(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 for the quarterly period ended September 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
-------------------------------
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 November 6, 2000 was 17,670,865.
<PAGE>
BACOU USA, INC.
INDEX
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Condensed Balance Sheets,
December 31, 1999 and September 30, 2000
Consolidated Condensed Statements of Income, Three and
Nine Months Ended September 30, 1999 and 2000
Consolidated Condensed Statements of Cash Flows,
Nine Months Ended September 30, 1999 and 2000
Notes to Consolidated Condensed Financial Statements
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Item 6. Exhibits and Reports on Form 8-K
Signatures
<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, September 30,
1999 2000
----------- ------------
ASSETS
Current assets:
<S> <C> <C>
Cash and cash equivalents................................. $ 10,272 $ 732
Trade accounts receivable, net............................ 41,653 51,822
Inventories............................................... 42,433 45,358
Other current assets...................................... 1,634 3,689
Deferred income taxes..................................... 3,733 3,150
----------- ------------
Total current assets.................................... 99,725 104,751
Property and equipment, net................................. 74,410 79,221
Intangible assets, net...................................... 194,258 197,040
Other assets................................................ 3,032 2,947
----------- ------------
Total assets............................................ $ 371,425 $ 383,959
=========== ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current installments of long-term debt.................. $ 23,637 $ 27,857
Accounts payable.......................................... 10,559 15,398
Accrued expenses.......................................... 20,492 11,493
Income taxes payable...................................... 1,027 2,020
----------- ------------
Total current liabilities............................... 55,715 56,768
Long-term debt.............................................. 120,256 103,893
Deferred income taxes....................................... 11,550 14,473
Other liabilities........................................... 2,449 1,874
----------- ------------
Total liabilities....................................... 189,970 177,008
----------- ------------
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, 17,660,865 shares in 2000 and
17,629,865 shares in 1999 issued and outstanding.......... 18 18
Additional paid-in capital.................................. 73,060 73,653
Retained earnings........................................... 108,377 133,280
----------- ------------
Total stockholders' equity.............................. 181,455 206,951
----------- ------------
Total liabilities and stockholders' equity.............. $ 371,425 $ 383,959
=========== ============
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 Nine Months Ended
September 30, September 30,
--------------------- -----------------------
1999 2000 1999 2000
--------------------- -----------------------
<S> <C> <C> <C> <C>
Net sales.................................... $ 72,940 $ 81,400 $ 201,422 $ 237,143
Cost of sales................................ 38,177 45,498 106,036 128,241
--------- -------- ---------- ----------
Gross profit................................. 34,763 35,902 95,386 108,902
Operating expenses:
Selling.................................... 10,070 11,382 28,752 34,397
General and administrative................. 6,263 5,298 16,726 16,714
Research and development................... 1,347 1,463 3,819 4,325
Amortization of intangible assets.......... 2,570 2,510 6,993 7,342
--------- -------- ---------- ----------
Total operating expenses..................... 20,250 20,653 56,290 62,778
--------- -------- ---------- ----------
Operating income............................. 14,513 15,249 39,096 46,124
Other expense (income):
Interest expense........................... 2,434 2,465 6,342 7,213
Interest income............................ (25) (10) (50) (191)
Other...................................... 178 (417) 7 57
--------- -------- ---------- ----------
Total other expense.......................... 2,587 2,038 6,299 7,079
--------- -------- ---------- ----------
Income before income taxes................... 11,926 13,211 32,797 39,045
Income taxes................................. 4,291 4,745 11,780 14,142
--------- -------- ---------- ----------
Net income................................... $ 7,635 $ 8,466 $ 21,017 $ 24,903
========= ======== ========== ==========
Earnings per share:
Basic...................................... $ 0.43 $ 0.48 $ 1.19 $ 1.41
========= ======== ========== ==========
Diluted.................................... $ 0.43 $ 0.47 $ 1.19 $ 1.40
========= ======== ========== ==========
Weighted average shares outstanding:
Basic...................................... 17,627 17,659 17,623 17,646
========= ======== ========== ==========
Diluted.................................... 17,694 17,933 17,711 17,794
========= ======== ========== ==========
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)
Nine Months Ended
September 30,
-----------------------
1999 2000
-----------------------
Cash flows from operating activities:
<S> <C> <C>
Net income....................................................... $ 21,017 $ 24,903
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization.................................... 13,190 14,870
Deferred income taxes............................................ 2,246 3,506
Change in assets and liabilities, net of effects of acquired
companies:
Trade accounts receivable...................................... (12,214) (9,505)
Inventories.................................................... 4,015 (1,999)
Prepaid expenses and other assets.............................. 730 (1,821)
Accounts payable............................................... (3,097) 3,395
Accrued expenses............................................... 1,361 (4,689)
Income taxes................................................... 261 993
--------- ---------
Net cash provided by operating activities...................... 27,509 29,653
--------- ---------
Cash flows from investing activities:
Capital expenditures............................................. (14,510) (12,152)
Insurance proceeds received for repair of property............... --- 1,140
Proceeds from sale of equipment.................................. --- 426
Acquisition of businesses, including direct costs of
acquisition, net of cash acquired.............................. (38,336) (16,709)
--------- ---------
Net cash used in investing activities.......................... (52,846) (27,295)
--------- ---------
Cash flows from financing activities:
Proceeds from long-term debt..................................... 61,160 ---
Repayment of long-term debt...................................... (16,092) (17,491)
Borrowings (repayments) under note payable, net.................. (16,304) 5,000
Proceeds from exercise of stock options.......................... 313 593
--------- ---------
Net cash provided by (used in) financing activities............ 29,077 (11,898)
--------- ---------
Net increase (decrease) in cash and cash equivalents............... 3,740 (9,540)
Cash and cash equivalents at beginning of period................... 1,090 10,272
--------- ---------
Cash and cash equivalents at end of period......................... $ 4,830 $ 732
========= =========
Supplemental disclosures of cash flow information:
Cash paid during the period for interest......................... $ 6,392 $ 7,405
========= =========
Cash paid during the period for income taxes..................... $ 9,609 $ 9,504
========= =========
See accompanying notes to consolidated condensed financial statements.
</TABLE>
<PAGE>
BACOU USA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
SEPTEMBER 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 ("SEC") 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
accounting principles generally accepted in the United States of America 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 $1,096,000 at September 30, 2000.
3. INVENTORIES
Inventories consist of the following:
December 31, September 30,
(in thousands) 1999 2000
------------ -------------
Raw material and supplies............ $ 16,137 $ 17,909
Work-in-process...................... 4,629 5,605
Finished goods....................... 21,667 21,844
------------ -------------
$ 42,433 $ 45,358
============ =============
4. PROPERTY, EQUIPMENT AND INTANGIBLE ASSETS
Accumulated depreciation and amortization on property and equipment totaled
$25,440,000 at December 31, 1999 and $32,730,000 at September 30, 2000.
Accumulated amortization on intangible assets totaled $30,004,000 at December
31, 1999 and $37,394,000 at September 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 67,000 for the three-month period and 88,000
for the nine-month period ended September 30, 1999, and totaled 274,000 for the
three-month period and 148,000 for the nine-month period ended September 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 have 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 glove segment consists of businesses that manufacture 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 September 30, 1999 and 2000, include
amortization expense totaling $2,570,000 in 1999 and $2,510,000 in 2000.
Adjustments to reconcile segment operating income to consolidated operating
income for the nine months ended September 30, 1999 and 2000, include
amortization expense totaling $6,993,000 in 1999 and $7,342,000 in 2000.
Reconciling adjustments also include non-recurring charges incurred in
connection with the 1999 acquisition of Perfect Fit Glove Co., Inc. and
affiliates ("Perfect Fit") and the July 2000 acquisition of the Whiting + Davis
Safety division of WDC Holdings, Inc. ("Whiting + Davis"). Non-recurring charges
were equal to $590,000 for the nine months ended September 30, 1999, and equal
to $204,000 for the three- and nine-month periods ended September 30, 2000.
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.
<TABLE>
<CAPTION>
Optical
Frames and
Safety Glove Instruments All Reconciling Consolidated
(in thousands) Segment Segment Segment Other Adjustments Total
------- ------- --------- ------ ----------- ------------
Three months ended September 30, 1999:
<S> <C> <C> <C> <C> <C> <C>
Net sales ............................ $ 52,351 $ 13,007 $ 7,582 $ -- $ -- $ 72,940
Operating income (loss) .............. 15,870 2,071 921 (1,779) (2,570) 14,513
Depreciation ......................... 1,464 31 369 8 -- 1,872
Capital expenditures ................. 7,782 158 308 271 -- 8,519
Three months ended September 30, 2000:
Net sales ............................ $ 56,865 $ 17,335 $ 7,200 $ -- $ -- $ 81,400
Operating income (loss) .............. 16,106 1,857 1,007 (1,007) (2,714) 15,249
Depreciation ......................... 1,878 287 319 62 -- 2,546
Capital expenditures ................. 3,243 190 37 108 -- 3,578
Nine months ended September 30, 1999:
Net sales ............................ $150,821 $ 25,795 $ 24,806 $ -- $ -- $201,422
Operating income (loss) .............. 44,619 3,909 2,664 (4,513) (7,583) 39,096
Depreciation ......................... 4,768 306 1,107 16 -- 6,197
Capital expenditures ................. 11,513 214 2,440 343 -- 14,510
Total assets (December 31) ........... 254,813 62,088 37,552 16,972 -- 371,425
Nine months ended September 30, 2000:
Net sales ............................ $164,639 $ 49,033 $ 23,471 $ -- $ -- $237,143
Operating income (loss) .............. 47,605 6,959 2,839 (3,733) (7,546) 46,124
Depreciation ......................... 5,595 790 957 186 -- 7,528
Capital expenditures ................. 11,304 1,578 137 (867) -- 12,152
Total assets ......................... 263,143 80,009 27,299 13,508 -- 383,959
</TABLE>
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
FACTORS THAT MAY AFFECT FUTURE PERFORMANCE
Statements contained in this Form 10-Q that are not historical facts are
forward-looking statements that are made pursuant to the safe harbor provisions
of the Private Securities Litigation Reform Act of 1995. In addition, when used
in this Form 10-Q, words such as "believes", "anticipates", "expects" and
similar expressions are intended to identify forward-looking statements. We
caution you that a number of important factors could cause actual outcomes to
differ materially from those expressed in any forward-looking statements made by
us, or on our behalf. Forward-looking statements involve a number of risks and
uncertainties including, but not limited to:
o the impact of our ongoing evaluation of certain strategic alternatives,
including the possible sale of Bacou USA and Bacou S.A.
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.
We currently believe the aforementioned process is likely to result in a sale of
the business of Bacou USA and Bacou S.A. in their entireties to one purchaser in
a single transaction. Although we cannot provide any assurances at this time
whether or not a transaction will occur, we currently anticipate that any
resulting transaction will be consummated in the first quarter of 2001. We will
incur certain costs in connection with this process that will be charged to our
operating results. We expect to incur these costs primarily in the fourth
quarter of 2000 and the first quarter of 2001.
ACQUISITIONS
Effective July 1, 2000, we acquired Whiting + Davis, a manufacturer and
distributor of metal mesh safety apparel. Operating results of Whiting + Davis
have been 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.
<PAGE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED SEPTEMBER 30, NINE MONTHS ENDED SEPTEMBER 30,
---------------------------------- -----------------------------------
(in thousands, except percentages) 1999 2000 1999 2000
---------------------------------- -----------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales ........................... $72,940 100.0% $81,400 100.0% $201,422 100.0% $237,143 100.0%
Cost of sales (1) ................... 38,177 52.3 45,498 55.9 106,036 52.6 128,241 54.1
------- ----- ------- ----- -------- ----- -------- -----
Gross profit ........................ 34,763 47.7 35,902 44.1 95,386 47.4 108,902 45.9
Operating expenses:
Selling ........................... 10,070 13.8 11,382 14.0 28,752 14.3 34,397 14.5
General and administrative ........ 6,263 8.6 5,298 6.5 16,726 8.3 16,714 7.0
Research and development .......... 1,347 1.9 1,463 1.8 3,819 1.9 4,325 1.8
Amortization of intangible assets . 2,570 3.5 2,510 3.1 6,993 3.5 7,342 3.1
------- ----- ------- ----- ------- ----- -------- -----
Total operating expenses ............ 20,250 27.8 20,653 25.4 56,290 28.0 62,778 26.4
------- ----- ------- ----- ------- ----- -------- -----
Operating income .................... 14,513 19.9 15,249 18.7 39,096 19.4 46,124 19.5
Other expense ....................... 2,587 3.5 2,038 2.5 6,299 3.1 7,079 3.0
------- ----- ------- ----- ------- ----- -------- -----
Income before income taxes .......... 11,926 16.4 13,211 16.2 32,797 16.3 39,045 16.5
Income taxes ........................ 4,291 5.9 4,745 5.8 11,780 5.9 14,142 6.0
------- ----- ------- ----- ------ ----- -------- -----
Net income .......................... $ 7,635 10.5 $ 8,466 10.4 $ 21,017 10.4 $ 24,903 10.5
======= ===== ======= ===== ======== ===== ======== =====
</TABLE>
(1) Amounts shown above include non-operating charges resulting from
acquisitions totaling $0.2 million for the three-and nine-month periods ended
September 30, 2000, and $0.6 million for the nine months ended September 30,
1999.
THREE MONTHS ENDED SEPTEMBER 30, 1999 COMPARED WITH THREE MONTHS ENDED
SEPTEMBER 30, 2000
Net Sales. Our net sales increased 11.6% from $72.9 million for the three months
ended September 30, 1999 to $81.4 million for the three months ended September
30, 2000. Net sales for our safety segment increased 8.6% from $52.4 million in
1999 to $56.9 million in 2000, representing a 3.8% increase in domestic sales
and a 33.9% increase in foreign sales. Net sales for our glove segment increased
33.3% from $13.0 million in 1999 to $17.3 million in 2000. Glove segment sales
for the quarter included sales for our recently acquired Whiting + Davis
business equal to $1.9 million. Net sales for our optical frames and instruments
segment declined from $7.6 million in 1999 to $7.2 million in 2000.
Cost of Sales. Our cost of sales increased 19.2% from $38.2 million for the
three months ended September 30, 1999 to $45.5 million for the three months
ended September 30, 2000, due to increased sales volume.
Gross Profit. Our gross profit increased 3.3% from $34.8 million for the three
months ended September 30, 1999 to $35.9 million for the three months ended
September 30, 2000. Excluding acquisition-related inventory adjustments in 2000,
our gross margin declined from 47.7% in 1999 to 44.4% in 2000. Our gross margin
for the 2000-quarter was adversely affected due to a number of factors,
primarily relating to product mix, i.e., over-proportional growth in
lower-margin sales of glove products, self contained breathing apparatus
products pursuant to municipal bids, and sales in international markets.
Operating Expenses. Our operating expenses increased 2.0% from $20.3 million for
the three months ended September 30, 1999 to $20.7 million for the three months
ended September 30, 2000. Our operating expenses as a percentage of sales
declined from 27.8% for the three months ended September 30, 1999 to 25.4% for
the three months ended September 30, 2000, primarily due to a decline in general
and administrative expenses. Our general and administrative expenses declined
due to reductions in spending and due to the timing of certain expenditures.
Operating Income. As a result of the foregoing, our operating income increased
5.1% from $14.5 million for the three months ended September 30, 1999 to $15.3
million for the three months ended September 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 $149.6 million at September 30, 1999, and $131.8 million at September
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 September 30, 2000, than average rates during the three months ended
September 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% for the three months ended
September 30, 1999 and 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 (excluding
non-recurring items relating to acquisitions) increased 12.5% from $7.6 million
for the three months ended September 30, 1999 to $8.6 million for the three
months ended September 30, 2000. Our diluted earnings per share, again excluding
non-recurring items, increased 11.6% from $0.43 in 1999 to $0.48 in 2000.
NINE MONTHS ENDED SEPTEMBER 30, 1999 COMPARED WITH NINE MONTHS ENDED
SEPTEMBER 30, 2000
Net Sales. Our net sales increased 17.7% from $201.4 million for the nine months
ended September 30, 1999 to $237.1 million for the nine months ended September
30, 2000. Net sales for our safety segment increased 9.2% from $150.8 million in
1999 to $164.6 million in 2000, representing a 5.7% increase in domestic sales
and a 27.9% increase in foreign sales. Net sales for our glove segment increased
by $23.2 million from $25.8 million in 1999 to $49.0 million in 2000. Operating
results of our Perfect Fit business have been included for nine months and
operating results of our Whiting + Davis business for three months in 2000,
compared with the 1999-period which only included operating results of Perfect
Fit and only for six months. The increase in glove segment sales of $23.2
million includes internal growth equal to $5.5 million, and an increase of $17.7
million attributable to the acquisition of these businesses. Net sales for our
optical frames and instruments segment declined from $24.8 million in 1999 to
$23.5 million in 2000.
Cost of Sales. Our cost of sales increased 20.9% from $106.0 million for the
nine months ended September 30, 1999 to $128.2 million for the nine months ended
September 30, 2000, due to increased sales volume.
Gross Profit. Our gross profit increased 14.2% from $95.4 million for the nine
months ended September 30, 1999 to $108.9 million for the nine months ended
September 30, 2000. Excluding acquisition-related inventory adjustments, our
gross margin was 47.6% for the nine months ended September 30, 1999 and 46.0%
for the nine months ended September 30, 2000. The reduction in our gross margin
was primarily attributable to increases in the sale of lower margin glove
products.
Operating Expenses. Our operating expenses increased 11.5% from $56.3 million
for the nine months ended September 30, 1999 to $62.8 million for the nine
months ended September 30, 2000. This increase resulted principally from
inclusion of operating expenses of both our Perfect Fit and Whiting + Davis
businesses for a longer period in 2000, and from volume-related increases in our
selling expenses.
Operating Income. As a result of the foregoing, our operating income increased
18.0% from $39.1 million for the nine months ended September 30, 1999 to $46.1
million for the nine months ended September 30, 2000.
Other Expense. Other expense increased 12.4% from $6.3 million for the nine
months ended September 30, 1999 to $7.1 million for the nine months ended
September 30, 2000. Other expense consists principally of net interest expense
totaling $6.3 million in 1999 and $7.0 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
acquisitions of Perfect Fit and Whiting + Davis, and also due to higher average
interest rates in 2000.
Income Taxes. Our effective income tax rate was 35.9% in 1999 and 36.2% 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 (excluding
non-recurring items relating to acquisitions) increased 17.1% from $21.4 million
for the nine months ended September 30, 1999 to $25.0 million for the nine
months ended September 30, 2000. Our diluted earnings per share, again excluding
non-recurring items, increased 16.5% from $1.21 in 1999 to $1.41 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 15.7% from $52.9 million for the nine months ended
September 30, 1999 to $61.2 million for the nine months ended September 30,
2000.
Our working capital increased $4.0 million from $44.0 million at December 31,
1999, to $48.0 million at September 30, 2000, primarily due to a $10.2 million
increase in trade receivables. Our trade receivables have increased principally
as a result of higher sales volume.
We used cash equal to $27.3 million during the nine months ended September 30,
2000, and $52.8 million during the nine months ended September 30, 1999, for
investing activities. Capital expenditures totaled $12.2 million during the nine
months ended September 30, 2000, and $14.5 million during the nine months ended
September 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. In connection with our acquisition of Whiting + Davis, we
paid cash consideration equal to $11.3 million in July 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. We are not able
to estimate precisely whether, or to what extent, a contingent payment will be
due. However, based upon annualized operating results of this business for the
six months ended June 30, 2000, we believe that a contingent payment equal to
$5.0 million may be due. 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 contingent payment would be due in 2001 and
would result in additional goodwill. We expect to finance the cash portion of
any 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 March 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 ("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. Principal outstanding on the Fleet Revolving
Facility at September 30, 2000 was equal to $5.0 million and is scheduled for
repayment on August 24, 2001.
Fleet also has agreed to purchase up to $30.0 million of economic development
revenue bonds issued by Rhode Island Industrial Facilities Corporation ("RIIFC
Revenue Bonds"). At September 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 4.2% during the
quarter ended September 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 preferred stock or
additional common 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 September 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 January 1, 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 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 was effective for us on October 1, 2000 and will not have a
material impact on our future 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 did not have a material impact on our financial
condition or results of operations.
In May 2000, the FASB Emerging Issues Task Force reached a consensus on Issue
No. 00-14, "Accounting for Certain Sales Incentives". This standard was
effective for us beginning on July 1, 2000 and required that certain sales
incentives be classified either as (i) a reduction of revenue (rebates offered
at the point of sale) or (ii) cost of sales (offers of free product). This
pronouncement did not have a material impact on our financial condition or
results of operations.
In September 2000, the FASB Emerging Issues Task Force reached a consensus on
Issue No. 00-10, "Accounting for Shipping and Handling Fees and Costs". This
standard was effective for us beginning October 1, 2000, and required that
amounts billed to customers for shipping and handling should be classified as
sales. This standard will result in a reclassification of certain amounts on our
income statement, but will not impact 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 September 30, 2000, we had debt outstanding
totaling $131.8 million. Interest rates on principally all of this debt are
variable based upon three-month LIBOR. Three-month LIBOR approximated 6.6% at
September 30, 2000.
<PAGE>
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 $525,000, 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
instituted a civil action for a declaratory judgment in the Rhode Island
Superior Court. A second defendant has been added and this case has been removed
to the U.S. District Court for the District of Rhode Island. The defendants have
filed a counterclaim against us, which we have denied, for $4.0 million. The
case is in discovery.
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 the following reports on Form 8-K during the quarterly period
ended September 30, 2000:
1. A report filed on July 6, 2000, for the purpose of reporting our
acquisition of Whiting + Davis Safety, Inc.;
2. A report filed on July 10, 2000, for the purpose of reporting 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;
3. A report filed July 14, 2000, for the purpose of reporting that Bacou USA
and the principal shareholders of Bacou S.A. had engaged Deutsche Bank
Securities, Inc. as financial advisor in connection with their exploration
of strategic alternatives;
4. A report filed on July 18, 2000, for the purpose of reporting our financial
results for the second quarter and six-months ended June 30, 2000; and
5. A report filed on August 9, 2000, for the purpose of reporting our
acquisition of Platinum Protective Products, Inc.
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: November 13, 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
