UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 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, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ________________ to __________________
0-28040
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COMMISSION FILE NUMBER
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BACOU USA, INC.
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(Exact name of registrant as specified in its charter)
DELAWARE 05-0470688
------------------- ------------
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
10 THURBER BOULEVARD, SMITHFIELD, RHODE ISLAND 02917-1896
------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(401) 233-0333
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(Registrant's telephone number, including area code)
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INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL REPORTS
REQUIRED TO BE FILED BY SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934 DURING THE PRECEDING 12 MONTHS (OR FOR SUCH SHORTER PERIOD THAT THE
REGISTRANT WAS REQUIRED TO FILE SUCH REPORTS), AND (2) HAS BEEN SUBJECT TO SUCH
FILING REQUIREMENTS FOR THE PAST 90 DAYS. YES [X] NO [ ]
The number of shares outstanding of the issuer's Common Stock, $.001 par value,
as of August 4, 1999 was 17,624,365.
<PAGE>
BACOU USA, INC.
INDEX
PART I. FINANCIAL INFORMATION PAGE NO.
Item 1. Financial Statements
Consolidated Condensed Balance Sheets,
December 31, 1998 and June 30, 1999 3
Consolidated Condensed Statements of Income, Three
Months and Six Months Ended June 30, 1998 and 1999 4
Consolidated Condensed Statements of Cash Flows,
Six Months Ended June 30, 1998 and 1999 5
Notes to Consolidated Condensed Financial Statements 6 - 8
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 9 - 16
Item 3. Quantitative and Qualitative Disclosures About Market
Risk 16
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders 17
Item 6. Exhibits and Reports on Form 8-K 18
Signatures 19
<PAGE>
PART I. Financial Information
ITEM I. Financial Statements
BACOU USA, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(in thousands, except share data)
(unaudited)
December 31, June 30,
1998 1999
--------------- -----------
ASSETS
Current assets:
Cash and cash equivalents.................... $ 1,090 $ 2,202
Trade accounts receivable, net............... 27,110 42,717
Inventories.................................. 38,246 43,013
Other current assets......................... 1,251 3,010
Deferred income taxes........................ 2,138 1,788
------------ -----------
Total current assets........................ 69,835 92,730
Property and equipment, net.................. 53,998 65,059
Intangible assets, net....................... 169,937 200,820
------------ -----------
Total assets................................ $293,770 $358,609
============ ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current installments of long-term debt........ $ 15,714 $23,592
Accounts payable.............................. 8,959 7,706
Accrued expenses.............................. 12,242 16,740
Income taxes payable.......................... 1,828 2,756
------------ -----------
Total current liabilities.................... 38,743 50,794
Long-term debt................................ 92,050 130,019
Deferred income taxes......................... 6,311 7,137
Other liabilities............................. 2,754 3,150
------------ -----------
Total liabilities............................ 139,858 191,100
============ ===========
Common stock subject to a put option.......... 9,450 9,450
============ ===========
Preferred stock, $.001 par value, 5,000,000
shares authorized, no shares issued and
outstanding.................................. --- ---
Common stock, $.001 par value, 50,000,000 shares
authorized, 17,610,465 shares in 1998 and
17,624,365 shares in 1999 issued and
outstanding.................................. 17 17
Additional paid-in capital.................... 63,258 63,473
Retained earnings............................. 81,187 94,569
------------ -----------
Total stockholders' equity................... 144,462 158,059
------------ -----------
Total liabilities and stockholders' equity... $293,770 $358,609
============ ===========
See accompanying notes to consolidated condensed financial statements.
<PAGE>
BACOU USA, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(in thousands, except per share data)
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
---------------------------- ----------------------------
1998 1999 1998 1999
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Net sales..................................... $ 58,864 $ 73,907 $108,379 $128,482
Cost of sales................................. 27,847 40,171 52,546 67,859
------------ ------------ ------------ ------------
Gross profit.................................. 31,017 33,736 55,833 60,623
Operating expenses:
Selling...................................... 9,462 9,989 17,410 18,682
General and administrative.................. 7,093 5,679 12,059 10,463
Research and development.................... 928 1,263 1,732 2,472
Purchased in-process research and development --- --- 4,680 ---
Amortization of intangible assets........... 2,073 2,308 3,557 4,423
------------ ------------ ------------ ------------
Total operating expenses...................... 19,556 19,239 39,438 36,040
------------ ------------ ------------ ------------
Operating income.............................. 11,461 14,497 16,395 24,583
Other expense (income):
Interest expense............................ 1,909 2,451 2,793 3,908
Interest income............................. (29) (13) (69) (25)
Other....................................... 9 (276) (39) (171)
------------- ------------ ------------- -------------
Total other expense........................... 1,889 2,162 2,685 3,712
------------- ------------ ------------- -------------
Income before income taxes.................... 9,572 12,335 13,710 20,871
Income taxes.................................. 3,473 4,427 4,875 7,489
------------- ------------ ------------- -------------
Net income.................................... $ 6,099 $ 7,908 $ 8,835 $13,382
============= ============ ============= =============
Earnings per share:
Basic........................................ $ 0.35 $ 0.45 $ 0.50 $ 0.76
============= ============ ============= =============
Diluted..................................... $ 0.35 $ 0.45 $ 0.50 $ 0.76
============= ============ ============= =============
Weighted average shares outstanding:
Basic........................................ 17,599 17,619 17,596 17,618
============= ============ ============= =============
Diluted..................................... 17,731 17,646 17,688 17,716
============= ============ ============= =============
</TABLE>
See accompanying notes to consolidated condensed financial statements.
<PAGE>
BACOU USA, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
-----------------------
1998 1999
--------- --------
Cash flows from operating activities:
<S> <C> <C>
Net income ............................................................. $ 8,835 $ 13,382
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization .......................................... 6,734 8,747
Purchased in-process research and development .......................... 4,680 --
Deferred income taxes .................................................. (2,016) 1,176
Change in assets and liabilities, net of effects of acquired companies:
Trade accounts receivable ............................................ (7,944) (9,270)
Inventories .......................................................... (2,092) 4,138
Prepaid expenses and other current assets ............................ (797) 104
Accounts payable ..................................................... (697) (4,082)
Accrued expenses ..................................................... 5,974 (2,725)
Income taxes ......................................................... 242 929
--------- --------
Net cash provided by operating activities ............................ 12,919 12,399
--------- --------
Cash flows from investing activities:
Capital expenditures ................................................... (5,350) (5,991)
Acquisition of businesses, including direct costs of
acquisition, net of cash acquired .................................... (121,144) (38,221)
--------- --------
Net cash used in investing activities ................................ (126,494) (44,212)
--------- --------
Cash flows from financing activities:
Proceeds from long-term debt ........................................... 124,300 50,000
Repayment of long-term debt ............................................ (9,868) (10,378)
Repayment of note payable, net ......................................... (1,000) (6,912)
Proceeds from issuance of common stock ................................. 250 215
Repurchase of common stock ............................................. (46) --
--------- --------
Net cash provided by financing activities ............................ 113,636 32,925
--------- --------
Net increase in cash and cash equivalents ................................ 61 1,112
Cash and cash equivalents at beginning of period ......................... 1,277 1,090
========= ========
Cash and cash equivalents at end of period ............................... $ 1,338 $ 2,202
========= ========
Supplemental disclosures of cash flow information:
Cash paid during the period for interest ............................... $ 2,182 $ 3,944
========= ========
Cash paid during the period for income taxes ........................... $ 6,814 $ 5,749
========= ========
Fair value of stock options issued pursuant to a consulting
agreement ............................................................ $ 337 $ --
========= ========
</TABLE>
See accompanying notes to consolidated condensed financial statements.
BACOU USA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
JUNE 30, 1999
(unaudited)
1. BASIS OF PRESENTATION
The accompanying consolidated condensed financial statements ("financial
statements") include the accounts of Bacou USA, Inc. and its wholly-owned
subsidiaries (together the "Company"). The Company designs, manufactures and
sells leading brands of products that protect the sight, hearing, respiratory
systems and hands of workers against occupational hazards.
The financial statements have been prepared pursuant to the rules and
regulations of the Securities and Exchange Commission for interim financial
information, including the instructions to Form 10-Q and Rule 10-01 of
Regulation S-X. Accordingly, certain information and footnote disclosures
normally required in complete financial statements prepared in accordance with
generally accepted accounting principles have been condensed or omitted. In the
opinion of management these financial statements include all adjustments
necessary for a fair presentation of the results of operations for the interim
periods presented. Results of operations for interim periods may not be
indicative of results expected for a full year.
2. ACQUISITION OF PERFECT FIT GLOVE CO., INC.
Effective April 1, 1999, the Company acquired Perfect Fit Glove Co., Inc. and
certain affiliates and related assets ("Perfect Fit"), which manufacture and
sell protective gloves and other related products worldwide. Perfect Fit had
fiscal year 1998 combined net sales of $47.3 million. The Company acquired the
assets of Perfect Fit for $37.8 million in cash plus the assumption of certain
liabilities equal to approximately $17.5 million. The Company has agreed to pay
additional contingent consideration of up to $6.0 million to the extent actual
combined cash flow of the acquired business for 1999 exceeds certain specified
targets.
The acquisition was financed by a $50.0 million term loan from Banque Nationale
de Paris ("BNP") made in March 1999. The term loan bears interest at a per annum
rate equal to three-month LIBOR plus 0.60% and provides for repayment over a
seven year term.
The acquisition has been accounted for under the purchase method of accounting
and, therefore, operating results of Perfect Fit have been included in the
consolidated results of the Company beginning on April 1, 1999. The purchase
price for Perfect Fit, including contingent consideration, has been allocated to
the fair value of assets purchased and liabilities assumed as shown in the
following table. The excess of the purchase price over the fair value of net
assets acquired has been recorded as goodwill and is being amortized over 30
years.
(in thousands)
Working capital ............ $ 6,990
Property and equipment...... 9,395
Long-term debt ............. (7,770)
Goodwill ................... 35,235
3. TRADE ACCOUNTS RECEIVABLE
An allowance for doubtful accounts is deducted from trade accounts receivable in
the accompanying financial statements. The allowance for doubtful accounts was
$1,150,000 at December 31, 1998 and $1,174,000 at June 30, 1999.
4. INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
December 31, June 30,
(in thousands) 1998 1999
------- -------
<S> <C> <C>
Raw material and supplies ................................................... $16,407 $18,982
Work-in-process ............................................................. 5,165 6,709
Finished goods .............................................................. 16,674 17,322
------- -------
$38,246 $43,013
======= =======
</TABLE>
5. PROPERTY, EQUIPMENT AND INTANGIBLE ASSETS
Accumulated depreciation and amortization on property and equipment totaled
$17,954,000 at December 31, 1998 and $22,293,000 at June 30, 1999. Accumulated
amortization on intangible assets totaled $20,501,000 at December 31, 1998 and
$24,953,000 at June 30, 1999.
6. SEGMENT DATA
The Company has three reportable segments -- the safety segment, the glove
segment and the optical frames and instruments segment. The safety segment
includes consumable products (protective eyewear and hearing protection) and
technical products (respirators and gas monitors), all of which are sold
principally to industrial and fire safety distributors. The Company began
reporting a glove segment in connection with its April 1, 1999, acquisition of
Perfect Fit. Glove segment products include cut- and abrasion-resistant gloves,
which are sold principally to industrial safety distributors. The optical frames
and instruments segment includes eyeglass frames and components, and vision
screening equipment. Eyeglass frames and components are principally purchased by
optical laboratory customers who fit frames with prescription lenses to create
completed eyewear products.
The Company evaluates segment performance based upon a measure of profit
represented by operating income prior to non-recurring gains and losses,
intangible amortization expense, interest and taxes. Presented below is a
summary of financial data for the Company's reportable segments. Adjustments to
reconcile segment operating income to consolidated operating income for the
three months ended June 30, 1998 and 1999, include amortization expense totaling
$2,073,000 in 1998 and $2,308,000 in 1999, and also include non-recurring
charges totaling $1,754,000 in 1998 and $590,000 in 1999. Adjustments to
reconcile segment operating income to consolidated operating income for the six
months ended June 30, 1998 and 1999, include amortization expense totaling
$3,557,000 in 1998 and $4,423,000 in 1999, and also include non-recurring
charges totaling $7,718,000 in 1998 and $590,000 in 1999.
<TABLE>
<CAPTION>
Optical Frames
Safety Glove and Instruments All Reconciling Consolidated
(in thousands) Segment Segment Segment Other Adjustments Total
-------- ------- --------------- ------- ----------- ------------
Three months ended
June 30, 1998:
<S> <C> <C> <C> <C> <C> <C>
Net sales ........................................$ 50,849 $ -- $ 8,015 $ -- $ -- $ 58,864
Operating income (loss) .......................... 15,755 -- 1,023 (1,490) (3,827) 11,461
Depreciation ..................................... 1,345 -- 302 3 -- 1,650
Capital expenditures ............................. 2,113 -- 639 73 -- 2,825
Three months ended
June 30, 1999:
Net sales ........................................$ 52,546 $12,788 $ 8,573 $ -- $ -- $ 73,907
Operating income (loss) .......................... 16,093 1,860 915 (1,473) (2,898) 14,497
Depreciation ..................................... 1,663 275 369 8 -- 2,315
Capital expenditures ............................. 1,647 56 1,154 23 -- 2,880
Optical Frames
Safety Glove and Instruments All Reconciling Consolidated
(in thousands) Segment Segment Segment Other Adjustments Total
------- ------- -------------- ------- ----------- ------------
Six months ended
June 30, 1998:
Net sales ........................................$ 91,921 $ -- $16,458 $ -- $ -- $108,379
Operating income (loss) .......................... 28,675 -- 1,718 (2,723) (11,275) 16,395
Depreciation ..................................... 2,560 -- 605 12 -- 3,177
Total assets (December 31)........................ 250,172 . -- 41,938 1,660 -- 293,770
Capital expenditures ............................. 3,874 -- 1,048 428 -- 5,350
Six months ended
June 30, 1999:
Net sales ........................................$ 98,470 $12,788 $17,224 $ -- $ -- $128,482
Operating income (loss) .......................... 28,940 1,860 1,777 (2,981) (5,013) 24,583
Depreciation ..................................... 3,303 275 738 8 -- 4,324
Total assets ..................................... 258,058 58,692 41,554 305 -- 358,609
Capital expenditures ............................. 3,731 56 2,132 72 -- 5,991
</TABLE>
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
FACTORS THAT MAY AFFECT FUTURE PERFORMANCE
Statements contained in this Form 10-Q that are not historical facts are
forward-looking statements that are made pursuant to the safe harbor provisions
of the Private Securities Litigation Reform Act of 1995. In addition, when used
in this Form 10-Q, words such as "believes," "anticipates," "expects," and
similar expressions are intended to identify forward-looking statements. We
caution you that a number of important factors could cause actual outcomes to
differ materially from those expressed in any forward-looking statements made by
us, or on our behalf. Forward-looking statements involve a number of risks and
uncertainties including, but not limited to:
o continued demand for our current product lines;
o the success of our new product introductions;
o the success of our acquisition strategy;
o continued availability and favorable pricing of raw materials;
o our ability and the ability of our key vendors to successfully respond to
year 2000 issues;
o the effect of any work stoppages;
o competitive pressures;
o general economic conditions; and
o regulatory matters.
We cannot assure you that we will be able to anticipate or respond in a timely
fashion to changes in any of the factors listed above, which could adversely
affect our operating results in one or more fiscal quarters. Our operating
results in any past period should not be considered indicative of the results to
be expected for future periods. Fluctuations in our operating results may also
result in fluctuations in the price of our common stock.
ACQUISITIONS
Effective April 1, 1999, we acquired Perfect Fit, which manufactures and sells
protective gloves and other related products worldwide. Perfect Fit had fiscal
year 1998 combined net sales of $47.3 million. We acquired the assets of Perfect
Fit for $37.8 million in cash plus the assumption of certain liabilities equal
to approximately $17.5 million. The acquisition has been accounted for under the
purchase method of accounting and, therefore, operating results of Perfect Fit
have been included in our consolidated results beginning on April 1, 1999.
Effective February 27, 1998, we acquired substantially all assets and assumed
substantially all liabilities of Howard S. Leight & Associates, Inc. (d/b/a
Howard Leight Industries, "Howard Leight"), a manufacturer of hearing protection
products (including disposable, reusable and banded ear plugs, and ear muffs)
for cash consideration of $125.9 million, $5.9 million of which represented the
refinancing of Howard Leight indebtedness.
Certain non-recurring costs, principally relating to the above acquisitions,
have been included in our 1998 and 1999 operating results. In connection with
the Howard Leight acquisition, a portion of the acquisition price totaling $4.7
million was allocated to the fair value of purchased in-process research and
development and charged to operating expenses during the first quarter of 1998.
A portion of the acquisition price for each of the above acquisitions was also
allocated to the fair value of acquired inventories. The increase of acquired
inventories from historical cost to fair value is recorded as cost of sales when
the related inventory is sold, and reduced gross profit during the first six
months of 1998 and 1999 by $1.0 million and $0.6 million, respectively. Finally,
cash bonuses in the amount of $0.6 million were paid to certain senior
executives of Howard Leight in connection with that acquisition and were
included with general and administrative expenses during the first quarter of
1998. The following discussion provides an analysis of our actual operating
results, and also analyzes our operating results excluding the effect of these
acquisition-related items.
<PAGE>
RESULTS OF OPERATIONS
The following table presents selected operating data of Bacou and such amounts
as percentages of net sales for the periods indicated.
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
------------------------------------------ ---------------------------------------------
(in thousands, except percentages) 1998 1999 1998 1999
-------------------- -------------------- --------------------- ----------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales........................... $58,864 100.0% $73,907 100.0% $108,379 100.0% $128,482 100.0%
Cost of sales (1)................... 27,847 47.3 40,171 54.4 52,546 48.5 67,859 52.8
------- ----- ------- ----- -------- ------ -------- -----
Gross profit........................ 31,017 52.7 33,736 45.6 55,833 51.5 60,623 47.2
Operating expenses:
Selling........................... 9,462 16.1 9,989 13.5 17,410 16.1 18,682 14.6
General and administrative (2).... 7,093 12.0 5,679 7.7 12,059 11.1 10,463 8.1
Research and development.......... 928 1.6 1,263 1.7 1,732 1.6 2,472 1.9
Purchased in-process research
and development (3)............... -- -- -- -- 4,680 4.3 -- --
Amortization of intangible assets 2,073 3.5 2,308 3.1 3,557 3.3 4,423 3.5
------- ----- ------- ----- -------- ----- -------- -----
Total operating expenses........... 19,556 33.2 19,239 26.0 39,438 36.4 36,040 28.1
------- ----- ------- ----- -------- ----- -------- -----
Operating income.................... 11,461 19.5 14,497 19.6 16,395 15.1 24,583 19.1
Other expense....................... 1,889 3.2 2,162 2.9 2,685 2.5 3,712 2.9
------- ----- ------- ----- -------- ----- -------- -----
Income before income taxes.......... 9,572 16.3 12,335 16.7 13,710 12.6 20,871 16.2
Income taxes........................ 3,473 5.9 4,427 6.0 4,875 4.5 7,489 5.8
------- ----- ------- ----- -------- ----- -------- -----
Net income.......................... $ 6,099 10.4 $ 7,908 10.7 $ 8,835 8.1 $ 13,382 10.4
======= ===== ======= ===== ======== ===== ======== =====
</TABLE>
(1) Includes acquisition-related inventory adjustments totaling $0.3 million
for the three months ended June 30, 1998, $0.6 million for the three months
and six months ended June 30, 1999, and $1.0 million for the six months
ended June 30, 1998.
(2) Includes non-recurring termination payments totaling $1.4 million for the
three months and six months ended June 30, 1998. Also includes
acquisition-related bonuses totaling $0.6 million for the six months ended
June 30, 1998.
(3) Includes acquisition-related charge for purchased research and development
totaling $4.7 million for the six months ended June 30, 1998.
THREE MONTHS ENDED JUNE 30, 1999 COMPARED WITH THREE MONTHS ENDED JUNE 30, 1998
Net Sales. Our net sales increased 25.6% from $58.9 million for the three months
ended June 30, 1998 to $73.9 million for the three months ended June 30, 1999.
Net sales in the 1999 period included sales totaling $12.8 million for our glove
segment, consisting entirely of the Perfect Fit business (acquired by us on
April 1, 1999), accounting for an increase of 21.7%. Net sales for our safety
segment increased 3.3% from $50.8 million in 1998 to $52.5 million in 1999,
while net sales for our optical frames and instruments segment increased 7.0%
from $8.0 million in 1998 to $8.6 million in 1999.
Net sales for our safety segment were adversely affected by difficulties in the
South American economy. Although domestic sales for our safety segment increased
by 5.2%, foreign sales declined by 7.0% due principally to a 27.3% decline in
sales to South America.
Cost of Sales. Our cost of sales increased 44.3% from $27.8 million for the
three months ended June 30, 1998 to $40.2 million for the three months ended
June 30, 1999, primarily due to inclusion of operating results of our Perfect
Fit business.
<PAGE>
Gross Profit. Our gross profit increased 8.8% from $31.0 million for the three
months ended June 30, 1998 to $33.7 million for the three months ended June 30,
1999. The gross margin for our glove segment was equal to 23.6% in the second
quarter of 1999, which is considerably lower than the historical combined gross
margin of our other businesses. Our overall gross margin declined from 1998 to
1999 principally due to the lower gross margins attributable to the glove
segment. Excluding acquisition-related inventory adjustments in both periods,
our gross margin declined from 53.2% in 1998 to 46.4% in 1999.
Operating Expenses. Our operating expenses declined 1.6% from $19.6 million for
the three months ended June 30, 1998 to $19.2 million for the three months ended
June 30, 1999. Excluding a non-recurring charge in 1998 for termination payments
due to a former officer, operating expenses increased 6.1% from $18.1 million in
the 1998 period to $19.2 million in the 1999 period. This increase resulted from
inclusion of operating expenses of the Perfect Fit business in the 1999 period.
Excluding amortization expense and the non-recurring charge for termination
payments, our operating expenses were 22.9% of net sales in 1999 and 27.3% of
net sales in 1998. Selling and administrative costs of our Perfect Fit business
have historically been very low as a percentage of net sales and inclusion of
this business in our 1999 operating results is the principal cause for the
reduction in our overall ratio of operating expenses to net sales. In addition,
we have reduced operating expenses in our other segments. Exclusive of Perfect
Fit, our ratio of operating expenses to net sales declined from 27.3% in 1998 to
25.8% in 1999.
Operating Income. Our operating income increased 26.5% from $11.5 million for
the three months ended June 30, 1998 to $14.5 million for the three months ended
June 30, 1999. Excluding non-recurring items in both periods our operating
income increased 14.2% from $13.2 million in the 1998 period to $15.1 million in
the 1999 period, however, our operating margin declined from 22.4% in 1998 to
20.4% in 1999. The operating margin for our glove segment was equal to 13.0% in
the second quarter of 1999, and inclusion of the operating results of this
business was the principal cause for the decline in our consolidated operating
margin from 1998 to 1999.
Other Expense. Other expense increased 14.5% from $1.9 million for the three
months ended June 30, 1998 to $2.2 million for the three months ended June 30,
1999. Other expense consists principally of net interest expense totaling $1.9
million in the 1998 period and $2.4 million in the 1999 period. The increase in
net interest expense from 1998 to 1999 is due to borrowings we made in
connection with the acquisition of Perfect Fit, offset by a reduction in
interest expense due to principal repayments from 1998 to 1999.
Income Taxes. Our effective income tax rate was 36.3% in the 1998 period and
35.9% in the 1999 period. The effective rate in both periods was higher than the
federal statutory rate of 35.0% due to state and local income taxes.
Net Income. Our net income increased 29.7% from $6.1 million for the three
months ended June 30, 1998 to $7.9 million for the three months ended June 30,
1999. Excluding non-recurring items in both periods, our net income increased
14.8% from $7.2 million in the 1998 period to $8.3 million in the 1999 period.
SIX MONTHS ENDED JUNE 30, 1999 COMPARED WITH SIX MONTHS ENDED JUNE 30, 1998
Net Sales. Our net sales increased 18.5% from $108.4 million for the six months
ended June 30, 1998 to $128.5 million for the six months ended June 30, 1999.
The increase in net sales from 1998 to 1999 was principally due to the effect of
acquired businesses. Operating results of our Perfect Fit business have been
included for three months in 1999 and operating results of our Howard Leight
business have been included for a full six months in 1999. The 1998 period
included the Howard Leight business for four months and did not include the
Perfect Fit business.
Net sales for our safety segment increased 7.1% from $91.9 million in 1998 to
$98.5 million in 1999, while net sales for our optical frames and instruments
segment increased 4.6% from $16.5 million in 1998 to $17.2 million in 1999. As
discussed above, net sales for our safety segment have been adversely affected
during 1999 as a result of difficulties in the South American economy, resulting
in a decline in foreign sales for this segment.
Cost of Sales. Our cost of sales increased 29.1% from $52.5 million for the six
months ended June 30, 1998 to $67.9 million for the six months ended June 30,
1999, primarily due to inclusion of operating results of acquired businesses.
Gross Profit. Our gross profit increased 8.6% from $55.8 million for the six
months ended June 30, 1998 to $60.6 million for the six months ended June 30,
1999. Excluding acquisition-related inventory adjustments in both periods, our
gross margin declined from 52.6% in 1998 to 47.6% in 1999. Again, our gross
margin declined from 1998 to 1999 principally due to lower gross margins
attributable to our newly acquired glove segment.
Operating Expenses. Our operating expenses declined 8.6% from $39.4 million for
the six months ended June 30, 1998 to $36.0 million for the six months ended
June 30, 1999. Excluding non-recurring items in 1998, operating expenses
increased 10.1% from $32.7 million in the 1998 period to $36.0 million in the
1999 period. This increase resulted principally from inclusion of operating
expenses of acquired businesses.
Excluding amortization expense and the non-recurring items, our operating
expenses were 24.6% of net sales in 1999 and 27.0% of net sales in 1998. As
discussed above, our ratio of operating expenses to net sales declined
principally due to inclusion in 1999 of the operating results of our Perfect Fit
business, which has historically had lower selling and administrative costs as a
percentage of its net sales.
Operating Income. Principally as a result of non-recurring items in the 1998
period, our operating income of $24.6 million for the six months ended June 30,
1999, was 49.9% higher than our operating income of $16.4 million for the six
months ended June 30, 1998. Excluding non-recurring items in both periods our
operating income increased 4.4% from $24.1 million in the 1998 period to $25.2
million in the 1999 period, however, our operating margin declined from 22.2% in
1998 to 19.6% in 1999. As discussed above, inclusion of the operating results of
our newly acquired glove segment during 1999 was the principal cause for the
decline in our consolidated operating margin from 1998 to 1999.
Other Expense. Other expense increased 38.2% from $2.7 million for the six
months ended June 30, 1998 to $3.7 million for the six months ended June 30,
1999. Other expense consists principally of net interest expense totaling $2.7
million in the 1998 period and $3.9 million in the 1999 period. The increase in
net interest expense from 1998 to 1999 is due to borrowings we made in
connection with the acquisition of Perfect Fit.
Income Taxes. Our effective income tax rate was 35.6% in the 1998 period and
35.9% in the 1999 period. The effective rate in both periods was higher than the
federal statutory rate of 35.0% due to state and local income taxes.
Net Income. Principally as a result of non-recurring items in the 1998 period,
our net income of $13.4 million for the six months ended June 30, 1999, was
51.5% higher than our net income of $8.8 million for the six months ended June
30, 1998.
LIQUIDITY AND CAPITAL RESOURCES
Our liquidity historically has been derived from cash flow provided by
operations and, periodically, from bank borrowings utilized to finance the
acquisition of businesses. We utilize EBITDA (earnings before interest, taxes,
depreciation and amortization) as a measure of cash flow provided by our
operations. As used by Bacou, EBITDA represents operating income plus
depreciation and amortization, adjusted for non-recurring items. Our EBITDA
increased 10.0% from $30.8 million in the 1998 period to $33.9 million in the
1999 period. EBITDA should not be considered in isolation or as a substitute for
net earnings or cash provided by operating activities, each prepared in
accordance with generally accepted accounting principles.
We used cash equal to $10.9 million for working capital purposes during the six
months ended June 30, 1999, principally due to increases in accounts receivable.
Excluding the effect of our acquisition of Perfect Fit, our trade accounts
receivable increased by $9.3 million from December 31, 1998 to June 30, 1999.
This increase is principally due to higher levels of sales in the second quarter
compared with the fourth quarter. We expect that our working capital uses for
the full year in 1999 will not be significant.
Cash used in investing activities totaled $44.2 million in the 1999 period
compared with $126.5 million in the 1998 period. The 1999 period included $37.8
million expended for the acquisition of Perfect Fit and the 1998 period included
$120.0 million expended for the acquisition of Howard Leight. Capital
expenditures totaled $6.0 million in the 1999 period and $5.4 million in the
1998 period. In July of 1999 we purchased our manufacturing facility in Rhode
Island, and adjacent land, for approximately $5.8 million. We plan to build a
44,000 square foot addition to this facility with a 6,000 square foot mezzanine
area for office space, at a cost equal to approximately $3.0 million, which will
be incurred primarily in 1999.
In connection with our acquisition of Biosystems we granted to former
shareholders of Biosystems put options covering 578,560 shares of Bacou common
stock issued in connection with that acquisition. The put options may be
exercised at any time through September 30, 1999, at a price equal to
approximately $16.38 per share. If the put options were exercised in full we
would be required to make cash payments totaling approximately $9.5 million to
repurchase these shares, and we expect that such payment would be funded by bank
borrowings.
In February 1998 we entered into an agreement with BNP pursuant to which the
bank made a term loan (the "First BNP Loan") in the principal amount of $110.0
million, in connection with the acquisition of Howard Leight. The First BNP Loan
requires quarterly interest payments at an annual rate equal to three-month
LIBOR plus 0.5% and requires principal repayments in equal quarterly
installments over seven years. In March 1999 we entered into an agreement with
BNP pursuant to which the bank made a term loan (the "Second BNP Loan") in the
principal amount of $50.0 million, in connection with the acquisition of Perfect
Fit. The Second BNP Loan requires quarterly interest payments at an annual rate
equal to three-month LIBOR plus 0.6% and requires principal repayments in equal
quarterly installments over seven years.
We are currently negotiating and expect that during the third quarter of 1999 we
will enter into a credit agreement with BankBoston, N.A. as agent for all
participating banks ("BankBoston"). We expect that under this credit agreement
BankBoston will establish a revolving line of credit facility with a maximum
principal limit of $36.0 million (the "BankBoston Revolving Facility") and that
principal outstanding under the BankBoston Revolving Facility will bear interest
at our option at either a) a fixed rate equal to LIBOR (either one month, two
month, three month, six month or twelve month -- at our option) plus 0.7%, or b)
a floating rate equal to BankBoston's base rate as announced by BankBoston from
time to time, and will be due in full two years after origination. We expect
that the BankBoston Revolving Facility will be available to fund acquisitions
and for other general corporate purposes, and will be used to repay all amounts
then outstanding under a revolving credit facility with Citizens Bank of Rhode
Island, replacing that credit facility.
We also expect that BankBoston will agree to purchase up to $30.0 million of
economic development revenue bonds issued by Rhode Island Industrial Facilities
Corporation (the "Revenue Bonds") and that principal outstanding under the
Revenue Bonds will bear interest at a fixed rate ranging from 0.7% to 0.9% above
LIBOR. We intend to use proceeds from the Revenue Bonds to fund the acquisition
of our Rhode Island manufacturing facility, the construction of an addition to
such facility as previously discussed, and for the purchase of machinery and
equipment at our Rhode Island facility for a three-year period.
We are pursuing a business strategy that includes acquisitions as an important
element. As a result, we may incur additional indebtedness, may be required to
negotiate additional credit facilities or may issue additional common or
preferred stock in order to fund potential future investments, if any, resulting
from our acquisition strategy. Except for cash requirements to fund potential
future acquisitions, we believe that our cash flow provided by operating
activities together with unused borrowing capacity will be sufficient to fund
working capital requirements, debt service requirements and capital expenditures
for the foreseeable future.
SEASONALITY
Our business has been subject to slight seasonal variations, which we have
attributed to fluctuations in industrial activity and annual weather patterns.
Historically, our sales from October through December have been somewhat lower
than other periods due to anticipated lower demand in the more inclement winter
months and planned inventory reductions by major distributors. In addition to
seasonality, our business has been variable period to period due to other
factors, including promotional activity undertaken by us in response to
competitive pressures, market demand, production capacity, inventory levels, and
other considerations.
YEAR 2000 COMPLIANCE
Many existing computer programs use only two digits to identify a year in the
date field. These programs were designed and developed without consideration of
the impact of the upcoming change in century. If not corrected, many computer
applications could fail or create erroneous results at or before the year 2000.
We initiated a comprehensive project in June 1997 to address our year 2000
compliance. The project consists of four phases including:
o Assessment Phase -- Identification of areas of non-compliance (based upon a
combination of our own analysis and direct communication with vendors that
developed and support our software) and evaluation of risk;
o Planning Phase -- Development of specific steps to correct non-compliance,
including a timetable;
o Implementation Phase -- Execution of steps developed during the planning
phase; and
o Testing Phase -- Conducting tests to validate year 2000 compliance for
these systems in which we are not relying on representations of vendors.
The project considers both our primary information systems (software for all
financial systems, network software and equipment, personal computers and
related software, etc.) and other applications dependent upon embedded software
(manufacturing equipment, telephone systems, security systems, etc.).
We have substantially completed the assessment, planning and implementation
phases of this project. Results of the assessment phase initially identified
applications, principally at our Survivair and Uvex Safety divisions, which were
not year 2000 compliant. During 1997, we initiated a project to install and
implement common software at all of our business units and we signed a license
agreement with J.D. Edwards & Company for such software in September 1997. Full
implementation of this software was completed at our Survivair division on
January 1, 1999, and at our Uvex Safety division on April 1, 1999. J.D. Edwards
& Company has represented that this software is year 2000 compliant and that its
processes used to achieve year 2000 readiness are certified by the Information
Technology Association of America. We believe that implementation of this
software at our Survivair and Uvex divisions has corrected our material year
2000 deficiencies.
We have incurred costs totaling approximately $3.4 million through June 30, 1999
for implementation of the software at our Survivair and Uvex Safety business
units, and we have no significant remaining costs to complete full
implementation at those business units. Except for the cost of training,
implementation costs have been capitalized and will be depreciated over the
estimated useful life of the software. The cost of training is substantially
complete and was expensed as incurred.
We have completed the assessment and planning phases at Perfect Fit. Our
assessment has not revealed any areas of non-compliance that we believe
represent a material risk to our business.
We have substantially completed the implementation phase for other applications
with embedded software and do not believe we have any remaining areas of
non-compliance that represent a material risk to our business. The cost of
modifying or correcting deficiencies in these applications was not material.
Our business is also dependent upon the systems of third parties. With the
exception of a few significant vendors, we believe that year 2000 deficiencies
in these systems would not represent a material financial or business risk to
us. With regard to these few vendors, we are assessing their year 2000 readiness
based upon direct communication with each such vendor.
We believe that the most reasonably likely worst case result relating to year
2000 would be the failure of certain applications with embedded software, or
failure of third party systems on which our systems rely. Failure of
applications with embedded software could result in temporary disruption to an
aspect of our operations, such as disruption in operation of certain
manufacturing equipment. Failure of the information systems of a vendor could
result in the temporary interruption of supply of material or services required
by us. Although there can be no assurance that these failures would not have an
adverse effect on our business, we believe the effect of such failure would not
be material to our business. We have developed informal contingency plans
relating to any such failure, which include reliance upon redundant systems,
reliance upon manual systems and reliance upon alternate vendors.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Market risk can result from fluctuations in interest rates, foreign currency
exchange rates, commodity prices or other market exposures. Uncertainties that
are either non-financial or non-quantifiable, such as political, economic, tax,
other regulatory or credit risks are not included in the following assessment of
our market risks.
We believe our only market risk exposure is the risk of adverse fluctuations in
interest rates. At June 30, 1999, we had debt outstanding totaling $153.6
million. Interest rates on principally all of this debt are variable based upon
three-month LIBOR. Three-month LIBOR approximated 5.0% at June 30, 1999. We have
prepared sensitivity analyses of our interest rate exposure for 1999 to assess
the impact of hypothetical changes in interest rates. Based upon the results of
these analyses, a 10% adverse change in interest rates would result in a
reduction of our 1999 after-tax earnings of approximately $500,000 or $0.03 per
share.
PART II. OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
During the Annual Meeting of Stockholders held on May 13, 1999, the following
actions were taken:
1. Election of Philippe Bacou, Walter Stepan, Christophe Bacou, Philip B.
Barr, Karl F. Ericson, Howard S. Leight, Gilbert Vandeputte and Alfred J.
Verrecchia as directors. The result of the vote for each nominee was as
follows:
(Authority
Withheld)
For Against
Philippe Bacou 17,468,080 2,050
Walter Stepan 17,467,995 2,135
Christophe Bacou 17,464,480 5,650
Philip B. Barr 17,468,135 1,995
Karl F. Ericson 17,468,080 2,050
Howard S. Leight 17,467,780 2,350
Gilbert Vandeputte 17,467,320 2,810
Alfred J. Verrecchia 17,467,580 2,550
2. Amendment of Article Four of the Corporation's Amended and Restated
Certificate of Incorporation to increase the number of authorized shares of
capital stock from 30,000,000 to 55,000,000 including an increase in common
stock from 25,000,000 to 50,000,000. The result of the vote of Stockholders was
as follows:
For Against Abstain
17,312,165 155,785 2,180
3. To ratify the selection of KPMG LLP as independent auditors to audit the
Corporation's books and accounts for the fiscal year ending December 31,
1999. The result of the vote of Stockholders was as follows:
For Against Abstain
17,467,385 470 2,275
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibit Index
EXHIBIT NUMBER DESCRIPTION OF EXHIBIT
- -------------- ----------------------
Exhibit 11 Statement Re: Computation of Per Share Earnings
Exhibit 27 Financial Data Schedule
(b) The Company filed three reports on Form 8-K during the quarterly period
ended June 30, 1999.
The first report, filed April 8, 1999, reported the Company's appointment of
Thomas Goeltz as President of Titmus Optical, Inc.
The second report, filed April 15, 1999, reported the acquisition by the Company
of Perfect Fit Glove Co., Inc. and affiliated companies.
The third report, filed April 23, 1999, reported the financial results of the
Company for the quarter ended March 31, 1999, and provided an update on the
acquisition of Perfect Fit Glove Co., Inc.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Dated: August 12, 1999
BACOU USA, INC.
(Registrant)
/s/ Adrien W. Hebert /s/ Jeffrey T. Brown
- ------------------------------- ----------------------------
Adrien W. Hebert Jeffrey T. Brown
Chief Financial Officer Chief Accounting Officer
EXHIBIT 11
BACOU USA, INC.
STATEMENT RE: COMPUTATION OF PER SHARE EARNINGS
-----------------------------------------------
(in thousands)
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
--------------------------- ----------------------------
1998 1999 1998 1999
----------- ----------- ----------- -------------
Basic:
<S> <C> <C> <C> <C>
Weighted average shares outstanding 17,599 17,619 17,596 17,618
=========== =========== =========== =============
Net income $6,099 $7,908 $8,835 $13,382
=========== =========== =========== =============
Per share amount $0.35 $0.45 $0.50 $ 0.76
=========== =========== =========== =============
Diluted:
Weighted average shares outstanding 17,599 17,619 17,596 17,618
Net effect of dilutive stock options based on the
treasury stock method using the average market
price 132 27 92 98
----------- ----------- ----------- -------------
Total diluted shares 17,731 17,646 17,688 17,716
=========== =========== =========== =============
Net income $6,099 $7,908 $8,835 $13,382
=========== =========== =========== =============
Per share amount $0.35 $0.45 $0.50 $ 0.76
=========== =========== =========== =============
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
(Replace this text with the legend)
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<CIK> 0001006027
<NAME> Bacou USA, Inc.
<MULTIPLIER> 1,000
<CURRENCY> U.S. Dollars
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<EXCHANGE-RATE> 1
<CASH> 2,202
<SECURITIES> 0
<RECEIVABLES> 42,717
<ALLOWANCES> 1,174
<INVENTORY> 43,013
<CURRENT-ASSETS> 92,730
<PP&E> 65,059
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<TOTAL-ASSETS> 358,609
<CURRENT-LIABILITIES> 50,794
<BONDS> 130,019
0
0
<COMMON> 17
<OTHER-SE> 158,042
<TOTAL-LIABILITY-AND-EQUITY> 358,609
<SALES> 128,482
<TOTAL-REVENUES> 128,482
<CGS> 67,859
<TOTAL-COSTS> 67,859
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<INCOME-PRETAX> 20,871
<INCOME-TAX> 7,489
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<EPS-DILUTED> 0.76
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