Simula Says Turnaround Complete in 2001 -- Expects Profits for Q4; Company Anticipates Revenue and Earnings Growth in 2002
PHOENIX--Feb. 7, 2002--Simula, Inc. (AMEX:SMU) today provided preliminary results for the fourth quarter ended December 31, 2001."We have done what we said we would do," said Simula President and CEO, Brad Forst. "2001 was a successful turnaround year for Simula. Good people and hard work made it happen."
In an investor conference call scheduled for 11:30am EST today, Forst will comment on expected results for 2001 and the outlook for 2002.
The Company is in the process of its annual year-end closing and audit and will report actual fourth quarter and year-end results in its definitive earnings release in mid-March.
On a preliminary basis, the Company anticipates fourth quarter revenue to be approximately $29 million and that it will report positive net income. The Company said that there are no restructuring charges in the fourth quarter.
The Company expects to report fiscal year 2001 revenues of approximately $107 million. This consists of $5 million from the Company's Atlanta operation prior to its sale, and $102 million from retained businesses.
For the fiscal year ended December 31, 2001, the Company anticipates net income from retained businesses in excess of $3 million, which excludes one-time favorable reserve reversals, 2001 restructuring, severance and refinancing charges, and operating losses and write-offs associated with operations that were sold or closed during the year.
OUTLOOK FOR 2002
During the conference call Mr. Forst will comment on the outlook for 2002. He is expected to forecast and highlight certain information based on current expectations. These statements are forward-looking and actual results may differ materially.
REVENUE GROWTH
The Company expects top line growth in 2002 in both of its business segments. The Aerospace and Defense Segment is expected to account for approximately 67% of total revenues and the Commercial Products Segment, which includes the automotive safety business and licensing activities, approximately 33%.
The Company expects its 2002 revenue growth to be in the range of 15% to 20% over 2001 revenues from retained businesses. Revenue growth rate in 2002 is expected to be impacted by an anticipated temporary slowdown in the Company's automotive business, which will offset some of the anticipated upside in the Company's Aerospace and Defense business.
Aerospace and Defense Revenues Outlook
The Company expects that demand for defense related safety products will grow in 2002. The terrorist events of September 11 appear to be leading toward a dramatic increase in U.S. defense spending in 2002 and subsequent years. As a result, the Company expects significant additional business in armor product lines, as well as long-term growth across all of its Aerospace and Defense product lines. The 2002 revenue projections reflect only contractual backlog and estimates of highly probable orders and do not include possible demand from unforeseen events or requests for deliveries. Other key factors include:
| -- | In October, the Company announced two new body armor contracts with a maximum value of $57 million. Incremental contribution to revenue from these armor contracts in 2002 may be delayed by shortages of raw material supplies. |
| -- | Additionally, an unknown factor in revenue projections is whether the government will require more than the minimum number of product units under the minimum/maximum contracts. |
| -- | Because of the nature of the contracts that allow the customer to draw down products from time to time, it is not possible to predict the quarter(s) in which the government will ask for product deliveries over the next two years. |
The Aerospace & Defense business has long lead-time procurement. Additionally, in many instances Simula is a sole source supplier of its products. These procurement practices and public pronouncements of long-term Pentagon plans give good visibility to defense related revenues.
Aerospace and Defense Backlog
In the Aerospace and Defense business, contract backlog is comprised of Funded and Unfunded Backlog. Funded Backlog consists of aggregate contract values for firm product orders, exclusive of any portion previously included in operating revenue utilizing the percentage-of-completion method. Unfunded Backlog consists of estimated aggregate contract values that the customer may elect to purchase as an option or maximum amount under an existing contract or basic ordering agreement.
The following table summarizes the Funded, Unfunded and Total Backlog as of year-end.
Date Funded Unfunded Total -------------------------------------------------------------------- December 31, 2001 $48 million $93 million $141 million --------------------------------------------------------------------
Commercial Products Revenues Outlook
The Company expects that demand for its automotive safety products will grow in 2002. Subsequent year growth should accelerate as the economic cycle improves and the Company's products become standard components on vehicles that currently offer the product only as an option and as the products are added on additional vehicle platforms. In addition, the Company expects that technology sales and royalties will begin to take place during 2002. Company projections, however, reflect only estimates of highly probable orders and do not include possible demand from unforeseen events or upside possibilities.
| -- | The Company's automotive business is expected to grow and be profitable in 2002, but product demand from current platforms and customers will be negatively impacted by the general slowdown of sale of new vehicles until economic conditions improve. |
| -- | Some new platform introductions utilizing the Company's products, originally slated for late 2002, are likely to be delayed until 2003. |
Commercial Products Revenue Visibility
In addition to current business, the Company has projected business that consists of automotive platforms the Company has been awarded but for which production has not yet begun. Estimates are based on information provided by our first-tier and OEM customers. The Company projects incremental growth in years 2002 and beyond. Other key factors include:
-- Due to the long lead-time in automotive design, testing, and
purchasing, automakers award safety systems to suppliers up to
4 years in advance of model introduction. In addition to long
lead-time procurement, once a safety system is certified and
specifications are included in car design, the safety system
is usually sourced by the OEM for the life of the model, which
typically ranges from 3 to 7 years.
-- The Company has 15 platform awards. The Company currently
delivers its side-impact head protection airbag product to 4
OEMs for 8 separate vehicle platforms. In addition the Company
has awards to deliver 7 additional platforms for 2 additional
OEMs scheduled to start production between 2002 and 2004.
Business Outlook for Defense and Automotive Businesses
Key factors affecting the Company's revenue growth are expected to be:
-- The Company expects the Pentagon budget that the Bush
Administration has proposed will set a positive backdrop for
the Aerospace and Defense business for years to come. On
February 4, the President proposed the largest defense budget
increase in history.
-- The Company anticipates that the 2003 U.S. defense budget will
be $379 billion, an increase of more than $42 billion over
2002. It is noteworthy that an increase in next year's defense
budget will not include the costs of the military campaign in
Afghanistan which will come through additional special
appropriations.
-- It is especially noteworthy that U.S. Defense strategies are
shifting to rapid deployment of a mobile force capable of
quickly landing in fighting condition anywhere in the world.
The Bush administration budget contains funds for this
strategy. The Afghanistan military action clearly demonstrates
the utility of mobile forces and improves the political
climate for such spending.
-- The Company believes that its products are ideally positioned
for today's typical military action where rapid deployment of
highly mobile, flexible mission, military forces for police
action is the norm.
-- On the automotive side, sales in 2002 are expected to be
impacted by a worldwide economic slowdown. Automakers are
predicting up to a 10% decrease in U.S. sales and a 5%
decrease in European sales compared to 2001, which was the
industry's second biggest year in history. Sales in January
fell about 5% to 7% over 2001 levels. Company estimates for
2002 have incorporated these reduced expectations.
-- Longer term forecast is for good growth, particularly for the
luxury car segment. BMW says demand for premium cars will grow
approximately 50% by 2010, twice as much as the volume market.
The Company's largest current and future platform awards are
primarily for cars in this premium segment.
GROSS MARGINS
For fiscal year 2002, the Company expects its average gross margins to be sustained at a level comparable to 2001, and to meet or exceed industry averages. Other key points:
-- The Company's margins in its Aerospace and Defense Segment are
affected by a variety of factors including product mix. Newer
products and technologies generally support higher margins.
The Company's business plan emphasizes on-going introduction
of new products and technologies. Margins are positively
impacted by high production volume which spreads overhead
across a number of units.
-- The Company's margins in its Commercial Products Segment are
impacted by year-to-year price reductions typical of the
automotive industry. Margins are highest at the introduction
of new platforms and decrease over time in subsequent model
years.
OPERATING INCOME
For fiscal year 2002, the Company expects its operating income to be impacted by the following:
-- The Company's operating income in 2002 will be impacted by the
level of investment in its Automotive business that is
required to become a tier one supplier to OEM's, and the
investment in development expenses for its new Distributed
Charge Inflator(TM) ("DCI") product.
-- The Company's operating income in 2002 will be impacted by
planned investment in research and product development
expenses, and SG & A for increased marketing costs,
particularly in international markets. Development
expenditures were reduced in recent years due to the Company's
financial condition. The Company believes investment in 2002
is necessary to achieve long-term growth targets.
NET INCOME
The Company anticipates that in 2002 it will report positive net income. The Company has effectively completed its restructuring and currently anticipates no material additional non-recurring charges in 2002.
Net income is adversely impacted by the Company's high cost of capital. Interest expense in 2002 is expected to be approximately $10 million. Management remains focused on deleveraging opportunities but is not projecting significant interest expense reduction in 2002.
The Company expects to generate taxable income in 2002 which will begin utilizing the approximate $38 million deferred tax asset generated from prior years' net operating losses. Thus, the Company has the capability of earning significant amounts of taxable income in upcoming years without the attendant cash flow requirements to pay federal income taxes.
CASH FLOW AND EBITDA
The Company had positive cash flow from retained operations in 2001 and expects the same in 2002. The Company believes it has sufficient capacity on its revolving line of credit for its working capital needs. Capital expenditures should be in line with prior year levels but may increase as the Company executes its plan for growth.
-- The Company expects its EBIT as percentage of sales, and
EBITDA as percentage of sales, to meet or exceed industry
averages.
-- The Company expects 2002 EBITDA to be in the range of $17 to
$19 million.
OTHER INITIATIVES
-- Balance sheet restructuring continues to be a priority. The
Company is evaluating a variety of deleveraging and cost of
capital initiatives.
-- The Company's strategy includes monetizing its portfolio of
non-core technology assets. This is accomplished through a
variety of approaches including sales, licensing, or formation
of joint ventures and strategic alliances. The Company
believes joint ventures are the optimal way to commercialize
technologies while limiting the Company's risk and capital
demands.
-- The Company is executing a growth strategy which focuses on
marketing and product development. The Company intends to
continue growth in its core business with products designed to
focus on the "Military of the Future," and it will continue to
migrate defense related technologies to commercial
applications and products that meet criteria for sustainable
high gross margins.
Conference Call
The Company will host a teleconference on February 7, at 9:30am MST/11:30am EST to discuss the Company's preliminary results of operations for the quarter and year ended December 31, 2001 as well as discuss plans and outlook for the Company.
To participate live, you may dial 1-800-946-0709 or via the Internet at www.shareholder.com/simula/medialist.cfm. If you are unable to participate live, the call will be archived for 30 days on our website at http://www.simula.com.
Simula designs and makes systems and devices that save human lives. Its core markets are aerospace and defense systems, and automotive safety systems. Simula's core technologies include inflatable restraints, energy absorbing seating systems, advanced polymer materials, transparent and opaque armor products, personnel protective equipment and parachutes, and crash sensors. More information is available at http://www.simula.com.
Safe Harbor statement under the Private Securities Litigation Reform Act of 1995: This news release contains forward-looking statements that involve risks and uncertainties that may cause the Company's actual experience to differ materially from that which is anticipated. These forward-looking statements include statements about expected revenues, margins, cost reductions, investment requirements, cash flow, EBITDA, net income and taxes. Factors pertinent to the Company's ability to meet its current financial projections include its leveraged status and the level and cost of debt and the nature of debt covenants; the reduction of expenses; the competition and competitive pressures on pricing including from first tier supplier partners; the amount of resources committed to independent research and development from time to time; the degree to which the economy is adversely impacted by recession; the timing, scope and constitution of Congressional defense spending; the ability of the Company to introduce its products to new markets; and capital constraints including the ability of the Company to raise new capital. Actual results may differ materially from those projected. Additional risks include those described herein and in the Company's registration statements and periodic reports filed with the U.S. Securities and Exchange Commission. The Company undertakes no obligation to update any forward-looking statements to reflect unanticipated events or events or circumstances occurring after the date on which such statements are made.