<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 March 31, 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, as of May 15, 1998 was 17,605,114.
<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 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, by $1.6 million.
This Amendment on Form 10-Q/A amends the Registrant's Quaterly Report on Form
10-Q, as filed by the Registrant on May 15, 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,
March 31, 1998 (As Restated) and December 31, 1997 3
Consolidated Condensed Statements of Income,
Three Months Ended March 31, 1998 (As Restated) and
1997 4
Consolidated Condensed Statements of Cash Flows,
Three Months Ended March 31, 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 - 13
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 14
Signatures 14
2
<PAGE> 3
BACOU USA, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(in thousands, except per share data)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1998 1997
------------- ------------
(AS RESTATED)*
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.......................... $ 703 $ 1,277
Trade accounts receivable, net..................... 26,782 16,099
Inventories........................................ 27,809 23,449
Prepaid expenses................................... 8,063 3,502
Deferred income taxes.............................. 1,131 1,426
-------- --------
Total current assets............................. 64,488 45,753
Property and equipment, net.......................... 47,017 35,880
Intangible assets, net............................... 176,008 70,718
-------- --------
Total assets..................................... $287,513 $152,351
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current installments of long-term debt............. $ 15,714 $ --
Accounts payable................................... 7,426 5,523
Accrued compensation and benefits.................. 3,565 2,939
Other accrued expenses............................. 4,886 1,752
Income taxes payable............................... 3,666 1,030
-------- --------
Total current liabilities........................ 35,257 11,244
Long-term debt....................................... 107,086 --
Deferred income taxes................................ 6,980 6,051
Other liabilities.................................... 2,715 2,704
-------- --------
Total liabilities................................ 152,038 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, 17,595 shares in 1998 and
17,591 shares in 1997 issued and outstanding
(including shares subject to a put option)....... 17 17
Additional paid-in capital......................... 62,975 62,588
Retained earnings.................................. 63,033 60,297
-------- --------
Total stockholders' equity....................... 126,025 122,902
-------- --------
Total liabilities and stockholders' equity....... $287,513 $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)
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
1998 1997
-------------- -------
(AS RESTATED)*
<S> <C> <C>
Net sales ........................................ $49,515 $26,380
Cost of sales .................................... 24,699 12,382
------- -------
Gross profit ..................................... 24,816 13,998
Operating expenses:
Selling ......................................... 7,948 4,547
General and administrative ...................... 4,966 2,201
Research and development ........................ 804 --
Purchased in-process research and development ... 4,680 --
Amortization of intangible assets ............... 1,484 888
------- -------
Total operating expenses ......................... 19,882 7,636
------- -------
Operating income ................................. 4,934 6,362
Other expense (income):
Interest expense ................................ 884 6
Interest income ................................. (40) (162)
Other ........................................... (48) (132)
------- -------
Total other expense (income) ..................... 796 (288)
------- -------
Income before income taxes ....................... 4,138 6,650
Income taxes ..................................... 1,402 2,518
------- -------
Net income ....................................... $ 2,736 $ 4,132
======= =======
Earnings per share:
Basic ........................................... $ 0.15 $ 0.24
======= =======
Diluted ......................................... $ 0.15 $ 0.24
======= =======
Weighted average shares outstanding:
Basic ........................................... 17,594 17,312
======= =======
Diluted ......................................... 17,654 17,322
======= =======
</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)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended March 31,
----------------------------
1998 1997
-------------- ---------
(AS RESTATED)*
<S> <C> <C>
Cash flows from operating activities:
Net income ......................................... 2,736 4,132
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization ...................... 3,011 1,981
Purchased in-process research and development ...... 4,680 --
Deferred income taxes .............................. (1,427) 100
Change in assets and liabilities, net of effects
of acquired companies:
Trade accounts receivable ........................ (6,346) (3,029)
Inventories ...................................... 274 4
Prepaid expenses and other current assets ........ (2,929) (506)
Accounts payable ................................. 416 (211)
Accrued expenses ................................. 1,374 (664)
Income taxes ..................................... 2,635 1,045
--------- --------
Net cash provided by operating activities ........ 4,424 2,852
--------- --------
Cash flows from investing activities:
Capital expenditures ............................... (2,525) (1,276)
Acquisition of businesses, including direct costs
of acquisition, net of cash acquired .............. (119,334) (112)
Advance to Bacou S.A ............................... -- (28,000)
--------- --------
Net cash used in investing activities ............ (121,859) (29,388)
--------- --------
Cash flows from financing activities:
Proceeds from long-term debt ....................... 124,300 8,000
Repayment of long-term debt ........................ (7,439) --
--------- --------
Net cash provided by financing activities ....... 116,861 8,000
--------- --------
Net decrease in cash and cash equivalents ............ (574) (18,536)
Cash and cash equivalents at beginning of period ..... 1,277 21,033
--------- --------
Cash and cash equivalents at end of period ........... $ 703 $ 2,497
========= ========
Supplemental disclosures of cash flow information:
Cash paid during the period for interest ........... $ 246 $ --
========= ========
Cash paid during the period for income taxes ....... $ 488 $ 1,373
========= ========
Fair value of stock options issued pursuant to
a consulting agreement ............................. $ 387 $ --
========= ========
</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
MARCH 31, 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.
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 projects of Howard Leight 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 March 31, 1998 financial statements as previously
reported (in thousands except per share data):
<TABLE>
<CAPTION>
Previously
Reported Restated
---------- --------
<S> <C> <C>
Statement of Income:
Purchased in-process research and development $ 7,118 $ 4,680
Operating income 2,496 4,934
Income before income taxes 1,700 4,138
Income taxes 568 1,402
Net income 1,132 2,736
Basic and diluted earnings per share $ 0.06 $ 0.15
Balance Sheet:
Intangible assets, net $173,570 $176,008
Deferred income tax liability 6,146 6,980
Retained earnings 61,429 63,033
</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, for cash consideration of
approximately $120.0 million. Howard Leight Industries 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 preliminarily 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 Industries have been included in the accompanying
financial statements of the Company only for the month of March 1998. The
following table presents pro forma results of operations of the Company as if
the acquisition had occurred as of January 1, 1997. 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. Non-recurring
charges resulting from the acquisition have been excluded from the pro forma
results. 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.
THREE MONTHS ENDED MARCH 31,
1998 1997
------- -------
Net sales $56,873 $36,940
Net income $ 6,443 $ 4,063
Basic and diluted earnings per share $ 0.36 $ 0.24
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
$1,300 at March 31, 1998 and $945 at December 31, 1997.
5. INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
March 31, December 31,
1998 1997
--------- ------------
<S> <C> <C>
Raw material and supplies ........................ $12,457 $ 8,572
Work-in-process .................................. 4,805 4,453
Finished goods ................................... 10,547 10,424
------- -------
$27,809 $23,449
======= =======
</TABLE>
6. PROPERTY, EQUIPMENT AND INTANGIBLE ASSETS
Accumulated depreciation and amortization on property and equipment totaled
$13,090 at March 31, 1998 and $11,585 at December 31, 1997. Accumulated
amortization on intangible assets totaled $14,176 at March 31, 1998 and $12,694
at December 31, 1997.
7
<PAGE> 8
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. 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, continued
availability and favorable pricing of raw materials, the effect of any work
stoppages, the success of the Company's acquisition strategy, 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 S. Leight & Associates, Inc.
(d/b/a Howard Leight Industries), a California corporation with its principal
business location in San Diego, California, for cash consideration of
approximately $120.0 million (the "Leight Acquisition"). Howard Leight
Industries is a manufacturer of hearing protection products including disposable
ear plugs, reusable ear plugs and ear muffs. The Leight Acquisition was financed
principally by proceeds from bank debt.
In connection with the 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 immediately to operating expenses (the
"Acquisition-Related R&D Charge"). A portion of the acquisition price 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 quarter
of 1998 by $0.7 million (the "Acquisition-Related Inventory Adjustment").
Finally, cash bonuses in the amount of $0.6 million were paid to certain senior
executives of Howard Leight Industries in connection with the Leight Acquisition
and have been included with general and administrative expenses for the quarter
ended March 31, 1998 (the "Acquisition-Related Bonuses"). Collectively these
items are referred to as the "1998 Acquisition-Related Adjustments" and totaled
$6.0 million, or $3.7 million on an after-tax basis, for the quarter ended
March 31, 1998.
8
<PAGE> 9
The Company 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 Company issued
approximately 825,000 shares of its common stock, having a fair value on the
date of issuance of approximately $13.5 million, as consideration for the
initial purchase price for Biosystems. Effective May 30, 1997 the Company also
acquired the capital stock of Comasec Holdings, Inc. ("Comasec"), for cash
consideration equal to $27.4 million. The assets of Comasec consisted primarily
of its wholly-owned subsidiary Survivair, Inc. ("Survivair") a manufacturer of
respiratory protection products. Finally, the Company made a non-material
acquisition of the assets of Lase-R Shield, Inc. in June 1997.
Collectively the acquisitions of Biosystems, Survivair, and Lase-R Shield are
referred to in the following discussion as the "1997 Acquisitions" and, together
with the Leight Acquisition, are referred to as the "Acquisitions". The
Acquisitions have been accounted for as purchases and operating results of the
acquired businesses have been included in the consolidated financial statements
of the Company beginning with the respective acquisition dates.
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1998 COMPARED TO THREE MONTHS ENDED
MARCH 31, 1997
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 MARCH 31,
--------------------------------------
1998 1997
----------------- ----------------
(RESTATED)
<S> <C> <C> <C> <C>
Net sales $49,515 100.0% $26,380 100.0%
Cost of sales 24,699(1) 49.9 12,382 46.9
------- ----- ------- -----
Gross profit 24,816 50.1 13,998 53.1
------- ----- ------- -----
Operating expenses:
Selling 7,948 16.1 4,547 17.2
General and administrative 4,966(2) 10.0 2,201 8.3
Research and development 804 1.6 -- --
Purchased in-process research and
development 4,680(3) 9.5 -- --
Amortization of intangible assets 1,484 3.0 888 3.4
------- ----- ------- -----
Total operating expenses 19,882 40.2 7,636 28.9
------- ----- ------- -----
Operating income 4,934 9.9 6,362 24.2
Other expense (income), net 796 1.6 (288) (1.1)
------- ----- ------- -----
Income before income taxes 4,138 8.3 6,650 25.3
Income taxes 1,402 2.8 2,518 9.6
------- ----- ------- -----
Net income $ 2,736(4) 5.5% $ 4,132 15.7%
======= ===== ======= =====
</TABLE>
(1) Includes Acquisition-Related Inventory Adjustment totaling $0.7 million.
(2) Includes Acquisition-Related Bonuses totaling $0.6 million.
(3) Includes Acquisition-Related R&D Charge totaling $4.7 million.
(4) On an after-tax basis, 1998 Acquisition-Related Adjustments totaled
$3.7 million.
9
<PAGE> 10
Net Sales. Net sales increased 87.7% from $26.4 million for the three months
ended March 31, 1997 to $49.5 million for the three months ended March 31, 1998,
principally as a result of the Acquisitions. There were no sales during the
1997 period attributable to the Acquisitions. Net sales for the 1998 period
included sales of Biosystems and Survivair for three months, and sales of Howard
Leight Industries for one month, accounting for 71.0% of the increase in sales
for the quarter.
Sales of the Company's Uvex and Titmus eyewear lines, which comprised most of
the Company's activities in the 1997 period, increased by 16.7% or $4.2 million
from the 1997 period to the 1998 period. Increases in sales of eyewear lines
were due entirely to an increase in units shipped.
Export sales represented 13.6% of net sales in the 1998 period and 11.4% of net
sales in the 1997 period, increasing by 124.3% from 1997 to 1998. Excluding
sales attributable to the Acquisitions, export sales increased by 31.9% from the
1997 period to the 1998 period.
Operating results of the Acquisitions will be included for a full three months
during the quarter ending June 30, 1998. Sales for Survivair and Lase-R Shield
were only included for one month, and there were no sales included for
Biosystems and Howard Leight Industries, during the quarter ended June 30, 1997.
As a result, the Company expects that sales for the three months ending June 30,
1998 will increase substantially over sales, totaling $32.3 million, reported
for the three months ended June 30, 1997. The Company expects that sales for the
full year in 1998 will exceed $200.0 million.
Cost of Sales. Cost of sales increased 99.5% from $12.4 million for the three
months ended March 31, 1997 to $24.7 million for the three months ended March
31, 1998 primarily due to inclusion of operating results of the Acquisitions.
Gross Profit. Gross profit increased 77.3% from $14.0 million for the three
months ended March 31, 1997 to $24.8 million for the three months ended
March 31, 1998.
Excluding the Acquisition-Related Inventory Adjustment, the Company's gross
margin was 51.5% in the 1998 period and 53.1% in the 1997 period, declining
primarily due to inclusion of the operating results of the Acquisitions.
Gross margins attributable to the operations of the 1997 Acquisitions
historically have been lower, and gross margins for Howard Leight Industries
historically have been greater, than the Company's combined gross margin during
the 1997 period. The Company expects that its combined gross margin for the full
year in 1998, including operating results for the Acquisitions and prior to the
Acquisition-Related Inventory Adjustment, will approximate 52.0%.
Operating Expenses. Operating expenses increased from $7.6 million for the three
months ended March 31, 1997 to $19.9 million for the three months ended
March 31, 1998. Excluding the Acquisition-Related R&D Charge and the
Acquisition-Related Bonuses, operating expenses increased 91.2% from
$7.6 million for the three months ended March 31, 1997 to $14.6 million for the
three months ended March 31, 1998. This increase resulted principally due to
inclusion of operating results of the Acquisitions.
In connection with the Leight Acquisition, the Company recorded intangible
assets totaling approximately $104.9 million, principally being amortized over a
30 year life. As a result, amortization expense is expected to increase from
$1.5 million recorded during the three months ended March 31, 1998, to
approximately $2.1 million for the three months ending June 30, 1998.
10
<PAGE> 11
Operating Income. Principally as a result of the 1998 Acquisition-Related
Adjustments, the Company's operating income declined 22.4% from $6.4 million for
the three months ended March 31, 1997 to $4.9 million for the three months ended
March 31, 1998. Excluding the 1998 Acquisition-Related Adjustments, operating
income increased 71.3% from 6.4 million in the 1997 period to $10.9 million in
the 1998 period.
The Company expects that its combined operating margin for the full year in
1998, including operating results for the Acquisitions and prior to the 1998
Acquisition-Related Adjustments, will approximate 22.0%.
Other Expense (Income). Other expense (income) was $796,000 for the three
months ended March 31, 1998 and ($288,000) for the three months ended March 31,
1997. Other expense (income) consists principally of net interest expense
totaling $844,000 in the 1998 period and net interest income totaling
($156,000) in the 1997 period. The increase in net interest expense from the
1997 period to the 1998 period is due principally to higher levels of debt
outstanding during the 1998 period as a result of the Leight Acquisition.
Amounts borrowed in connection with the Leight Acquisition will result in net
interest costs throughout 1998 that are significantly greater than during the
1997 period.
Income Taxes. The Company's effective income tax rate was 33.9% in the 1998
period and 37.9% in the 1997 period. Prior to the 1998 Acquisition-Related
Adjustments, the Company's effective income tax rate was 36.4% in the 1998
period compared with 37.9% in the 1997 period. The effective rate in both
periods, prior to Acquisition-Related Adjustments, was higher than the federal
statutory rate of 35.0% due to state and local income taxes.
Net Income. Principally as a result of the 1998 Acquisition-Related Adjustments,
the Company's net income declined 33.8% from $4.1 million in the 1997 periods to
$2.7 million in the 1998 period. Excluding the 1998 Acquisition-Related
Adjustments, the Company's net income increased 55.5% from $4.1 million in the
1997 period to $6.4 million in the 1998 period.
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, before 1998 Acquisition-Related Adjustments,
increased 66.7% from $8.3 million in the 1997 period to $13.9 million in the
1998 period. This increase was principally due to inclusion of the operating
results of the Acquisitions.
Excluding trade accounts receivable acquired in connection with the Leight
Acquisition, the Company's trade accounts receivable increased from $16.1
million at December 31, 1997 to $22.4 million at March 31, 1998. This increase
resulted primarily from sales volume during the first quarter of 1998 that
exceeded sales volume during the fourth quarter of 1997.
Inventories increased from $23.4 million at December 31, 1997 to $27.8 million
at March 31, 1998 entirely as a result of the Leight Acquisition.
Cash used in investing activities totaled $121.9 million in the 1998 period
compared with $29.4 million in the 1997 period. The 1998 period included $120.0
million expended for the Leight Acquisition, and the 1997 period included $28.0
million advanced to Bacou S.A. in connection with the acquisition of Survivair.
Capital expenditures totaled $2.5 million in the 1998 period and $1.3 million in
the 1997 period.
In connection with the Biosystems acquisition, the Company provided selling
shareholders with a put option covering 70 percent of the shares issued in
connection with that acquisition, or approximately 578,000 shares. The put
options may be exercised at any time through September 30, 1999, at a price
equal to approximately $16 3/8 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.
11
<PAGE> 12
In February 1998 the Company entered into a Credit Line Agreement with Banque
Nationale de Paris (the "BNP Credit Line"). The BNP Credit Line provides for
borrowings in the amount of $110.0 million and, at March 31, 1998, the full
amount was outstanding. The BNP Credit Line requires quarterly interest
payments at an annual rate equal to three month LIBOR plus 0.3% and requires
principal repayments in equal quarterly installments over seven years. In
addition, the Company is required to pay quarterly a commitment fee equal to
0.2% per annum on amounts outstanding on the BNP Credit Line.
The Company also maintains a $31.0 million Revolving Line of Credit (the
"Revolving Facility") with Citizens Bank of Rhode Island. The Revolving Facility
is available to fund acquisitions and for other general corporate purposes and
is subject to various financial and other covenants. Principal outstanding under
the Revolving Facility, totaling $12.8 million at March 31, 1998, bears interest
at a rate per annum equal to three month LIBOR plus 0.7% and is due in full on
May 31, 2000.
In connection with the Leight Acquisition, the Company borrowed a total of
$124.3 million, including $110.0 million on the BNP Credit Line and $14.3
million on the Revolving Facility. During the three months ended March 31, 1998
the Company repaid long-term debt assumed in connection with the Leight
Acquisition, totaling $5.9 million, and repaid principal, totaling $1.5 million,
under 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 issue additional
common or preferred stock in order to fund other investments, if any, resulting
from its acquisition strategy. Except for cash requirements to fund potential
additional 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 with 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 that are not currently year 2000
compliant.
12
<PAGE> 13
During 1997 the Company initiated a project, separate from initiatives to
correct its year 2000 issues, to install and implement common software at all
business units. A license agreement for the software was executed in September
1997 and full implementation, including a significant period of pre-testing, is
expected to be completed during or prior to the first 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, all of the
Company's material year 2000 deficiencies will be 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.
There can be no assurance that the Company will successfully complete
implementation of the common software at Survivair and Uvex Safety 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, for example
its vendors, will be timely corrected or that any such failure by another
company to correct its deficiencies would not have an adverse effect on the
Company's systems, business or results of operations.
13
<PAGE> 14
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 registrant filed one report on Form 8-K during the quarterly period
ended March 31, 1998. That report was filed on March 13, 1998, for the
purpose of disclosing the acquisition of substantially all assets of
Howards Leight & Associates, Inc. effective February 27, 1998.
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
14
<PAGE> 1
EXHIBIT 11
BACOU USA, INC.
STATEMENT RE: COMPUTATION OF PER SHARE EARNINGS
-----------------------------------------------
(in thousands)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
--------------------
1998 1997
------- -------
(RESTATED)
<S> <C> <C>
Basic:
Weighted average shares outstanding 17,594 17,312
======= =======
Net income $ 2,736 $ 4,132
======= =======
Per share amount $ 0.15 $ 0.24
======= =======
Diluted:
Weighted average shares outstanding 17,594 17,312
Net effect of dilutive stock options
based on the treasury stock method
using the average market price 60 10
------- -------
Total diluted shares 17,654 17,322
------- -------
Net income $ 2,736 $ 4,132
======= =======
Per share amount $ 0.15 $ 0.24
======= =======
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0001006027
<NAME> BACOU USA, INC.
<RESTATED>
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<EXCHANGE-RATE> 1
<CASH> 703
<SECURITIES> 0
<RECEIVABLES> 26,782
<ALLOWANCES> 1,300
<INVENTORY> 27,809
<CURRENT-ASSETS> 64,488
<PP&E> 47,017
<DEPRECIATION> 0
<TOTAL-ASSETS> 287,513
<CURRENT-LIABILITIES> 35,257
<BONDS> 107,086
0
0
<COMMON> 17
<OTHER-SE> 126,008
<TOTAL-LIABILITY-AND-EQUITY> 287,513
<SALES> 49,515
<TOTAL-REVENUES> 49,515
<CGS> 24,699
<TOTAL-COSTS> 24,699
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 884
<INCOME-PRETAX> 4,138
<INCOME-TAX> 1,402
<INCOME-CONTINUING> 2,736
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,736
<EPS-PRIMARY> 0.15
<EPS-DILUTED> 0.15
</TABLE>
