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, 2000
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
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(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
10 THURBER BOULEVARD, SMITHFIELD, RHODE ISLAND 02917-1896
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(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, 2000 was 17,658,765.
<PAGE>
BACOU USA, INC.
INDEX
PART I. FINANCIAL INFORMATION PAGE NO.
Item 1. Financial Statements
Consolidated Condensed Balance Sheets,
December 31, 1999 and June 30, 2000 3
Consolidated Condensed Statements of Income, Three and
Six Months Ended June 30, 1999 and 2000 4
Consolidated Condensed Statements of Cash Flows,
Six Months Ended June 30, 1999 and 2000 5
Notes to Consolidated Condensed Financial Statements 6 - 8
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 9 - 14
Item 3. Quantitative and Qualitative Disclosures About Market Risk 14
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 15
Item 4. Submission of Matters to a Vote of Security Holders 15
Item 6. Exhibits and Reports on Form 8-K 15
Signatures 16
<PAGE>
PART I. Financial Information
ITEM I. Financial Statements
<TABLE>
<CAPTION>
BACOU USA, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(in thousands, except share data)
(unaudited)
December 31, June 30,
1999 2000
------------ ---------
ASSETS
Current assets:
<S> <C> <C>
Cash and cash equivalents.......................... $ 10,272 $ 5,411
Trade accounts receivable, net..................... 41,653 48,726
Inventories........................................ 42,433 42,783
Other current assets............................... 1,634 2,651
Deferred income taxes.............................. 3,733 3,200
------------ ---------
Total current assets............................. 99,725 102,771
Property and equipment, net.......................... 74,410 78,012
Intangible assets, net............................... 194,258 189,639
Other assets......................................... 3,032 2,802
------------ ---------
Total assets..................................... $ 371,425 $ 373,224
============ =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current installments of long-term debt............. $ 23,637 $ 22,857
Accounts payable................................... 10,559 14,182
Accrued expenses................................... 20,492 9,717
Income taxes payable............................... 1,027 3,203
------------ ---------
Total current liabilities........................ 55,715 49,959
Long-term debt....................................... 120,256 109,607
Deferred income taxes................................ 11,550 13,009
Other liabilities.................................... 2,449 2,282
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Total liabilities................................ 189,970 174,857
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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, 17,658,165 shares in 2000 and
17,629,865 shares in 1999 issued and outstanding... 18 18
Additional paid-in capital........................... 73,060 73,535
Retained earnings.................................... 108,377 124,814
------------ ---------
Total stockholders' equity....................... 181,455 198,367
------------ ---------
Total liabilities and stockholders' equity....... $ 371,425 $ 373,224
============ =========
See accompanying notes to consolidated condensed financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
BACOU USA, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(in thousands, except per share data)
(unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
-------------------- ------------------
1999 2000 1999 2000
-------------------- ------------------
<S> <C> <C> <C> <C>
Net sales............................................ $ 73,907 $ 81,523 $128,482 $155,743
Cost of sales........................................ 40,171 42,481 67,859 82,743
-------- --------- -------- --------
Gross profit......................................... 33,736 39,042 60,623 73,000
Operating expenses:
Selling............................................ 9,989 12,245 18,682 23,015
General and administrative......................... 5,679 5,490 10,463 11,416
Research and development........................... 1,263 1,423 2,472 2,862
Amortization of intangible assets.................. 2,308 2,427 4,423 4,832
-------- --------- -------- -------
Total operating expenses............................. 19,239 21,585 36,040 42,125
-------- --------- -------- -------
Operating income..................................... 14,497 17,457 24,583 30,875
Other expense (income):
Interest expense................................... 2,451 2,436 3,908 4,748
Interest income.................................... (13) (82) (25) (181)
Other.............................................. (276) 340 (171) 474
-------- --------- -------- -------
Total other expense.................................. 2,162 2,694 3,712 5,041
-------- --------- -------- -------
Income before income taxes........................... 12,335 14,763 20,871 25,834
Income taxes......................................... 4,427 5,391 7,489 9,397
-------- --------- -------- -------
Net income........................................... $ 7,908 $ 9,372 $ 13,382 $ 16,437
======== ========= ======== =======
Earnings per share:
Basic.............................................. $ 0.45 $ 0.53 $ 0.76 $ 0.93
======== ========= ======== ========
Diluted............................................ $ 0.45 $ 0.53 $ 0.76 $ 0.93
======== ========= ======== ========
Weighted average shares outstanding:
Basic.............................................. 17,619 17,648 17,618 17,639
======== ========= ======== ========
Diluted............................................ 17,646 17,799 17,716 17,724
======== ========= ======== ========
See accompanying notes to consolidated condensed financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
BACOU USA, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
Six Months Ended
June 30,
-----------------
1999 2000
------- --------
Cash flows from operating activities:
<S> <C> <C>
Net income.................................................... $ 13,382 $ 16,437
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization................................. 8,747 9,804
Deferred income taxes......................................... 1,176 1,992
Change in assets and liabilities, net of effects of acquired
companies:
Trade accounts receivable................................... (9,270) (7,073)
Inventories................................................. 4,138 (350)
Prepaid expenses and other assets........................... 104 (787)
Accounts payable............................................ (4,082) 3,623
Accrued expenses............................................ (2,725) (5,842)
Income taxes................................................ 929 2,176
-------- --------
Net cash provided by operating activities................... 12,399 19,980
-------- --------
Cash flows from investing activities:
Capital expenditures.......................................... (5,991) (8,574)
Acquisition of businesses, including direct costs of
acquisition, net of cash acquired........................... (38,221) (5,313)
-------- --------
Net cash used in investing activities....................... (44,212) (13,887)
-------- --------
Cash flows from financing activities:
Proceeds from long-term debt.................................. 50,000 ---
Repayment of long-term debt................................... (10,378) (11,429)
Repayments under note payable, net............................ (6,912) ---
Proceeds from exercise of stock options....................... 215 475
-------- --------
Net cash provided by (used in) financing activities......... 32,925 (10,954)
-------- --------
Net increase (decrease) in cash and cash equivalents............ 1,112 (4,861)
Cash and cash equivalents at beginning of period................ 1,090 10,272
-------- --------
Cash and cash equivalents at end of period...................... $ 2,202 $ 5,411
======== ========
Supplemental disclosures of cash flow information:
Cash paid during the period for interest...................... $ 3,944 $ 4,986
======== ========
Cash paid during the period for income taxes.................. $ 5,749 $ 5,004
======== ========
See accompanying notes to consolidated condensed financial statements.
</TABLE>
<PAGE>
BACOU USA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
JUNE 30, 2000
(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, 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. 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
$1,168,000 at December 31, 1999 and $1,185,000 at June 30, 2000.
3. INVENTORIES
Inventories consist of the following:
December 31, June 30,
(in thousands) 1999 2000
------------- ---------
Raw material and supplies................ $16,137 $16,929
Work-in-process.......................... 4,629 3,828
Finished goods........................... 21,667 22,026
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$42,433 $42,783
============= =========
4. PROPERTY, EQUIPMENT AND INTANGIBLE ASSETS
Accumulated depreciation and amortization on property and equipment totaled
$25,440,000 at December 31, 1999 and $30,126,000 at June 30, 2000. Accumulated
amortization on intangible assets totaled $30,004,000 at December 31, 1999 and
$34,867,000 at June 30, 2000.
5. EARNINGS PER SHARE
Basic earnings per share are computed by dividing income available to common
stockholders by the weighted-average number of common shares outstanding during
the period. Diluted earnings per share are computed by increasing the
weighted-average number of common shares by the dilutive potential common shares
that were outstanding during the period.
Dilutive potential common shares during all periods presented were limited to
the effect of outstanding stock options determined by application of the
treasury stock method. Dilutive stock options included in the computation of
diluted earnings per share totaled 27,000 for the three-month period and 98,000
for the six-month period ended June 30, 1999, and totaled 151,000 for the
three-month period and 85,000 for the six-month period ended June 30, 2000.
Based on a purchase agreement with the stockholders of Biosystems, Inc. (a
company acquired in 1997), if certain earnings targets are met, the Company may
have to issue common stock to these former stockholders. The Company has not
included any such contingent shares in the computation of earnings per share
because the necessary conditions for issuance of these shares had not been
satisfied.
6. SEGMENT DATA
The Company has three reportable segments, which include the safety segment, the
glove segment and the optical frames and instruments segment. The safety segment
consists of businesses that manufacture 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 Co., Inc. and affiliates ("Perfect Fit").
Glove segment products include protective gloves and related items, 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. Information presented below as "all other" includes
all non-operating entities.
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. Effective January 1, 2000,
the Company began to allocate to its segments operating expenses relating to
legal, human resource and information system services it provided to its
subsidiaries. Segment operating results for 1999 have been restated to conform
to the new policy.
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, 1999 and 2000, include
amortization expense totaling $2,308,000 in 1999 and $2,427,000 in 2000.
Adjustments to reconcile segment operating income to consolidated operating
income for the six months ended June 30, 1999 and 2000, include amortization
expense totaling $4,423,000 in 1999 and $4,832,000 in 2000. Reconciling
adjustments in both 1999 periods also include non-recurring charges incurred in
connection with the Perfect Fit acquisition equal to $590,000. Amounts shown
below for "all other" capital expenditures have been reduced by $1,139,000 for
inter-segment transfers to the safety and glove segments. Amounts shown below
for total assets exclude intercompany receivables and investments in
wholly-owned subsidiaries.
<PAGE>
<TABLE>
<CAPTION>
Optical Frames
Safety Glove and Instruments All Reconciling Consolidated
(in thousands) Segment Segment Segment Other Adjustments Total
------- ------- --------------- ----- ----------- ------------
Three months ended
June 30, 1999:
<S> <C> <C> <C> <C> <C> <C>
Net sales.................. $ 52,546 $ 12,788 $ 8,573 $ --- $ --- $ 73,907
Operating income (loss).... 16,001 1,838 900 (1,344) (2,898) 14,497
Depreciation............... 1,663 275 369 8 --- 2,315
Capital expenditures....... 1,647 56 1,154 23 --- 2,880
Three months ended
June 30, 2000:
Net sales.................. $ 58,052 $ 15,877 $ 7,594 $ --- $ --- $ 81,523
Operating income (loss).... 17,620 2,659 789 (1,184) (2,427) 17,457
Depreciation............... 1,822 222 313 61 --- 2,418
Capital expenditures....... 4,984 948 29 (1,060) --- 4,901
Six months ended
June 30, 1999:
Net sales.................. $ 98,470 $ 12,788 $17,224 $ --- $ --- $128,482
Operating income (loss).... 28,749 1,838 1,743 (2,734) (5,013) 24,583
Depreciation............... 3,303 275 738 8 --- 4,324
Capital expenditures....... 3,731 56 2,132 72 --- 5,991
Total assets (December 31). 254,813 62,088 37,552 16,972 --- 371,425
Six months ended
June 30, 2000:
Net sales.................. $107,774 $ 31,698 $16,271 $ --- $ --- $155,743
Operating income (loss).... 31,499 5,102 1,832 (2,726) (4,832) 30,875
Depreciation............... 3,717 493 638 124 --- 4,972
Capital expenditures....... 8,061 1,388 100 (975) --- 8,574
Total assets............... 262,449 66,690 27,963 16,122 --- 373,224
</TABLE>
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, including our ability to integrate
new businesses and achieve expected cost savings;
o continued availability and favorable pricing of raw materials;
o the effect of any work stoppages;
o competitive pressures;
o general economic conditions, including fluctuations in interest rates; 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.
RECENT DEVELOPMENTS
On July 10, 2000, we announced that both our principal shareholder and we had
decided to explore strategic alternatives to enhance value for the shareholders
of Bacou S.A. and Bacou USA. On July 14, 2000, we announced that Bacou USA and
the principal shareholders of Bacou S.A. had engaged Deutsche Bank Securities,
Inc. as financial advisor in connection with our exploration of strategic
alternatives. We also announced an agreement between Bacou USA and the principal
shareholders of Bacou S.A. that they will not accept any offer to purchase their
interests in Bacou S.A. unless it contains an undertaking by the buyer of such
interests also to purchase the shares of the minority public stockholders of
Bacou USA at a per share price equivalent to that which is attributable to the
Bacou USA shares held by Bacou S.A.
ACQUISITIONS
Effective July 1, 2000, we acquired Whiting + Davis Safety, Inc., a manufacturer
and distributor of metal mesh safety gloves. Operating results of Whiting +
Davis will be included in our consolidated results beginning on July 1, 2000.
On April 1, 1999, we purchased substantially all the assets and assumed
substantially all the liabilities of Perfect Fit, a manufacturer and distributor
of protective gloves and other related products. Operating results of Perfect
Fit have been included in our consolidated results beginning on April 1, 1999.
RESULTS OF OPERATIONS
The following table presents selected operating data 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) 1999 2000 1999 2000
--------------------------------------- --------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales ............................. $73,907 100.0% $81,523 100.0% $128,482 100.0% $155,743 100.0%
Cost of sales (1) ..................... 40,171 54.4 42,481 52.1 67,859 52.8 82,743 53.1
------- ------ ------- ----- ------ ----- -------- -----
Gross profit .......................... 33,736 45.6 39,042 47.9 60,623 47.2 73,000 46.9
Operating expenses:
Selling ............................. 9,989 13.5 12,245 15.0 18,682 14.6 23,015 14.8
General and administrative .......... 5,679 7.7 5,490 6.7 10,463 8.1 11,416 7.3
Research and development ............ 1,263 1.7 1,423 1.8 2,472 1.9 2,862 1.9
Amortization of intangible assets ... 2,308 3.1 2,427 3.0 4,423 3.5 4,832 3.1
------- ------ ------- ----- ------ ----- -------- -----
Total operating expenses .............. 19,239 26.0 21,585 26.5 36,040 28.1 42,125 27.1
------- ------ ------- ----- ------ ----- -------- -----
Operating income ...................... 14,497 19.6 17,457 21.4 24,583 19.1 30,875 19.8
Other expense ......................... 2,162 2.9 2,694 3.3 3,712 2.9 5,041 3.2
------- ------ ------- ----- ------ ----- -------- -----
Income before income taxes ............ 12,335 16.7 14,763 18.1 20,871 16.2 25,834 16.6
Income taxes .......................... 4,427 6.0 5,391 6.6 7,489 5.8 9,397 6.0
------- ----- ------- ----- -------- ----- -------- -----
Net income ............................ $ 7,908 10.7 $ 9,372 11.5 $ 13,382 10.4 $ 16,437 10.6
======= ===== ======= ===== ====== ===== ======== =====
</TABLE>
(1) Each of the 1999 periods shown above include acquisition-related inventory
adjustments totaling $0.6 million.
THREE MONTHS ENDED JUNE 30, 1999 COMPARED WITH THREE MONTHS ENDED JUNE 30, 2000
Net Sales. Our net sales increased 10.3% from $73.9 million for the three months
ended June 30, 1999 to $81.5 million for the three months ended June 30, 2000.
Net sales for our safety segment increased 10.5% from $52.5 million in 1999 to
$58.0 million in 2000, representing a 7.9% increase in domestic sales and a
22.4% increase in foreign sales. Net sales for our glove segment increased 24.2%
from $12.8 million in 1999 to $15.9 million in 2000. Net sales for our optical
frames and instruments segment declined from $8.6 million in 1999 to $7.6
million in 2000.
Cost of Sales. Our cost of sales increased 5.8% from $40.2 million for the three
months ended June 30, 1999 to $42.5 million for the three months ended June 30,
2000, due to increased sales volume.
Gross Profit. Our gross profit increased 15.7% from $33.7 million for the three
months ended June 30, 1999 to $39.0 million for the three months ended June 30,
2000. Excluding acquisition-related inventory adjustments in 1999, our gross
margin increased from 46.4% in 1999 to 47.9% in 2000. Our gross margin improved
as a result of higher sales volume, product mix, and manufacturing efficiencies.
<PAGE>
Operating Expenses. Our operating expenses increased 12.2% from $19.2 million
for the three months ended June 30, 1999 to $21.6 million for the three months
ended June 30, 2000, principally as a result of increased marketing and selling
expenses related to higher sales volume.
Operating Income. Primarily due to higher sales volume, our operating income
increased 20.4% from $14.5 million for the three months ended June 30, 1999 to
$17.5 million for the three months ended June 30, 2000.
Other Expense. Other expense consists principally of net interest expense
totaling $2.4 million in both the 1999 and 2000 periods. We had debt outstanding
totaling $153.6 million at June 30, 1999, and $132.5 million at June 30, 2000,
with interest rates on most of this debt variable based upon three-month LIBOR.
Average interest rates were higher during the three months ended June 30, 2000,
than the average rates during the three months ended June 30, 1999 and, as a
result, our net interest expense did not decline from 1999 to 2000.
Income Taxes. Our effective income tax rate was 35.9% in 1999 and 36.5% in 2000.
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. As a result of the foregoing, our net income increased 18.5% from
$7.9 million for the three months ended June 30, 1999 to $9.4 million for the
three months ended June 30, 2000, and our earnings per share increased 17.8%
from $0.45 in 1999 to $0.53 in 2000.
SIX MONTHS ENDED JUNE 30, 1999 COMPARED WITH SIX MONTHS ENDED JUNE 30, 2000
Net Sales. Our net sales increased 21.2% from $128.5 million for the six months
ended June 30, 1999 to $155.7 million for the six months ended June 30, 2000.
Net sales for our safety segment increased 9.4% from $98.5 million in 1999 to
$107.8 million in 2000, representing a 6.7% increase in domestic sales and a
23.8% increase in foreign sales. Net sales for our glove segment increased by
$18.9 million from $12.8 million in 1999 to $31.7 million in 2000. Operating
results of our Perfect Fit business have been included for three months in 1999
and for a full six months in 2000. The $18.9 million increase in glove segment
sales includes an increase of $15.8 million as a result of including Perfect Fit
operating results for an additional three months in 2000. Net sales for our
optical frames and instruments segment declined from $17.2 million in 1999 to
$16.3 million in 2000.
Cost of Sales. Our cost of sales increased 21.9% from $67.9 million for the six
months ended June 30, 1999 to $82.7 million for the six months ended June 30,
2000, due to increased sales volume.
Gross Profit. Our gross profit increased 20.4% from $60.6 million for the six
months ended June 30, 1999 to $73.0 million for the six months ended June 30,
2000. Excluding acquisition-related inventory adjustments in the 1999 period,
our gross margin was 47.6% for the six months ended June 30, 1999 and 46.9% for
the six months ended June 30, 2000. The reduction in our gross margin was
primarily attributable to the inclusion of the lower margin glove segment for a
full six months in 2000 and only three months in 1999.
Operating Expenses. Our operating expenses increased 16.9% from $36.0 million
for the six months ended June 30, 1999 to $42.1 million for the six months ended
June 30, 2000. This increase resulted principally from inclusion of operating
expenses of the Perfect Fit business for a longer period in 2000 and from
volume-related increases in our selling expenses.
Operating Income. Our operating income increased 25.6% from $24.6 million for
the six months ended June 30, 1999 to $30.9 million for the six months ended
June 30, 2000, primarily due to growth in our sales and, to a lesser extent, due
to the acquisition of Perfect Fit.
Other Expense. Other expense increased 35.8% from $3.7 million for the six
months ended June 30, 1999 to $5.0 million for the six months ended June 30,
2000. Other expense consists principally of net interest expense totaling $3.9
million in 1999 and $4.6 million in 2000. The increase in net interest expense
from 1999 to 2000 is due to higher average debt balances outstanding in 2000, as
a result of borrowings we made in connection with our acquisition of Perfect
Fit, and also due to higher average interest rates in 2000.
Income Taxes. Our effective income tax rate was 35.9% in 1999 and 36.4% in 2000.
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. As a result of the foregoing, our net income increased 22.8% from
$13.4 million for the six months ended June 30, 1999 to $16.4 million for the
six months ended June 30, 2000, and our earnings per share increased 22.4% from
$0.76 in 1999 to $0.93 in 2000.
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 and certain capital expenditures. We utilize EBITDA
(earnings before interest, taxes, depreciation and amortization) as a measure of
cash flow provided by our operations. 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. EBITDA as reported by us is equal to operating income plus
depreciation and amortization, adjusted (when applicable) for non-recurring
items. Our EBITDA increased 19.9% from $33.9 million for the six months ended
June 30, 1999 to $40.7 million for the six months ended June 30, 2000.
Our working capital increased $8.8 million from $44.0 million at December 31,
1999, to $52.8 million at June 30, 2000, primarily due to a $7.1 million
increase in trade receivables. Our trade receivables have increased principally
as a result of higher sales volume.
We used cash equal to $13.9 million during the six months ended June 30, 2000,
and $44.2 million during the six months ended June 30, 1999, for investing
activities. Capital expenditures totaled $8.6 million during the six months
ended June 30, 2000, and $6.0 million during the six months ended June 30, 1999.
In connection with our acquisition of Perfect Fit, we paid cash consideration
totaling $37.8 million in April 1999, and we paid additional contingent
consideration equal to $5.1 million (representing the total payment due) in
March 2000.
The initial purchase price for our 1997 acquisition of Biosystems, Inc. may be
increased if the operating results of this business during the year ending
December 31, 2000, exceed certain defined thresholds of profitability. If
defined profitability levels are not achieved, no contingent payments are
required. If, however, the operating results of this business meet these defined
profitability levels then a minimum contingent payment equal to $5.0 million
will be due, increasing based upon a sliding scale thereafter. The amount of
additional purchase price, if any, is not currently estimable. Contingent
payments would be payable in unregistered shares of our common stock, except
that the former stockholders of Biosystems have the option to receive all or
part of any payment in cash, up to a maximum cash payment of $12.0 million. Any
additional cash payment would be due in 2001 and would result in additional
goodwill. We expect to finance such payment from operations or bank borrowings.
In connection with recent acquisitions, we entered into two credit agreements
with Banque Nationale de Paris ("BNP"). Pursuant to the credit agreements, BNP
made term loans to Bacou USA in the original principal amount of $110.0 million
(in February 1998) and $50.0 million (in April 1999). Both loans require
principal repayments in equal quarterly installments over seven years and
require quarterly interest payments at annual rates equal to three-month LIBOR
plus 0.50% and 0.60%, respectively.
We have entered into a credit agreement with Fleet National Bank (f/k/a
BankBoston, N.A.) as agent for participating banks ("Fleet"). Under this credit
agreement the bank established a revolving line of credit facility with a
maximum principal limit of $36.0 million (the "Fleet Revolving Facility").
Principal outstanding under the Fleet Revolving Facility will bear interest at
our option at either a) a fixed rate equal to LIBOR plus 0.70%, or b) a floating
rate equal to Fleet's base rate. Amounts outstanding under the Fleet Revolving
Facility would be scheduled for repayment on August 24, 2001. As of the date of
this filing principal outstanding on the Fleet Revolving Facility was equal to
$2.0 million.
Fleet also has agreed to purchase up to $30.0 million of economic development
revenue bonds issued by Rhode Island Industrial Facilities Corporation (the
"RIIFC Revenue Bonds"). At June 30, 2000, there was a principal balance
outstanding equal to $11.2 million under the RIIFC Revenue Bonds. Principal
outstanding bears interest at fixed rates ranging from LIBOR plus 0.70% to LIBOR
plus 0.95%. Proceeds from these revenue bonds were used to fund the acquisition
of our Rhode Island manufacturing facility in July 1999, to fund the
construction of an addition to such facility (which has recently been completed)
and for the purchase of machinery and equipment over a three-year period for use
at such facility. Repayment of principal under the RIIFC Revenue Bonds is due in
quarterly installments of $500,000 beginning February 1, 2002, increasing to
$1,500,000 beginning February 1, 2005, with a final payment of any remaining
principal due on August 1, 2006.
In connection with our acquisition of Perfect Fit we assumed indebtedness
outstanding under Wilkes County Industrial Development Revenue Bonds in the
principal amount of $6.3 million. Principal outstanding under these revenue
bonds bears interest at a variable rate, equal to approximately 4.5% during the
quarter ended June 30, 2000. In March 2000, we restructured the repayment terms
of these bonds such that the remaining principal balance of $5.6 million is now
due in full on December 31, 2006.
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 acquisitions. We believe we
would have access to sufficient capital to consummate future acquisitions
resulting from our strategy. Except for cash requirements to fund future
acquisitions, we believe that cash flow provided by our 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 November through February 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.
NEW ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board ("FASB") issued Statement
of Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities". This statement requires companies to
recognize derivatives as either assets or liabilities on the balance sheet and
measure those instruments at fair value. We will be required to adopt the
provisions of this statement in 2001. We do not currently believe this
pronouncement will have a material impact on our financial condition or results
of operations.
In December 1999, the Securities and Exchange Commission ("SEC") issued Staff
Accounting Bulletin No. 101 "Revenue Recognition", which provides guidance on
the recognition, presentation, and disclosure of revenue in financial statements
filed with the SEC. This pronouncement will be effective for us on October 1,
2000. We do not believe this pronouncement will have a material impact on our
financial condition or results of operations.
In March 2000, the FASB issued Financial Accounting Standards Board
Interpretation No. 44, "Accounting for Certain Transactions Involving Stock
Compensation". The interpretation clarifies certain matters concerning the
application of APB Opinion No. 25 and is generally effective beginning July 1,
2000. This pronouncement will not have a material impact on our financial
condition or results of operations.
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 material market risk exposure is the risk of adverse
fluctuations in interest rates. At June 30, 2000, we had debt outstanding
totaling $132.5 million. Interest rates on principally all of this debt are
variable based upon three-month LIBOR. Three-month LIBOR approximated 6.8% at
June 30, 2000.
We have prepared sensitivity analyses of our interest rate exposure to assess
the future impact of hypothetical changes in interest rates. Based upon the
results of these analyses, we believe that a 10% adverse change from current
interest rates would result in the potential loss of after-tax earnings over the
next twelve months equal to approximately $551,000, or $0.03 per share.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
As reported in our Report on Form 10-K for the year ended December 31, 1999, we
have instituted a civil action in the Rhode Island Superior Court. There have
been no material new developments in this matter through the date of this
report.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
During the Annual Meeting of Stockholders held on May 15, 2000, 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 17,210,983 152,733
Walter Stepan 17,157,038 206,678
Christophe Bacou 17,305,121 58,595
Philip B. Barr 17,359,266 4,450
Karl F. Ericson 17,359,066 4,650
Howard S. Leight 17,359,266 4,450
Gilbert Vandeputte 17,358,966 4,750
Alfred J. Verrecchia 17,359,266 4,450
2. 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,
2000. The result of the vote of Stockholders was as follows:
For Against Abstain
17,363,256 100 360
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibit Index
EXHIBIT NUMBER DESCRIPTION OF EXHIBIT
-------------- ----------------------
Exhibit 27 Financial Data Schedule
(b) Reports on Form 8-K
The Company filed no reports on Form 8-K during the quarterly period ended June
30, 2000.
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 9, 2000
BACOU USA, INC.
(Registrant)
/s/Adrien W. Hebert /s/Jeffrey T. Brown
------------------------------- ----------------------------
Adrien W. Hebert Jeffrey T. Brown
Chief Financial Officer Chief Accounting Officer
