DHB Industries Inc.

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DHB Industries Inc.

2102 SW 2nd Street
Pompano Beach, Florida 33069
U.S.A.
Telephone: (954) 630-0900
Toll Free: (800) 413-5155
Fax: (954) 630-9225
Web site: http://www.dhbt.com

Public Company
Incorporated: 1992 as DHB Capital Group Inc.
Employees: 950
Sales: $340.1 million (2004)
Stock Exchanges: Over the Counter (OTC)
Ticker Symbol: DHBT.PK
NAIC: 339113 Surgical Appliance and Supplies Manufacturing

DHB Industries Inc. is a leading manufacturer of body armor. It also produces protective athletic apparel and medical braces. The company's Point Blank subsidiary commands the U.S. body armor market with its Interceptor Tactical Vest and other products. DHB also owns Protective Apparel Corporation of America and NDL Products. DHB has plants in Tennessee, Florida, and Belgium, and subcontracts some of the labor-intensive sewing work. The holding company was known as DHB Capital Group Inc. before 2001. Though DHB has grown rapidly during the overseas military buildup following the September 11, 2001, terrorist attacks on the United States (9/11), it has also been troubled by shareholder lawsuits and Securities and Exchange Commission (SEC) investigations.

FORMATION IN 1992

DHB Industries Inc. was formed in 1992 as DHB Capital Group Inc. Its founder, David H. Brooks, had previously worked as a stockbroker. DHB soon made its first acquisition: Protective Apparel Corporation of America (PACA). PACA, based in Tennessee, dated back to the mid-1970s. The company was built around the then emerging industry of "bulletproof" vests, or soft body armor, which were made possible by new synthetic materials that combined unprecedented strength with light weight. (DuPont's Kevlar was perhaps the most famous of these.) Thick layers of the tightly woven fabric could spread the force of a projectile across a large surface area, flattening the slug and preventing it from piercing the vest, allowing wearers to survive gunshots with just a bruise.

The protective vests soon became a staple of police departments, SWAT units, and the military. However, PACA focused on the military side of the business until 1993, when it unveiled a line of vests for law enforcement. (In contrast, Point Blank concentrated on police forces until about 1998.) Many of PACA's police vests were tailored to individual measurements. By 1995, PACA had grown to 115 employees.

A new Sports Group was launched in 1994 with the acquisition of Oakland Park, Florida's NDL Products. Publicly traded NDL Products had annual revenues of about $12 million in the early 1990s but had fallen into bankruptcy. DHB paid about $3 million for its assets. This unit's sales blossomed to $5 million within a few years after it won distribution from big box department store chains, but it remained a relatively small part of the overall business.

ACQUISITION OF POINT BLANK: 1995

DHB acquired PACA's rival, Point Blank Body Armor Inc., out of bankruptcy in 1995. Point Blank had been launched in 1973 in Amityville, New York. After the acquisition it was relocated to a 90,000-square-foot facility in Oakland Park, near Fort Lauderdale, Florida. This was also the site of NDL Products.

Point Blank had grown along with the body armor industry. In 1997 it reported more than $15 million in annual revenues and employed 370 people. A new line of "Interceptor" vests for the U.S. military was boosting business still further. The parent company, DHB, had total revenues of $33.2 million in 1997 and a net profit of $1.5 million.

POST–9/11 GROWTH

By 2000, DHB's annual sales were $70 million and growing rapidly. The holding company DHB Capital Group was renamed DHB Industries Inc. in July 2001. The move was to avoid the misperception that the firm was involved in investment banking or other financial services. A couple of months later, its shares were delisted from the NASDAQ. However, its share price soared with the growth of homeland security–related businesses following the 9/11 terrorist attacks. Body armor continued to account for as much as 90 percent of revenues, which were about $98 million in 2001. Net profit was $10 million. Shares returned to the American Stock Exchange in 2001 after a period on the OTC Bulletin Board. Its over-the-counter days were not over, however. It was delisted again in 2006.

DHB took advantage of the insecure world situation by broadening its range of products for the military. It landed a contract for coveralls (not armored) in 2002; total revenues for the year were $130 million. The new military contracts had DHB scrambling to find additional manufacturing space. Unable to win regulatory approval to expand the Oakland Park plant, it instead added to its facility in Tennessee and farmed out some labor-intensive sewing to Federal Prison Industries. The company also opened a small manufacturing unit in Liege, Belgium, dubbed Point Blank International.

It was a time of great opportunity but also a time of turbulence. While local officials were wooing the company to remain in Florida, federal immigration agents raided the Oakland Park factory seeking illegal aliens. The investigation was dropped a few months later with no charges filed.

Complaining of low wages and lousy conditions, some workers at the Florida plant rallied to join the Union of Needletrades, Industrial & Textile Employees (UNITE) and walked off the job for a couple of weeks in 2002. Some of the striking employees also accused the company of skimping on quality, while UNITE accused it of violating securities law by failing to disclose related party transactions. (DHB did business with Tactical Armor Products, which was headed by the wife of DHB founder and CEO David Brooks.)

The company's sales and stock price proved resistant in the face of the union's attack. A Department of Defense review found no defects, and the orders kept coming. In 2004, Point Blank quickly developed a new upper body attachment for its best-selling Interceptor vest to meet Marine Corps demands in Iraq. Called the Dorsal Axillary Protection System, it shielded the shoulder and vulnerable underarms.

COMPANY PERSPECTIVES

Founded in 1992, DHB Industries Inc. has emerged as a global leader in high performance, protective technologies, including: state of the art ballistic technologies (DHB Armor Group) and advanced therapeutic technologies (DHB Sports Group). Created with the singular purpose of achieving dominant market leadership positions in highly targeted, growth oriented industries, DHB Industries Inc. has focused on the execution of a three-pronged strategic plan: 1. Accelerated growth through acquisition. 2. Rapid turnaround through operational, management and brand revitalization. 3. Aggressive sales and marketing of core brands, technologies and products. The systematic execution of this strategic plan has resulted in a strong, healthy, highly focused corporate organization of core operational groups, each of which centers around the commercialization of unique, proprietary technologies.

To work through its record backlog, Point Blank opened a couple of new facilities in Deerfield Beach (51,000 square feet) and Pompano Beach (104,000 square feet), both in south Florida. The former was slated for military production, the latter handled orders for police departments. In April 2002, the company finally recognized the UNITE union at its older Oakland Park site only.

Chief Operating Officer Sandra Hatfield told the Investor's Business Daily she intended the company to be a billion-dollar company. Sales were reported at $230 million in 2003 but said to be growing by $100 million a year. The company set up an office in Washington, D.C., to cater to a small (1 percent of revenues at the time) but growing international trade.

TRYING TIMES

While body armor was credited with saving many lives, it was also perceived as bulky, heavy, and hot. DHB continued to develop lighter models using the latest materials. For example, at eight pounds, the new Interceptor weighed about half as much as early vests. This was vital, because the more comfortable the vests, the more likely they were to be actually worn by soldiers and police officers in the field.

The development process did not always proceed smoothly. Japan's Toyobo Co., Ltd., claimed its Zylon was the strongest synthetic fiber in the world. However, it was found to weaken in extreme heat and high humidity. In 2005 Point Blank agreed to replace thousands of vests made with relatively large amounts of Zylon in order to settle one class-action lawsuit, and in April 2006 it paid $45 million to settle similar suits. The issue affected not just Point Blank but a number of other body armor manufacturers as well.

This was not the limit of DHB's problems. While the company's founder was held up as an example of extravagant CEO remuneration (a purported multimillion-dollar bat mitzvah he threw for his daughter at the Rockefeller Center generated a minor scandal), the company was replacing auditors on an annual basis, and its chief financial officer stepped down in 2005. DHB founder David Brooks resigned as chairman and CEO in July 2006 to help settle a shareholder lawsuit. A number of investigations were unfolding. The SEC soon filed insider trading and fraud charges against DHB's former chief financial officer and chief operating officer. The company warned investors there was a possibility that its 2003 and 2004 results would be restated.

KEY DATES

1973:: Point Blank Body Armor Inc. is formed in Amityville, New York.
1975:: Protective Apparel Corporation of America (PACA) is established in Tennessee.
1992:: DHB Capital Group Inc. is formed, acquires PACA.
1995:: Point Blank is acquired by DHB and relocated to Florida.
1999:: Interceptor body armor is introduced by Point Blank.
2001:: DHB Capital is renamed DHB Industries Inc.
2004:: Point Blank recognizes union at its Oakland Park, Florida facility after a bitter two-year campaign.
2006:: Company founder David Brooks resigns; DHB headquarters shifts from New York to Florida.

In other administrative matters, DHB's headquarters was relocated from Westbury, New York, to Pompano Beach, Florida. Company President Larry Ellis, a retired four-star general in the U.S. Army, took over as acting CEO, while former California state Senator William Campbell became chairman of the board. The company continued to land new police and military contracts.

Frederick C. Ingram

PRINCIPAL SUBSIDIARIES

DHB Armor Group, Inc.; DHB Sports Group Inc.; NDL Products Inc.; Point Blank Body Armor Inc. (99%); Protective Apparel Corporation of America; Point Blank International S.A. (Belgium).