receivables - net (3,183,319) (6,108,298)
Inventories (8,059,538) (4,944,680)
Income taxes receivable 930,601 (2,281,000)
Prepaid expenses and other (145,866) (567,325)
Other assets (341,314) 14,753
Trade accounts payable 447,318 621,349
Other accrued liabilities 1,565,464 1,809,532
------------ ------------
Net cash used by operating activities (7,633,516) (8,104,046)
------------ ------------
INVESTING ACTIVITIES:
Purchase of property and equipment (4,502,062) (3,481,464)
Costs incurred to obtain intangibles (144,396) (384,579)
------------ ------------
Net cash used in investing activities (4,646,458) (3,866,043)
------------ ------------
FINANCING ACTIVITIES:
Net (repayments) borrowings under line of credit (6,900,000) 6,700,000
Issuance of 8% Notes - net of expenses 31,186,126
Borrowings under other debt arrangements 2,444,200
Principal payments under other debt arrangements (934,107) (756,735)
Issuance of common shares 744,458 782,856
------------ ------------
Net cash provided by financing activities 24,096,477 9,170,321
------------ ------------
NET INCREASE (DECREASE) IN CASH 11,816,503 (2,799,768)
CASH, BEGINNING OF PERIOD 1,298,741 3,175,172
------------ ------------
CASH, END OF PERIOD $ 13,115,244 $ 375,404
============ ============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Taxes paid $ 110,900 $ 277,700
============ ============
Interest paid $ 1,702,788 $ 437,081
============ ============
</TABLE>
See notes to interim consolidated financial statements.
5
<PAGE> 7
SIMULA, INC.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - BASIS OF PRESENTATION:
The accompanying interim consolidated financial statements of
Simula, Inc. (the "Company") have been prepared in accordance
with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q.
Accordingly, they do not include all of the information and notes
required by generally accepted accounting principles for complete
financial statements. In the opinion of Management, all
adjustments and reclassifications considered necessary for a fair
and comparable presentation have been included and are of a
normal recurring nature. Operating results for the three and six
months ended June 30, 1997 are not necessarily indicative of the
results that may be expected for the year ending December 31,
1997.
NOTE 2 - INVENTORIES:
At June 30, 1997 and December 31, 1996, inventories consisted of
the following.
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1997 1996
------------ ------------
<S> <C> <C>
Raw materials $ 8,834,320 $ 4,959,810
Work in process 14,236,961 9,822,859
Finished goods 632,414 861,488
------------ ------------
Total inventories $23,703,695 $15,644,157
============ ============
</TABLE>
NOTE 3 - ISSUANCE OF 8% SENIOR SUBORDINATED CONVERTIBLE NOTES:
During the second quarter of 1997, the Company completed the
public offering of $34.5 million of its 8% Senior Subordinated
Convertible Notes (the "8% Notes"). The 8% Notes are due May 1,
2004 and bear interest at 8% per annum, payable semi-annually.
The 8% Notes are convertible into shares of the Company's common
stock at a price of $17.55 per share of common stock. The 8%
Notes may be redeemed at the Company's option in whole or in part
on a pro rata basis, on and after May 1, 1999, at certain
specified redemption prices plus accrued interest payable to the
redemption date. However, on or after May 1, 1999 and prior to
April 30, 2000, the 8% Notes will not be redeemable unless the
closing price of the Company's common stock has equaled or
exceeded $23.625 for 20 trading days within a period of 30
consecutive trading days. The indenture relating to the 8% Notes
contains certain covenants including limitations on the
incurrence of additional indebtedness, the sale of assets, liens
securing indebtedness other than senior indebtedness, payment
restrictions affecting subsidiaries, transactions with
affiliates, future senior subordinated indebtedness and mergers
and consolidations. In accordance with the indenture, the Company
may incur indebtedness under senior credit facilities up to $50
million and may incur other indebtedness based upon a specified
ratio of cash flow, as defined, to interest expense.
NOTE 4 - SHAREHOLDERS' EQUITY:
Weighted average shares used to compute per share amounts for the
three month period ended June 30, 1996 and the six month periods
ended June 30, 1997 and 1996 do not include common stock
equivalents because their effect would be anti-dilutive. In
addition, fully diluted earnings per share reflecting the effect
of the 8% Notes and the Series C 10% Senior Subordinated
Convertible Notes is not presented because the effect would also
be anti-dilutive.
NOTE 5 - ACCOUNTING CHANGE:
During 1996, the Company adopted a new method of accounting for
pre-contract costs. These costs were previously deferred and
recovered over the revenue streams from these customers.
Beginning January 1, 1996, the Company expenses these costs as
they are incurred.
NOTE 6 - NEW ACCOUNTING STANDARDS:
In February 1997, the Financial Accounting Standards Board
("FASB") issued Statement of Financial Accounting Standards
("SFAS") No. 128 "Earnings Per Share," which is effective for
both interim and annual periods ending after December 15, 1997.
The Company does not believe the adoption of this standard will
have a significant effect on previously reported per share data.
FASB also recently issued SFAS No. 130 on "Reporting
Comprehensive Income" and SFAS No. 131 on "Disclosures about
Segments of an Enterprise and Related Information." The
"Reporting Comprehensive Income" standard is effective for fiscal
years beginning after December 15, 1997. This standard changes
the reporting of certain items currently reported in the common
stock equity section of the balance sheet. The "Disclosure about
Segments of an Enterprise and Related Information" standard is
also effective for fiscal years beginning after December 15,
1997. This standard requires that public companies report certain
information about operating segments in their financial
statements. It also establishes related disclosures about
products and services, geographic areas, and major customers. The
Company is currently evaluating what impact these standards will
have on its financial statements.
6
<PAGE> 8
SIMULA, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION.
GENERAL
The following discussion and analysis provides information that
management of Simula, Inc. (the "Company") believes is relevant to an assessment
and understanding of the Company's results of operations and financial condition
for the three and six months ended June 30, 1997 compared to the same periods of
the prior year. This discussion should be read in conjunction with the Interim
Consolidated Financial Statements and the Notes thereto included elsewhere in
this Form 10-Q. This Form 10-Q contains certain forward-looking statements and
information. The cautionary statements should be read as being applicable to all
related forward-looking statements wherever they appear. See "Forward Looking
Information and Risks of the Business."
OVERVIEW
The Company designs and manufactures occupant safety systems and
devices engineered to safeguard human life in a wide range of air, ground, and
sea transportation vehicles. Utilizing its substantial proprietary technology in
energy-absorbing seating, inflatable restraints, and composite materials, the
Company focuses on reducing injury and increasing survivability in vehicle
crashes.
The Company's historic core business has been as a government
contractor. Additionally, through recent acquisitions, the Company has become
the largest North American-based supplier of seating systems for rail and other
mass transit vehicles and a successful new entrant in the manufacture of new
commercial airliner seating. Utilizing its proprietary safety technology,
customer relationships, and manufacturing capacity expertise, recently enhanced
through acquisitions, the Company has introduced crashworthy seating systems for
a variety of aircraft, various inflatable restraint systems for automobiles, a
bulkhead airbag system for commercial airliners, and two cockpit inflatable
restraint systems for military aircraft.
In 1993, management made a strategic decision to enter the
commercial aircraft seating market to bring its proprietary energy-absorbing
technologies to a new industry and take advantage of positive industry trends.
To implement its decision, the Company completed three acquisitions that allowed
it to develop the necessary infrastructure to support future growth. In August
1993, the Company acquired Airline Interiors, Inc. (the "Airline Acquisition"),
which was primarily involved with the refurbishment, reupholstery,
reconditioning and reconfiguring of existing passenger seats. The Airline
Acquisition provided certain FAA certifications, enhanced the Company's
management team and customer base, and provided substantial assembly capacity.
During 1994, the Company acquired Coach and Car Equipment Corporation ("Coach
and Car") and Artcraft Industries Corp. ("Artcraft"). The acquisitions of Coach
and Car and Artcraft are collectively referred to as the 1994 Acquisitions.
Coach and Car and Artcraft's existing operations included providing a majority
of all manufacturing and refurbishment of rail and mass transit seating systems
in North America. The 1994 Acquisitions also provided the Company with
substantial large-scale manufacturing capacity and synergies, which will be
utilized in the production of its 16g seat (the "16g Seat") for airliners.
Simula's revenue has historically been derived from three
sources: sales of Company manufactured products; contract research and
development for third parties; and technology sales and royalties. A substantial
portion of its current revenue is accounted for under the percentage of
completion method of accounting. Under this method, revenue is recorded as
production progresses so that revenue less costs incurred to date yields the
percentage of gross margin estimated for each contract. Overall gross margin
percentages can increase or decrease based upon changes in estimated gross
margin percentages over the lives of individual contracts.
The Company is a holding company for wholly owned subsidiaries,
including Simula Government Products, Inc., the principal entity conducting the
Company's "Government and Defense" business, and Simula Transportation Equipment
Corporation ("SimTec" - formerly known as Intaero), an entity conducting the
Company's commercial seating businesses. In addition, the Company maintains
general corporate operations and subsidiaries engaged in technology development
including Simula Automotive Safety Devices, Inc. ("Simula ASD") which was
established in 1995 and conducts substantially all of the Company's operations
encompassing inflatable restraints for automobiles including the Inflatable
Tubular Structure (the "ITS"). Through 1996, Simula ASD did not have significant
revenue.
7
<PAGE> 9
SIMULA, INC.
RESULTS OF OPERATIONS
Three and Six Months Ended June 30, 1997 Compared to 1996
Revenue for the three months ended June 30, 1997 increased 2% to
$20.1 million from $19.6 million for the comparable period in 1996. Revenue for
the six months ended June 30, 1997 increased 4% to $37.9 million from $36.4
million for the comparable period in 1996. Revenue for the three and six months
ended June 30, 1996 included approximately $4.6 million in incremental revenue
from an armor contract which represented non-recurring business. Excluding this
contract from the 1996 periods, revenues increased 33% and 19% for the three and
six month periods ended June 30, 1997, respectively, versus the comparable
periods in 1996. These increases are primarily due to increased sales of the 16g
Seat and the ITS and increased contract revenue for rail and mass transit.
Gross margin for the three months ended June 30, 1997 increased
55% to $6.4 million from $4.1 million for the comparable period in 1996. For the
six months ended June 30, 1997, gross margin increased 34% to $11.5 million from
$8.6 million. The increase in gross margin was primarily due to the reduction in
pre-contract and start-up costs. As a percent of sales, gross margin for the
three months ended June 30, 1997 increased to 32% from 21%, and for the six
months ended June 30, 1997 increased to 30% from 24%, for the comparable periods
in 1996. The increase in gross margin percentage was due to the increased sales
volume of the 16g Seat and the ITS and the reduction in pre-contract costs and
start-up costs. Revenue from the 16g Seat and ITS is now available to cover
certain fixed manufacturing costs.
Administrative expenses for the three months ended June 30, 1997
increased 21% to $5.1 million from $4.2 million for the comparable period in
1996. Administrative expenses for the six months ended June 30, 1997 increased
25% to $10.1 million from $8.1 million for the comparable period in 1996. This
increase was attributable to the expansion of the corporate and sales
infrastructure related to the commercial introduction of the Company's
technologies, principally the 16g Seat and certain commercial helicopter seat
programs, and increased Government and Defense and new technology bid and
proposal costs.
Interest expense for the three months ended June 30, 1997
increased 219% to $1.5 million from approximately $460,000 for the comparable
period in 1996. Interest expense for the six months ended June 30, 1997
increased 205% to $2.4 million from approximately $800,000 for the comparable
period in 1996. These increases were due to increased borrowings on the
Company's bank credit facilities, the issuance of $34.5 million of the 8% Senior
Subordinated Convertible Notes (the "8% Notes") in April 1997 and the issuance
of $14.3 million of the Series C 10% Senior Subordinated Convertible Notes in
September 1996. These borrowings were made to fund its growth in working capital
and fixed assets necessary to support the anticipated growth in revenues for
1997 and subsequent years. The Company's revolving line of credit was repaid
with the proceeds from the issuance of the 8% Notes and has no outstanding
balance at June 30, 1997.
Interest income for the three and six months ended June 30, 1997,
was approximately $174,000. This income results from the investment by the
Company of the excess proceeds received upon the issuance of the 8% Notes. These
excess proceeds have been invested in high quality government and short-term
investment grade, interest bearing securities.
The effective income tax rate for the three and six month periods
ended June 30, 1997 and 1996 approximated the Company's combined statutory rate
of 40%.
8
<PAGE> 10
SIMULA, INC.
LIQUIDITY AND CAPITAL RESOURCES
The Company's liquidity is greatly impacted by the nature of the
billing provisions under its contracts. Generally, in the early period of
contracts, cash expenditures and accrued profits are greater than allowed
billings while contract completion results in billing previously unbilled costs
and profits. Contract and trade receivables, net of advances on contracts,
increased approximately $3.2 million for the six months ended June 30, 1997,
principally due to certain rail programs initiated in the first six months of
1997 and trade receivables from 16g Seat customers.
Operating activities required the use of $7.6 million of cash
during the six months ended June 30, 1997, compared to the use of $8.1 million
of cash during the same period in 1996. Cash used by operating activities in
1997 was primarily used to fund an increase in inventories of $8.1 million and
the increase in contract and trade receivables noted above. The increase in
inventories was primarily related to the 16g Seat and ITS and represents the
buildup necessary to support anticipated future deliveries. This buildup
includes increases in purchased components to be used in the assembly process,
raw materials to be used in the manufacture of 16g Seat components by Coach and
Car and composite seat backs produced by the Company's subsidiary, Viatech.
Investing activities required the use of $4.6 million of cash
during the six months ended June 30, 1997 primarily for the purchase of
manufacturing equipment for the ITS to be located at the Company's operation in
the United Kingdom. In addition, the Company acquired tooling fixtures for
future rail programs and certain enhancements to its 16g Seat machining cell at
Coach and Car.
Financing activities provided $24.1 million of cash during the
six months ended June 30, 1997 principally from approximately $31.2 million in
net proceeds received from the issuance of the 8% Notes offset by the net
repayment of $6.9 million under the Company's revolving line of credit.
During the second quarter of 1997, the Company completed the
public offering of $34.5 million of the 8% Notes. The 8% Notes are due May 1,
2004 and bear interest at 8% per annum, payable semi-annually. The 8% Notes are
convertible into shares of the Company's common stock at a price of $17.55 per
share of common stock. The 8% Notes may be redeemed at the Company's option in
whole or in part on a pro rata basis, on and after May 1, 1999, at certain
specified redemption prices plus accrued interest payable to the redemption
date. However, on or after May 1, 1999 and prior to April 30, 2000, the 8% Notes
will not be redeemable unless the closing price of the Company's common stock
has equaled or exceeded $23.625 for 20 trading days within a period of 30
consecutive trading days. The indenture relating to the 8% Notes contains
certain covenants including limitations on the incurrence of additional
indebtedness, the sale of assets, liens securing indebtedness other than senior
indebtedness, payment restrictions affecting subsidiaries, transactions with
affiliates, future senior subordinated indebtedness and mergers and
consolidations. In accordance with the indenture, the Company may incur
indebtedness under senior credit facilities up to $50 million and may incur
other indebtedness based upon a specified ratio of cash flow, as defined, to
interest expense.
Included in current portion of long-term debt is a mortgage of
$2.6 million on one of the Company's facilities that is due in March 1998. The
Company is currently pursuing various alternatives for this property and
believes it will be able to repay or refinance the mortgage on a long-term basis
prior to its maturity.
The Company believes it has sufficient manufacturing capacity in
place at June 30, 1997 to meet its foreseeable delivery requirements. The
Company anticipates cash on hand, cash provided by operating activities once the
16g Seat and ITS reach full scale production and the availability under its bank
credit facilities will be sufficient to meet its current and foreseeable working
capital requirements. The Company may, however, seek to obtain additional
capital should demand for its products exceed current capacity. The raising of
additional capital in public markets will be primarily dependent upon prevailing
market conditions and the demand for the Company's technologies and products.
9
<PAGE> 11
SIMULA, INC.
INFLATION
The Company does not believe that it is significantly impacted
by inflation.
RESEARCH AND DEVELOPMENT
The Company's research and development occurs under fixed-price,
government-funded contracts and Company-sponsored efforts. Historically,
research and development efforts have fluctuated based upon available
government-funded contracts and available Company funding. The Company
anticipates that future fluctuations may also occur as a result of efforts to
expand its inflatable restraint, commercial airliner and helicopter seating, and
rail seating technologies.
SEASONALITY
As the Company has diversified its operations into new commercial
products, the impact of seasonal variations in deliveries by suppliers which
have historically resulted in higher revenue in the fourth quarter and lower
revenue in the first quarter has diminished. The Company does not believe that
it is currently significantly impacted by seasonal factors.
FORWARD LOOKING INFORMATION AND RISKS OF THE BUSINESS
Commencing in fiscal 1997, the Company entered large scale
production of the ITS and 16g Seat. The Company expects that in late 1997 and in
1998, it will begin to realize significant revenues from the introduction of
these products. During this period, the other core businesses of the Company are
expected to remain at current revenue levels.
Projected operating results and capital needs will be affected by
a wide variety of factors which could adversely impact revenues, profitability
and cash flows, many of which are beyond the control of the Company. The factors
include the availability and utilization of manufacturing capacity; fluctuations
in manufacturing yield; the availability and cost of raw materials, equipment,
and other supplies; the Company's ability to design and introduce new products
on a timely basis; market acceptance and demand of both the Company's and its
customers' products; success in building strategic alliances with large prime
contractors and first tier suppliers to OEMs; the level of orders which are
received and can be shipped and invoiced in a quarter; customer order patterns
and seasonality; levels of accounts receivable; changes in product mix; product
performance and reliability; product obsolescence; the cyclical nature of the
airline, rail and automobile industries and other markets addressed by the
Company's products; the level and makeup of military expenditures; technological
changes; competition and competitive pressures on pricing; and economic
conditions in the United States and worldwide markets served by the Company. The
Company's products are incorporated into a variety of transportation vehicles. A
slowdown in demand for new transportation vehicles or modifications services to
transportation vehicles as a result of economic or other conditions in the
United States or worldwide markets served by the Company and its customers or
other broad-based factors could adversely affect the Company's operating results
or financial condition.
10
<PAGE> 12
SIMULA, INC.
PART II - OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
The Company's Annual Meeting of Shareholders was held on June 12,
1997. Proxies were solicited for votes on matters proposed at such meeting
pursuant to Section 14 of the Securities Exchange Act of 1934. The Company's
Proxy Statement for the Annual Meeting was filed with the Securities and
Exchange Commission on April 23, 1997. April 11, 1997 was fixed as the record
date for voting on matters presented at the Annual Meeting. As of such date,
9,022,348 shares of Common Stock were outstanding and eligible to be voted.
The first matter submitted for Shareholder vote was the election
of directors. 9,022,348 shares were eligible to be voted on the matter and
4,511,175 shares constituted a quorum for voting purposes. Votes for individual
directors were tabulated as follows:
<TABLE>
<CAPTION>
Name Votes For Votes Withheld
- ------------------- ------------- -------------
<S> <C> <C>
Stanley P. Desjardins 8,544,523 250,276
Donald W. Townsend 8,547,898 246,901
Bradley P. Forst 8,547,898 246,901
Sean K. Nolen 8,547,598 247,201
James C. Withers 8,547,598 247,201
Robert D. Olliver 8,547,698 247,101
Scott E. Miller 8,547,598 247,201
John M. Leinonen 8,544,948 249,851
</TABLE>
The second matter submitted for vote was the ratification of the
selection of Deloitte & Touche, LLP as the independent public accountants for
the Company's fiscal year 1997. 9,022,348 shares were eligible to be voted on
the matter and 4,511,175 shares constituted a quorum for voting purposes. Votes
as tabulated for such matter were 8,717,795 for, 49,586 against, and 27,418
abstaining.
The third matter submitted for vote was the amendment of the
Company's 1994 Stock Option Plan. Excluding 3,082,536 broker non-votes, the
total number of shares eligible to vote on the matter was 5,939,812.
Accordingly, under Arizona law, 2,969,907 shares constituted a quorum. Voting as
tabulated for this matter were 4,987,535 for, 661,586 against, and 63,142
abstaining.
No other matters were voted upon at the meeting.
ITEM 5. OTHER - RECENT OFFERING OF SENIOR SUBORDINATED CONVERTIBLE NOTES.
During the second quarter of 1997, the Company completed the
public offering of $34.5 million of its 8% Senior Subordinated Convertible Notes
(the "8% Notes"). The 8% Notes are due May 1, 2004 and bear interest at 8% per
annum, payable semi-annually. The 8% Notes are convertible into shares of the
Company's common stock at a price of $17.55 per share of common stock. The 8%
Notes may be redeemed at the Company's option in whole or in part on a pro rata
basis, on and after May 1, 1999, at certain specified redemption prices plus
accrued interest payable to the redemption date. However, on or after May 1,
1999 and prior to April 30, 2000, the 8% Notes will not be redeemable unless the
closing price of the Company's common stock has equaled or exceeded $23.625 for
20 trading days within a period of 30 consecutive trading days. The indenture
relating to the 8% Notes contains certain covenants including limitations on the
incurrence of additional indebtedness, the sale of assets, liens securing
indebtedness other than senior indebtedness, payment restrictions affecting
subsidiaries, transactions with affiliates, future senior subordinated
indebtedness and mergers and consolidations. In accordance with the indenture,
the Company may incur indebtedness under senior credit facilities up to $50
million and may incur other indebtedness based upon a specified ratio of cash
flow, as defined, to interest expense.
11
<PAGE> 13
SIMULA, INC.
ITEM 6. EXHIBITS AND REPORTS.
(a) The following Exhibits are included pursuant to Item 601 of Regulation S-K.
<TABLE>
<CAPTION>
NO. DESCRIPTION REFERENCE
--- ----------- ---------
<S> <C> <C>
3.1 Articles of Incorporation of Simula, Inc., as amended and restated................................... (9)
3.2 Bylaws of Simula, Inc., as amended and restated...................................................... (1)
4.2 Indenture dated December 17, 1993 (including cross-reference sheet to Trust Indenture Act),
as amended........................................................................................ (3)
4.5 Supplemental Indenture No. 2 dated September 12, 1996, entered into in connection with the
the Registrant's issuance of Series C 10% Senior Subordinated Convertible Notes................... (12)
4.6 Supplemental Indenture No.3, effective March 14, 1997, amending the Indenture of
Simula, Inc. dated December 17, 1993.............................................................. (11)
4.7 Indenture dated April 1, 1997, in connection with the issuance of the 8% Senior Subordinated
Convertible Notes due May 1, 2004 (12)
10.8 Employment Agreement between Registrant and Stanley P. Desjardins.................................... (1)
10.9 Employment Agreement between Registrant and Donald W. Townsend....................................... (1)
10.11 1992 Stock Option Plan............................................................................... (1)
10.12 1992 Restricted Stock Plan........................................................................... (1)
10.15 Asset Purchase Agreement dated August 2, 1993 between Simula, Inc. and
Airline Interiors, Inc. .......................................................................... (2)
10.16 Asset Purchase Agreement dated June 14, 1994, among Simula, Inc., CCEC Acquisition
Corp. and Coach and Car Equipment Corporation...................................................... (4)
10.18 Asset Purchase Agreement dated September 30, 1994, among Simula, Inc., Artcraft
Acquisition Corp., and Artcraft Industries Corp................................................... (5)
10.21 1994 Stock Option Plan............................................................................... (6)
10.22 Agreements dated January 27, 1995 with Autoliv AB, including license agreement, frame
supply agreement and joint development agreement.................................................. (7)
10.23 Agreement with Jetstream Aircraft Limited............................................................ (7)
10.24 Amended Loan Agreement with Wells Fargo Bank, N.A. dated December 20, 1996........................... (11)
10.25 Asset Purchase Agreement dated November 1, 1995, between Comfab, Inc. and Stanley P.
Desjardins, d/b/a Desjardins Engineering; Services Agreement dated November 1, 1995,
between Simula, Inc. and Comfab, Inc.; Promissory Note of Stanley P. Desjardins, d/b/a
Desjardins Engineering, dated November 1, 1995, for the purchase price of Comfab, Inc. ........... (8)
10.26 Simula, Inc. Employee Stock Purchase Plan............................................................ (9)
10.27 Promissory Note representing $650,000 loan from Stanley P. Desjardins dated August 12,
1996.............................................................................................. (12)
10.28 Promissory Note representing $1,000,000 loan from Stanley P. Desjardins dated August 14,
1996.............................................................................................. (12)
10.29 Form of Change of Control Agreements Between the Company and Key Management
Personnel......................................................................................... (11)
*11. Earnings Per Share
18. Preference Letter re: change in accounting principles................................................ (10)
+24. Powers of Attorney - Directors....................................................................... (11)
*27. Financial Data Schedule
</TABLE>
- ----------
* Filed herewith.
+ Power of Attorney for John M. Leinonen, elected to the Company's Board of
Directors for the first time on June 12, 1997 is filed herewith; all other
Powers of Attorney for Directors were filed as referenced.
12
<PAGE> 14
SIMULA, INC.
(1) Filed with Registration Statement on Form S-18, No. 33-46152-LA, under
the Securities Act of 1933, effective April 13, 1992.
(2) Filed with current Report on Form 8-K, dated August 2, 1993.
(3) Filed with Registration Statement on Form SB-2, No. 33-61028 under the
Securities Act of 1933, effective December 10, 1993.
(4) Filed with current Report on Form 8-K, dated June 14, 1994.
(5) Filed with current Report on Form 8-K, dated September 30, 1994.
(6) Filed with Registration Statement on Form SB-2, No. 33-87582, under
the Securities Act of 1933, effective December 28, 1994.
(7) Filed with Registration Statement on Form S-1, No. 33-89186, under the
Securities Act of 1933, effective March 28, 1995, as amended by
Post-Effective Amendment No. 1, effective March 31, 1995.
(8) Filed with Report on Form 10-K for the year ended December 31, 1995.
(9) Filed with Definitive Proxy on May 14, 1996, for the Company's Annual
Meeting of Shareholders held on June 20, 1996.
(10) Filed with Report on Form 10-Q/A for the quarter ended June 30, 1996.
(11) Filed with Report on Form 10-K for the year ended December 31, 1996.
(12) Filed with Registration Statement on Form S-3, No. 333-13499, under
the Securities Act of 1993, effective April 24, 1997.
(b) No reports on Form 8-K have been filed during the reporting period.
13
<PAGE> 15
SIMULA, INC.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report on Form 10-Q for the quarter ended June
30, 1997 to be signed on its behalf by the undersigned thereunto duly
authorized.
SIMULA, INC.
DATE: August 13, 1997 /s/ Donald W. Townsend
---------------- ------------------------
DONALD W. TOWNSEND
President
Chief Operating Officer
/s/ Sean K. Nolen
-------------------------
SEAN K. NOLEN
Vice President of Finance
Chief Financial Officer
14
<PAGE> 1
EXHIBIT 11
SIMULA, INC. AND SUBSIDIARIES
COMPUTATION OF EARNINGS PER SHARE
<TABLE>
<CAPTION>
Three Months Ended June 30, Six Months Ended June 30,
------------------------------ ------------------------------
1997 1996 1997 1996
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Income (loss) before cumulative effect
of a change in accounting principle $ 18,301 $ (305,428) $ (547,836) $ (183,496)
Cumulative effect on prior years (to
December 31, 1995) of changing
accounting for pre-contract costs (3,239,948)
----------- ----------- ----------- -----------
Net income (loss) $ 18,301 $ (305,428) $ (547,836) $(3,423,444)
=========== =========== =========== ===========
Number of shares:
Weighted average shares outstanding 9,044,186 8,939,346 9,020,105 8,916,287
Incremental shares for outstanding
stock options 379,100 -- -- --
----------- ----------- ----------- -----------
9,423,286 8,939,346 9,020,105 8,916,287
=========== =========== =========== ===========
Per share amounts:
Income (loss) before cumulative effect
of a change in accounting principle $ -- $ (0.03) $ (0.06) $ (0.02)
Cumulative effect on prior years (to
December 31, 1995) of changing
accounting for pre-contract costs (0.36)
----------- ----------- ----------- -----------
Net income (loss) $ -- $ (0.03) $ (0.06) $ (0.38)
=========== =========== =========== ===========
</TABLE>
15
<PAGE> 1
Exhibit 24
POWER OF ATTORNEY
The undersigned officer and/or director of SIMULA, INC. (the
"Company") does hereby constitute and appoint Bradley P. Forst and Sean K. Nolen
with full power of substitution, my true and lawful attorney and agent, to do
any and all acts and things in my name in the capacity indicated below, and to
execute any and all instruments for me and in my name in the capacities
indicated below that he may deem necessary or advisable to enable the Company to
register securities and comply with the Securities Act of 1933, the Securities
Exchange Act of 1934, and any rules, regulations and requirements of the
Securities and Exchange Commission in connection with periodic reports on Form
3, Form 4, Form 5, or Form 144, covering such shares of preferred stock, common
stock, options, warrants, or other securities of the Company that I may acquire
or dispose of, including specifically, but not limited to, the power and
authority to sign for me in the capacity indicated below any and all amendments
thereto; and I do hereby ratify and confirm all that Bradley P. Forst or Sean K.
Nolen shall do or cause to be done by virtue hereof.
Dated this 12th day of June, 1997.
/s/ John M. Leinonen
---------------------------
John M. Leinonen, Director
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> APR-01-1997
<PERIOD-END> JUN-30-1997
<EXCHANGE-RATE> 1
<CASH> 13,115,244
<SECURITIES> 0
<RECEIVABLES> 28,199,475
<ALLOWANCES> 0
<INVENTORY> 23,703,695
<CURRENT-ASSETS> 70,136,458
<PP&E> 26,515,714
<DEPRECIATION> 0
<TOTAL-ASSETS> 115,420,853
<CURRENT-LIABILITIES> 19,482,463
<BONDS> 58,548,977
0
0
<COMMON> 90,633
<OTHER-SE> 37,298,780
<TOTAL-LIABILITY-AND-EQUITY> 115,420,853
<SALES> 20,065,365
<TOTAL-REVENUES> 20,065,365
<CGS> 13,663,941
<TOTAL-COSTS> 13,663,941
<OTHER-EXPENSES> 5,078,744
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,463,706
<INCOME-PRETAX> 32,301
<INCOME-TAX> 14,000
<INCOME-CONTINUING> 18,301
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 18,301
<EPS-PRIMARY> .00
<EPS-DILUTED> .00
</TABLE>
