<PAGE> 1
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(MARK ONE)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
- ------ THE SECURITIES AND EXCHANGE ACT OF 1934
For the Quarterly Period Ended September 30, 1997
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND
- ------ EXCHANGE ACT OF 1934
Commission File Number 000-21629
THE O'GARA COMPANY
(Exact name of registrant as specified in its charter)
Ohio 31-1470817
(State or other jurisdiction of (I.R.S. Employer
incorporation) Identification No.)
9113 LeSaint Drive
Fairfield, Ohio 45014
(513) 874-2112
(Address, including zip code, and telephone number,
including area code of registrant's
principal executive offices)
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 of common stock outstanding on November 10, 1997
was 7,279,310
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<PAGE> 2
<TABLE>
<CAPTION>
INDEX
PART I
FINANCIAL INFORMATION
Item 1. Financial Statements
<S> <C> <C>
Consolidated Balance Sheets (unaudited) as of September 30, 1997
and December 31, 1996...................................................................1
Consolidated Statements of Operations (unaudited) for the Three and Nine Months
Ended September 30, 1997 and 1996.......................................................3
Consolidated Statements of Cash Flows (unaudited) for the Nine Months
Ended September 30, 1997 and 1996.......................................................4
Notes to Consolidated Unaudited Financial Statements........................................5
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations..................................................................10
PART II
OTHER INFORMATION
Item 1. Legal Proceedings..........................................................................17
Item 6. Exhibits and Reports on Form 8-K...........................................................17
Signatures............................................................................................18
</TABLE>
<PAGE> 3
<TABLE>
<CAPTION>
THE O'GARA COMPANY
CONSOLIDATED BALANCE SHEETS
ASSETS
(unaudited)
(dollars in thousands)
September 30, December 31,
1997 1996
--------------- ----------------
<S> <C> <C>
CURRENT ASSETS:
Cash and equivalents $ 3,648 $ 1,454
Short-term investments 3,893 -
Trade accounts receivable, net of allowance for
doubtful accounts of $459 and $211 at September 30,
1997 and December 31, 1996, respectively 22,156 7,736
Other receivables
Advances to shareholders 53 249
Affiliates 349 250
Advances to vendors 326 664
Costs and estimated earnings in excess of
billings on uncompleted contracts 15,265 15,327
Inventories 16,956 8,734
Prepaid expenses 1,830 678
--------------- ----------------
Total current assets 64,476 35,092
PROPERTY, PLANT, AND EQUIPMENT, at cost
Land 1,528 901
Buildings and improvements 5,581 3,772
Furniture and fixtures 2,346 1,744
Machinery and equipment 5,162 2,797
--------------- ----------------
14,617 9,214
Less: accumulated depreciation (5,127) (4,289)
--------------- ----------------
9,490 4,925
--------------- ----------------
Costs in excess of assets acquired, net of accumulated
amortization of $398 and $11 at September 30,
1997 and December 31, 1996, respectively 12,766 1,004
Other assets 6,869 2,917
--------------- ----------------
19,635 3,921
--------------- ----------------
$ 93,601 $ 43,938
=============== ================
</TABLE>
The accompanying notes are an integral part of these consolidated
balance sheets.
<PAGE> 4
<TABLE>
<CAPTION>
THE O'GARA COMPANY
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND SHAREHOLDERS' EQUITY
(unaudited)
(dollars in thousands)
September 30, December 31,
1997 1996
--------------- ---------------
<S> <C> <C>
CURRENT LIABILITIES:
Revolving lines of credit $ 2,310 $ 9,936
Current portion of long-term debt 1,961 1,836
Accounts payable-
Trade 15,279 11,087
Affiliates 1,259 533
Billings in excess of costs and estimated
earnings on uncompleted contracts 1,131 1,330
Accrued liabilities 7,919 3,972
Customer deposits 1,331 2,119
--------------- ---------------
Total current liabilities 31,190 30,813
LONG-TERM DEBT, net of current portion 40,089 469
MINORITY INTEREST 82 -
SHAREHOLDERS' EQUITY:
Preferred stock, $.01 par value, 100,000 shares
authorized, none issued - -
Common stock, $.01 par value, 25,000,000
shares authorized, 7,279,310, and 6,659,846 shares
issued and outstanding in 1997 and 1996, respectively 73 67
Additional paid-in-capital 23,726 17,592
Retained deficit (777) (4,958)
Cumulative foreign currency translation adjustment (782) (45)
--------------- ---------------
Total shareholders' equity 22,240 12,656
--------------- ---------------
$ 93,601 $ 43,938
=============== ===============
</TABLE>
The accompanying notes are an integral part of these consolidated
balance sheets.
2
<PAGE> 5
<TABLE>
<CAPTION>
THE O'GARA COMPANY
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
(dollars in thousands, except per share data)
Three Months Ended Nine Months Ended
September 30, September 30,
------------------------------- -------------------------------
1997 1996 1997 1996
-------------- --------------- -------------- --------------
<S> <C> <C> <C> <C>
NET SALES $ 30,713 $ 18,804 $ 82,567 $ 60,325
COST OF SALES 22,459 13,683 59,944 45,065
-------------- --------------- -------------- --------------
Gross profit 8,254 5,121 22,623 15,260
OPERATING EXPENSES:
Selling and marketing 1,831 1,201 5,625 3,400
General and administrative 2,574 1,587 7,695 4,855
-------------- --------------- -------------- --------------
Operating income 3,849 2,333 9,303 7,005
OTHER INCOME (EXPENSE):
Interest expense (989) (375) (2,394) (988)
Other, net (84) (113) 245 (170)
-------------- --------------- -------------- --------------
Income before minority interest,
provision for income taxes and
extraordinary item 2,776 1,845 7,154 5,847
Minority interest 44 - 118 -
-------------- --------------- -------------- --------------
Income before provision for income taxes
and extraordinary item 2,732 1,845 7,036 5,847
Provision for income taxes 1,038 - 2,661 -
-------------- --------------- -------------- --------------
Income before extraordinary item 1,694 1,845 4,375 5,847
Extraordinary item, cost of early extinguishment of
debt, net of $129 tax benefit - - 194 -
-------------- --------------- -------------- --------------
Net income $ 1,694 $ 1,845 $ 4,181 $ 5,847
============== =============== ============== ==============
Earnings per share $ 0.23 $ 0.58
============== ==============
Weighted average shares outstanding 7,343,221 7,237,620
============== ==============
UNAUDITED PRO FORMA INFORMATION:
Gross profit $ 5,121 $ 15,260
Selling and marketing expenses 1,201 3,400
General and administrative expenses 1,622 4,960
--------------- --------------
Operating income 2,298 6,900
Interest expense (273) (730)
Other, net (113) (170)
--------------- --------------
Income before provision for
income taxes 1,912 6,000
Provision for income taxes 765 2,400
--------------- --------------
Net income $ 1,147 $ 3,600
=============== ==============
Earnings per share $ 0.18 $ 0.56
=============== ==============
Weighted average shares outstanding 6,420,861 6,420,861
=============== ==============
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
3
<PAGE> 6
THE O'GARA COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
(dollars in thousands)
<TABLE>
<CAPTION>
Nine Months Ended September 30,
------------------------------
1997 1996
----------- ----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 4,181 $ 5,847
Adjustments to reconcile net income to net cash
used in operating activities
Depreciation and amortization 1,543 512
Minority interest 50 -
Increase in receivables (7,573) (4,128)
Decrease in advances to vendors 338 678
Decrease (increase) in costs and estimated earnings in excess
of billings on uncompleted contracts 794 (8,398)
Increase in inventories (4,035) (4,604)
Increase in prepaid expenses (1,084) (22)
Increase in other assets (1,744) (981)
Decrease in accounts payable (1,754) (525)
Decrease in billings in excess of costs and
estimated earnings on uncompleted contracts (199) (1,706)
Increase (decrease) in accrued liabilities (877) 422
Increase (decrease) in customer deposits (788) 11,168
----------- ----------
Net cash used in operating activities (11,148) (1,717)
----------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property, plant and equipment, net (1,747) (1,076)
Purchase of Labbe, net of cash acquired (7,229) -
Purchase of ITI, net of cash acquired (377) -
Purchase of marketable securities (6,932) -
Sale of marketable securities 3,039 -
Investment in shareholder and affiliate notes - (322)
----------- ----------
Net cash used in investing activities (13,246) (1,398)
----------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings (repayments) under revolving lines of credit (7,626) (3,620)
Proceeds from long-term debt 34,951 -
Payments of long-term debt - (10)
Repayment of shareholder notes - (57)
Distribution to shareholders - (230)
Foreign currency translation (737) -
----------- ----------
Net cash provided by financing activities 26,588 3,323
----------- ----------
NET INCREASE IN CASH AND EQUIVALENTS 2,194 208
----------- ----------
CASH AND EQUIVALENTS, beginning of period 1,454 324
----------- ----------
CASH AND EQUIVALENTS, end of period $ 3,648 $ 532
=========== ==========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest $ 964 $ 902
=========== ==========
Cash paid for taxes $ 2,340 $ -
=========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
4
<PAGE> 7
THE O'GARA COMPANY
NOTES TO CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS
(1) BASIS OF PRESENTATION
The O'Gara Company (the "Company") is a worldwide integrated security
company with three business lines: security hardware products, security services
and security systems integration services. The Security Hardware Products Group
markets all of the Company's armoring products, including ballistic and blast
protected armoring systems for commercial and military vehicles, aircraft and
missile components. The Security Services Group offers security-related products
and services such as advanced driver training, background clearances, business
intelligence, country risk assessments, forensic auditing and force protection
consulting. The Security Systems Integration Group offers planning, design and
hardware and software integration services which are customized to meet specific
portable satellite communications or navigation needs of customers, as well as
customized turn-key site security systems to international customers.
On November 15, 1996, the Company completed an initial public offering
of 2,048,000 shares of common stock at $9 per share, including 48,000 shares
issued through the underwriters' partial exercise of their over-allotment
option. The net proceeds from the offering were used by the Company for
retirement of bank debt, payment of the AAA Notes described below (Note 4),
purchase of a manufacturing facility in Mexico, initial payments in connection
with the acquisition of the net assets of Palmer Associates and transaction
costs associated with the offering.
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring adjustments) considered necessary for fair presentation have
been included. Operating results for the three and nine month periods ended
September 30, 1997, are not necessarily indicative of the results that may be
expected for the year ended December 31, 1997. The accompanying financial
statements should be read in conjunction with the consolidated financial
statements and notes thereto included in the Company's annual report on Form
10-K for the year ended December 31, 1996.
The accompanying consolidated financial statements consist of several
entities, many of which, until October 28, 1996, were owned or controlled by
substantially the same shareholders. In contemplation of the Company's initial
public offering, these entities and their respective shareholders entered into a
reorganization plan that was executed on October 28, 1996 (the
"Reorganization"). Accordingly, the accompanying consolidated financial
statements present, as a combination of entities under common control as if
using the pooling-of-interests method of accounting, the financial position and
related results of operations of the Company on a consolidated basis for all
periods presented. All significant balances and transactions between the
consolidated entities have been eliminated in these consolidated statements.
(2) REVENUE RECOGNITION
Revenues related to long-term, fixed price government and commercial
contracts are recognized using the percentage of completion method calculated
utilizing the cost-to-cost approach. The percent deemed to be complete is
determined by comparing the costs incurred to date with estimated total costs
for each contract. This method is used because management considers costs
incurred to be the best available measure of progress on these contracts.
However, adjustments to this measurement are made
5
<PAGE> 8
when management believes that costs incurred materially exceed effort expended.
Contract costs include all direct material and labor costs, along with certain
direct overhead costs related to contract production.
Provisions for any estimated total contract losses on uncompleted
contracts are recorded in the period in which it becomes known that such losses
will occur. Changes in estimated total contract costs will result in revisions
to contract revenue. These revisions are recognized when determined.
Revenues related to telecommunications equipment and services are
recognized as equipment is shipped or as services are provided. Revenues and
related direct costs of brokered satellite time are recorded when payments are
received from customers.
(3) ACQUISITIONS
The Company completed the following acquisitions during the first
quarter of 1997. All three of these acquisitions were accounted for as purchases
and, except where noted below, the results of operations of the acquired
entities are included in the consolidated results of operations of the Company
from their respective dates of acquisition. The allocation of purchase price in
each case was based on estimates and may be revised at a later date pending the
completion of certain appraisals and other analyses.
(a) Next Destination, Ltd.--On February 5, 1997, the Company
acquired all of the shares of Next Destination, Ltd. ("Next
Destination") for $3.5 million, consisting of $1.9 million in
shares of the Company's common stock (170,234 shares) and $1.6
million in seller-provided financing in the form of secured,
three-year, 6% promissory notes. The former managing director
and founder of Next Destination continues to manage the
business and is subject to a three year non-competition
agreement. Costs in excess of assets acquired is expected to
be $3.2 million and will be amortized over 15 years.
(b) Labbe S.A.--On February 12, 1997, the Company acquired all of
the shares of Labbe, S.A. ("Labbe") for $14.2 million
consisting of $10.7 million in cash, financed through funds
advanced under the Company's credit facility, and 376,597
shares of the Company's common stock. For accounting purposes,
the acquisition was effective on January 1, 1997, and the
results of operations of Labbe are included in the
consolidated results of the Company from that date forward.
The former shareholders of Labbe, who were employed by Labbe
prior to the acquisition, continue in their formerly-held
capacities. The former shareholders also are subject to
certain non-competition agreements upon their leaving the
employment of the Company. Costs in excess of assets acquired
is expected to be $7.0 million and will be amortized over 30
years.
(c) International Training, Inc.--On March 24, 1997, the Company
acquired all of the shares of International Training, Inc.
("ITI") for $2.5 million, consisting of $0.5 million in cash,
financed through the Company's credit facility, 68,086 shares
of the Company's common stock, and $1.2 million in seller
provided financing in the form of unsecured, two-year, 10%
promissory notes. The former shareholders of ITI, who were
employed by ITI prior to the acquisition, continue in their
formerly-held capacities. The former shareholders are also
subject to certain non-competition agreements upon their
leaving the employment of the Company. Costs in excess of
assets acquired is expected to be $2.0 million and will be
amortized over 15 years.
6
<PAGE> 9
In connection with the acquisitions of Labbe, Next Destination and ITI,
assets were acquired and liabilities were assumed as follows (dollars in
thousands):
<TABLE>
<CAPTION>
Next
Destination ITI Labbe
--------------- -------------- --------------
<S> <C> <C> <C>
FAIR VALUE OF ASSETS ACQUIRED INCLUDING:
Cash $ - $ 23 $ 3,501
Accounts receivable 1,830 310 4,690
Inventories 1,276 - 2,911
Costs and estimated earnings in
excess of billings on uncompleted
contracts - - 732
Prepaid expenses - 4 64
Property, plant and equipment 80 213 3,360
Intangible assets - - 802
Other non-current assets - 12 2,357
Goodwill 3,207 2,015 6,961
--------------- -------------- --------------
$6,393 $2,577 $25,378
Less: Cash paid for net assets - (500) (10,730)
Fair value of debt issued (1,575) (1,231) -
Fair value of stock issued (1,851) (810) (3,435)
--------------- -------------- --------------
$2,967 $36 $11,213
=============== ============== ==============
LIABILITIES ASSUMED INCLUDING:
Liabilities assumed and acquisition
costs $2,967 $19 $9,710
Debt - 17 1,503
--------------- -------------- --------------
$2,967 $36 $11,213
=============== ============== ==============
</TABLE>
(4) S CORPORATION DISTRIBUTION
From 1988, when O'Gara-Hess & Eisenhardt Armoring Company ("OHE"), the
principal subsidiary of the Company, elected S Corporation status until October
28, 1996, when that status terminated, OHE had made distributions from time to
time to its shareholders for the purpose of funding their income tax payments on
the income generated by OHE, which was taxable to the shareholders whether or
not distributed. In connection with the Reorganization, OHE distributed to its
shareholders a dividend of $9.0 million in the form of long-term notes (the "AAA
Notes"), which represented the undistributed previously taxed income of OHE as
an S Corporation through the effective date of the Reorganization. A portion of
the net proceeds from the Company's initial public offering were used to repay
the AAA Notes.
(5) PROVISION FOR INCOME TAXES
During the time OHE was treated as an S Corporation it paid no federal
or state income tax. On October 28, 1996, OHE terminated its S Corporation
status and, from that date forward, became responsible for federal and state
income tax.
7
<PAGE> 10
(6) INVENTORIES
Inventories are stated at the lower of cost or market using the
first-in, first-out (FIFO) method and include the following (dollars in
thousands):
<TABLE>
<CAPTION>
September 30, December 31,
1997 1996
------------------ ------------------
(unaudited)
<S> <C> <C>
Raw materials. . . . . . . . . . . . . . . . . $9,837 $4,782
Vehicle costs and work-in-process. . . . . . . 7,119 3,952
=================== ===================
$16,956 $8,734
=================== ===================
</TABLE>
(7) PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS ADJUSTMENTS (UNAUDITED)
The pro forma consolidated statements of operations information
presents the pro forma effects on the historical consolidated financial
information reflecting certain transactions as if they occurred on January 1,
1996. The following adjustments have been reflected in the pro forma
consolidated statements of operations information (dollars in thousands):
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, 1996 SEPTEMBER 30, 1996
--------------------- --------------------
<S> <C> <C>
Amortization of intangible assets resulting from the purchase
of Palmer Associates, S.C. . . . . . . . . . . . . . . . . . . $ (35) $ (105)
Elimination of interest expense relating to the retirement of
bank debt . . . . . . . . . . . . . . . . . . . . . . . . . . . 102 258
Provision for income taxes at an effective rate of 40% as if
OHE had been a C Corporation and as if the Company had filed a
consolidated U.S. Federal income tax return. . . . . . . . . . (765) (2,400)
===================== ====================
Total. . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (698) $ (2,247)
===================== ====================
</TABLE>
(8) NEW PRONOUNCEMENTS
In 1997, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 128, "Earnings Per Share" (SFAS
128), effective for fiscal years ending after December 15, 1997. The new
standard replaces primary earnings per share ("EPS") with basic EPS, simplifies
EPS calculations and requires restatement of all prior period EPS data. The
Company intends to adopt the provisions of SFAS 128 during the fourth quarter of
1997 with no material impact anticipated.
In June 1997, the FASB issued Statement of Financial Accounting
Standards No. 130, "Reporting Comprehensive Income" (SFAS 130), effective for
fiscal years beginning December 15, 1997. This statement requires comprehensive
income and associated income tax expense or benefit be reported in a financial
statement that is displayed with the same prominence as other financial
statements with an aggregate amount of comprehensive income reported in that
same financial statement. SFAS 130 permits the statement of changes in
shareholders' equity to be used to meet this requirement. "Other Comprehensive
Income" refers to revenues, expenses, gains and losses that under GAAP are
included in comprehensive income but bypass net income. The Company intends to
adopt SFAS 130 in the first quarter of fiscal 1998. This statement, which
requires expansion or modification to existing disclosures, will have no impact
on the Company's reported financial position, results of operations and cash
flows.
8
<PAGE> 11
In June 1997, the FASB issued Statement of Financial Accounting
Standards No. 131, "Disclosures About Segments of an Enterprise and Related
Information" (SFAS 131), effective for fiscal years beginning after December 15,
1997. This statement requires disclosure for each segment in which the chief
operating decision maker organizes these segments within a company for making
operating decisions and assessing performance. Reportable segments are based on
products and services, geography, legal structure, management structure and any
manner in which management disaggregates a company. The Company intends to adopt
SFAS 131 during fiscal 1998. This statement, which requires expansion or
modification to existing disclosures, will have no impact on the Company's
reported financial position, results of operations or cash flows.
(9) SUPPLEMENTAL CASH FLOW DISCLOSURE
Cash and equivalents consist of all operating cash accounts and
investments with an original maturity of three months or less. Marketable
securities consist of available-for-sale commercial paper obligations which
mature or will be available for use in operations in 1997. These securities are
valued at current market value, which approximates cost.
<TABLE>
<CAPTION>
Non-cash activity (dollars in thousands):
1997 1996
---- ----
<S> <C> <C>
Fair value of stock issued in connection with
acquisition of ITI.........................................................$810 -
Notes issued in connection with acquisition
of ITI...................................................................$1,231 -
Fair value of stock issued in connection
with acquisition of Next Destination.....................................$1,851 -
Notes issued in connection with acquisition
of Next Destination......................................................$1,575 -
Fair value of stock issued in connection with
acquisition of Labbe.....................................................$3,435 -
Note payable obligation incurred and receivable forgiven in
connection with non-compete agreement................................ - $115
</TABLE>
(10) FORWARD CONTRACT
The Company utilizes derivative financial instruments, primarily
forward contracts, to hedge its exposure to foreign currency rate fluctuations.
At September 30, 1997, one such contract was outstanding in connection with an
intercompany demand note with the Company's French subsidiary that was intended
to hedge the Company's exposure to deterioration in the amount outstanding due
to changes in currency translation rates. The notional amount (together with
amortized premium) and the fair market value associated with this forward
contract are $15.4 million and $0.1 million, respectively. The contract matured
on October 1, 1997. Gains or losses on existing forward instruments are offset
against the translation effects reflected in shareholders' equity. The fair
value of forward contracts is not recognized in the consolidated financial
statements since they are accounted for as hedges. The Company does not hold or
issue derivative financial instruments for trading purposes.
9
<PAGE> 12
ITEM 2. MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
GENERAL
The O'Gara Company (the "Company") is a leading provider of ballistic
and blast protected armoring systems for commercial and military vehicles,
aircraft and missile components. These products are provided through O'Gara's
principal subsidiary O'Gara-Hess & Eisenhardt Armoring Company ("OHE") and
certain other subsidiaries or divisions which constitute its Security Hardware
Products Group. Through O'Gara Satellite Networks Limited ("OSN") and its other
subsidiaries which constitute its Security Systems Integration Group, O'Gara
provides integrated satellite communication systems to commercial and government
clients and integrated site protection security systems. In 1996, the Company
began offering security-related services, such as advanced driver training,
background clearances, business intelligence, country risk assessments, forensic
auditing, and force protection consulting through certain subsidiaries or
divisions which constitute its Security Services Group.
On August 8, 1997, the Company entered into a definitive merger
agreement with Kroll Holdings, Inc. ("Kroll"), the holding company parent of
Kroll Associates, Inc., a leading provider of security service products based in
New York, New York. This transaction, which will be accounted for as a
pooling-of-interests, will bring together Kroll's worldwide business
intelligence, investigative and risk management services with the Company's
security hardware and security integration activities, thereby enhancing the
Company's position as a provider of integrated security products. The
shareholders of Kroll will be issued 6,650,000 shares of the Company's common
stock in exchange for all of the outstanding common stock and outstanding
options of Kroll. The Company expects the merger to be completed in the fourth
quarter of 1997. The agreement is subject to various conditions, including
shareholder approval of both companies. The combined entity will be called The
Kroll-O'Gara Company.
On October 30, 1997, the Company announced it signed a letter of intent
to acquire all of the capital stock of Imea, a Russian company, and
substantially all of the assets of Acorn Communications Group, Inc. ("Acorn"), a
Delaware company, for $3.1 million, consisting of $2.5 million in the Company's
common stock (approximately 140,000 shares, to be finalized when the transaction
closes) and $0.6 million in cash and seller-provided financing. Imea and Acorn,
which share substantially common ownership, are engaged in the business of
selling cash-in-transit vehicles and other commercial bank equipment (such as
safes, money counters and counterfeit detectors) throughout Russia.
The Company made the following acquisitions in the first quarter of
1997 (the "Acquisitions") and the results of the acquired entities are included
from the dates of their respective acquisitions:
1) On February 5, 1997, the Company completed the acquisition of all of
the shares of Next Destination of Salisbury, UK, a distributor of high
technology products for the global positioning satellite and satellite
communication markets. Next Destination is the primary source for the
increase in net revenue reported by the Security Systems Integration
Group in 1997 compared to 1996.
2) On February 12, 1997, the Company completed the acquisition of all
of the shares of Labbe, a leading armorer of commercial and private
vehicles headquartered in Lamballe, France. The acquisition of Labbe
had a substantial positive effect on the level of reported commercial
revenue generated by the Security Hardware Products Group.
3) On March 24, 1997, the Company completed the acquisition of all of
the shares of ITI, a provider of advanced security training
headquartered near Washington, D.C. ITI reports revenue through the
Company's Security Services Group.
10
<PAGE> 13
FORWARD LOOKING STATEMENTS
Forward-looking statements, within the meaning of Section 21E of the
Securities and Exchange Act of 1934, are made throughout this Management
Discussion and Analysis of Financial Conditions and Results of Operations. The
Company's results may differ materially from those in the forward-looking
statements. Forward-looking statements are based on management's current views
and assumptions, and involve risks and uncertainties that could significantly
affect expected results. For example, operating results may be affected by
external factors such as actions of competitors, changes in laws and
regulations, customer demand, effectiveness of programs, strategic relations,
fluctuations in the cost and availability of resources, and foreign economic
conditions, including currency rate fluctuations.
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, the items
noted as a percentage of net sales:
<TABLE>
<CAPTION>
For the Three Months Ended For the Nine Months Ended
September 30, September 30,
----------------------------- -----------------------------
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Security hardware products:
Military 34.4% 61.4% 36.1% 69.0%
Commercial 44.4 20.8 45.3 19.1
Security systems integration 18.3 17.8 16.3 11.9
Security services 2.9 - 2.3 -
------------ ------------ ------------ ------------
Total net sales 100.0% 100.0% 100.0% 100.0%
Cost of sales 73.1 72.8 72.6 74.7
------------ ------------ ------------ ------------
Gross profit 26.9 27.2 27.4 25.3
Operating expenses:
Selling and marketing 6.0 6.4 6.8 5.6
General and administrative 8.4 8.4 9.3 8.0
------------ ------------ ------------ ------------
Operating income 12.5 12.4 11.3 11.6
Other income (expense):
Interest expense (3.2) (2.0) (2.9) (1.6)
Other, net (0.3) (0.6) 0.3 (0.3)
------------ ------------ ------------ ------------
Income before minority interest,
provision for income taxes
and extraordinary item 9.0 9.8 8.7 9.7
Minority interest 0.1 - 0.2 -
------------ ------------ ------------ ------------
Income before provision for
income taxes and extraordinary item
8.9 9.8 8.5 9.7
Provision for income taxes 3.4 - 3.2 -
------------ ------------ ------------ ------------
Income before extraordinary item
5.5 9.8 5.3 9.7
Extraordinary item - - 0.2 -
------------ ------------ ------------ ------------
Net income 5.5% 9.8% 5.1% 9.7%
============ ============ ============ ============
</TABLE>
Net Sales. Net sales for the three months ended September 30, 1997 were
$30.7 million, an increase of 63% from $18.8 million in the same period in 1996.
For the nine months ended September 30, 1997, net sales increased 37% from $60.3
million in 1996 to $82.6 million. The primary reasons for this growth were the
Acquisitions. Excluding operating results from the Acquisitions, net sales for
the three months ended September 30, 1997 increased 18% over the same period in
1996. For the nine months
11
<PAGE> 14
ended September 30, 1997, net sales decreased 3% over the same period in 1996,
excluding the Acquisitions.
Net Sales-Security Hardware Products Group. Net sales for the Security
Hardware Products Group for the three and nine months ended September 30, 1997
were $24.2 million and $67.2 million, respectively. This represented an increase
of $8.7 million, or 56%, over the three month period ended September 30, 1996
and an increase of $14.0 million, or 26%, over the nine month period ended
September 30, 1996.
Net sales of commercial armoring products increased $9.7 million, or
248%, from $3.9 million in the third quarter of 1996 to $13.6 million in the
third quarter of 1997. For the nine months ended September 30, 1997, net sales
of commercial armoring products increased $25.9 million, or 225%, from $11.5
million in 1996 to $37.4 million in 1997. Excluding operating results from the
Acquisitions, net sales of commercial armoring products for the three and nine
months ended September 30, 1997 increased 56% and 94%, respectively, over the
same period in 1996, due, in part, to the continued development of operations in
Brazil and Mexico. Additionally, in order to complete the military production
schedule dictated by the acceleration of the Company's contract with the U.S.
Government to armor High Mobility Multi-Purpose Wheeled Vehicles ("HMMWVs") in
1996, certain of the Company's workforce was diverted from producing commercial
products to producing HMMWVs. This resulted in abnormally low levels of revenue
in commercial armoring for the three and nine months ended September 30, 1996.
Commercial armoring returned to more normal levels during the first three
quarters of 1997.
Net sales of military armoring products decreased $0.9 million, or 9%,
from $11.5 million in the third quarter of 1996 to $10.6 million in the third
quarter of 1997. For the nine months, net sales of military products decreased
$11.8 million, or 28%, from $41.6 million in 1996 to $29.8 million in 1997. The
1996 net sales of military products were favorably affected by a request by the
U.S. Government to accelerate the armoring of HMMWVs and the manufacture of
HMMWV armor kits. HMMWV armoring and net sales of military products by the
Company returned to a non-accelerated level in 1997. Additionally, there were no
military net sales attributable to the Acquisitions in 1997.
The Company currently has contracts in place with the U.S. Government
that will allow it to maintain its current levels of production and military net
sales into 1999. The Company has, in the past, experienced significant positive
and negative changes in its level of military net sales due to the nature of
government contracting and the volatile situations that drive the demand for the
armored HMMWV. The Company cannot predict these changes, and will address these
situations as they occur.
The Company expects continued growth in commercial revenues from its
operations in Brazil, Mexico and Russia. In addition, the Company will continue
to pursue strategic acquisitions, such as the acquisitions of Imea and Acorn
discussed previously, that will strengthen the Company's commercial revenue
base. The Company has established a start-up operation in the Philippines that
will contribute to its efforts to develop opportunities for commercial revenues.
The Company expects that commercial revenues will continue to be a larger
portion of its overall net sales and net income as these strategies continue to
develop.
Net Sales-Security Integration Group. Net sales for the Security
Integration Group were $5.6 million in the three months ended September 30,
1997, an increase of $2.3 million or 70%, from $3.3 million in the same period
in 1996. For the nine months ended September 30, 1997, net sales for the
Security Integration Group were $13.4 million, an increase of $6.2 million or
86%, from $7.2 million for the same period in 1996. This increase is
attributable to the acquisition of Next Destination in the first quarter of 1997
along with the continued development of security integration operations put in
place in 1996. Without the effect of the Acquisitions, net sales of the security
integration group declined 25% in the nine months ended September 30, 1997 in
comparison with the same period in 1996. Pre-acquisition systems
12
<PAGE> 15
integration net sales were negatively affected by the death of the General
Manager of the Company's Russian operation. Additionally, certain sales of the
Company's satellite communications equipment were negatively affected by the
acquisition of its distributor, Next Destination.
Net Sales-Security Services Group. Net sales for the Security Services
Group were $0.9 million and $1.9 million for the three and nine months ended
September 30, 1997, respectively. There were no net sales for the Security
Services Group in the first nine months of 1996. Revenues for 1997 are
attributable to the acquisitions of Palmer Associates in the fourth quarter of
1996 and ITI in the first quarter of 1997, as well as to revenues from the
Company's O'Gara Security Associates, Inc. subsidiary, which was formed in the
second quarter of 1997.
Cost of Sales. Cost of sales for the three months ended September 30,
1997 increased $8.8 million, or 64%, to $22.5 million from $13.7 million in the
same period in 1996. For the nine months ended September 30, 1997, cost of sales
increased $14.8 million, or 33%, from $45.1 million in 1996 to $59.9 million in
1997. In both instances, the increase in cost of sales was due to increased
activity resulting from the Acquisitions.
Excluding operating results from the Acquisitions, cost of sales for
the three months ended September 30, 1997 increased 13% over the same period in
1996, due to the continued development of operations in Brazil and Mexico. For
the nine months ended September 30, 1997, cost of sales decreased 10% over the
same period in 1996 (See Net Sales-Security Hardware Products Group).
Gross profit as a percentage of net sales was 26.9% and 27.4% for the
three and nine months ended September 30, 1997, respectively, as compared to
27.2% and 25.3% for the same periods in 1996. As most revenues for the Security
Hardware Products Group are recognized utilizing percentage of completion
accounting, actual cost and gross profit may be revised from previously
estimated amounts resulting from the Company's performance of contract
requirements. Gross profit was favorably affected in the nine months ended
September 30, 1997 by adjustments resulting from contract performance.
The Company continues to expect that future margin percentages will be
higher than experienced in 1995 and 1996 due to the effect of increased sales
from foreign subsidiaries and a more favorable mix of commercial and military
revenue; however, the Company does not, in future periods, expect to maintain
the gross margin percentage attained in the first nine months of 1997.
Operating expenses. Operating expenses for the three months ended
September 30, 1997 increased $1.6 million, or 58%, to $4.4 million, compared to
$2.8 million in the same period in 1996. In the nine months ended September 30,
1997, operating expenses increased from $8.3 million in 1996 to $13.3 million in
1997, an increase of $5.1 million, or 61%. The dollar increase was primarily
attributable to the addition of overhead expenses from the Acquisitions.
Additionally, the Company's percentage of operating expenses compared to net
sales increased from 13.7% in the first nine months of 1996 to 16.1% in the
first nine months of 1997. This increase was primarily attributable to various
expenses required, including requirements in personnel and facilities and
amortization of intangibles resulting from acquisitions, to ensure the growth in
commercial revenue realized in 1997. In addition, corporate overhead
requirements, which include expenses for personnel, regulatory filing
requirements, and insurance, contributed to the increase.
Operating expenses in the three months ended September 30, 1997
contained approximately $0.1 million in costs associated with the settlement of
the Company's lawsuit with O'Gara Protective Services, Inc.
The Company will incur significant operating expenses in connection
with the merger with Kroll. Because the transaction with Kroll will be accounted
for as a pooling-of-interests, expenses of the
13
<PAGE> 16
transaction will be charged against earnings in the fourth quarter of 1997. The
Company estimates those expenses will total approximately $4.0 million, and will
result in a loss in the fourth quarter of 1997.
Additionally, after the merger with Kroll, the Company expects to incur
expenses in the process of integrating Kroll's operations. At this time, the
Company does not believe these expenses will exceed $0.5 million.
Interest expense. Interest expense for the three months ended September
30, 1997 increased $0.6 million, or 164%, to $1.0 million, compared to $0.4
million in the same period in 1996. For the nine months ended September 30,
1997, interest expense increased $1.4 million, or 142%, to $2.4 million from
$1.0 million for the same period in 1996. In both instances, the increase was a
result of financing for the Acquisitions along with the issuance of Senior Notes
(see Liquidity and Capital Resources). The Company expects interest expense will
continue to be significantly higher in 1997 compared to 1996.
Other, net. Other income (expense), net for the nine months ended
September 30, 1997 was $0.2 million of income, an increase of $0.4 million from
the same period in 1996. In the nine months ended September 30, 1997, other
income (expense), net includes the effect of an agreement reached by the Company
with International Electronics Engineering ("IEE") to sell the Company's
exclusive rights to distribute IEE's Passenger Presence Detection sensors in the
North American automotive market for $0.4 million.
Income before provision for income taxes and extraordinary item. Income
before provision for income taxes and extraordinary item for the three months
ended September 30, 1997 increased to $2.7 million, an increase of 48%, compared
to $1.8 million for same period in 1996. For the nine months ended September 30,
1997, income before provision for income taxes and extraordinary item increased
$1.2 million, or 20%, to $7.0 million from $5.8 million for the same period in
1996. The increase in income before provision for income taxes and extraordinary
item is the result of continued development of operations in Brazil and Mexico,
and the inclusion of the operating results of the Acquisitions in 1997. These
increases were partially offset by the completion of the HMMWV acceleration
contract in 1996 and subsequent return to a more normal level of military
production in 1997.
As a percent of net sales, income before provision for income taxes and
extraordinary item decreased from 10% to 9% for the three and nine months ended
September 30, 1997 in comparison with the same periods in 1996. This decrease
was a result of increases in interest expense and expense associated with
amortization of intangibles resulting from acquisitions.
Provision for income taxes. The provision for income taxes was $1.0
million and $2.7 million for the three and nine months ended September 30, 1997,
respectively. There was no provision for income taxes recorded for the three and
nine month periods ended September 30, 1996 due to the Company's S Corporation
status, which was terminated on October 28, 1996 in conjunction with the
Reorganization.
Extraordinary item. As a result of new working capital arrangements
executed by the Company (see Liquidity and Capital Resources), all prepaid fees
associated with the previous financing arrangements recorded by the Company were
charged against earnings as an extraordinary item in the second quarter of 1997.
The amount charged, $0.2 million, is shown net of an applicable tax benefit of
$0.1 million.
14
<PAGE> 17
LIQUIDITY AND CAPITAL RESOURCES
General. The Company historically has met its operating cash needs by
utilizing borrowings under its credit arrangements to supplement cash provided
by net income, excluding non-cash charges such as depreciation and amortization.
Credit Facility. On May 30, 1997 the Company issued and sold $35.0
million worth of Senior Notes maturing on May 30, 2004 (the "Senior Notes"), to
certain institutional investors. The Senior Notes bear interest at a rate of
9.56%, subject to a step down of the associated interest rate if the Company
meets certain defined requirements. The Senior Notes impose covenant
restrictions on the Company's operations, including limitations on dividends
and priority debt, and constraints on specific investments, as well as
requirements relating to the Company's reported net worth, fixed charges
coverage and level of outstanding debt. Of the $35.0 million in proceeds from
the issuance of the Senior Notes, $26.2 million was used to pay off the term
loan and revolver from the Company's previous credit agreement. The payoff also
resulted in the recognition of an extraordinary charge of $0.2 million, net of
$0.1 million of tax benefit, against earnings for the bank fees associated with
the previous agreement.
On May 30, 1997, the Company entered into a new credit agreement with
KeyBank National Association ("KeyBank"). The new agreement provides for a
revolving line of credit of $4.5 million and a letter of credit facility of
approximately $5.7 million. The revolving credit facility bears interest at the
prime rate less 0.5%, or, at the Company's option, the LIBOR rate plus 2%. The
credit agreement imposes requirements on the Company's reported fixed charge
coverage ratio, net worth and debt capitalization, along with certain
restrictions on investments, acquisitions, intangibles and capital expenditures.
On October 21, 1997, a letter of commitment was signed by the Company
and KeyBank to amend the current credit agreement effective upon the closing of
the Kroll transaction. This amendment allows for an additional $2.5 million in
revolving credit capacity and additional $2.0 million of letter of credit
facility capacity as well as a $7.0 million transaction note maturing in January
1999. The original agreement's loan covenant requirements also will be modified
to take into account the combined entity.
On November 10, 1997, there were no borrowings under the revolving
credit agreement ($2.3 million was outstanding as of September 30, 1997). Upon
consummation of the Kroll transaction, the Company will use cash on hand and
current cash flow along with proceeds from its revolving credit facility, the
transaction note and cash from Kroll, to replace substantially all of Kroll's
existing debt and to fund transaction and integration costs previously
discussed. These sources of funds also are expected to be sufficient to finance
the Company's cash flow requirements through 1998, including certain strategic
acquisitions. Management currently believes it will have access to additional
sources of working capital, through debt or equity transactions, sufficient to
meet its obligations under the $7.0 million transaction note when it matures in
January 1999.
Additionally, the Company, after the Kroll merger, will continue to
pursue its strategy of acquiring security related companies in an effort to
consolidate its position in the security industry. To that end, the Company will
continue to review additional sources of working capital as they become
necessary.
Cash flows from operating activities. Net cash used in operating
activities was $11.1 million and $1.7 million for the nine months ended
September 30, 1997 and 1996, respectively. This change was primarily due to
increases in accounts receivable and inventory resulting from the increase in
the Company's business activity.
Capital expenditures. Historically, the Company has limited its capital
expenditure requirements by leasing certain facilities and equipment. Capital
expenditures totaled $1.7 million for the nine months ended September 30, 1997,
and $1.1 million for the same period in 1996. The credit facility currently in
place
15
<PAGE> 18
contains a requirement that the Company may not exceed $1.5 million in capital
expenditures in any fiscal year. As of September 30, 1997, the Company was not
in compliance with this covenant. The Company has received a waiver from KeyBank
excusing it from the limitation on capital expenditures in its credit agreement
for the period ended September 30, 1997.
In addition to capital expenditures, the Company also used $7.6 million
in net cash in connection with the acquisition of Labbe and ITI in the first
quarter of 1997.
Cash flows from financing activities. Net cash provided by financing
activities was $26.6 million and $3.3 million for the nine months ended
September 30, 1997 and 1996, respectively. The increase in 1997 was due
primarily to issuance of the Senior Notes in the second quarter of 1997. This
increase was partially offset by the $7.6 million in net repayments under the
Company's revolving lines of credit during the first nine months of 1997.
Foreign operations. The Company attempts to mitigate the risks of doing
business in foreign countries by separately incorporating its operations in such
countries; entering into contracts providing for payment in U.S. dollars instead
of the local currency in certain instances; maintaining reserves for credit
losses; and maintaining insurance on equipment to protect against losses related
to political risks and terrorism.
The Company utilizes derivative financial instruments, primarily
forward contracts, to hedge its exposure to foreign currency rate fluctuations.
At September 30, 1997, one such contract was outstanding in connection with an
intercompany demand note with the Company's French subsidiary that was intended
to hedge the Company's exposure to deterioration in the amount outstanding due
to changes in currency translation rates. The notional amount (together with
amortized premium) and the fair market value associated with this forward
contract were $15.4 million and $0.1 million, respectively. The contract matured
on October 1, 1997. Gains or losses on existing forward instruments are offset
against the translation effects reflected in shareholders' equity. The fair
value of forward contracts is not recognized in the consolidated financial
statements since they are accounted for as hedges. The Company does not hold or
issue derivative financial instruments for trading purposes.
Quarterly fluctuations. The Company's operations are not seasonal, but
may fluctuate on a quarterly basis as a result of the timing of contract costs.
The incurrence of contract costs and related production scheduling must be
responsive to specific customer delivery requirements, which may involve the
acceleration of deliveries under a contract at a customer's request, such as
occurred with the HMMWV contract in 1996. The Company's short-term liquidity may
be affected by the payment terms of its Department of Defense and certain
foreign government contracts.
16
<PAGE> 19
PART II -- OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On August 1, 1997 the Company settled the lawsuit filed against it,
O'Gara-Hess & Eisenhardt Armoring Company and Thomas M. O'Gara by O'Gara
Protective Services, Inc. The settlement involved payment of $75,000 together
with the Company's agreement not to compete against O'Gara Protective Services,
Inc. with certain limited specified parties.
Other than as set forth above, the Company is not involved in any
litigation or legal proceedings at this time and is not aware of any material
litigation or proceedings threatened against it.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
11 Computation of Earnings Per Common Share and
Pro Forma Earnings Per Common Share
27 Financial Data Schedule (Edgar version only)
99 Press release dated October 30, 1997
announcing the proposed acquisition of Imea
and Acorn.
(b) Reports on Form 8-K.
No reports on Form 8-K were filed in the
three months ended September 30, 1997.
17
<PAGE> 20
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 as of the 12th day of November, 1997.
THE O'GARA COMPANY
By /s/ Nicholas P. Carpinello
---------------------------------
Nicholas P. Carpinello
Executive Vice President, and
Chief Financial Officer
18
<PAGE> 1
<TABLE>
<CAPTION>
EXHIBIT 11
THE O'GARA COMPANY
COMPUTATION OF EARNINGS PER COMMON SHARE AND
PRO FORMA EARNINGS PER COMMON SHARE
For the Three and Nine Months Ended September 30, 1997
(unaudited)
(dollars in thousands, except per share data)
Weighted Average
Number of Common Earnings per
Shares Outstanding Net Income Common Share
------------------ ---------- ------------
<S> <C> <C> <C>
Three Months Ended September 30, 1997:
Shares outstanding June 30, 1997 7,279,310 $ - $ -
Dilutive stock options outstanding (274,050 shares) 63,911 - -
Net income before extraordinary item - 1,694 0.23
Extraordinary item - - -
Net income - 1,694 0.23
---------- ---------- --------
7,343,221 $ 1,694 $ 0.23
========== ========== ========
Nine Months Ended September 30, 1997:
Shares outstanding December 31, 1996 6,659,846 $ - $ -
Weighted average shares issued in conjunction
with the acquisitions (614,917 shares issued) 514,703 - -
Weighted average shares resulting from stock
issued compensation 3,182
Dilutive stock options outstanding (274,050 shares) 59,889 - -
Net income before extraordinary item - 4,375 0.60
Extraordinary item - 194 0.03
Net income - 4,181 0.58
---------- ---------- --------
7,237,620 $ 4,181 $ 0.58
========== ========== ========
</TABLE>
19
<PAGE> 2
<TABLE>
<CAPTION>
EXHIBIT 11 (CONCLUDED)
THE O'GARA COMPANY
COMPUTATION OF PRO FORMA EARNINGS PER COMMON SHARE
For the Three and Nine Months Ended September 30, 1996
(unaudited)
(dollars in thousands, except per share data)
Weighted Average Pro Forma
Number of Common Pro Forma Earnings per
Shares Outstanding Net Income Common Share
------------------ ---------- ------------
<S> <C> <C> <C>
Three Months Ended September 30, 1996:
Shares outstanding June 30, 1996 4,490,383 $ - $ -
Dilutive stock options outstanding
prior to exercise 84,496 - -
Issuance of common stock upon
exercise of options 36,967 - -
Newly issued shares necessary to
fund payment of certain indebtedness
and AAA distributions (1,809,015 shares
at $7.29 per share estimated net
proceeds to fund $13,181,658) 1,809,015 - -
Pro forma net income - 1,147 0.18
---------- --------- --------
6,420,861 $ 1,147 $ 0.18
========== ========= ========
Nine Months Ended September 30, 1996
Shares outstanding December 31, 1995 4,490,383 $ - $ -
Dilutive stock options outstanding prior
to exercise 109,051 - -
Issuance of common stock upon
exercise of options 12,412 - -
Newly issued shares necessary to fund payment
of certain indebtedness and AAA distributions
(1,809,015 shares at $7.29 per share estimated
net proceeds to fund $13,181,658) 1,809,015 - -
Pro forma net income - 3,600 0.56
---------- --------- --------
6,420,861 $ 3,600 $ 0.56
========== ========= ========
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED STATEMENTS OF OPERATIONS, CONSOLIDATED BALANCE SHEETS, AND
CONSOLIDATED STATEMENTS OF CASH FLOWS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 3,648
<SECURITIES> 3,893
<RECEIVABLES> 38,608
<ALLOWANCES> 459
<INVENTORY> 16,956
<CURRENT-ASSETS> 64,476
<PP&E> 14,617
<DEPRECIATION> 5,127
<TOTAL-ASSETS> 93,601
<CURRENT-LIABILITIES> 31,190
<BONDS> 0
0
0
<COMMON> 73
<OTHER-SE> 22,167
<TOTAL-LIABILITY-AND-EQUITY> 93,601
<SALES> 82,567
<TOTAL-REVENUES> 82,567
<CGS> 59,944
<TOTAL-COSTS> 59,944
<OTHER-EXPENSES> 13,320
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,394
<INCOME-PRETAX> 7,036
<INCOME-TAX> 2,661
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 194
<CHANGES> 0
<NET-INCOME> 4,181
<EPS-PRIMARY> 0.58
<EPS-DILUTED> 0
</TABLE>
<PAGE> 1
Exhibit 99
PRESS RELEASE
OCTOBER 30, 1997
THE O'GARA COMPANY ANNOUNCES AGREEMENT
IN PRINCIPAL TO ACQUIRE TWO COMPANIES
FAIRFIELD, Ohio. October 30, 1997. The O'Gara Company (Nasdaq-NNM:
OGAR) today announced that its wholly owned subsidiary O'Gara Security
International, Inc. (OSI) has entered into a letter of intent to acquire all of
the capital stock of Imea, a Russian company, and substantially all of the
assets of Acorn Communications Group, Inc. (Acorn), a Massachusetts company,
for $3.1 million consisting of $2.5 million in common stock of The O'Gara
Company, $0.5 million in cash at closing, and 0.1 million payable over six
months commencing January 1, 1998. The transactions, subject to completion of
due diligence and execution of definitive agreements, are expected to close
early in December.
Imea and Acorn are engaged in the business of selling cash-in-transit
(CIT) vehicles and other commercial bank equipment such as safes, money
counters, and counterfeit detectors throughout Russia. Imea recently began
producing (armoring) its own CIT vehicle based on a Russian patent which allows
the conversion of a Ford F-150 chassis into a CIT vehicle. Imea operates from
two locations in Moscow, including a manufacturing and service facility.
Acorn, with an office in Newton, MA, conducts most of its business through its
representative office in Moscow.
Michael Dubinsky, founder and controlling shareholder of both
companies, will enter into employment and non-competition contracts with OSI.
An important consideration for OSI in making this acquisition was securing
experienced senior management for its growing Russian business. In the
aggregate, Imea and Acorn had sales of approximately $8.0 million in 1996 and
are profitable.
Commenting on the transaction, Bill T. O'Gara, Chief Executive Officer
of The O'Gara Company, stated, "We are very excited about this transaction. It
provides us with the management experience lacking in our Russian OSI office
since the untimely passing of Steve Vasko in June. Additionally, the
transaction provides us with an increased product base, a manufacturing
facility and trained technicians as well as access to customer lists that
should prove beneficial to our security systems integration business."
The O'Gara Company is a worldwide integrated security company with
three business lines: security hardware products, security systems integration,
and security services. The Security Hardware Products Group markets all of the
Company's armoring products, including ballistic and blast protected armoring
systems for military and commercial vehicles, aircraft and missile components.
The Security Systems Integration Group offers planning, design, and hardware
and software integration services which are customized to meet specific
satellite
<PAGE> 2
communications or site protection needs of customers. The Security Services
Group offers security-related services such as advanced driver training,
background clearances, business intelligence, country-risk assessments,
forensic auditing, force protection consulting and private security agent
training.
With headquarters in Fairfield, Ohio, USA, near Cincinnati, The O'Gara
Company has manufacturing facilities in Fairfield, Ohio; Sao Paulo, Brazil;
Lamballe, France; Torino, Italy; Mexico City, Mexico; Subic Bay, The
Philippines; and St. Petersburg, Russia. The company has additional offices in
Los Angeles, California; Washington, D.C.; Salisbury, England; Paris, France;
Nairobi, Kenya; Deer Park, New York; Moscow, Russia; and Geneva, Switzerland.
CONTACT: Bill T. O'Gara, Chief Executive Officer, The O'Gara Company,
(513) 874-2112
