<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q/A
(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, 1998
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
-------------------------------
COMMISSION FILE NUMBER
-------------------------------
BACOU USA, INC.
--------------------------------------------------------
(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
-------------------------------------------------------------
(Registrant's telephone number, including area code)
------------------------
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 (the "Common Stock"), as of August 4, 1998 was 17,602,965.
<PAGE> 2
The Company announced on February 8, 1999, its intent to adopt new guidance
issued by the Securities and Exchange Commission (the SEC) regarding valuation
methodologies for in-process research and development projects. The Company
elected to retroactively adopt the new SEC guidance effective January 1, 1998,
and is restating previously reported results for quarterly periods in 1998. The
effect of this restatement is to increase net income for the three months ended
March 31, 1998, and each 1998 year-to-date period subsequent to that date, by
$1.6 million.
This Amendment on Form 10-Q/A amends the Registrant's Quarterly Report on Form
10-Q, as filed by the Registrant on August 5, 1998, and is being filed to
reflect the restatement of the Registrant's consolidated condensed financial
statements. See "Restatement of Quarterly Financial Statements" in Notes to the
Consolidated Condensed Financial Statements for a further discussion of the
basis for such restatement.
BACOU USA, INC.
INDEX
PART I. FINANCIAL INFORMATION PAGE NO.
--------
Item 1. Financial Statements
Consolidated Condensed Balance Sheets,
June 30, 1998 (as restated) and December 31, 1997 3
Consolidated Condensed Statements of Income, Three
Months and Six Months (as restated)ended
June 30, 1998 and 1997 4
Consolidated Condensed Statements of Cash Flows,
Six Months Ended June 30, 1998 (as restated) and 1997 5
Notes to Consolidated Condensed Financial Statements 6 - 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 8 - 15
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders 16
Item 6. Exhibits and Reports on Form 8-K 17
Signatures 18
2
<PAGE> 3
PART I. Financial Information
ITEM I. Financial Statements
BACOU USA, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(in thousands, except per share data)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1998 1997
-------------- ------------
(As Restated)*
(unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 1,338 $ 1,277
Trade accounts receivable, net 28,376 16,099
Inventories 30,176 23,449
Prepaid expenses 5,199 3,502
Deferred income taxes 2,050 1,426
-------- --------
Total current assets 67,139 45,753
Property and equipment, net 48,192 35,880
Intangible assets, net 176,731 70,718
-------- --------
Total assets $292,062 $152,351
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current installments of long-term debt $ 15,714 $ --
Accounts payable 6,313 5,523
Accrued compensation and benefits 6,010 2,939
Other accrued expenses 7,288 1,752
Income taxes payable 1,273 1,030
-------- --------
Total current liabilities 36,598 11,244
Long-term debt 103,657 --
Deferred income taxes 7,309 6,051
Other liabilities 2,770 2,704
-------- --------
Total liabilities 150,334 19,999
-------- --------
Common stock subject to a put option 9,450 9,450
-------- --------
Stockholders equity:
Preferred stock, $.001 par value, 5,000
shares authorized, no shares issued and
outstanding -- --
Common stock, $.001 par value, 25,000 shares
authorized, 17,602 shares in 1998 and
17,312 shares in 1997 issued and outstanding
(including shares subject to a put option) 17 17
Additional paid-in capital 63,129 62,588
Retained earnings 69,132 60,297
-------- --------
Total stockholders' equity 132,278 122,902
-------- --------
Total liabilities and stockholders' equity $ 292,062 $152,351
========= ========
</TABLE>
* See "Restatement of Quarterly Financial Statements" in Notes to Consolidated
Condensed Financial Statements.
See accompanying notes to consolidated condensed financial statements.
3
<PAGE> 4
BACOU USA, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(in thousands, except per share data)
<TABLE>
<CAPTION>
(unaudited) (unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
1998 1997 1998 1997
-------- -------- -------------- --------
(As Restated)*
<S> <C> <C> <C> <C>
Net sales..................................... $ 58,864 $ 32,330 $ 108,379 $ 58,710
Cost of sales................................. 27,847 14,861 52,546 27,243
-------- -------- --------- --------
Gross profit.................................. 31,017 17,469 55,833 31,467
Operating expenses:
Selling...................................... 9,462 5,392 17,410 9,939
General and administrative .................. 7,093 2,427 12,059 4,628
Research and development..................... 928 97 1,732 97
Purchased in-process research and development -- 1,300 4,680 1,300
Amortization of intangible assets............ 2,073 932 3,557 1,820
-------- -------- --------- ---------
Total operating expenses...................... 19,556 10,148 39,438 17,784
-------- -------- --------- ---------
Operating income.............................. 11,461 7,321 16,395 13,683
Other expense (income):
Interest expense............................. 1,909 98 2,793 104
Interest income.............................. (29) (219) (69) (381)
Other........................................ 9 (164) (39) (296)
-------- -------- --------- ---------
Total other expense (income).................. 1,889 (285) 2,685 (573)
-------- -------- --------- ---------
Income before income taxes.................... 9,572 7,606 13,710 14,256
Income taxes.................................. 3,473 3,361 4,875 5,879
-------- -------- -------- ---------
Net income.................................... $ 6,099 $ 4,245 $ 8,835 $ 8,377
======== ======== ======== ========
Earnings per share:
Basic........................................ $ 0.35 $ 0.24 $ 0.50 $ 0.48
======== ======== ======== ========
Diluted...................................... $ 0.35 $ 0.24 $ 0.50 $ 0.48
======== ======== ======== ========
Weighted average shares outstanding:
Basic........................................ 17,599 17,312 17,596 17,312
======== ======== ======== ========
Diluted...................................... 17,731 17,314 17,688 17,318
======== ======== ======== ========
</TABLE>
* See "Restatement of Quarterly Financial Statements" in Notes to Consolidated
Condensed Financial Statements.
See accompanying notes to consolidated condensed financial statements.
4
<PAGE> 5
BACOU USA, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
Six Months Ended June 30,
-------------------------
1998 1997
-------------- -------
(As Restated)*
(unaudited)
<S> <C> <C>
Cash flows from operating activities:
Net income $ 8,835 $ 8,377
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 6,734 4,052
Purchased in-process research and development 4,680 1,300
Deferred income taxes (2,016) 130
Change in assets and liabilities, net of
effects of acquired companies:
Trade accounts receivable (7,944) (3,639)
Inventories (2,092) 410
Prepaid expenses and other current assets (797) (1,401)
Accounts payable (697) (939)
Accrued expenses 5,974 695
Income taxes 242 (723)
-------- -------
Net cash provided by operating activities 12,919 8,262
-------- -------
Cash flows from investing activities:
Capital expenditures (5,350) (2,369)
Acquisition of businesses, including direct costs
of acquisition, net of cash acquired (121,144) (28,463)
-------- -------
Net cash used in investing activities (126,494) (30,832)
-------- -------
Cash flows from financing activities:
Proceeds from long-term debt 124,300 8,000
Repayment of long-term debt (9,868) (8,000)
Advances (repayments) on notes payable, net (1,000) 4,055
Repurchase of common stock (46) ---
Proceeds from issuance of common stock 250 ---
-------- -------
Net cash provided by financing activities 113,636 4,055
-------- -------
Net increase (decrease) in cash and cash equivalents 61 (18,515)
Cash and cash equivalents at beginning of period 1,277 21,033
-------- -------
Cash and cash equivalents at end of period $ 1,338 $ 2,518
======== =======
Supplemental disclosures of cash flow information:
Cash paid during the period for interest $ 2,182 $ 109
======== =======
Cash paid during the period for income taxes $ 6,814 $ 6,207
======== =======
Fair value of stock options issued pursuant to
a consulting agreement $ 337 $ --
======== =======
</TABLE>
* See "Restatement of Quarterly Financial Statements" in Notes to Consolidated
Condensed Financial Statements.
See accompanying notes to consolidated condensed financial statements.
5
<PAGE> 6
BACOU USA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
JUNE 30, 1998
(in thousands, except per share data)
(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 and respiratory
systems of workers against occupational hazards, as well as related
instrumentation including vision screeners, gas monitors and test equipment for
self-contained breathing apparatus.
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. RESTATEMENT OF QUARTERLY FINANCIAL STATEMENTS
In connection with the acquisition of Howard Leight Industries (see note 3), the
Company allocated a portion of the purchase price to the fair value of
in-process research and development projects. Because such projects had not yet
reached technological feasibility and had no alternative future uses the fair
value assigned to these projects was expensed as of the acquisition date.
Subsequent to the issuance of the Company's March 31, 1998 financial statements,
the SEC issued new guidance regarding valuation methodologies for in-process
research and development. The Company has modified its valuation methodology to
conform to the new SEC guidance. As revised, the amount of purchase price
allocated to in-process research and development was reduced from $7.1 million
to $4.7 million, and goodwill recorded in connection with the acquisition was
increased by $2.4 million. The following table summarizes revisions to the June
30, 1998 financial statements as previously reported (in thousands except per
share data):
<TABLE>
<CAPTION>
Previously
Reported Restated
---------- --------
<S> <C> <C>
Statement of Income (six months ended June 30, 1998):
Purchased in-process research and development $ 7,118 $ 4,680
Operating income 13,957 16,395
Income before income taxes 11,272 13,710
Income taxes 4,041 4,875
Net income 7,231 8,835
Basic and diluted earnings per share $ 0.41 $ 0.50
Balance Sheet:
Intangible assets, net $174,293 $176,731
Deferred income tax liability 6,475 7,309
Retained earnings 67,528 69,132
</TABLE>
3. ACQUISITION OF HOWARD LEIGHT INDUSTRIES
Effective February 27, 1998, the Company acquired substantially all assets and
assumed substantially all liabilities of Howard S. Leight & Associates, Inc.
(d/b/a Howard Leight Industries), a California corporation with its principal
business location in San Diego, California ("Howard Leight"), for cash
consideration of $125.9 million, $5.9 million of which represented the
refinancing of Howard Leight indebtedness. Howard Leight is a manufacturer of
hearing protection products including disposable ear plugs, reusable ear plugs
and ear muffs. The acquisition was financed principally by proceeds from bank
debt.
In accordance with generally accepted accounting principles, the total purchase
price has been allocated to the fair value of assets purchased and liabilities
assumed, as shown in the following table.
Working capital $ 6,218
Property and equipment $10,138
Identifiable intangible assets $89,003
Purchased in-process research and development $ 4,680
Long-term debt $(5,939)
Goodwill $15,900
-------
The excess of purchase price over fair value of net assets acquired has been
recorded as goodwill and is being amortized over 30 years. A portion of the
purchase, totaling $4.7 million, was allocated to the fair value of in-process
research and development projects. This value consisted principally of a project
to develop a new generation of Air Soft(TM) ear plugs. The value of this project
was determined based upon future cash flows expected to result from development
of the project, discounted at a risk-adjusted rate equal to 21%, and based upon
an assumption that the project was 73% complete as of the date of acquisition.
The percent complete was based upon an assessment of (i) complexity of the work
completed to date, (ii) difficulty of completing the remaining development,
(iii) cost incurred through the acquisition date and (iv) estimated remaining
cost to complete.
6
<PAGE> 7
The acquisition was accounted for as a purchase and, accordingly, operating
results of Howard Leight have been included in the accompanying financial
statements of the Company only for the period subsequent to the acquisition
date. The following table presents pro forma results of operations of the
Company as if the acquisition had occurred as of January 1, 1997 (in thousands,
except per share data). The pro forma operating results include results of
operations for the indicated periods with adjusted depreciation on property and
equipment, increased amortization of intangible assets and assumed interest
expense on the cash purchase price. The pro forma information given is
unaudited, does not purport to be indicative of the results that actually would
have been obtained if the operations were combined during the periods presented,
and is not intended to be a projection of future results or trends.
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30,
1998 1997
---- ----
<S> <C> <C>
Net sales $115,737 $81,543
Net income $ 8,472 $ 9,252
Basic and diluted earnings per share $ 0.48 $ 0.53
</TABLE>
The information shown above, for the six months ended June 30, 1998, includes
after-tax charges resulting from the acquisition of Howard Leight equal to
$3.9 million.
4. 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
$1,279 at June 30, 1998 and $945 at December 31, 1997.
5. Inventories
Inventories consist of the following:
<TABLE>
<CAPTION>
June 30, December 31,
1998 1997
---------- ------------
<S> <C> <C>
Raw material and supplies .......... $ 12,994 $ 8,572
Work-in-process .................... 5,357 4,453
Finished goods ..................... 11,825 10,424
--------- --------
$ 30,176 $ 23,449
========= ========
</TABLE>
6. Property, Equipment and Intangible Assets
Accumulated depreciation and amortization of property and equipment totaled
$14,729 at June 30, 1998 and $11,585 at December 31, 1997. Accumulated
amortization of intangible assets totaled $16,251 at June 30, 1998 and $12,694
at December 31, 1997.
7
<PAGE> 8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
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. The
Company cautions that a number of important factors could cause actual outcomes
to differ materially from those expressed in any forward-looking statements made
by, or on behalf of, the Company. Forward-looking statements involve a number of
risks and uncertainties including, but not limited to, continued demand for
current product lines, the success of new product introductions, the success of
the Company's acquisition strategy, continued availability and favorable pricing
of raw materials, the ability of the Company and its key vendors to successfully
respond to year 2000 issues, competitive pressures, general economic conditions
and regulatory matters. The Company cannot assure that it will be able to
anticipate or respond timely to changes in any of the factors listed above,
which could adversely affect the operating results in one or more fiscal
quarters. Results of operations in any past period should not be considered
indicative of the results to be expected for future periods. Fluctuations in
operating results may also result in fluctuations in the price of the Company's
Common Stock.
ACQUISITIONS
Effective February 27, 1998, the Company acquired substantially all assets
and assumed substantially all liabilities of Howard Leight, a manufacturer of
hearing protection products including disposable ear plugs, reusable ear plugs,
ear muffs and ear bands, for cash consideration of $125.9 million, $5.9 million
of which represented the refinancing of Howard Leight indebtedness (the "Leight
Acquisition"). Operating results of Howard Leight have been included in the
consolidated financial statements of the Company beginning with the acquisition
date.
The Company acquired all of the outstanding capital stock of Comasec
Holdings, Inc. ("Comasec") on May 30, 1997 for cash consideration of $27.4
million. The assets of Comasec consisted primarily of its wholly owned
subsidiary Survivair, Inc. ("Survivair"), a manufacturer of respiratory
protection products. The Company also acquired all of the capital stock of
Biosystems, Inc. ("Biosystems"), a manufacturer of gas monitors and equipment
for testing self-contained breathing apparatus, on September 30, 1997. The
initial acquisition price was approximately $13.5 million payable in Common
Stock of the Company; however, the initial acquisition price may be increased if
the operating results of Biosystems in the year 2000 exceed certain defined
thresholds. Finally, the Company acquired Lase-R-Shield, Inc. ("Lase-R
Shield"), for $1.0 million in June of 1997. The acquisitions of Survivair,
Biosystems and Lase-R Shield are referred to collectively in the following
discussion as the "1997 Acquisitions". Operating results for the 1997
Acquisitions have been included in the consolidated financial statements of the
Company beginning with the respective acquisition dates.
The Leight Acquisition and the 1997 Acquisitions are referred to
collectively as "the Acquisitions".
8
<PAGE> 9
In connection with the Leight Acquisition and certain of the 1997
Acquisitions, a portion of the acquisition price was allocated to the fair value
of purchased in-process research and development. These amounts were charged to
operating expenses in full upon the date of acquisition and are referred to in
the accompanying discussion as "Acquisition-Related R&D Charges." In connection
with each of the Acquisitions, acquired inventories were adjusted to fair
values, and these adjustments were subsequently charged to cost of sales when
the acquired inventories were sold. These amounts are referred to in the
accompanying discussion as "Acquisition-Related Inventory Adjustments." Cash
bonuses in the amount of $0.6 million were paid to certain senior executives of
Howard Leight in connection with the Leight Acquisition and have been included
with general and administrative expenses (the "Acquisition-Related Bonuses").
These items are referred to collectively in the following discussion as
"Acquisition-Related Adjustments."
RESULTS OF OPERATIONS
The following table presents certain items from the Company's consolidated
condensed statements of income, and such amounts as percentages of net sales,
for the periods indicated (in thousands, except percentages).
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
------------------------------------ ------------------------------------
1998 1997 1998 1997
---------------- ----------------- ----------------- ----------------
(RESTATED)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales $58,864 100.0% $32,330 100.0% $108,379 100.0% $58,710 100.0%
Cost of sales (1) 27,847 47.3 14,861 46.0 52,546 48.5 27,243 46.4
------- ----- ------- ----- -------- ----- ------- -----
Gross profit 31,017 52.7 17,469 54.0 55,833 51.5 31,467 53.6
Operating expenses:
Selling 9,462 16.1 5,392 16.7 17,410 16.1 9,939 16.9
General and administrative (2) 7,093 12.0 2,427 7.5 12,059 11.1 4,628 7.9
Research and development 928 1.6 97 0.3 1,732 1.6 97 0.2
Purchased in-process research
and development (3) -- -- 1,300 4.0 4,680 4.3 1,300 2.2
Amortization of intangible
assets 2,073 3.5 932 2.9 3,557 3.3 1,820 3.1
------- ----- ------- ----- -------- ----- ------- -----
Total operating expenses 19,556 33.2 10,148 31.4 39,438 36.4 17,784 30.3
------- ----- ------- ----- -------- ----- ------- -----
Operating income 11,461 19.5 7,321 22.6 16,395 15.1 13,683 23.3
Other expense (income), net 1,889 3.2 (285) (0.9) 2,685 2.5 (573) (1.0)
------- ----- ------- ----- -------- ----- ------- -----
Income before income taxes 9,572 16.3 7,606 23.5 13,710 12.6 14,256 24.3
Income taxes 3,473 5.9 3,361 10.4 4,875 4.5 5,879 10.0
------- ----- ------- ----- -------- ----- ------- -----
Net income (4) $ 6,099 10.4% $ 4,245 13.1% $ 8,835 8.1% $ 8,377 14.3%
======= ===== ======= ===== ======== ===== ======= =====
</TABLE>
(1) Includes Acquisition-Related Inventory Adjustments totaling $0.3 million for
the three months ended June 30, 1998, $0.5 million for the three months and six
months ended June 30, 1997, and $1.0 million for the six months ended June 30,
1998.
(2) Includes non-recurring charges for termination benefits totaling $1.4
million for the three months and six months ended June 30, 1998, and
Acquisition-Related Bonuses totaling $0.6 million for the six months ended
June 30, 1998.
(3) Amounts for all periods represent Acquisition-Related R&D Charges.
(4) On an after-tax basis, the non-recurring items described above totaled
$1.1 million for the three months ended June 30, 1998, $1.6 million for the
three months and six months ended June 30, 1997, and $4.7 million for the six
months ended June 30, 1998.
9
<PAGE> 10
THREE MONTHS ENDED JUNE 30, 1998 COMPARED TO THREE MONTHS
ENDED JUNE 30, 1997
Net Sales. Net sales increased 82.2% from $32.3 million for the three months
ended June 30, 1997 to $58.9 million for the three months ended June 30, 1998,
principally as a result of the Acquisitions. Of this increase, $28.6 million was
attributable to net sales of Howard Leight, Biosystems and Survivair which were
included for all three months during the 1998 quarter compared to the 1997
period which only included $2.4 million of net sales of Survivair for one month.
Export sales represented 16.0% of net sales in the 1998 period and 10.2% of net
sales in the 1997 period, and increased by 184.4% from 1997 to 1998. Export
sales of the Company's eyewear product lines, which represented the majority of
the Company's export sales during the quarter ended June 30, 1997, increased by
31.3% from the 1997 period to the 1998 period.
Cost of Sales. Cost of sales increased 87.4% from $14.9 million for the three
months ended June 30, 1997, to $27.8 million for the three months ended June 30,
1998, primarily as a result of the Acquisitions.
Gross Profit. Gross profit increased 77.6% from $17.5 million for the three
months ended June 30, 1997, to $31.0 million for the three months ended June 30,
1998. Excluding Acquisition-Related Inventory Adjustments during both periods,
the Company's gross margin declined from 55.7% in the 1997 period to 53.3% in
the 1998 period. The Company's gross margin declined from 1997 to 1998
principally as a result of the Acquisitions. See "Six Months Ended June 30, 1998
Compared to Six Months Ended June 30, 1997."
Operating Expenses. Operating expenses increased 92.7% from $10.1 million for
the three months ended June 30, 1997 to $19.6 million for the three months ended
June 30, 1998, primarily as a result of operating expenses attributable to
acquired businesses.
In June 1998, the Company announced the resignation of the president and chief
operating officer of its Bacou USA Safety, Inc. subsidiary. The 1998 period
includes a non-recurring charge (the "Severance Charge") equal to $1.4 million
for estimated termination benefits owed to this former officer. In June 1997, in
connection with its acquisition of Survivair, the Company recorded a
non-recurring charge equal to $1.3 million (the "Survivair R&D Charge") for
purchased research and development.
Excluding the Severance Charge in the 1998 period and excluding the Survivair
R&D Charge in the 1997 period, operating expenses as a percentage of net sales
increased from 27.4% for the three months ended June 30, 1997 to 30.8% for the
three months ended June 30, 1998. This increase was due primarily to higher
levels of spending for research and development at acquired businesses and
increased amortization expense. Amortization expense increased 122.4% from $0.9
million in the 1997 period to $2.1 million in the 1998 period as a result of
increases in intangible assets recorded in connection with the Acquisitions.
Operating Income. As a result of the foregoing, the Company's operating income
increased 56.5% from $7.3 million for the three months ended June 30, 1997 to
$11.5 million for the three months ended June 30, 1998.
10
<PAGE> 11
Excluding (i) Acquisition-Related Inventory Adjustments in both periods, (ii)
the Severance Charge in the 1998 period and (iii) the Survivair R&D Charge in
the 1997 period, the Company's operating margin declined from 28.4% for the
three months ended June 30, 1997 to 22.5% for the three months ended June 30,
1998. See "Six Months Ended June 30, 1998 Compared to Six Months Ended June 30,
1997."
Other Expense (Income), Net. Other expense (income), net was $1.9 million for
the three months ended June 30, 1998 and ($0.3) million for the three months
ended June 30, 1997. The 1998 period includes net interest expense totaling
$1.9 million, whereas the 1997 period includes net interest income totaling
($0.1) million. The increase in net interest expense from the 1997 period to
the 1998 period is due principally to debt incurred in connection with the
Leight Acquisition. See "Liquidity and Capital Resources."
Income Taxes. The Company's effective income tax rate was 36.3% in the 1998
period and 44.2% in the 1997 period. The effective rate in both periods was
higher than the federal statutory rate of 35.0% due to state and local income
taxes. In addition, the effective rate in the 1997 period was higher because a
tax benefit could not be recorded for the Survivair R&D Charge.
Net Income. As a result of the foregoing, the Company's net income increased
43.7% from $4.2 million in the 1997 period to $6.1 million in the 1998 period.
Excluding (i) Acquisition-Related Inventory Adjustments in both periods, (ii)
the Severance Charge in the 1998 period and (iii) the Survivair R&D Charge in
the 1997 period, the Company's net income increased 22.3% from $5.9 million in
the 1997 period to $7.2 million in the 1998 period.
11
<PAGE> 12
SIX MONTHS ENDED JUNE 30, 1998 COMPARED TO SIX MONTHS ENDED
JUNE 30, 1997
Net Sales. Net sales increased 84.7% from $58.7 million for the six months
ended June 30, 1997 to $108.4 million for the six months ended June 30, 1998,
principally as a result of acquired businesses. Of this increase, $47.7 million
was attributable to net sales of Howard Leight, which were included for four
months in 1998 and net sales of Survivair and Biosystems, which were included
for the full six months in 1998, compared to the 1997 period which only included
$2.4 million of net sales of Survivair for one month. The remainder of the
increase resulted principally from increased shipments of the Company's UVEX(R)
brand eyewear.
Export sales represented 14.9% of net sales in the 1998 period and 10.8% of
net sales in the 1997 period, and increased by 155.8% from 1997 to 1998. Export
sales of the Company's eyewear product lines, which represented the majority of
the Company's export sales during the six months ended June 30, 1997, increased
by 31.6% from the 1997 period to the 1998 period.
Cost of Sales. Cost of sales increased 92.9% from $27.2 million for the six
months ended June 30, 1997, to $52.5 million for the six months ended June 30,
1998, primarily as a result of higher sales volume attributable to acquired
businesses.
Gross Profit. Gross profit increased 77.4% from $31.5 million for the six
months ended June 30, 1997, to $55.8 million for the six months ended June 30,
1998. Excluding Acquisition-Related Inventory Adjustments, the Company's gross
margin declined from 54.6% in the 1997 period to 52.6% in the 1998 period. Gross
margins attributable to the operations of the 1997 Acquisitions historically
have been lower, and gross margins for Howard Leight historically have been
greater, than the Company's gross margin for the 1997 period. The Company
expects that its combined gross margin for the full year in 1998, including
operating results for acquired businesses and prior to Acquisition-Related
Inventory Adjustments, will approximate 52.0%
Operating Expenses. Operating expenses increased 121.8% from $17.8 million
for the six months ended June 30, 1997 to $39.4 million for the six months ended
June 30, 1998, primarily as a result of operating expenses attributable to
acquired businesses.
12
<PAGE> 13
The 1998 period includes the Severance Charge, Acquisition-Related R&D
Charges totaling $4.7 million and Acquisition-Related Bonuses totaling $0.6
million. The 1997 period includes Acquisition-Related R&D Charges totaling $1.3
million. Excluding these charges, operating expenses as a percentage of net
sales increased from 28.1% for the six months ended June 30, 1997 to 30.2% for
the six months ended June 30, 1998. This increase was due primarily to higher
levels of spending for research and development at acquired businesses and
increased amortization expense. Amortization expense increased 95.4% from $1.8
million in the 1997 period to $3.6 million in the 1998 period as a result of
increases in intangible assets recorded in connection with acquired businesses.
Operating Income. As a result of the foregoing, the Company's operating
income increased 19.8% from $13.7 million for the six months ended June 30, 1997
to $16.4 million for the six months ended June 30, 1998. Excluding the Severance
Charge in the 1998 period and all Acquisition-Related Adjustments in both
periods, the Company's operating income increased 55.2% from $15.5 million for
the six months ended June 30, 1997 to $24.1 million for the six months ended
June 30, 1998. Excluding the aforementioned items, the Company's operating
margin declined from 26.5% for the six months ended June 30, 1997 to 22.2% for
the six months ended June 30, 1998. The Company expects that its combined
operating margin for the full year in 1998, including operating results of
acquired businesses and prior to both the Severance Charge and 1998
Acquisition-Related Adjustments, will approximate 22.0%.
Other Expense (Income), Net. Other expense (income), net was $2.7 million
for the six months ended June 30, 1998 and ($0.6) million for the six months
ended June 30, 1997. The 1998 period includes net interest expense totaling $2.7
million, whereas the 1997 period includes net interest income totaling ($0.3)
million. The increase in net interest expense from the 1997 period to the 1998
period is due principally to debt incurred in connection with the Leight
Acquisition. See "Liquidity and Capital Resources."
Income Taxes. The Company's effective income tax rate was 35.6% in the 1998
period and 41.2% in the 1997 period. The effective rate in both periods was
higher than the federal statutory rate of 35.0% due to state and local income
taxes. In addition, the effective rate in the 1997 period was higher because a
tax benefit could not be recorded for Acquisition-Related R&D Charges totaling
$1.3 million.
Net Income. The Company's net income increased from $8.4 million in the
1997 period to $8.8 million in the 1998 period. Excluding the Severance Charge
in the 1998 period, and excluding Acquisition-Related Adjustments incurred
during both periods, the Company's net income increased 36.0% from $10.0 million
in the 1997 period to $13.6 million in the 1998 period.
13
<PAGE> 14
LIQUIDITY AND CAPITAL RESOURCES
The Company's liquidity historically has been derived from cash flow
provided by operations and, periodically, from bank borrowings utilized to
finance acquisitions of businesses. The Company utilizes EBITDA (earnings before
interest, taxes, depreciation and amortization) as a measure of cash flow
provided by operations. EBITDA increased 57.5% from $19.6 million for the six
months ended June 30, 1997 to $30.8 million for the six months ended June 30,
1998, excluding the Severance Charge in the 1998 period, and excluding
Acquisition-Related Adjustments in both periods. This increase was principally
due to inclusion of the operating results of acquired businesses.
Excluding trade accounts receivable attributable to the Company's Howard
Leight division, the Company's trade accounts receivable increased $7.9 million
from $16.1 million at December 31, 1997 to $24.0 million at June 30, 1998. This
increase resulted primarily from sales volume during the months prior to June
30, 1998, that was significantly higher than sales volume during the months
prior to December 31, 1997.
Cash used in investing activities totaled $126.5 million for the six months
ended June 30, 1998, and $30.8 million for the six months ended June 30, 1997.
The six-month period ended June 30, 1998, includes cash payments for the Leight
Acquisition totaling $120.0 million. Cash payments for the acquisition of
Survivair, totaling $27.4 million, are included in the six-month period ended
June 30, 1997. Capital expenditures totaled $5.4 million for the six months
ended June 30, 1998, and $2.4 million for the six months ended June 30, 1997.
In connection with the Biosystems acquisition the Company provided to
former shareholders of Biosystems put options covering 578,560 of the shares
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, the Company would be
required to make cash payments totaling approximately $9.5 million to repurchase
these shares, and expects that such payment would be funded by bank borrowings.
In February 1998 the Company entered into an agreement with Banque
Nationale de Paris pursuant to which the bank made a term loan to the Company
(the "BNP Loan") in the principal amount of $110.0 million. The BNP Loan
requires quarterly payments at an effective annual rate equal to three month
LIBOR plus 0.5% and requires principal repayments in equal quarterly
installments over seven years. The Company also maintains a $31.0 million
revolving line of credit facility (the "Revolving Facility") with Citizens Bank
of Rhode Island. The Revolving Facility is available to fund acquisitions and
for other general corporate purposes, bears interest at a rate per annum equal
to three month LIBOR plus 0.7% and is due in full on May 31, 2000.
14
<PAGE> 15
In connection with the Leight Acquisition the Company borrowed a total of $124.3
million, consisting of the $110.0 million BNP Loan and $14.3 million on the
Revolving Facility. Principal repayments during the six months ended June 30,
1998, totaled $10.9 million, and included repayment of $5.9 million of
indebtedness assumed in connection with the Leight Acquisition. At June 30,
1998, the Company had debt outstanding totaling $119.4 million consisting of
$106.1 million on the BNP Loan and $13.3 million on the Revolving Facility.
The Company is pursuing a business strategy which includes acquisitions as an
important element. As a result, the Company 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 resulting from its acquisition strategy. The Company believes it
would have access to sufficient capital if necessary to consummate future
acquisitions. Except for cash requirements to fund acquisitions, the Company
believes that its 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
The Company's business has been subject to slight seasonal variations which the
Company has attributed to fluctuations in industrial activity and annual weather
patterns. Historically, net 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, the Company's business has been variable period to
period due to other factors, including promotional activity undertaken by the
Company 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.
The Company has completed an assessment of substantially all of its computer
systems and has identified applications, principally at its Survivair and Uvex
Safety business units, that are not currently year 2000 compliant. During 1997,
the Company initiated a project to install and implement common software at all
of its business units. The Company signed a license agreement with J.D. Edwards
& Company for such software in September 1997. Full implementation at all
business units, including a significant period of pre-testing, is expected to be
completed during or prior to the second quarter of 1999. The Company believes
that this software is year 2000 compliant and that, upon full implementation at
its Survivair and Uvex Safety business units within such time frame, all of the
Company's material year 2000 deficiencies will have been corrected. The license
fee and costs to implement the software will be capitalized and depreciated over
the estimated useful life of the software. The cost of modifying or correcting
other applications, which do not become year 2000 compliant upon implementation
of the aforementioned software, is currently estimated to be immaterial and will
be expensed as incurred. The Company has spent $1.7 million to date for
implementation of the software at the Survivair and Uvex Safety business units
and estimates the remaining costs necessary to complete full implementation to
be approximately $0.9 million. There can be no assurance that the Company will
successfully complete implementation of the common software at its Survivair and
Uvex Safety business units by dates critical for year 2000 compliance. Failure
to complete implementation on a timely basis may have material adverse financial
and operational impacts on the Company. In addition, there can be no assurance
that year 2000 deficiencies in the systems of other companies on which the
Company's systems rely, in particular significant vendors, also will be timely
corrected or that any such failure to correct deficiencies by another company
would not have an adverse effect on the Company's systems. In the process of
implementing the common software at its Survivair and Uvex Safety business
units, no facts have come to the attention of the Company that would indicate
that the projects will not be implemented in a timely fashion.
15
<PAGE> 16
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
During the Annual Meeting of Stockholders held on May 19, 1998, the following
actions were taken:
1. Election of Phillipe Bacou, Christophe Bacou, Walter Stepan, Philip B. Barr,
Jr., Karl F. Ericson, Howard S. Leight and Dr. Herbert A. Wertheim as directors,
each for a one year term. The result of the vote of Stockholders was the same
for each candidate, as follows:
Number of Shares
----------------
For 16,912,491
Against 5,264
Withheld 0
2. Ratification of the adoption of the Bacou USA, Inc. 1998 Howard S. Leight
Stock Option Plan, as described in the Proxy Statement and as adopted by the
Board of Directors of the Company. The result of the vote of Stockholders was as
follows:
Number of Shares
----------------
For 16,846,901
Against 53,760
Abstain 13,794
Withheld 3,300
3. Ratification of the adoption of a first amendment to the Bacou USA, Inc. 1996
Stock Incentive Plan, as described in the Proxy Statement and as adopted by the
Board of Directors of the Company. The result of the vote of Stockholders was
as follows:
Number of Shares
----------------
For 16,786,176
Against 114,685
Abstain 13,594
Broker Non-Vote 3,300
4. Ratification of the adoption of a first amendment to the Bacou USA, Inc. 1996
Non-Employee Director Stock Option Plan, as described in the Proxy Statement
and as adopted by the Board of Directors of the Company. The result of the vote
of Stockholders was as follows:
Number of Shares
----------------
For 16,843,821
Against 56,805
Abstain 13,829
Broker Non-Vote 3,300
5. Ratification of the adoption of a first amendment to the Employment Agreement
with Walter Stepan, as described in the Proxy Statement and as adopted by the
Board of Directors of the Company. The result of the vote of Stockholders was as
follows:
Number of Shares
----------------
For 16,854,311
Against 49,360
Abstain 14,084
Broker Non-Vote 0
6. Ratification of the selection of KPMG Peat Marwick LLP as independent
auditors to audit the Company's books and accounts for the fiscal year ending
December 31, 1998. The result of the vote of Stockholders was as follows:
Number of Shares
----------------
For 16,902,651
Against 1,715
Abstain 13,389
Broker Non-Vote 0
16
<PAGE> 17
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
- -----------------
*Management contract or compensatory plan or arrangement.
(b) The registrant filed a report on Form 8-K/A during the quarterly period
ended June 30, 1998, that was filed on April 15, 1998. The April 15, 1998,
Report on Form 8-K/A amended a Form 8-K filed on March 13, 1998, that was filed
in connection with the acquisition of Howard S. Leight & Associates, Inc. The
registrant filed a report on Form 8-K dated June 16, 1998, for the purpose of
disclosing the resignation of the president and chief operating officer of its
Bacou USA Safety, Inc. subsidiary.
17
<PAGE> 18
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: March 22, 1999
BACOU USA, INC.
(Registrant)
/s/ Philip B. Barr, Jr. /s/Jeffrey T. Brown
------------------------------- ----------------------------
Philip B. Barr, Jr., Jeffrey T. Brown
Executive Vice President and Chief Accounting Officer
Chief Financial Officer
18
<PAGE> 19
EXHIBIT INDEX
EXHIBIT NUMBER DESCRIPTION OF EXHIBIT
-------------- ----------------------
Exhibit 11 Statement Re: Computation of Per Share Earnings
Exhibit 27 Financial Data Schedule
- -----------------
*Management contract or compensatory plan or arrangement.
<PAGE> 1
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 1997 1998 1997
------- ------- ------- -------
(Restated)
<S> <C> <C> <C> <C>
Basic:
Weighted average shares outstanding 17,599 17,312 17,596 17,312
======= ======= ====== =======
Net income $ 6,099 $ 4,245 $ 8,835 $ 8,377
======= ======= ------- -------
Per share amount $ 0.35 $ 0.24 $ 0.50 $ 0.48
======= ======= ======= =======
Diluted:
Weighted average shares outstanding 17,599 17,312 17,596 17,312
Net effect of dilutive stock options
based on the treasury stock method
using the average market price 132 2 92 6
------- ------- ------- -------
Total diluted shares 17,731 17,314 17,688 17,318
======= ======= ======= =======
Net income $ 6,099 $ 4,245 $ 8,835 $ 8,377
======= ======= ======= =======
Per share amount $ 0.35 $ 0.24 $ 0.50 $ 0.48
======= ======= ======= =======
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
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<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<EXCHANGE-RATE> 1
<CASH> 1,338
<SECURITIES> 0
<RECEIVABLES> 28,376
<ALLOWANCES> 1,279
<INVENTORY> 30,176
<CURRENT-ASSETS> 67,139
<PP&E> 48,192
<DEPRECIATION> 0
<TOTAL-ASSETS> 292,062
<CURRENT-LIABILITIES> 36,598
<BONDS> 103,657
0
0
<COMMON> 17
<OTHER-SE> 132,278
<TOTAL-LIABILITY-AND-EQUITY> 292,062
<SALES> 108,379
<TOTAL-REVENUES> 108,379
<CGS> 52,546
<TOTAL-COSTS> 52,546
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,793
<INCOME-PRETAX> 13,710
<INCOME-TAX> 4,875
<INCOME-CONTINUING> 8,835
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 8,835
<EPS-PRIMARY> 0.50
<EPS-DILUTED> 0.50
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