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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
_________________________
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported) ----- June 7, 1996
BEC GROUP, INC.
---------------
(Exact name of Registrant as specified in charter)
Delaware 1-14360 13-3868804
(State of Incorporation) (Commission File No.) (IRS Employer Id. No.)
Suite B-302, 555 Theodore Fremd Avenue, Rye, New York 10580
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(Address of Principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (914) 967-9400
________________________________________________________________
(Former name or former address, if changed since last report.)
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<PAGE> 2
ITEM 5. OTHER EVENTS.
As reported in Part I, Item 2 of the Registrant's Quarterly Report on Form 10-Q
for the quarter ended March 31, 1996, on May 3, 1996, Benson Eyecare
Corporation ("Benson"), BEC Group, Inc. ("BEC"), Essilor International, S.A.
("Essilor"), Essilor of America, Inc. ("Essilor of America") and Essilor
Acquisition Corporation, Inc. ("Essilor Sub") effected a Merger pursuant to
which Essilor purchased Benson and the Omega Group, Benson's wholesale optical
laboratory business. Benson also entered into an Asset Purchase Agreement,
pursuant to which Benson's lens manufacturing business, Orcolite, was purchased
by the Monsanto Company on May 3, 1996 (the "Asset Sale"). Pursuant to the
Merger, each outstanding share of Benson common stock was exchanged for $6.60
in cash, and one share of BEC's common stock was received for every two shares
of Benson common stock.
For accounting purposes, BEC was considered the continuing entity.
Accordingly, the Merger and Asset Sale were considered to be a sale of Omega
and Orcolite by BEC to Essilor and Monsanto, respectively. The accounting
treatment of the Merger and Asset Sale differs from the legal structure and the
federal income tax treatment. The gain on the sale of these businesses and the
results of operations for these businesses has been presented as discontinued
operations of BEC. The cash merger consideration has been treated as a
dividend of BEC. The assets of the discontinued operations, net of
liabilities, have been presented as investment in discontinued operations at
December 31, 1995. The Company is filing pursuant to Item 7 of this Current
Report on Form 8-K audited restated financial statements reflecting such
discontinued operations.
In its Current Report on Form 8-K dated May 20, 1996, BEC announced that it had
made a formal offer to acquire ILC Technologies, Inc. ("ILC"). By letter dated
June 3, 1996, ILC informed BEC that ILC's Board of Directors had considered
BEC's proposal and had decided not to pursue discussions with BEC regarding the
proposal. On June 4, 1996, BEC announced that it had withdrawn its offer.
Copies of BEC's June 4, 1996 press release and of correspondence from BEC to
ILC relating to the proposal and its withdrawal by BEC are filed as Exhibits
99.1 through 99.3 to this Current Report on Form 8-K.
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ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
(A) FINANCIAL STATEMENTS
The following financial statements are filed as part of this
Current Report on Form 8-K.
Audited restated financial statements of the Registrant for
the years ending December 31, 1995, 1994 and 1993, taking into
account the effect of the accounting treatment of the
transactions described in Item 5 of this Current Report on
Form 8-K.
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<PAGE> 4
Report of Independent Accountants
To the Board of Directors and
Stockholders of BEC Group, Inc. (formerly Benson Eyecare Corporation)
In our opinion, based upon our audits and the report of other auditors, the
accompanying consolidated balance sheets and the related consolidated
statements of operations, of stockholders' equity and of cash flows present
fairly, in all material respects, the financial position of BEC Group, Inc.
(formerly Benson Eyecare Corporation) and its subsidiaries at December 31, 1995
and 1994, and the results of their operations and their cash flows for each of
the three years in the period ended December 31, 1995, in conformity with
generally accepted accounting principles. These financial statements are the
responsibility of the Company's management; our responsibility is to express an
opinion on these financial statements based on our audits. We did not audit
the financial statements of Bolle America, Inc., which statements reflect total
assets of $17,549,396 at December 31, 1994 and total revenues of $23,093,819
and $18,377,332 for the years ended December 31, 1994 and 1993. Those
statements were audited by other auditors whose report thereon has been
furnished to us, and our opinion expressed herein, insofar as it relates to the
amounts included for Bolle America, Inc., is based solely on the report of the
other auditors. We conducted our audits of these statements in accordance with
generally accepted auditing standards which require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for the
opinion expressed above.
PRICE WATERHOUSE LLP
Dallas, Texas
March 8, 1996, except as to Notes 2 and 10 which are as of May 3, 1996
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INDEPENDENT AUDITOR'S REPORT
THE BOARD OF DIRECTORS AND STOCKHOLDERS
BOLLE AMERICA, INC.:
We have audited the balance sheets of Bolle America, Inc. as of December 31,
1994 and 1993, and the related statements of operations, stockholders' equity,
and cash flows for each of the years in the three-year period ended December
31, 1994, which financial statements are not separately presented herein. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amount and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statements presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Bolle America, Inc. as of
December 31, 1994 and 1993, and the results of its operations and its cash
flows for each of the years in the three-year period ended December 31, 1994,
in conformity with generally accepted accounting principles.
/s/ KPMG PEAT MARWICK LLP
KPMG Peat Marwick LLP
Denver, Colorado
January 20, 1995
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CONSOLIDATED BALANCE SHEETS
(Amounts in thousands, except per share data)
<TABLE>
<CAPTION>
December 31,
------------
ASSETS 1995 1994
---- ----
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 4,903 $ 17,350
Trade receivables, less allowance for doubtful
accounts of $2,028 and $2,070 29,438 28,062
Inventories 52,337 35,321
Investment in discontinued operations 127,316 96,535
Other current assets 7,313 6,001
----------- ----------
Total current assets 221,307 183,269
Property and equipment, net 17,532 16,754
Goodwill, net 17,341 17,853
Intangible assets, net 10,985 11,101
Equity in and notes receivable
from affiliated companies 10,564 9,929
Other assets 19,015 15,274
----------- ----------
Total assets $ 296,744 $ 254,180
=========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Short-term debt $ 62,738 $ 41,921
Accounts payable 23,068 20,876
Accrued compensation 3,080 3,471
Other accrued expenses 11,728 12,167
----------- ----------
Total current liabilities 100,614 78,435
Long-term debt 59,556 56,244
Other long-term liabilities 5,517 8,511
----------- ----------
Total liabilities 165,687 143,190
----------- ----------
Commitments and contingencies
Stockholders' equity:
Preferred stock - par value $1;
500 shares authorized; none outstanding
Common stock - par value $.01; 60,000 shares
authorized; 32,101 and 29,070 shares issued 321 291
Additional paid-in capital 131,553 104,782
Cumulative translation adjustment (77) (103)
Treasury stock - 195 shares at cost (1,365) (1,365)
Retained earnings 625 7,385
----------- ----------
Total stockholders' equity 131,057 110,990
----------- ----------
Total liabilities and stockholders' equity $ 296,744 $ 254,180
=========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
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CONSOLIDATED STATEMENTS OF OPERATIONS
(Amounts in thousands, except per share data)
<TABLE>
<CAPTION>
For the year ended December 31,
-------------------------------
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Net sales $ 163,706 $ 163,920 $ 100,461
Costs and expenses:
Cost of sales 89,273 77,490 43,392
Selling, general and
administrative expense 67,087 74,499 56,808
Special charges 17,972
Merger related expenses 3,050
Interest expense 6,762 4,283 1,274
Other income, net (3,298) (1,506) (438)
--------- --------- ---------
Total costs and expenses 180,846 154,766 101,036
--------- --------- ---------
Income (loss) from continuing operations
before income taxes (17,140) 9,154 (575)
Provision (benefit) for income taxes (6,170) 3,295 577
--------- --------- ---------
Income (loss) from continuing operations (10,970) 5,859 (1,152)
Income from discontinued operations 4,210 4,307
--------- --------- ---------
Net income (loss) $ (6,760) $ 10,166 $ (1,152)
========= ========= =========
Pro forma weighted average common shares
outstanding 17,600 17,600 17,600
========= ========= =========
Income (loss) per share:
Income (loss) from continuing operations $ (0.62) $ 0.33 $ (0.07)
Income from discontinued operations 0.24 0.25
--------- --------- ---------
Net income (loss) per share $ (0.38) $ 0.58 $ (0.07)
========= ========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
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CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
For THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
(Amounts in thousands)
<TABLE>
<CAPTION>
Additional Retained
Common Stock paid-in earnings Treasury
Shares Par value capital (deficit) stock
------ --------- -------- --------- -----
<S> <C> <C> <C> <C> <C>
1993:
Balance - beginning of year 13,365 $ 134 $ 7,169 $ (1,579)
Shares issued for acquisitions 2,322 24 8,142
Shares issued through public
offering, net of expenses 4,025 40 24,281
Conversion of convertible debt 843 8 3,890
Other issuances of common stock 1 5
Compensation accrued for stock options 92
Net loss (1,152)
------ -------- -------- --------- --------
Balance - December 31, 1993 20,556 206 43,579 (2,731)
1994:
Shares issued for acquisitions 7,118 71 49,041
Shares issued through public
offering, net of expenses 969 10 9,952
Exercise of stock options 310 3 1,420
Conversion of convertible debt 78 1 349
Compensation accrued for stock options 161
Other issuances of common stock 20 150
Stock contributed to pension plan 19 130
Cash dividend to stockholders (50)
Treasury stock (1,365)
Net income 10,166
------ -------- -------- --------- --------
Balance - December 31, 1994 29,070 291 104,782 7,385 (1,365)
1995:
Shares issued for acquisitions 316 3 2,843
Shares issued through public
offering, net of expenses 2,356 24 22,012
Exercise of stock options 317 3 1,410
Compensation accrued for stock options 146
Other issuances of common stock 17 115
Stock contributed to pension plan 25 245
Net loss (6,760)
------ -------- -------- --------- --------
Balance - December 31, 1995 32,101 $ 321 $131,553 $ 625 $ (1,365)
====== ======== ======== ========= ========
</TABLE>
See accompanying notes to consolidated financial statements.
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CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in thousands)
<TABLE>
<CAPTION>
For the year ended December 31,
-------------------------------
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $(10,970) $ 5,859 $(1,152)
Adjustments to reconcile income (loss) to net
cash provided (used) by operating activities:
Special charges and merger related
expenses, net of payments 11,438
Depreciation and amortization 10,527 6,798 3,118
Bad debt expense 474 719 408
Loss (gain) on sale of property and equipment (269) (260) 353
Stock compensation expense 15 161 92
Changes in current assets and liabilities (net of
effect of companies acquired):
Accounts receivable (2,799) (8,035) 2,524
Inventories (18,277) 16,418 (12,402)
Other assets (8,996) 7,394 (335)
Accounts payable 4,324 5,654 6,753
Accrued expenses and other (11,201) (22,934) (1,935)
Cash provided by discontinued operations 13,598 7,078
-------- ------- -------
Net cash provided (used) by operating activities (12,136) 18,852 (2,576)
-------- ------- -------
Cash flows from investing activities:
Cash expended in acquisitions,
net of cash received (3,866) (72,643) (16,419)
Capital expenditures (17,981) (10,714) (2,630)
Proceeds from sale of fixed assets 3,655 1,129 136
Investment in affiliated companies (7,481) (1,546)
Cash used by discontinued operations (20,531) (835)
-------- ------- -------
Net cash used by investing activities (38,723) (90,544) (20,459)
-------- ------- -------
Cash flows from financing activities:
Net proceeds from issuance of long-term debt
Payments on notes payable and mortgages 4,000 44,461
Proceeds (payments) from revolving credit line (1,172) (3,583) (2,721)
Proceeds from issuance of common stock 22,540 18,439 (146)
Cash dividends to stockholders 23,548 11,534 25,487
(50)
Cash provided (used) by discontinued operations (10,530) 13,298
-------- ------- -------
Net cash provided by financing activities 38,386 84,099 22,620
-------- ------- -------
Effect on cash of changes in foreign exchange rates 26 (82) (21)
-------- ------- -------
Net increase (decrease) in cash (12,447) 12,325 (436)
Cash and cash equivalents at beginning of year 17,350 5,025 5,461
-------- ------- -------
Cash and cash equivalents at end of year $ 4,903 $17,350 $ 5,025
======== ======= =======
</TABLE>
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CONSOLIDATED STATEMENTS OF CASH FLOWS
(Continued)
<TABLE>
<CAPTION>
For the year ended December 31,
-------------------------------
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Supplemental disclosures of cash flow information:
Interest paid $ 9,142 $ 4,274 $ 1,258
Income taxes paid 910 2,222 635
</TABLE>
Noncash transactions:
1995
o Received a $5.9 million non-interest bearing convertible note receivable
($1.9 million carrying value) in exchange for trade and notes receivable.
o Certain business combinations and divestitures were consummated during the
year. The acquisitions were funded through a combination of cash, equity
and debt. The acquisition of Hanovia Lamps is presented in continuing
operations and the acquisitions of DBL Management, Inc. and Langley Optical
Company are presented in discontinued operations. The fair values of the
assets and liabilities at the dates of acquisition are presented as follows:
<TABLE>
<S> <C>
Accounts receivable $ 2,888
Inventories (275)
Property and equipment 622
Goodwill 13,841
Intangible assets 1,350
Other assets 633
Short-term debt (92)
Accounts payable and accrued liabilities (1,840)
Other long-term liabilities 2,508
--------
Net assets acquired $ 19,635
========
</TABLE>
1994
o Received 195 shares of common stock as partial payment of management fee
from Superior Eye Care.
o Received notes receivable and stock in connection with dispositions of
retail assets.
o Certain business combinations were consummated during the year. The
acquisition of ORC, completed in October 1994, consisted primarily of
Omega and Orcolite, which are now discontinued operations.
The acquisition of Opti-Ray is included and is part of continuing
operations. The acquisitions were funded through a combination of cash,
common stock and debt. The fair values of the assets and liabilities at
the dates of acquisition are presented as follows:
<TABLE>
<S> <C>
Accounts receivable $ 21,507
Inventories 37,822
Property and equipment 34,250
Goodwill 67,086
Intangible assets 7,886
Other assets 58,615
Short-term debt (966)
Accounts payable and accrued liabilities (46,430)
Other long-term liabilities (22,712)
---------
Net assets acquired $ 157,058
=========
</TABLE>
(Continued)
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CONSOLIDATED STATEMENTS OF CASH FLOWS
(Continued)
1993
o Issued 843 shares of common stock upon the conversion of $3,898 of
convertible subordinated debentures.
o Financed the addition of $229 in
equipment through capital leases.
o Certain business combinations were consummated during the year. All
business combinations consummated during 1993 are presented in continuing
operations. The acquisitions were funded through a combination of cash,
common stock and debt. The fair values of the assets and liabilities at
the dates of acquisition are presented as follows:
<TABLE>
<S> <C>
Accounts receivable $ 16,076
Inventories 11,049
Property and equipment 6,950
Goodwill 30
Intangible assets 13,181
Other assets 822
Short-term debt (9,371)
Accounts payable and accrued liabilities (12,099)
Other long-term liabilities (2,971)
--------
Net assets acquired $ 23,667
========
</TABLE>
o Acquired shares in an affiliated company with a fair value of approximately
$1.1 million in exchange for a trademark with a cost of a similar amount.
See accompanying notes to consolidated financial statements.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands, except per share data, unless otherwise noted)
NOTE 1 - BUSINESS, POOLING OF INTERESTS AND BASIS OF PRESENTATION
Business
BEC Group, Inc. (the "Company" or "BEC Group") is a leading optics company
through its Sunglass Group and Optical Technologies Group. The Sunglass Group
includes the Foster Grant Group, the largest distributor of value-priced
sunglasses and reading glasses in the United States, and Bolle America, Inc.
("Bolle America"), the exclusive United States marketer and distributor of
Bolle premium sunglasses, sports shields and goggles. The Optical Technologies
Group manufactures and markets advanced lighting, electronic and electroformed
products to a diverse customer base. The evolution of the Company to its
present composition was accomplished through a series of acquisitions and
divestitures which were consummated during the period from October 1992 through
May 3, 1996. (Notes 2 and 5)
Pooling of Interests and Basis of Presentation
The consolidated financial statements include the accounts of the Company with
Bolle America to reflect the pooling of interests, consummated on November 2,
1995, for all periods presented. (Note 5)
Results of continuing operations of the previously separate companies described
above for the year ended December 31, 1994 and the nine months ended September
30, 1995, the end of the interim period nearest the date that the combination
was consummated, are as follows:
<TABLE>
<CAPTION>
BEC Bolle
Group America Combined
----- ------- --------
<S> <C> <C> <C>
Nine months ended
September 30, 1995
Net Sales $ 112,824 19,663 $ 132,487
Income (loss)
from continuing
operations (7,189) 1,279 (5,910)
Year ended
December 31, 1994
Net sales 140,827 23,093 163,920
Income from
continuing
operations 3,922 1,937 5,859
</TABLE>
There were no pre-merger transactions between the companies.
NOTE 2 - DISCONTINUED OPERATIONS
On May 3, 1996, Benson Eyecare Corporation ("Benson"), BEC Group (a wholly
owned subsidiary of Benson), Essilor International, S.A. ("Essilor"), Essilor
of America, Inc., a wholly owned subsidiary of Essilor ("Essilor of America")
and Essilor Acquisition Corporation, Inc. ("Essilor Sub"), a wholly owned
subsidiary of Essilor of America (collectively "Essilor"), consummated an
Agreement and Plan of Merger, as amended (the "Merger"), pursuant to which
Essilor purchased Benson and the Omega Group, Benson's wholesale optical
laboratory business. Benson also consummated an Asset Purchase Agreement,
pursuant to which Benson's lens manufacturing business, Orcolite, was purchased
by Monsanto Company (the "Asset Sale"). Both the Merger Agreement and the
Asset Purchase Agreement were entered into on February 11, 1996.
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<PAGE> 13
Pursuant to the Merger, each outstanding share of Benson common stock was
converted into $6.60 in cash, and one share of BEC Group common stock was
received for every two shares of Benson common stock. Upon consummation of the
Merger, the equity interest in Benson of its stockholders ceased and Benson
became a wholly owned subsidiary of Essilor of America. BEC Group was
registered with the Securities and Exchange Commission and is traded on the New
York Stock Exchange.
Prior to the Merger and Asset Sale, which in substance resulted in the sale of
the prescription eyewear business, all of the businesses, assets and
liabilities of Benson not subject to the Merger and Asset Sale, namely, the
Sunglass Group and the Optical Technologies Group, were transferred to BEC
Group. Accordingly, the prescription eyewear businesses are presented as
discontinued operations of BEC Group. The consolidated statements of
operations have been restated to report the results of operations, net of
income taxes of the BEC Group businesses as continuing operations, and the
prescription eyewear businesses as discontinued operations. The assets of the
discontinued operations, net of liabilities, are presented as investment in
discontinued operations at December 31, 1995 and 1994.
For accounting purposes, BEC Group is considered the continuing entity. The
accounting treatment of the Merger and Asset Sale differs from the legal and
federal income tax treatment. The Merger Agreement also provides that, should
the Omega Group business not achieve certain operating results for the year
ending December 31, 1996, Essilor is entitled to receive up to 4.9%, on a
grossed-up basis, of the common stock of BEC Group at May 3, 1996. As a result
of this commitment, a portion of the accounting gain will be deferred as a
contingent valuation right. If the shares are issued to Essilor, a charge will
be recognized against this contingent valuation right.
The gain on the sale of the discontinued operations, which was reported in the
Company's statement of operations for the three months ended March 31, 1996, as
the May 3, 1996 closing date preceeded the release of the March 31, 1996
quarterly financials, was determined as follows:
<TABLE>
<S> <C>
Sales price $ 256,961
Less net assets sold (130,181)
Less transaction expenses (26,870)
---------
Gain $ 99,910
==========
</TABLE>
Summarized information on the discontinued operations is as follows:
<TABLE>
<CAPTION>
For the year ended
-------------------
1995 1994
---- ----
<S> <C> <C>
Net sales $138,130 $28,312
Income before
income taxes 10,180 2,272
Income tax expense
(benefit) 5,970 (2,035)
Net income 4,210 4,307
</TABLE>
The discontinued prescription eyewear business was purchased on October 12,
1994; therefore, the results are not included in 1993 historical results of the
Company.
BEC Group also entered into an indemnification agreement, whereby BEC Group has
agreed to indemnify Essilor against all federal income and other taxes for any
taxable period before the Merger was consummated. BEC Group has also agreed to
indemnify the above named parties against all losses or liabilities arising
from misrepresentation or breaches of warranty.
Pursuant to the Merger, all Benson stock options were canceled. Continuing BEC
Group option holders received cash and new options in exchange for their Benson
options. Option holders from discontinued operations received cash and BEC
Group stock in exchange for their Benson options.
NOTE 3 - SPECIAL CHARGES AND MERGER RELATED EXPENSES
Starting in the third quarter and culminating in the fourth quarter of 1995,
the Company took actions to reorganize its Sunglass Group distribution
operations and exit the display production business. The Company also incurred
charges in connection with the Bolle America pooling of interests. Special
charges and merger related expenses of $21.0 million for the year include: (i)
a $6.7 million provision for realigning the in-house display function of the
Foster Grant Group in connection with the sale of the display manufacturing
business to HMG Worldwide (Note 5);(ii) a $4.3 million charge to reflect the
impairment of certain notes receivable and trade accounts receivable from OCA
Acquisition, Inc., dba Optical Corporation of America ("OCA") prior to the
exchange of such assets for a $5.9 million ($1.9 million carrying value)
non-interest bearing convertible note receivable from Sterling Vision, Inc.
(Note 5); (iii) a $4.2 million charge for reorganization and integration of the
Foster Grant Group's distribution operations, including costs to terminate
certain employees and close the California distribution facility, resolution of
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distribution integration issues, streamlining new Dallas warehousing
operations, and reorganization of the SKU numbering system; (iv) a $3.4 million
charge for merger related and other costs, including $3.1 million associated
with the Bolle America acquisition, including professional fees, investment
banking fees and the termination fee paid to the former president of Bolle
America, and (v) the write-off of $2.4 million of deferred financing costs in
connection with a change in the Company's banking syndicate in September, 1995.
Substantially all charges, excluding asset write downs, were cash in nature. At
December 31, 1995, approximately $.5 million of such cash charges were unpaid.
NOTE 4 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The consolidated financial statements include the accounts of the Company and
its wholly-owned subsidiaries. Investments in certain less than 50% owned
affiliates are accounted for by the equity method. Investments in less than
20% owned affiliates are accounted for by the cost method (Note 9). All
significant intercompany transactions, profits and accounts have been
eliminated in consolidation.
Cash Equivalents
Cash equivalents include all temporary cash investments with original
maturities of three months or less. The carrying value is equal to market
value.
Revenue Recognition
The Sunglass Group business recognizes revenue at time of shipment with
estimates provided for returns based upon historical experience. The Optical
Technologies Group recognizes revenue upon shipment or delivery of products.
Concentration of Credit Risk and Major Customers
Financial instruments which potentially subject the Company to concentrations
of credit risk consist principally of trade accounts receivable and notes
receivable, primarily to mass merchant customers in the retail industry. Trade
receivables arising from sales to customers are not collateralized and as a
result management continually monitors the financial condition of these
customers to reduce the risk of loss. Notes receivable arise from the
divestiture of certain businesses and related assets in 1995 and 1994. The
carrying value of notes receivable approximates fair value.
Foreign Currency Translation
All balance sheet accounts of foreign operations are translated at the current
exchange rate as of the end of the period. Results of operations are
translated at average currency exchange rates. The resulting translation
adjustment is recorded as a separate component of stockholders' equity.
Foreign Currency Transactions
The Company has entered into a series of agreements with a vendor providing a
series of fixed exchange rates on the French franc/U.S. dollar exchange rate
for inventory purchases from that vendor. From time to time, the Company may
also enter into foreign currency forward contracts to hedge against the effects
of foreign currency fluctuations on inventory purchases and the settlement of
trade accounts payable. Foreign currency transaction gains and losses are
recorded in Other income, net when realized.
Inventories
Inventories, which consist primarily of raw materials and finished goods held
for resale, are stated at the lower of cost, determined on a first-in first-out
basis, or market. Costs include material, direct labor, and overhead.
Warranties
Certain sales are subject to warranty against defects in material and
workmanship for varying periods. The Company provides for such potential
future costs at the time the sales are recorded.
Property and Equipment
Property and equipment are stated at cost. Additions and improvements are
capitalized. Maintenance and repairs are expensed as incurred. Depreciation
is computed on a straight line basis for financial reporting purposes, and on
an accelerated basis for tax purposes, over the estimated useful lives of the
assets. Useful lives range from 3 to 5 years for office equipment to 30 years
for buildings. Asset cost and accumulated depreciation amounts are removed
for dispositions and retirements, with resulting gains and losses reflected in
earnings.
Displays
The Company capitalizes the cost of display fixtures shipped to customers. The
displays are depreciated over the expected
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<PAGE> 15
useful lives of the displays, generally one to three years. Depreciation
expense recorded for the years ended December 31, 1995, 1994 and 1993 was
$6,389, $3,476 and $536, respectively. Displays are included in other assets.
Goodwill and Intangible Assets
Goodwill represents the excess cost over the fair value of net assets acquired
in business combinations accounted for under the purchase method. Intangible
assets consist principally of trademarks and other identifiable intangible
assets.
Goodwill and intangible assets are amortized on a straight line basis over
estimated useful lives which approximate 30- 40 years for goodwill, 20 years
for trademarks, and from 3-10 years for other identifiable intangibles. At
each balance sheet date, the Company evaluates the realizability of goodwill
and intangible assets based upon expectations of undiscounted cash flows of
each subsidiary having a significant goodwill or intangible assets balance.
Should this review indicate that goodwill or intangible assets will not be
recoverable, the company's carrying value of the goodwill or intangible assets
will be reduced by the estimated shortfall of discounted cashflows. Based upon
its most recent analysis, the Company believes that no material impairment of
goodwill or intangible assets exists. Amortization of goodwill recorded for
the years ended December 31, 1995, 1994 and 1993 was $341, $90, and $34,
respectively.
Income Taxes
Deferred income taxes are provided on the difference in basis of assets and
liabilities between financial reporting and tax returns using enacted tax
rates. A valuation allowance is recorded when realization of deferred tax
assets is not assured.
Earnings Per Share
Earnings per share is computed by dividing net earnings or loss by the weighted
average number of shares of common stock and common stock equivalents
outstanding during each year. Common stock equivalents consist of the dilutive
effect of common shares which may be issued upon exercise of stock options and
warrants.
The number of common shares issued and outstanding as of December 31, 1995 and
1994 have not been adjusted to reflect the Merger and Asset Sale and represent
the historical stockholders equity of Benson.
The pro forma weighted average shares outstanding reflects the effect of the
Merger and Asset Sale and represents the approximate number of common shares
outstanding including common stock equivalents of BEC Group following the
Merger and Asset Sale.
New Accounting Pronouncements
Statement of Financial Accounting Standards (SFAS) No. 123, Accounting for
Stock-Based Compensation, establishes financial accounting and reporting
requirements for stock-based employee compensation plans. The Company intends
to adopt the reporting requirements of SFAS 123 in 1996 and does not expect
implementation of the new standard to have a significant impact on its
financial position or results of operations.
SFAS No. 121, Accounting for the Impairment of Long Lived Assets and for Long
Lived Assets to be Disposed Of, establishes financial accounting standards for
the impairment of long lived assets. The Company intends to adopt FAS 121 in
1996 and does not expect implementation to have a significant effect on the
financial statements of the Company.
Reclassifications
Certain amounts in the 1994 and 1993 financial statements have been
reclassified to conform with the 1995 presentation.
Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from these estimates.
NOTE 5 - BUSINESS COMBINATIONS
1995 BUSINESS COMBINATIONS
Bolle America, Inc.
Effective November 2, 1995, the Company acquired all of the outstanding common
stock of Bolle America in exchange for 3,265 shares of the Company's common
stock, valued at $31 million. The business combination was accounted for as a
pooling of interests and accordingly, the financial statements
15
<PAGE> 16
of Bolle were combined with those of the Company. The Company has entered into
employment, consulting and noncompete agreements with the former president of
Bolle America providing for annual payments of $255 from 1996 through 2000.
1995 DIVESTITURES
Effective September 30, 1995, the Company sold 100% of the issued and
outstanding capital stock of Intermark Display Corporation ("IDC") formerly
known as Pennsylvania Optical Company. The Company has a supply agreement with
the purchaser of IDC for the purchase of display units. During the period from
September 30, 1995 through December 31, 1995, the Company purchased $1.2
million of such services and at December 31, 1995 had prepaid $.9 million
against future purchases.
Effective September 15, 1995, the Company exchanged its interests in notes
receivable and trade accounts receivable from OCA for a $5.9 million ($1.9
million carrying value) non-interest bearing convertible note receivable from
Sterling Vision, Inc. (Note 3).
Effective June 30, 1995, the Company sold 100% of the issued and outstanding
capital stock of Superior Eye Care for aggregate consideration of $5 million.
There was no gain or loss recorded on the transaction.
1994 BUSINESS COMBINATIONS
Opti-Ray, Inc.
Effective January 1, 1994, the Company acquired all of the issued and
outstanding shares of capital stock of Opti-Ray, Inc. in a transaction
accounted for as a purchase. The purchase price was $11.2 million, primarily
cash. The consolidated financial statements include the operating results of
Opti-Ray, Inc. from January 1, 1994.
Optical Radiation Corporation
On October 12, 1994, the Company acquired all of the issued and outstanding
capital stock of Optical Radiation Corporation ("ORC"). The consideration was
$143 million which consisted of $95 million of cash, and the issuance of 7.1
million shares of the Company's common stock, valued at $48 million. The
acquisition was accounted for as a purchase with the operating results of ORC
included in the consolidated financial statements from October 12, 1994. The
allocation of purchase price included assignment of $7 million to trademarks
and other identifiable intangible assets and $68 million to goodwill.
Pro forma information for the acquisition of ORC is not presented herein as the
majority of the ORC business purchased was sold in connection with the Merger
and Asset Sale on May 3, 1996 (Note 2).
1994 DIVESTITURES
On October 13, 1994, the Company sold the businesses and assets of the
Ophthalmic Surgical Products Division of ORC for aggregate consideration of
$4.6 million in cash and 61 shares of Mentor Corporation common stock. The
consolidated financial statements do not include any operating results for this
business. Other income, net for the year ended December 31, 1995 includes a
realized gain of $515 from the sale of the Mentor stock.
On October 20, 1994, the Company sold 100% of the issued and outstanding
capital stock of Benson Optical Co., Inc. ("Benson Optical") and Superior
Optical Company, Inc. ("Superior Optical") for aggregate consideration of $3.5
million in notes receivable and $1.5 million of convertible preferred stock of
OCA, which, if converted, represented a 19.9% equity interest. There was no
gain or loss recorded on the sale. The note receivable was due October 2000,
with interest payments due quarterly until October 1996, and interest and
principal payments due quarterly thereafter. The
16
<PAGE> 17
fair value of the preferred stock approximated its carrying value at December
31, 1994, subject to adjustment based upon certain purchase price adjustments
provided for in the purchase agreement. The Company's holdings in OCA were
sold in 1995.
In August 1994, the Company sold the assets of certain retail optical stores
owned by its subsidiary, Pembridge Optical Partners, Inc. ("Pembridge
Optical"), to Sterling Vision, Inc. for consideration of $1.25 million in notes
receivable due September 1997 which bear interest at prime plus 1.5%, payable
monthly.
1993 BUSINESS COMBINATIONS
Superior Eye Care, Inc.
Effective April 30, 1993, the Company acquired all of the outstanding common
stock of Superior Eye Care, Inc. ("Superior Eye Care") in exchange for 835
shares of the Company's common stock with a value of $5 million. This
acquisition was accounted for as a purchase; allocation of purchase price
included assignment of $2,100 to identifiable intangible assets. The 1993
consolidated financial statements include the operating results of Superior Eye
Care from April 30, 1993. The Company sold Superior Eye Care in 1995.
The Bonneau Company and Pennsylvania Optical Company
Effective June 1, 1993, the Company acquired all of the outstanding common
stock of The Bonneau Company and Pennsylvania Optical Company and certain
properties (collectively "Bonneau") at a cost of $18.3 million. Consideration
included $16.3 million of cash and the issuance of 237 shares of the Company's
common stock. In addition, the purchase agreement provides for the possible
issuance of up to an additional 296 shares of common stock over a three year
period based upon the attainment of specified earnings targets. At December
31, 1995, 197 shares had been issued based upon attainment of earnings targets.
Upon issuance of such shares, additional purchase consideration was recognized.
The Company does not expect to issue any further shares under the agreement.
The acquisition was accounted for as a purchase with the operating results of
Bonneau included in the consolidated financial statements from June 1, 1993.
The allocation of purchase price included assignment of $10,927 to trademarks
and other identifiable intangible assets. The Company sold Pennsylvania
Optical Company in 1995.
International Eyewear & Accessories, Inc.
Effective November 30, 1993, the Company acquired all of the outstanding common
stock of International Eyewear & Accessories, Inc. ("International Eyewear") in
exchange for 1,250 shares of the Company's common stock, valued at $10 million.
The business combination was accounted for as a pooling of interests and,
accordingly, the financial statements of International Eyewear were combined
with those of the Company from the date of International Eyewear's inception of
January 1, 1993.
Pro Forma Results of Operations
The following unaudited pro forma results of operations of the company are
presented as if the acquisitions of Bonneau, Opti-Ray, and ORC, and the
divestiture of the prescription eyewear segment, the retail operations of
Benson Optical and Superior Optical, and the Ophthalmic Surgical Products
Division of ORC had been consummated as of the beginning of 1993. The
presentation below includes certain pro forma adjustments to give effect to
these business combinations including the amortization of intangible assets,
depreciation of property and equipment and adjustment of weighted average
shares outstanding:
<TABLE>
<CAPTION>
1994 1993
---- ----
<S> <C> <C>
Net sales $169,764 $147,393
Income from
continuing operations 9,063 4,052
Income per share from
continuing operations .51 .23
</TABLE>
NOTE 6 - INVENTORIES
Inventories consist of the following at December 31:
<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
Raw materials $ 6,119 $ 3,832
Work in progress 2,549 2,011
Finished goods 43,669 29,478
------- --------
$52,337 $35,321
======= =======
</TABLE>
17
<PAGE> 18
NOTE 7 - PROPERTY AND EQUIPMENT
Property and equipment consists of the following at December 31:
<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
Land $ 1,849 $ 1,664
Buildings 9,700 9,717
Machinery and equipment 7,812 6,787
Furniture and fixtures 676 703
Leasehold improvements 56 224
------- -------
20,093 19,095
Less accumulated
depreciation (2,561) (2,341)
------- -------
Net property and equipment $17,532 $16,754
======= =======
</TABLE>
Depreciation expense for the years ended December 31, 1995, 1994 and 1993 was
$1,556, $2,050 and $1,934, respectively.
NOTE 8 - INTANGIBLE ASSETS
Intangible assets and accumulated amortization at December 31, consist of the
following:
<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
Trademarks $ 10,854 $ 10,854
Other identifiable
intangible assets 2,389 1,832
Less accumulated
amortization (2,258) (1,585)
-------- --------
$ 10,985 $ 11,101
======== ========
</TABLE>
Amortization expense for the years ended December 31, 1995, 1994 and 1993, was
$1,032, $1,188 and $648, respectively.
NOTE 9 - INVESTMENT IN AFFILIATED COMPANIES
Ashfield Development
On August 8, 1994, the Company, through its wholly-owned subsidiary, Ashfield
Development, Inc. ("Ashfield"), a British Virgin Islands corporation,
subscribed for shares of Eyecare Products plc ("Eyecare Products"), in order
to maintain the Company's holdings in Eyecare Products at 26.44%. Ashfield
accounts for its interest in Eyecare Products under the equity method. On
September 1, 1994, the Company sold 51% of its holdings in Ashfield to an Asian
joint venture partner. During September 1994, the Company sold its holdings in
Eyecare Products to Ashfield. No profit or losses were recorded on these
transactions because the transactions were between companies under common
control. From September 1, 1994, the Company has accounted for its investment
in Ashfield on the equity method of accounting. The purchase by Ashfield of
Eyecare Products shares was funded through loans by the Company in an aggregate
amount of $9.9 million, bearing interest at 5%, payable annually. Ashfield
also holds an investment in a manufacturing facility in China. The purchase of
the investment was funded through a loan by the 51% joint venture partner.
For the years ended December 31, 1995 and 1994, the Company has recognized
earnings of $525 and losses of $500, respectively, on its investment in
Ashfield, primarily arising from Eyecare Product's net income in 1995. As part
of the series of transactions leading up to the Merger on May 3, 1996, the
assets and liabilities of Ashfield were distributed to its shareholders and
Ashfield is in the process of liquidation. No gain or loss was recorded on
the distribution. BEC Group now holds its investment in Eyecare Products
directly.
Eyecare Products plc
The Company, through Ashfield, maintains an interest in Eyecare Products.
Eyecare Products, through the acquisition of L'Amy S.A. in August 1994, is the
largest frame manufacturer and distributor in France having sales of $95
million in 1995.
Eyecare Products shares several common directors with the Company, and the
Company has a management agreement with Eyecare Products under which a
management fee is paid to the Company, not to exceed .5% of Eyecare Products
net sales. The Company recognized management fee income of $300 and $425
during each of the years ended December 31, 1995 and 1994, respectively.
Benson Partners I, L.P.
In December 1993, a partnership was formed in which a wholly owned subsidiary
of the Company maintained a 1% general partnership interest. The primary
business of the partnership was to invest in ORC. In October 1994, following
the acquisition of ORC by the Company, Benson Partners distributed its assets.
Immediately prior to the completion of the acquisition, the Company received 40
shares as its distribution. Through the Company's investment
18
<PAGE> 19
in Benson Partners, prior to June 30, 1994, the Company recognized income of
$744 representing gain on the stock.
Superior Vision Services, Inc.
Effective September 30, 1994, Superior Vision Services, Inc. ("Superior
Vision"), issued new shares of stock representing 80% of total shares issued.
The shares were acquired by a non-executive director and shareholder of the
Company whose holding in Superior Vision was subsequently diluted by the
issuance of additional shares, representing a 40% interest in Superior Vision
on a fully diluted basis, to an unrelated third party. The investment in
Superior Vision was accounted for on the cost basis after September 30, 1994.
For the year ended December 31, 1994, operating losses of $31 are included in
the consolidated financial statements.
NOTE 10 - CREDIT FACILITIES
Short-Term Debt
Short-term debt consists of the following at December 31:
<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
Revolving credit facility $ 62,500 $ 36,766
Notes payable 5,000
Current maturities of
long-term debt 238 155
-------- --------
$ 62,738 $ 41,921
======== ========
</TABLE>
New Credit Agreement
On April 3, 1996, the Company and certain of its subsidiaries entered into a
Credit Agreement (the "Credit Agreement") with a syndicate of lenders (the
"Lenders"), led by NationsBank, N.A., ("NationsBank"). The Credit Agreement
provides for a $50 million credit facility, which is comprised of two separate
facilities: a term loan facility which provides a term loan in the principal
amount of $20 million and a revolving credit facility in the maximum aggregate
principal amount of $30 million, which includes a letter of credit subfacility
of $5 million. The interest rate applicable to the credit facilities will
equal the Base Rate or the Eurodollar Rate (each, as defined in the Credit
Agreement), as the Company may from time to time elect. The Base Rate will
generally be equal to the sum of (a) the greater of (i) the prime rate as
announced from time to time by NationsBank or (ii) the Federal Funds Rate plus
one-half percent (0.5%), and (b) a margin ranging from 0% to .375%, depending
upon the Company's satisfaction of certain financial criteria. The Eurodollar
Rate will generally be equal to the interbank offered rate for Eurodollar
deposits, as adjusted to give effect to Eurodollar reserve requirements, plus a
margin ranging from .625% to 1.625%, depending upon the Company's satisfaction
of certain financial criteria. The principal amount of the term loan is
repayable in fifteen (15) equal consecutive quarterly installments of
$1,250,000, commencing June 30, 1997; a sixteenth (16th) and final installment
in the amount of all outstanding and unpaid principal is payable on May 3,
2001.
Revolving Credit Facility
At December 31, 1995, the Company, through its subsidiaries, had aggregate
borrowing capacity under a revolving credit agreement of $90 million. During
1995, the weighted average interest rate on borrowings under the facility was
7.7%, the average outstanding balance was $61 million, and the maximum balance
outstanding was $86.5 million.
The revolving credit facility had a five year term and interest accrued at
variable rates based upon the Eurodollar Rate, 6.97% at December 31, 1995, with
an initial rate equivalent to LIBOR plus 112 basis points. The facility was
secured by inventory, trade accounts receivable and intangible assets. This
facility was replaced by the New Credit Agreement on May 3, 1996.
At December 31, 1994, the Company, through its subsidiaries, had aggregate
borrowing capacity of $80.4 million under secured lending facilities. All
outstanding borrowings under the facility carried interest at prime plus .75%
(9.25% at December 31, 1994). During 1994, the weighted average interest rate
on borrowings under the facility was 8.6%, the average outstanding balance was
$40.7 million, and the maximum balance outstanding was $45.9 million. During
1995, $75 million of such borrowing capacity was renegotiated and amended. The
remaining $5.4 million of borrowing capacity expired December 31, 1995.
The Company was not in compliance with all debt covenants during 1995,
primarily due to the special charges and merger related expenses; however, a
waiver for non-compliance was received from the lenders. The Company was in
compliance with all debt covenants during 1994.
Notes Payable
Notes payable at December 31, 1994 includes a term note guaranteed by a
subsidiary and secured by certificates of deposit. The note bears interest at
the Eurodollar Rate plus
19
<PAGE> 20
2%, 8.18% at December 31, 1994. On March 6, 1995, the note was repaid with
proceeds from the amended credit facility.
The carrying amounts of notes payable represent short term borrowings at market
rates which approximate fair value.
Long-Term Debt
Long-term debt consists of the following at December 31:
<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
Convertible subordinated notes $ 40,950 $ 40,950
Mortgages 18,823 14,956
Other long-term debt 393
Capitalized lease obligations 21 100
-------- --------
59,794 56,399
Less current maturities (238) (155)
-------- --------
$ 59,556 $ 56,244
======== ========
</TABLE>
Aggregate maturities of long-term debt are as follows:
<TABLE>
<S> <C>
1996 $ 238
1997 247
1998 271
1999 14,748
2000 191
Thereafter 44,099
--------
$ 59,794
========
</TABLE>
The fair value of long term debt is estimated using incremental borrowing rates
currently available to the Company. The carrying value of long-term debt
approximates fair value.
Convertible Subordinated Notes
On May 9, 1994, the Company completed a public offering of $40,950 Convertible
Subordinated Notes, due 2001 with a coupon rate of 8% and a conversion price of
$9.056 per share. In connection with the Merger, holders of $40,395
Convertible Subordinated Notes due 2001 accepted a Conversion and Exchange
Agreement whereby they exchanged one-half of their principal amount for new BEC
Group 8% Convertible Notes due 2002 (the "BEC Group Notes"). The other half of
their notes was converted into Merger Consideration using a $7.90 conversion
price. The BEC Group Notes accrue interest semi- annually but do not pay
interest until conversion or maturity. Interest may be paid in cash or in kind
at the option of the Company. Conversion price for the BEC Group Notes is
$5.75.
Mortgages
Mortgages payable include a $14,872, 10.25% mortgage payable secured by land
and buildings in Azusa, California, with monthly principal and interest
payments of $134 due through 1999 and a $3,951 mortgage bearing interest at
LIBOR plus 1.85 basis points, secured by land and buildings in Dallas, Texas,
with monthly principal and interest payments of $41 due through April 2001.
NOTE 11 - INCOME TAXES
The provision (benefit) from income taxes consists of the following:
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Continuing operations:
Current:
Federal $ 478 $ 1,095 $ 532
State and local 76 182 152
Deferred (6,724) 2,018 (107)
------- ------- ------
$(6,170) $ 3,295 $ 577
======= ======= ======
Discontinued operations:
Deferred $5,970 $(2,035) $ -0-
====== ======= ======
</TABLE>
20
<PAGE> 21
The Company's effective tax rates for continuing operations differs from the
Federal statutory rate as follows:
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Expected tax (benefit)
at statutory rate (35.0%) 35.0% (34.0%)
State income taxes (2.0%) 2.0% 2.4%
Effect of acquisitions
and divestitures 2.4% (9.7%)
Loss carried forward
to future years 34.0%
Goodwill amortization 1.4% 1.9%
Other, net (2.8%) 6.8%
------ ----- ------
Provision (benefit)
for income taxes (36.0%) 36.0% 2.4%
====== ===== ======
</TABLE>
Significant components of deferred income taxes for continuing operations are
as follows at December 31:
<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
Loss carryforward $ 2,059 $ 2,443
Accounts receivable 1,978 767
Notes receivable 1,350
Pension 954
Inventories 1,520 510
Other, net 1,983 2,880
------- -------
Deferred tax asset 8,890 7,554
------- -------
Fixed assets 3,512 2,542
Intangible assets 4,250 4,903
------- -------
Deferred tax liability 7,762 7,445
------- -------
Net deferred tax asset $ 1,128 $ 109
======= =======
</TABLE>
Significant components of deferred income taxes for discontinued operations are
as follows at December 31:
<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
Loss carryforward $ 12,097 $ 11,036
Accounts receivable 391 412
Notes receivable
Pension
Inventories 178 87
Other, net 536 577
-------- --------
Gross deferred tax asset 13,202 12,112
Valuation allowance (3,665) (2,484)
-------- --------
Deferred tax asset 9,537 9,628
-------- --------
Fixed assets 1,798 1,879
Intangible assets 599 609
-------- --------
Deferred tax liability 2,397 2,488
-------- --------
Net deferred tax asset $ 7,140 $ 7,140
======== ========
</TABLE>
A valuation allowance was established for the entire net tax benefit associated
with substantially all carry forwards and temporary differences at December 31,
1993, as their realization was not assured. The effect on the income tax
provision related to the valuation allowance was a benefit of $1,020 for the
year ended December 31, 1994. The benefit related primarily to a change in
judgment about the realizability of the related deferred tax assets caused by
the divestiture of Benson Optical and Superior Vision (Note 5), as well as the
continuing profitability of the Company's other business units. Net operating
loss carry forwards amount to approximately $39 million and $37 million at
December 31, 1995 and 1994, respectively.
21
<PAGE> 22
In connection with acquisitions, during 1994, the Company recorded gross
deferred tax assets of $9,733 and related valuation allowance of $2,484. In
the event these deferred tax assets become fully realizable, the valuation
allowance will be released against goodwill recorded in the acquisition. The
effect on the income tax provision related to the valuation allowance was a
charge of $1,181 for the year ended December 31, 1995. The increase in the
valuation allowance was recorded as a result of the performance of the business
in 1995.
NOTE 12 - STOCK OPTION PLANS
The Company may grant nonqualified stock options, incentive stock options or
stock appreciation rights to officers, directors, consultants and key employees
of the Company.
Options under nonqualified stock option plans are granted to officers,
directors and key employees at prices determined by the Company's Board of
Directors based upon market value on the date of grant. There were 566 shares
available under these plans for future grants at December 31, 1995.
A summary of option transactions follows:
<TABLE>
<CAPTION>
Option price Number
range per of Expiration
share shares date
----- ------ ----
<S> <C> <C> <C>
Outstanding
at 12/31/92 $1.50-2.50 290 2000-2002
Granted $5.125-10.00 950
Cancelled $2.00-5.125 (58)
-----
Outstanding
at 12/31/93 $1.50-10.00 1,182 2000-2003
Granted $2.65-7.92 1,834
Exercised $1.50-6.99 (310)
Cancelled $2.00-10.00 (419)
-----
Outstanding
at 12/31/94 $1.50-8.45 2,287 1995-2001
Granted $ 6.13-9.875 568
Exercised $ 1.50-7.25 (317)
Cancelled $7.00-7.25 (125)
-----
Outstanding
at 12/31/95 $1.50-9.875 2,413 1996-2001
=====
</TABLE>
Options generally vest evenly over a three or four year period beginning one
year from the date of grant. A total of 285 options were granted in prior
years at exercise prices less than the fair market value of common stock at
date of grant; compensation expense has been recognized for these options over
the option vesting periods based on the difference between the market value and
exercise price of the options.
NOTE 13 - LEASE COMMITMENTS
The Company leases administrative offices, warehouse facilities, and certain
production equipment under capital and operating leases. Future minimum lease
payments under noncancellable operating leases due over the next five years,
and thereafter, aggregate $1,833 at December 31, 1995.
Rent expense including common area and other charges and percentage rent during
1995, 1994 and 1993 was $1,561, $5,521 and $7,234, respectively.
NOTE 14 - RELATED PARTY TRANSACTIONS
In connection with the Superior Eye Care acquisition, the Company entered into
a management, services and office lease agreement to provide certain management
and administrative services to a company controlled by a member of Benson's
Board of Directors, for up to four successive five year terms for a fee subject
to annual renegotiation. In consideration for the services provided, the
Company recognized management fees of $2,591 and $6,339 during 1995 and 1994,
respectively. This agreement was cancelled upon the sale of Superior Eye Care
on June 28, 1995.
NOTE 15 - COMMITMENTS AND CONTINGENCIES
ORC has been named a potentially responsible party ("PRP"), along with several
other entities with significant operations, by the U.S. Environmental
Protection Agency ("EPA"), under the Comprehensive Environmental Response,
Compensation, and Liability Act ("CERCLA") of 1980, with respect to the cleanup
of hazardous substances and ground water contamination in the San Gabriel
Valley Aquifer, which has been designated a "Superfund Site" by the EPA. Other
entities have been named by the EPA as responsible parties. Although CERCLA
technically imposes joint and several liability upon each PRP at each site, the
extent of ORC's required financial contribution to the cleanup is expected to
be limited based on the documented contribution of contaminants by each of the
PRP's as well as the number and relative financial strength of the primary
contributors of pollutants. In 1994, the EPA estimated that remediation costs
for the study area (a unit within the larger Superfund Site) to be
approximately $100 million. A steering committee comprised of several of the
PRP's has proposed an alternate plan with an estimated cost of $30 to $40
million; the EPA
22
<PAGE> 23
has indicated a willingness to adopt the alternate plan. ORC has no record of
its use of any contaminants identified in the groundwater by the EPA and
expects that the remediation for the study area will be borne primarily by the
parties that caused the contamination. Management believes that any reasonably
possible loss in this matter is remote and unlikely to have an adverse material
effect on the financial position, results of operations, liquidity or cash
flows of the Company, if resolved unfavorably to the Company.
The Company is subject to various litigation incidental to the business.
Irrespective of any indemnification that may be received, the Company does not
believe that exposure on any matter will result in a significant impact on the
Company or its results of operations.
NOTE 16 - INDUSTRY SEGMENTS
The Company currently classifies its continuing operations in two core business
segments: Sunglass Group and Optical Technologies Group. The Sunglass Group
includes the Foster Grant Group and Bolle America. The Optical Technologies
Group includes ORC Lighting Products, ORC Electronic Products and ORC
Electroformed Products for a full year in 1995 and three months in 1994.
Corporate and Other includes head office expenses and the results of other
non-core businesses divested during 1995 and 1994 (Note 5).
<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
NET SALES
Sunglass Group $ 122,462 $ 124,621
Optical Technologies Group 38,122 9,165
Corporate and Other 3,122 30,134
--------- ---------
Total Net Sales $ 163,706 $ 163,920
========= =========
OPERATING INCOME (LOSS)
AFTER SPECIAL CHARGES AND
MERGER RELATED EXPENSES
Sunglass Group $ (9,530) $ 12,881
Optical Technologies Group 7,094 2,268
Corporate and Other (7,942) (1,712)
---------- ---------
Total Operating Income (Loss) $ (10,378) $ 13,437
========= =========
IDENTIFIABLE ASSETS
Sunglass Group $ 123,636 $ 100,695
Optical Technologies Group 45,188 43,722
Corporate and Other 604 13,228
--------- ---------
Total Identifiable Assets $ 169,428 $ 157,645
========= =========
DEPRECIATION AND AMORTIZATION
Sunglass Group $ 8,221 $ 5,047
Optical Technologies Group 915 60
Corporate and Other 1,391 1,691
--------- ---------
Total Depreciation
and Amortization $ 10,527 $ 6,798
========= =========
CAPITAL EXPENDITURES
Sunglass Group $ 16,446 $ 8,369
Optical Technologies Group 1,110 215
Corporate and Other 425 2,130
--------- ---------
Total Capital Expenditures $ 17,981 $ 10,714
========= =========
</TABLE>
Operating income represents earnings before interest expense and income taxes.
Identifiable assets are those assets employed in each segment's operation
including goodwill allocated to each segment at acquisition.
23
<PAGE> 24
Quarterly Financial Data
(Dollars in thousands,
except per share data)
For the year ended December 31, 1995*
<TABLE>
<CAPTION>
Q1 Q2 Q3 Q4
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net sales $45,502 $51,602 $35,383 $31,219
Gross profit 22,416 25,516 14,934 11,567
Net income (loss)
from continuing operations 2,743 3,478 (12,131) (5,060)
Income (loss) per share
from continuing operations $ 0.16 $ 0.20 $ (0.69) $ (0.29)
</TABLE>
For the year ended December 31, 1994*
<TABLE>
<CAPTION>
Q1 Q2 Q3 Q4
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net sales $47,495 $50,677 $28,868 $36,880
Gross profit 24,938 27,563 15,661 18,268
Net income (loss)
from continuing operations 4,091 5,386 (568) (3,050)
Income (loss) per share
from continuing operations $ 0.23 $ 0.30 $ (0.03) $ (0.17)
</TABLE>
For the year ended December 31, 1993*
<TABLE>
<CAPTION>
Q1 Q2 Q3 Q4
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net sales $21,223 $26,973 $27,515 $24,750
Gross profit 11,740 15,519 15,371 14,439
Net income (loss)
from continuing operations 835 2,095 (917) (3,165)
Income (loss) per share
from continuing operations $ 0.04 $ 0.12 $ (0.05) $ (0.18)
</TABLE>
* Includes the results of operations of Bolle America which was acquired on
November 2, 1995. The acquisition was accounted for as a pooling of
interests. See quarterly financial data for Bolle America on the following
page.
24
<PAGE> 25
Quarterly Financial Data
Bolle America, Inc.
(Dollars in thousands,
except per share data)
For the year ended December 31, 1995
<TABLE>
<CAPTION>
Q1 Q2 Q3* Q4*
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Net sales $ 5,290 $ 7,731
Gross profit 2,874 4,036
Net income (loss) 203 769
</TABLE>
For the year ended December 31, 1994
<TABLE>
<CAPTION>
Q1 Q2 Q3 Q4
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net sales $ 5,063 $6,423 $5,841 $5,767
Gross profit 2,667 3,710 2,297 2,906
Net income 328 808 420 381
</TABLE>
For the year ended December 31, 1993
<TABLE>
<CAPTION>
Q1 Q2 Q3 Q4
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net sales $ 4,121 $4,680 $4,779 $4,797
Gross profit 2,003 2,506 2,364 2,378
Net income 97 479 412 317
</TABLE>
Note: Q3 and Q4 1995 are not presented as the pooling of interests occurred
before such results were reported on a stand-alone basis.
25
<PAGE> 26
SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
(Dollars in thousands
except per share data) 1995(A) 1994(A) 1993(A) 1992(A) 1991
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Sales $ 163,706 $ 163,920 $ 100,461 $ 32,237 $ 21,141
Net income (loss) (6,760) 10,166 (1,152) (2,072) 98
Net income (loss)
per share (0.38) 0.58 (0.07) (0.35) 0.04
Total assets 296,744 254,180 84,773 26,602 12,773
Long-term debt 59,556 56,244 1,133 7,234 2,346
Stockholders' equity (B) 131,057 110,990 41,033 5,725 1,158
</TABLE>
(A) The comparability of the selected financial data presented is
significantly affected by business combinations and divestitures
consummated during 1992, 1993, 1994 and 1995. See accompanying notes to
consolidated financial statements.
(B) Dividends of $50 were declared and paid in 1994 by Bolle America.
26
<PAGE> 27
(C) EXHIBITS.
The following exhibits are filed herewith:
23.1 Consent of Price Waterhouse LLP.
23.2 Consent of KPMG Peat Marwick LLP.
27 Financial Data Schedule (for electronic filing
only).
99.1 Press Release, dated June 4, 1996, announcing
withdrawal of BEC's proposal to acquire ILC.
99.2 Letter, dated May 30, 1996, from BEC to ILC.
99.3 Letter, dated June 4, 1996, from BEC to ILC.
27
<PAGE> 28
BEC GROUP, 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 hereunto duly authorized.
BEC GROUP, INC.
By: /s/ IAN ASHKEN
------------------------------
Ian Ashken
Chief Financial Officer
DATE: JUNE 7, 1996
28
<PAGE> 29
EXHIBIT INDEX
<TABLE>
<CAPTION>
NUMBER EXHIBIT
------ -------
<S> <C>
23.1 Consent of Price Waterhouse LLP filed herewith
23.2 Consent of KPMG Peat Marwick LLP filed herewith
27 Financial Data Schedule (for electronic filing only). filed herewith
99.1 Press Release, dated 4, 1996, announcing withdrawal of filed herewith
BEC proposal to acquire ILC
99.2 Letter, dated May 30, 1996, from BEC to ILC. filed herewith
99.3 Letter, dated June 4, 1996, from BEC to ILC. filed herewith
</TABLE>
29
<PAGE> 1
EXHIBIT 23.1
------------
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in this Registration
Statement on Form S-8 (No. 333-4562) of BEC Group, Inc. of our report dated
March 8, 1996, except as to Notes 2 and 10 which are as of May 3, 1996,
appearing in this Current Report Form 8-K dated June 7, 1996.
Dallas, Texas
June 6, 1996
30
<PAGE> 1
EXHIBIT 23.2
------------
THE BOARD OF DIRECTORS
BOLLE AMERICA, INC.:
We consent to the incorporation by reference in the registration statements
(No. 333-4562 on Form S-8 of Benson Eyecare Corporation of our report dated
January 20, 1995, with respect to the balance sheets of Bolle America, Inc. as
of December 31, 1994 and 1993, and the related statements of operations,
stockholder's equity, and cash flows for each of the years in the three-year
period ended December 31, 1994, which report appears in the current report on
Form 8-K dated June 7, 1996 of BEC Group, Inc.
KPMG PEAT MARWICK LLP
Denver, Colorado
June 6, 1996
31
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<CASH> 4,903
<SECURITIES> 0
<RECEIVABLES> 31,466
<ALLOWANCES> 2,028
<INVENTORY> 52,337
<CURRENT-ASSETS> 134,629
<PP&E> 20,093
<DEPRECIATION> (2,561)
<TOTAL-ASSETS> 296,744
<CURRENT-LIABILITIES> 100,614
<BONDS> 40,950
<COMMON> 321
0
0
<OTHER-SE> 130,736
<TOTAL-LIABILITY-AND-EQUITY> 296,744
<SALES> 163,706
<TOTAL-REVENUES> 163,706
<CGS> 89,273
<TOTAL-COSTS> 180,846
<OTHER-EXPENSES> (3,298)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 6,762
<INCOME-PRETAX> (17,140)
<INCOME-TAX> (6,170)
<INCOME-CONTINUING> (10,970)
<DISCONTINUED> 4,210
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (6,760)
<EPS-PRIMARY> (0.62)
<EPS-DILUTED> 0<F1>
<FN>
<F1>
See accompanying notes to consolidated financial statements.
</FN>
</TABLE>
<PAGE> 1
[LOBSENZSTEVENS LOGO] EXHIBIT 99.1
------------
On behalf of: Contacts:
BEC Group, Inc. Martin E. Franklin
555 Theodore Frmd Ave., Suite B-302 Chairman and CEO
Rye, NY 10580 (914)967-9400
(NYSE:EYE) or
Mark Perlgut
FOR IMMEDIATE RELEASE at Lobsenz-Stevens, Inc.
June 4, 1996 (212)684-6300, Ext. 309
BEC GROUP, INC. WITHDRAWS OFFER FOR ILC TECHNOLOGY, INC.
RYE, N.Y., June 4, 1996 -- BEC Group, Inc. (NYSE:EYE), a sunglass and optical
technologies company, today announced that it has withdrawn its offer to
acquire ILC Technology, Inc. (NASDAQ:ILC).
In response to ILC's press release earlier today, attached are copies
of BEC Group's May 30 and June 4 letters to ILC Technology.
BEC Group, Inc. is a leading optics company through its Sunglass Group
and Optical Technologies Group. The Sunglass Group includes the Foster Grant
Group, the largest distributor of popular priced sunglasses and reading glasses
in the United States and Bolle America, the exclusive marketer and distributor
of Bolle(R) premium sunglasses, sports shields and goggles. The Optical
Technologies Group manufactures and markets advanced lighting, electronic and
electroformed products to a diverse customer base. BEC Group also owns 28% of
Eyecare Products, plc, a London Stock Exchange listed company.
33
<PAGE> 1
EXHIBIT 99.2
------------
BEC GROUP, INC.
555 THEODORE FREMD AVENUE
SUITE B-302
RYE, NEW YORK 10580
TEL: (914) 967-9400
FAX: (914) 967-9405/7
E-MAIL: BECGroup.com
MARTIN E. FRANKLIN
CHAIRMAN OF THE BOARD
May 30, 1996
Mr. Henry Baumgartner
ILC Technology, Inc.
President and Chief Executive Officer
399 Java Drive
Sunnyvale, CA 94089
Mr. Wirt D. Walker, III
Chairman, ILC Technology, Inc.
c/o 2600 Virginia Avenue, N.W.
Suite 900
Washington, DC 20037
Dear Henry & Wirt:
I received your letter dated May 23, 1996 and was obiously disappointed
that we were unable to agree a transaction before our discussions became
public information. We were left with no choice but to make our offer
public as not only has ILC's stock moved up from the $9-10 range when we
started discussions, but on the day after you received our offer ILC stock
rose over 10% on five times its normal trading volume.
It is still very much our desire to agree a friendly, negotiation
transaction as we believe that the industrial logic of a combination of our
two companies really will be a win-win for our respective shareholders.
However well our businesses perform as separate companies, we can
undoubtedly do better combined and produce superior returns for our
shareholders.
34
<PAGE> 2
MR. HENRY BAUMGARTNER
MR. WIRT D. WALKER, III
ILC TECHNOLOGY, INC.
PAGE 2
We have been reviewing ways that we can help you present the offer to your
shareholders to "guarantee" the $15 per share value that formed the basis
for our original offer while maintaining a considerable continuing upside
potential for ILC shareholders. We would be prepared to present a cash and
stock offer in which ILC shareholders would receive $8 in cash and $7 in
securities of BEC. This approach also has the advantage of eliminating the
holding period for insiders as the transaction would no longer be treated
as a pooling-of-interests.
I look forward to having the opportunity to meet with your board again to
review our latest proposal.
Yours sincerely,
/s/ [ILLEGIBLE]
Martin E. Franklin
cc: The Board of Directors
ILC Technology, Inc.
35
<PAGE> 1
EXHIBIT 99.3
------------
BEC GROUP, INC.
555 THEODORE FREMD AVENUE
SUITE B-302
RYE, NEW YORK 10580
TEL: (914) 967-9400
FAX: (914) 967-9405/7
E-MAIL: BECGroup.com
MARTIN E. FRANKLIN
CHAIRMAN OF THE BOARD
June 4, 1996
The Board of Directors of ILC Technology, Inc.
c/o 399 Java Drive
Sunnyvale, CA 94089
Dear Sirs:
We are in receipt of your letter dated June 3, 1996. We are disappointed
that, having invited us to make a merger proposal for ILC Technology, you
have chosen to reject it, without, in our opinion, fully exploring the
merits of a combination to ILC shareholders. We will watch with interest
the "current and prospective developments of ILC's business".
The information that you provided to us, which we will return under
separate cover, did not cover these developments and the past performance
of ILC Technology would not justify a higher valuation that those we have
already discussed.
We hereby formally withdraw our offer to merge with or acquire ILC
Technology, Inc. and hope the course of time will bring our companies
together in a manner that would serve our respective shareholders' best
interests.
Yours sincerely,
/s/ [ILLEGIBLE]
Martin E. Franklin
36
