SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A
(AMENDMENT NO. 1)
CURRENT REPORT
Pursuant to Section 13 or Section 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of Earliest Event Reported): May 6, 1996
-----------
Sola International Inc.
------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware
----------------------------------------------
(State or other jurisdication of incorporation)
1-13606 94-3189941
------------------------ ---------------------------------
(Commission File Number) (IRS Employer Identification No.)
2420 Sand Hill Road, Suite 200, Menlo Park, California 94025
-------------------------------------------------------------
(Address of principal executive offices, including zip code)
Registrant's telephone number, including area code: (415) 324-6868
--------------
<PAGE>
ITEM 5. OTHER EVENTS
Sola International Inc., a Delaware corporation (the "Company"), has
entered into a Purchase Agreement (the "Purchase Agreement") dated as of
May 6, 1996, between the Company and American Optical Corporation ("AOC")
providing for the acquisition of substantially all of AOC's worldwide
ophthalmic business for cash consideration of $107,000,000 (together with
the assumption of certain liabilities), subject to post closing
adjustments.
The foregoing description of the terms and provisions of the Purchase
Agreement is qualified in its entirety by reference to the Purchase
Agreement, filed as Exhibit 2 to this Report on Form 8-K/A and is hereby
incorporated by reference.
The Company issued a press release on May 6, 1996, announcing the
execution of the Purchase Agreement. The press release is incorporated by
reference to Exhibit 99.1 to this Report on Form 8-K/A.
This Report on Form 8-K/A also provides certain historical combined
financial information for the Worldwide Ophthalmic Group of American
Optical Corporation and certain pro forma financial information regarding
Sola International Inc. This information is included in Exhibits 99.2 and
99.3.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial Statements:
--------------------
The following audited combined financial statements of the
Worldwide Ophthalmic Group of American Optical Corporation, together with
the report thereon of Ernst & Young LLP, independent auditors, appear
as Exhibit 99.2 to this Report and are incorporated herein by reference:
Combined Balance Sheets as of March 29, 1996 and March
31, 1995
Combined Statements of Income and Group Control for the
years ended March 29, 1996 and March 31, 1995
Combined Statements of Cash Flows for the years ended
March 29, 1996 and March 31, 1995
Notes to Combined Financial Statements
(b) Pro Forma Financial Information:
-------------------------------
The following unaudited pro forma condensed combined financial
information appears as Exhibit 99.3 to this report and is incorporated
herein by reference:
<PAGE>
Unaudited Pro Forma Condensed Combined Balance Sheet as
of March 31, 1996
Notes to Unaudited Pro Forma Condensed Combined Balance
Sheet
Unaudited Pro Forma Condensed Combined Statement of
Operations for the fiscal year ended March 31, 1996
Notes to Unaudited Pro Forma Condensed Combined
Statement of Operations
(c) Exhibits:
--------
See the Exhibits Index following the signature page of this
Report, which is incorporated herein by reference.
<PAGE>
SIGNATURE
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.
Sola International Inc.
Date: June 17, 1996 By: /s/ Ian S. Gillies
------------------------
Ian S. Gillies
Vice President, Finance,
Chief Financial Officer,
Secretary and Treasurer
<PAGE>
SOLA INTERNATIONAL INC.
EXHIBIT INDEX
to
FORM 8-K/A CURRENT REPORT
Date of Report: May 6, 1996
Exhibit
- -------
Number Description
- ------ -----------
2* Purchase Agreement between Sola International Inc. and
American Optical Corporation, dated as of May 6, 1996.
23 Consent of Ernst & Young LLP, independent auditors
99.1* Press Release issued on behalf of Sola International Inc.
99.2 The following audited combined financial statements of the
Worldwide Ophthalmic Group of American Optical Corporation,
together with the report thereon of Ernst & Young LLP,
independent auditors:
Combined Balance Sheets as of March 29, 1996
and March 31, 1995
Combined Statements of Income and Group Control
for the years ended March 29, 1996
and March 31, 1995
Combined Statements of Cash Flows for the
years ended March 29, 1996 and March 31,
1995
Notes to Combined Financial Statements
99.3 The following unaudited pro forma condensed combined
financial information:
Unaudited Pro Forma Condensed Combined
Balance Sheet as of March 31, 1996
Notes to Unaudited Pro Forma Condensed
Combined Balance Sheet
Unaudited Pro Forma Condensed Combined
Statement of Operations for the fiscal
year ended March 31, 1996
Notes to Unaudited Pro Forma Condensed
Combined Statement of Operations
* Previously filed
<PAGE>
<PAGE>
EXHIBIT 23
<PAGE>
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration
Statement (Form S-8 No. 333-4489) pertaining to the Sola Optical
401(k) Savings Plan and in the Registration Statement (Form S-8 No. 33-
93788) pertaining to the Sola International Inc. Stock Option Plan and
the Sola Investors' Stock Option Plan of Sola International Inc. of
our report dated June 7, 1996 related to the combined financial
statements of the Worldwide Opthalmic Group of American Optical
Corporation, which appears in the Current Report on Form 8-K/A
(Amendment No. 1) of Sola International Inc. dated May 6, 1996.
ERNST & YOUNG LLP
Hackensack, New Jersey
June 17, 1996
EXHIBIT 99.2
<PAGE>
Combined Financial Statements
American Optical Corporation
Worldwide Ophthalmic Group
March 29, 1996
<PAGE>
American Optical Corporation
Worldwide Ophthalmic Group
Combined Financial Statements
March 29, 1996
Contents
Report of Independent Auditors 1
Combined Balance Sheets 2
Combined Statements of Income and Group Control 3
Combined Statements of Cash Flows 4
Notes to Combined Financial Statements 5
<PAGE>
Report of Independent Auditors
Board of Directors
American Optical Corporation
We have audited the accompanying combined balance sheets of
the Worldwide Ophthalmic Group of American Optical
Corporation as of March 29, 1996 and March 31, 1995, and the
related combined statements of income and group control and
cash flows for the years then ended. 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 amounts 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
statement 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 combined
financial position of the Worldwide Ophthalmic Group of
American Optical Corporation at March 29, 1996 and March 31,
1995 and the combined results of their operations and their
cash flows for the years then ended in conformity with
generally accepted accounting principles.
As discussed in Note 2 to the combined financial statements,
in 1995 the Company changed its method of accounting for
molds.
Hackensack, New Jersey
June 7, 1996
1
<PAGE>
<TABLE>
<CAPTION>
American Optical Corporation
Worldwide Ophthalmic Group
Combined Balance Sheets
(Dollars in Thousands)
March March
29, 1996 31, 1995
---------- -------------
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 2,220 $ 1,378
Trade accounts receivable, less allowance for
doubtful accounts (1996--$1,346 and 1995--
$1,408) 15,798 15,455
Inventories 15,685 17,606
Prepaid expenses and other 3,861 4,333
Molds 3,765 2,383
---------- -------------
Total current assets 41,329 41,155
Property, plant and equipment, net 9,884 10,082
Deferred income taxes 252 835
Other assets 175 59
---------- -------------
$ 51,640 $ 52,131
========== =============
Liabilities and group equity
Current liabilities:
Notes payable $ 534 $ 322
Accounts payable 5,477 6,514
Accrued salaries and related items 3,638 3,444
Accrued expenses 4,042 4,544
Foreign income taxes payable 1,284 988
Current portion of long-term debt 940 673
Deferred income taxes 286 47
---------- -------------
Total current liabilities 16,201 16,532
Long-term debt 2,371 2,788
Employee benefit obligations 1,086 864
Commitments and contingencies (Notes 8, 9 and
10)
Group equity:
Group control 38,275 36,288
Equity adjustment from foreign currency
translation (6,293) (4,341)
---------- -------------
Total group equity 31,982 31,947
---------- -------------
$ 51,640 $ 52,131
========== =============
See accompanying notes.
</TABLE>
2
<PAGE>
American Optical Corporation
Worldwide Ophthalmic Group
Combined Statements of Income and Group Control
(Dollars in Thousands)
<TABLE>
<CAPTION>
Year ended
------------------------
March March
29, 1996 31, 1995
----------- ------------
<S> <C> <C>
Net sales $81,623 $76,046
Technology revenue 1,450 375
----------- ------------
83,073 76,421
Operating expenses:
Cost of sales 48,220 45,412
Selling 13,755 13,476
General and administrative 7,318 8,049
Research and development 1,146 1,095
----------- ------------
Operating income 12,634 8,389
Interest expense, net 172 325
Foreign exchange gain (98) (412)
Other (income) expense (978) 934
Corporate allocation 1,235 1,113
----------- ------------
Income before income taxes and cumulative
effect of change in accounting principle 12,303 6,429
Income taxes 3,768 2,185
----------- ------------
Income before cumulative effect of change in
accounting principle 8,535 4,244
Cumulative effect of change in accounting
principle (net of income taxes of $581)
(Note 2) 871
----------- ------------
Net income 8,535 5,115
Group control at beginning of year 36,288 36,945
Net transfers (6,548) (5,772)
----------- ------------
Group control at end of year $38,275 $36,288
=========== ============
See accompanying notes.
</TABLE>
3
<PAGE>
American Optical Corporation
Worldwide Ophthalmic Group
Combined Statements of Cash Flows
(Dollars in Thousands)
<TABLE>
<CAPTION>
Year ended
---------------------
March March
29, 1996 31, 1995
---------- ----------
<S> <C> <C>
Cash flows from operating activities
Net income $ 8,535 $ 5,115
Adjustments to reconcile net income to net cash
provided by operating activities:
Change in accounting principle (1,452)
Depreciation 1,880 1,985
Deferred income taxes 829 1,108
Net gain on sale of property, plant and
equipment (228) (38)
Change in operating assets and liabilities:
(Increase) decrease in trade accounts
receivable (923) 1,965
Decrease (increase) in inventories 1,546 (2,246)
Increase in prepaid expenses and other current
assets 1,003 (3,009)
(Decrease) increase in accounts payable (851) 1,629
Increase in accrued salaries and related items 294 582
(Decrease) increase in accrued expenses (346) 637
Increase in accrued income taxes 355 110
Increase in other non-current assets (117) (91)
Increase in other non-current liabilities 222 238
---------- ----------
Net cash provided by operating activities 10,193 6,533
Cash flows from investing activities
Capital expenditures (2,023) (3,117)
Proceeds from sale of property, plant and
equipment 286 151
Other, net 577
---------- ----------
Net cash used in investing activities (1,737) (2,389)
Cash flows from financing activities
Proceeds from issuance of long-term debt 740 252
Proceeds from notes payable 612 419
Principal payments on long-term debt (724) (653)
Repayments of notes payable (393) (278)
Decrease from group control and other (7,612) (5,814)
---------- ----------
Net cash used in financing activities (7,377) (6,074)
Effect of exchange rate changes on cash and
cash equivalents (237) (527)
---------- ----------
Increase (decrease) in cash and cash
equivalents 842 (2,457)
Cash and cash equivalents at beginning of year 1,378 3,835
---------- ----------
Cash and cash equivalents at end of year $ 2,220 $ 1,378
========== ===========
Supplemental cash flow information
Interest paid $ 171 $ 161
========== ===========
Income taxes paid $ 1,349 $ 1,133
========== ===========
See accompanying notes.
</TABLE>
4
<PAGE>
American Optical Corporation
Worldwide Ophthalmic Group
Notes to Combined Financial Statements
(Dollars in Thousands)
March 29, 1996
1. Significant Accounting Policies
Basis of Presentation
The American Optical Corporation - Worldwide Ophthalmic
Group (the "Group") is comprised of an operating division
in the United States (the "U.S. Division") and
subsidiaries in United Kingdom, France, Switzerland,
Mexico and Canada. American Optical Corporation (the
"Parent") is the holding company for the U.S. Division
and 100% owner of all the subsidiaries in the Group. The
Group Control Account includes the common stock, capital
surplus and retained earnings of all subsidiaries
included in the Group and the earnings of the U.S.
Division. All transactions with the Parent are also
recorded in the Group Control Account. The Group Control
Account is non-interest bearing. All significant
intergroup transactions and balances have been
eliminated.
The Group manufactures and distributes ophthalmic lenses
and other related products on a worldwide basis. The
Group also earns revenue by selling and licensing
technology related to the design and manufacture of
ophthalmic lenses. The Group has manufacturing operations
in Mexico, the United Kingdom and Massachusetts, and
sales and distribution operations in the United States,
United Kingdom, France, Switzerland, Mexico and Canada
(see Note 11).
Fiscal Year
The Group's fiscal year ends on the Friday closest to
March 31.
Cash Equivalents
The Group considers all short-term investments having a
maturity of three months or less when purchased to be
cash equivalents.
Inventories
Inventories are stated at the lower of cost (principally
first-in, first-out method) or market.
5
<PAGE>
American Optical Corporation
Worldwide Ophthalmic Group
Notes to Combined Financial Statements (continued)
(Dollars in Thousands)
1. Significant Accounting Policies (continued)
Property, Plant and Equipment
Property, plant and equipment is recorded at cost.
Depreciation expense is computed principally using the
straight-line method for financial reporting and, for tax
purposes, the straight-line method, the accelerated cost
recovery system (ACRS) and the modified accelerated cost
recovery system (MACRS).
Income Taxes
The U.S. division's operations are included with the
Parent for federal and state income tax reporting
purposes. The Group receives a charge or credit for
income taxes from the Parent representing federal and
state income taxes calculated on a stand-alone income tax
basis. The current federal and state income tax
liability is payable to the Parent and is recorded as an
increase to the Group Control Account.
The Group recognizes deferred tax liabilities and assets
for the expected future tax consequences of events that
have been recognized in a group's financial statements or
tax returns. Deferred income tax liabilities and assets
are determined based on the difference between the
financial statement carrying amounts and tax bases of
assets and liabilities using enacted tax rates in effect
in the years in which the differences are expected to
reverse.
Forward Currency Exchange Contracts
The Group enters into forward currency exchange contracts
to minimize the short-term impact of foreign currency
fluctuations on inventory purchases. The gains or losses
on these contracts are included in income in the period
in which the exchange rates change. At March 29, 1996,
foreign subsidiaries of the Group had open forward
exchange contracts for the purchase of approximately $6.3
million of U.S. dollar denominated currency.
6
<PAGE>
American Optical Corporation
Worldwide Ophthalmic Group
Notes to Combined Financial Statements (continued)
(Dollars in Thousands)
1. Significant Accounting Policies (continued)
Accounting for Long-Lived Assets
Effective April 1, 1995, the Group elected to adopt
Financial Accounting Standards Board Statement No. 121,
"Accounting for the Impairment of Long-Lived Assets and
for Long-Lived Assets to be Disposed of" ("FAS 121").
FAS 121 provides guidelines for recognition of impairment
losses related to long-lived assets and certain
intangibles. The adoption of FAS 121 did not have a
material impact on the Group's financial position or
results of operations.
Use of Estimates
The preparation of financial statements in conformity
with generally accepted accounting principles requires
management to make estimates and assumptions that affect
the amounts reported in the financial statements and the
accompanying notes. Actual results could differ from
those estimates.
Reclassifications
Certain 1995 amounts have been reclassified to conform to
the 1996 presentation.
2. Change In Accounting Principle
Effective April 2, 1994 the Group changed its method of
accounting for molds used in the manufacture of
ophthalmic lenses. The Group's previous accounting
method was to expense the costs of these molds as they
were incurred. Under the new method, molds are
inventoried and recorded as a current asset in accordance
with industry practice. New molds are produced to
replace damaged molds and to support expanded production
and new products. The cumulative effect of this change
as of April 2, 1994 was $1,452 and is reported separately
in the 1995 consolidated statement of operations. The
effect of the change in 1995 was to increase income
before income taxes by $931. The effect in 1995 was a
result of adding new molds required to support new
products and therefore, is not necessarily indicative of
the future impact of this change.
7
<PAGE>
American Optical Corporation
Worldwide Ophthalmic Group
Notes to Combined Financial Statements (continued)
(Dollars in Thousands)
3. Inventories
The major classes of inventories were as follows:
<TABLE>
<CAPTION>
March March
29, 1996 31, 1995
----------- ------------
<S> <C> <C>
Raw material $ 3,402 $ 3,991
Work-in-process 751 623
Finished goods 11,532 12,992
----------- ------------
$ 15,685 $ 17,606
=========== ============
</TABLE>
4. Property, Plant and Equipment
Property, plant and equipment consisted of the following:
<TABLE>
<CAPTION>
March March
29, 1996 31, 1995
---------- ---------
<S> <C> <C>
Land $ 274 $ 198
Buildings and improvements 5,343 4,964
Machinery, furniture and
fixtures 16,534 18,004
---------- ---------
22,151 23,166
Less accumulated depreciation
and amortization 12,267 13,084
---------- ---------
$ 9,884 $10,082
========== =========
</TABLE>
8
<PAGE>
American Optical Corporation
Worldwide Ophthalmic Group
Notes to Combined Financial Statements (continued)
(Dollars in Thousands)
5. Income Taxes
Income before income taxes and cumulative effect of
change in accounting principle was taxed under the
following jurisdictions:
<TABLE>
<CAPTION>
1996 1995
--------- ----------
<S> <C> <C>
United States $ 2,741 $ 3,194
Foreign 9,562 3,235
--------- ----------
Total $12,303 $ 6,429
========= ==========
</TABLE>
The provision for income taxes consists of the following:
<TABLE>
<CAPTION>
1996 1995
-------- ----------
<S> <C> <C>
Current tax expense:
Federal $ 1,506 $ 806
State 190 151
Foreign 1,346 799
-------- ----------
Total current $ 3,042 $ 1,756
======== ==========
Deferred tax expense
(benefit):
Federal $ 733 $ 268
Foreign (7) 161
-------- ----------
Total deferred $ 726 $ 429
======== ==========
</TABLE>
9
<PAGE>
American Optical Corporation
Worldwide Ophthalmic Group
Notes to Combined Financial Statements (continued)
(Dollars in Thousands)
5. Income Taxes (continued)
The provision for income taxes differs from the amount of
income tax determined by applying the applicable
statutory federal income tax rate to the income before
income taxes and cumulative effect of change in
accounting principle as a result of the following
differences:
<TABLE>
<CAPTION>
1996 1995
--------- ----------
<S> <C> <C>
Federal income tax expense at
statutory rates $ 4,183 $ 2,186
Increases (decreases):
State income tax, net of federal
tax benefit 125 100
Forgiveness of foreign
intercompany indebtedness 1,476
Differences in effective tax
rates on foreign earnings and
remittances (1,912) (213)
Foreign losses for which no tax
benefits may be recorded 63
Other (104) 49
--------- ----------
$ 3,768 $ 2,185
========= ==========
</TABLE>
10
<PAGE>
American Optical Corporation
Worldwide Ophthalmic Group
Notes to Combined Financial Statements (continued)
(Dollars in Thousands)
5. Income Taxes (continued)
Deferred income taxes reflect the net tax effects of
temporary differences between the carrying amounts of
assets and liabilities for financial reporting purposes
and the amounts used for income tax purposes.
Significant components of the Group's deferred tax
liabilities and assets are as follows:
<TABLE>
<CAPTION>
March 29, 1996 March 31, 1995
---------------- --------------------
Short Long Short Long
Term Term Term Term
------- -------- ---------- ---------
<S> <C> <C> <C> <C>
Deferred tax liabilities:
Tax over book depreciation $ 308 $ 59
Inventory costs
capitalized $1,384 $ 953
Other 211
------- -------- ---------- ---------
Total deferred tax
liabilities 1,384 308 1,164 59
Deferred tax assets:
Inventory reserves 1,098 1,117
Pension and postretirement
health care benefits 434 346
Other 126 548
------- -------- ---------- ---------
Total deferred tax assets 1,098 560 1,117 894
------- -------- ---------- ---------
Net deferred tax
liabilities (assets) $ 286 $(252) $ 47 $ (835)
======= ======== ========== =========
</TABLE>
The Group has net operating loss carryforwards from
foreign tax jurisdictions totaling approximately
$19 million which do not expire for which no benefit has
been recorded.
11
<PAGE>
American Optical Corporation
Worldwide Ophthalmic Group
Notes to Combined Financial Statements (continued)
(Dollars in Thousands)
6. Notes Payable
Notes payable represent amounts due to foreign banks under
various credit facilities, which are collateralized by
certain assets of the respective subsidiaries and/or
guarantees by the Parent Company. At March 29, 1996, the
carrying value of notes payable approximates fair value
based upon market rates.
7. Long-Term Debt
<TABLE>
<CAPTION>
March March
29, 1996 31, 1995
--------- ----------
<S> <C> <C>
Debt $3,311 $3,461
Less current portion 940 673
--------- ----------
$2,371 $2,788
========== ===========
</TABLE>
Long-term debt consists primarily of property and equipment
mortgages of foreign subsidiaries. Interest rates range
from 5.0% to 11.0% on such debt. At March 29, 1996 the
carrying value of such debt approximates fair value based
upon market rates.
At March 29, 1996, maturities of long-term debt consisted of
the following:
<TABLE>
<CAPTION>
<S> <C>
Year ended
----------
1997 $ 940
1998 655
1999 423
2000 283
2001 265
2002 and thereafter 745
--------
$3,311
========
</TABLE>
8. Leases
The Group leases various manufacturing, office and
warehousing facilities and equipment under arrangements
which are classified for financial statement purposes as
operating leases.
12
<PAGE>
American Optical Corporation
Worldwide Ophthalmic Group
Notes to Combined Financial Statements (continued)
(Dollars in Thousands)
8. Leases (continued)
As of March 29, 1996, future minimum lease commitments under
non-cancelable operating leases were as follows:
<TABLE>
<CAPTION>
<S> <C>
1997 $1,091
1998 731
1999 673
2000 633
2001 651
2002 and thereafter 644
---------
Total minimum lease payments $4,423
=========
</TABLE>
Rental expense on operating leases amounted to $1,423 in
1996 and $1,234 in 1995.
9. Employee Pension Plans
Domestic Plans
The Parent sponsors several defined benefit pension plans
which cover substantially all United States based employees.
Most of these plans provide for retirement benefits based on
employees' length of service and earnings. Pension expense
for currently active employees was calculated by independent
actuaries.
The funding policy is to contribute annually amounts that
meet the minimum funding standards of the Employee
Retirement Income Security Act of 1974 and the Internal
Revenue Code of 1986. The assets of these funds are managed
by investment managers and consist primarily of pooled
common stocks.
13
<PAGE>
American Optical Corporation
Worldwide Ophthalmic Group
Notes to Combined Financial Statements (continued)
(Dollars in Thousands)
9. Employee Pension Plans (continued)
Foreign Plans
Outside the United States, certain subsidiaries of the Group
sponsor defined benefit plans which cover substantially all
employees who are not covered by statutory plans. Pension
expense was calculated by independent actuaries.
A summary of the components of net periodic pension expense
for defined benefit plans of the Group follows:
<TABLE>
<CAPTION>
1996 1995
------ --------
<S> <C> <C>
Service cost-benefits earned $351 $339
during the year
Interest cost on projected benefit
obligation 306 448
Actual return on plan assets (630) (511)
Net amortization and deferral 140 (141)
------ --------
$167 $135
====== ========
</TABLE>
The actuarial assumptions used in determining net periodic
pension expense for 1996 and 1995 were as follows:
<TABLE>
<CAPTION>
<S> <C>
Weighted-average discount rate 8.5%
Rate of increase in compensation 5%
levels
Expected long-term rate of return on 8.5%
assets
</TABLE>
14
<PAGE>
American Optical Corporation
Worldwide Ophthalmic Group
Notes to Combined Financial Statements (continued)
(Dollars in Thousands)
9. Employee Pension Plans (continued)
The following table sets forth the funded status of the
Group's defined benefit plans:
<TABLE>
<CAPTION>
1996
<S> <C>
Actuarial present value of obligations:
Accumulated benefit obligation:
Vested $ 3,916
Nonvested 27
--------
Total accumulated benefits 3,943
Effect of increase in compensation levels 123
--------
Projected benefit obligations for services rendered 4,066
through March 29, 1996
Plan assets at market value 6,168
--------
Plan assets in excess of projected benefit
obligation (2,102)
Unrecognized net gain 2,305
Unrecognized prior service cost (512)
Unrecognized net asset at transition date 628
--------
Net pension liability recognized in the balance
sheet at March 29, 1996 $ 319
========
</TABLE>
15
<PAGE>
American Optical Corporation
Worldwide Ophthalmic Group
Notes to Combined Financial Statements (continued)
(Dollars in Thousands)
9. Employee Pension Plans (continued)
<TABLE>
<CAPTION>
Plans Having Plans Having
Accumulated Assets in
Benefits Excess of
in Excess Accumulated
of Assets Benefits Total
------------ ------------- -----------
<S> <C> <C> <C>
1995
Actuarial present value of
obligations:
Accumulated benefit
obligation:
Vested $3,889 $1,613 $5,502
Nonvested 50 24 74
------------ ------------- -----------
Total accumulated benefits 3,939 1,637 5,576
Effect of increase in
compensation levels 76 324 400
------------ ------------- -----------
Projected benefit obligations
for services rendered
through March 31, 1995 4,015 1,961 5,976
Plan assets at market value 3,325 3,441 6,766
------------ ------------- -----------
Plan assets (in excess of)
less than projected benefit
obligation 690 (1,480) (790)
Unrecognized net gain 172 562 734
Unrecognized prior service
cost (101) (476) (577)
Unrecognized net asset at
transition date 28 718 746
Net pension (assets) ------------ ------------- -----------
liability recognized in the
balance sheet at March 31,
1995 $ 789 $ (676) $113
============ ============= ============
</TABLE>
10. Postretirement Health Care Benefits
The Group provides certain health care benefits for retired
employees based in the United States. For employees who
retire prior to age 65 the cost of the coverage (up until age
65) is primarily paid by the employee with a subsidy provided
by the Group. Employees who retired prior to March 1, 1989
receive, upon reaching age 65, an annual payment in lieu of
providing health care benefits. The Group funds benefits as
they are paid to retirees. The Group has accrued its
estimated Accumulated Postretirement Benefit Obligation
(APBO). The APBO was estimated based upon an assumed discount
rate of 8% and average
16
<PAGE>
American Optical Corporation
Worldwide Ophthalmic Group
Notes to Combined Financial Statements (continued)
(Dollars in Thousands)
10. Postretirement Health Care Benefits (continued)
retirement age of 60. Standard mortality and turnover tables
were used. At March 29, 1996, 102 active employees are
covered by such benefits. The net periodic postretirement
benefit expense was $3 for 1996 and $4 for 1995.
The following table reconciles the APBO to the net
postretirement medical liability at March 29, 1996 and March
31, 1995:
<TABLE>
<CAPTION>
1996 1995
--------- ----------
<S> <C> <C>
Accumulated postretirement $30 $58
benefit obligation
Unrecognized net gain 48 17
--------- ----------
Net postretirement medical
liability recognized in the
balance sheet $78 $75
========= ==========
</TABLE>
11. Business Segment Information
The Group operates principally in one industry segment, the
manufacture and distribution of ophthalmic lenses and other
related products. The Group's operations by geographic area
for the years ended March 29, 1996 and March 31, 1995 are
presented below:
<TABLE>
<CAPTION>
Revenue
from Area
Total Interarea Unaffiliated Operating Identifiable
Revenue Revenue Customers Income Assets
-------- --------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
1996
North America $47,003 $(14,907) $32,096 $ 8,928 $24,997
Europe 50,977 50,977 3,706 26,643
Interarea eliminations (14,907) 14,907
-------- --------- ------------ ------------ ------------
Total $83,073 $ - $83,073 $12,634 $51,640
======== ========= ============ ============ ============
</TABLE>
17
<PAGE>
American Optical Corporation
Worldwide Ophthalmic Group
Notes to Combined Financial Statements (continued)
(Dollars in Thousands)
11. BUSINESS SEGMENT INFORMATION (CONTINUED)
<TABLE>
<CAPTION>
Revenue
from Area
Total Interarea Unaffiliated Operating Identifiable
Revenue Revenue Customers Income Assets
--------- --------- ------------ ------------- ------------
<S> <C> <C> <C> <C> <C>
1995
North America $46,770 $(14,732) $32,038 $5,879 $25,525
Europe 44,383 44,383 2,510 26,606
Interarea eliminations (14,732) 14,732
--------- --------- ------------ ------------- ------------
Total $76,421 $ - $76,421 $8,389 $52,131
========= ========= ============ ============= ============
</TABLE>
12. RELATED PARTY TRANSACTIONS
The Parent provides certain services to all its operating
divisions and subsidiaries of the Group. These services
include legal, financial and administrative services.
Charges allocated to the Group for such services totaled
$1,235 and $1,113 in 1996 and 1995, respectively. It is
management's opinion that such charges fairly represent the
cost of services provided to the Group
The U.S. division's cash is managed as part of the Parent's
cash management system. The net cash collected or disbursed
by the Group is transferred to the Parent on a daily basis
through the Group Control Account. Transactions such as the
reimbursement of expenses incurred by the Parent on behalf
of the Group are also recorded through the Group Control
Account.
13. SUBSEQUENT EVENT
On May 6, 1996 the Parent entered into an agreement to sell
the assets of the Group to Sola International, Inc. for
$107,000 plus the assumption of certain liabilities and
subject to post-closing adjustments.
18
<PAGE>
EXHIBIT 99.3
<PAGE>
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION
On May 6, 1996, the Company entered into a Purchase Agreement with
American Optical Corporation ("AOC") providing for the acquisition of
substantially all of AOC's worldwide ophthalmic business ("AO") for cash
consideration of $107.0 million (together with the assumption of certain
liabilities), subject to post-closing adjustments (the "AO Acquisition").
The AO Acquisition will be funded through borrowings under the Company's
new bank credit agreement (the "New Credit Agreement"). In May 1996, the
Company announced that it had entered into a definitive merger agreement
which provides for the acquisition (the "Neolens Acquisition") by the
Company of Neolens, Inc. ("Neolens"). The Company intends to fund the
Neolens Acquisition primarily through borrowings under the New Credit
Agreement.
The unaudited pro forma condensed combined financial information gives
effect to the AO Acquisition and the Neolens Acquisition and the financing
thereof by borrowings under the New Credit Agreement, as if they had
occurred on April 1, 1995 for purposes of the unaudited pro forma condensed
combined statement of operations and as of March 31, 1996 for purposes of
the unaudited pro forma condensed combined balance sheet. The pro forma
adjustments have been applied to the financial information derived from the
audited financial statements of the Company and AO and the unaudited
financial statements of Neolens and substantially all of AO's Singapore
ophthalmic operations ("AO Singapore") to account for the AO Acquisition and
the Neolens Acquisition as purchases; accordingly, assets acquired and
liabilities assumed will be recorded at their estimated fair values which
are subject to further refinement, including appraisals and other analyses,
with appropriate recognition given to the effect of current interest rates
and income taxes.
The AO Acquisition and the Neolens Acquisition will be accounted for
using the purchase method of accounting. The unaudited pro forma condensed
combined financial information has been prepared on the basis of
assumptions described in the notes thereto and includes assumptions
relating to the allocation of the consideration paid for the assets and
liabilities of AO and Neolens based on preliminary estimates of their fair
value. The actual allocation of such consideration may differ from that
reflected in the unaudited pro forma condensed combined financial
information after valuations and other procedures to be performed after the
closings of the AO Acquisition and the Neolens Acquisition have been
performed. The Company does not expect that the final allocation of the
purchase price for the above acquisitions will differ materially from the
preliminary allocations. In addition, the interest rate on, and the amount
of, borrowings under the New Credit Agreement may differ from the
assumptions set forth below. In the opinion of the Company, all
adjustments necessary to present fairly such unaudited pro forma condensed
combined financial information have been made based on the proposed terms
and structure of the AO Acquisition and the Neolens Acquisition.
As a result of the AO Acquisition, the Company expects to incur two
non-recurring charges in fiscal 1997: (i) an estimated $7.0 million charge
to cost of sales for the amortization associated with an inventory write-up
to fair value; and (ii) an estimated $10.0 million charge for the write-off
of in-process research and development. These charges have been excluded
from the unaudited pro forma condensed combined statement of operations
included herein because they are nonrecurring. The Company also expects to
record approximately $71.8 million of goodwill in connection with the AO
Acquisition and the Neolens Acquisition, which will be amortized over 40
years.
The unaudited pro forma condensed combined financial information is
not necessarily indicative of what actual results would have been had the
AO Acquisition and the Neolens Acquisition occurred at the dates indicated
nor do they purport to project the future financial position or the results
of future operations of the Company.
The unaudited pro forma condensed combined financial information
should be read in conjunction with the accompanying notes and the audited
financial statements of AO, including the notes thereto, included elsewhere
in this Form 8-K, and the audited financial statements of the Company, and
the notes thereto, included in the Company's Form 10-K for the fiscal year
ended March 31, 1996.
<PAGE>
THE COMPANY HAS FILED A REGISTRATION STATEMENT WITH THE U.S.
SECURITIES AND EXCHANGE COMMISSION WITH RESPECT TO AN OFFERING
OF COMMON STOCK. THE UNAUDITED PRO FORMA CONDENSED COMBINED
FINANCIAL INFORMATION DOES NOT GIVE EFFECT TO SUCH OFFERING. IF
SUCH OFFERING IS CONSUMMATED, THE COMPANY INTENDS TO USE THE NET
PROCEEDS OF SUCH OFFERING TO REPAY A PORTION OF THE BORROWINGS
UNDER THE NEW CREDIT AGREEMENT WHICH WILL FUND THE AO ACQUISITION
AND THE NEOLENS ACQUISITION.
<PAGE>
SOLA INTERNATIONAL INC.
UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
March 31, 1996
(In thousands)
The unaudited pro forma condensed combined balance sheet as of March
31, 1996 has been prepared by combining the historical consolidated balance
sheet of the Company as of March 31, 1996 with (i) the historical combined
balance sheet of the Worldwide Ophthalmic Group of American Optical
Corporation as of March 29, 1996, (ii) the historical balance sheet of AO
Singapore as of March 31, 1996 and (iii) the historical balance sheet of
Neolens as of January 31, 1996 and gives effect to the pro forma
adjustments as described in the notes hereto.
<TABLE>
<CAPTION>
Sola American
Interna- Optical AO Pro
tional Corpor- Sing- Neolens, forma
Inc. ation apore(i) Inc.(ii) Adjustments Combined
-------- -------- -------- -------- ------------ --------
<S> <C> <C> <C> <C> <C> <C>
Assets
Current Assets
Cash and cash equivalents........ $ 22,394 $ 2,220 $ 680 $ 3 $ (32) (1) $ 25,265
Trade accounts receivable, 74,845 15,798 1,300 452 (967) (2) 91,428
net.............................
Inventories...................... 100,707 19,450 1,205 902 7,000 (1) 129,264
Deferred income taxes............ 7,491 - - - 7,491
Prepaids and other current
assets.......................... 1,861 3,861 295 61 (236) (2) 5,842
-------- -------- -------- -------- --------- --------
Total current assets 207,298 41,329 3,480 1,418 5,765 259,290
Property, Plant and equipment,
net.............................. 79,582 9,884 332 896 616 (1) 91,310
Deferred income taxes............. 6,800 252 - - 3,248 (1) 10,300
Debt issuance costs, net.......... 1,907 - - 240 660 (3) 2,807
Goodwill and other intangibles,
net.............................. 120,352 - - - 73,335 (1) 193,687
Other assets...................... 910 175 - 40 1,125
-------- -------- -------- -------- --------- --------
Total assets.................... $416,849 $ 51,640 $ 3,812 $ 2,594 $ 83,624 $558,519
======== ======== ======== ======== ======== ========
Liabilities and Shareholders'
Equity
Liabilities
Current liabilities
Notes payable to banks........... $ 13,722 $ 534 $ - $ 1,066 $ (1,066) (4) $ 7,601
(6,655) (5)
Current portion of long-term
debt............................ 3,681 940 - 300 (300) (4) 4,621
Accounts payable................. 39,415 5,477 839 1,180 46,911
Accrued liabilities.............. 20,167 4,042 1,599 - (1,203) (2) 24,605
Accrued reorganization and
acquisition expenses............ 9,746 - - - 9,746
Accrued payroll and related 22,560 3,638 59 - 26,257
expenses........................
Income taxes payable............. 1,090 1,284 17 - 2,391
Deferred income taxes............ 461 286 - - 1,049 (1) 1,796
-------- -------- -------- -------- -------- --------
Total current liabilities....... 110,842 16,201 2,514 2,546 (8,175) 123,928
Long-term debt, less current
portion.......................... 3,360 2,371 - - 5,731
Bank debt, less current portion... 6,000 - - - 133,209 (4,5) 139,209
Senior subordinated notes......... 88,530 - - 107 (107) (4) 88,530
Deferred income taxes............. 4,990 - - - 735 (1) 5,725
(1,086) (1)
Other liabilities................. 10,886 1,086 - 125 (125) (4) 10,886
-------- -------- -------- -------- --------- --------
Total liabilities............... 224,608 19,658 2,514 2,778 124,451 374,009
Shareholders' equity
Parent company investment......... - 31,982 1,298 (184) (33,096) (1) -
Common stock...................... 218 - - - 218
Additional paid-in capital........ 206,412 - - - 206,412
Equity participation loans........ (421) - - - (421)
Accumulated deficit............... (17,993) - - - (7,731) (6) (25,724)
Cumulative foreign currency
adjustments...................... 4,025 - - - 4,025
-------- -------- -------- -------- ------------ --------
Total shareholders' equity/parent
company investment............. 192,241 31,982 1,298 (184) (40,827) 184,510
-------- -------- -------- -------- ----------- --------
Total liabilities and
shareholders' equity........... $416,849 $ 51,640 $ 3,812 $ 2,594 $ 83,624 $558,519
======== ======== ======== ======== ========== ========
- -------------
(i) The financial information with respect to AO Singapore is derived from
unaudited internal financial data provided to the Company by AOC.
This information has not been independently reviewed or audited by the
Company or an independent accounting firm.
(ii) The financial information with respect to Neolens is based on
unaudited financial statements provided to the Company by Neolens.
This information has not been independently reviewed or audited by the
Company or an independent accounting firm.
</TABLE>
<PAGE>
SOLA INTERNATIONAL INC.
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
MARCH 31, 1996
The unaudited pro forma condensed combined balance sheet gives effect
to the following pro forma adjustments:
(1) The AO Acquisition and the Neolens Acquisition will be accounted
for as purchases pursuant to APB Opinion No. 16, "Business Combinations."
The respective purchase prices will be allocated to the assets and
liabilities of the acquired businesses based on their relative fair values.
Such allocations are subject to final determination based on valuations and
other studies that are not yet completed. The final values may differ from
those set forth below:
<TABLE>
<CAPTION>
AO Neolens
Acquisition Acquisition Total
------------- ------------ ---------
(In thousands)
<S> <C> <C> <C>
Estimated purchase price..................... $ 107,000 $ 13,000 $ 120,000
Acquisition expenses......................... 2,500 565 3,065
------------- ------------ ---------
Total estimated acquisition cost........... $ 109,500 $ 13,565 $ 123,065
========== ========== =========
Historical net book value at March 31, 1996.. $ 33,280 $ (184) $ 33,096
Elimination of certain assets and liabilities
as per the agreement:.......................
Elimination of U.S. cash balance............. (32) - (32)
Elimination of U.S. Benefit Plan liabilities
not assumed................................. 1,086 - 1,086
Elimination of current and deferred tax
liabilities in the U.S (a).................. (221) - (221)
------------- ------------ ---------
Adjusted book value acquired............... 34,113 (184) 33,929
Write-up of inventories (b).................. 7,000 - 7,000
Write-up of property, plant and equipment.... 616 - 616
Goodwill..................................... 58,086 13,749 71,835
In-process research and development.......... 6,500 - 6,500
Non-compete agreement........................ 1,500 - 1,500
Net deferred tax effects of certain of the
above purchase accounting adjustments (c)... 1,685 - 1,685
---------- ---------- ---------
$ 109,500 $ 13,565 $123,065
========== ========== =========
</TABLE>
- --------
(a) The Company will be able to write-up the AO U.S. assets acquired,
including goodwill, for income tax purposes and accordingly, there
will be no initial differences between the tax bases and the fair
values of the U.S. assets upon acquisition. This will result in the
elimination of the following deferred tax amounts (in thousands):
<TABLE>
<CAPTION>
<S> <C>
Long term deferred tax asset............ $ (252)
Current deferred tax liability.......... 31
---------
$ (221)
=========
</TABLE>
(b) The Company will write-up the value of certain AO inventory accounts
in connection with the purchase price allocation. The majority of
this write-up will be charged to cost of goods sold in fiscal 1997.
This one-time charge has not been reflected in the accompanying
unaudited pro forma condensed combined statement of operations due to
its unusual, non-recurring nature.
(c) Represents the deferred tax liability relating to the inventory and
property and equipment write-ups at the foreign locations for which
there is no change in tax basis, net of a deferred tax asset
recognized in connection with the in-process research and development
charge. The net deferred tax effect was calculated as follows (in
thousands):
<TABLE>
<CAPTION>
<S> <C>
Current deferred tax liability
relating to inventory write-up......... $ (1,335)
Long term deferred tax liability
relating to property, plant and
equipment write-up..................... (480)
Deferred tax asset relating to in-
process research and development....... 3,500
------------
$ 1,685
============
</TABLE>
<PAGE>
SOLA INTERNATIONAL INC.
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET--(CONTINUED)
MARCH 31, 1996
(2) Under the terms of the AO Acquisition, the Company will acquire
substantially all of AO Singapore's ophthalmic operations, which are
separately disclosed in the above unaudited pro forma condensed combined
balance sheet. Intercompany accounts reflected on the historical balance
sheets have been eliminated.
(3) Represents expenses incurred in connection with entering into the
New Credit Agreement, estimated at $0.9 million, offset by the write-off of
Neolens deferred bank issue expenses of $0.2 million. The existing Neolens
bank credit agreement will be repaid in full in connection with the Neolens
Acquisition.
(4) Represents borrowings of Neolens which will be replaced by bank
borrowings under the New Credit Agreement after the Neolens Acquisition.
(5) Represents borrowings of $110.4 million under the New Credit
Agreement used to fund the AO Acquisition, and borrowings of $14.5 million
under the New Credit Agreement used to fund the Neolens Acquisition. In
addition, $8.3 million of borrowings under the New Credit Agreement are
assumed to replace certain foreign currency borrowings of the Company ($6.7
million) and certain obligations of Neolens ($1.6 million).
(6) In accordance with generally accepted accounting principles, the
Company will allocate a portion of the AO purchase price to in-process
research and development and immediately write-off an estimated $10.0
million ($6.5 million net of income taxes of $3.5 million) of in-process
research and development of AO as a charge to operations upon consummation
of the AO Acquisition. This will result in a corresponding charge to
retained earnings. This one-time charge is reflected in the unaudited pro
forma condensed combined balance sheet but not in the unaudited pro forma
condensed combined statement of operations due to its unusual, non-
recurring nature.
<PAGE>
SOLA INTERNATIONAL INC.
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
FISCAL YEAR ENDED MARCH 31, 1996
(IN THOUSANDS, EXCEPT PER SHARE DATA)
The unaudited pro forma condensed combined statement of operations
information has been prepared by combining the historical consolidated
statement of operations of the Company for the fiscal year ended March 31,
1996 with (i) the historical combined statement of operations of the
Worldwide Ophthalmic Group of American Optical Corporation for the fiscal
year ended March 29, 1996, (ii) the historical statement of operations of
AO Singapore for the year ended March 31, 1996 and (iii) the historical
statement of operations of Neolens for the twelve months ended January 31,
1996 and give effect to the pro forma adjustments as described in the notes
hereto.
<TABLE>
<CAPTION>
Sola American AO
Interna- Optical Singapore Neolens, Pro forma
tional Inc. Corporation (i) Inc.(ii) Adjustments Combined
----------- ----------- ----------- --------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
Net sales............................. $ 387,709 $ 81,623 $ 5,440 $ 2,441 $ (2,641) (1) $ 474,572
Technology revenue.................... - 1,450 - - 1,450
----------- ----------- ----------- --------- --------- ---------
Total revenue....................... 387,709 83,073 5,440 2,441 (2,641) 476,022
(2,641) (1)
Cost of sales......................... 201,991 48,220 4,576 2,512 77 (2) 254,735
----------- ----------- ----------- --------- -------- ---------
Gross profit........................ 185,718 34,853 864 (71) (77) 221,287
Research and development expenses..... 13,329 1,146 - 234 14,709
Selling and marketing expenses........ 66,345 13,755 816 239 81,155
2,002 (3)
General and administrative expenses... 45,291 6,242 657 1,008 300 (4) 55,500
----------- ----------- ----------- --------- -------- ---------
Operating expenses.................. 124,965 21,143 1,473 1,481 2,302 151,364
----------- ----------- ----------- --------- -------- ---------
Operating income................... 60,753 13,710 (609) (1,552) (2,379) 69,923
Corporate allocation.................. - (1,235) - - 1,235 (5) -
Interest expense, net................. (12,141) (172) 12 (324) (7,523) (6) (20,148)
----------- ----------- ----------- --------- -------- ---------
Income before provision for income
taxes, minority interest and
extraordinary item.................. 48,612 12,303 (597) (1,876) (8,667) 49,775
Provision for income taxes............ 13,623 3,768 (413) - (3,152) (7) 13,826
Minority interest..................... (401) - - - (401)
----------- ----------- ----------- --------- -------- ---------
Income (loss) before extraordinary
item................................ $ 34,588 $ 8,535 $ (184) $ (1,876) $ (5,515) $ 35,548
=========== =========== =========== ========= ======== =========
Earnings per share before
extraordinary item................... $ 1.51 $ 1.55
=========== =========
Weighted average number of
shares outstanding................... 22,944 22,944
=========== =========
__________
(i) The financial information with respect to AO Singapore is derived from
unaudited internal financial data provided to the Company by AOC.
This information has not been independently reviewed or audited by the
Company or an independent accounting firm.
(ii) The financial information with respect to Neolens is based on
unaudited financial statements provided to the Company by Neolens.
This information has not been independently reviewed or audited by the
Company or an independent accounting firm.
</TABLE>
<PAGE>
SOLA INTERNATIONAL INC.
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
FISCAL YEAR ENDED MARCH 31, 1996
The unaudited pro forma condensed combined statement of operations
gives effect to the following pro forma adjustments:
(1) Under the terms of the AO Acquisition, the Company will acquire
substantially all of AOC's Singapore ophthalmic operations, which are
separately disclosed in the above unaudited pro forma condensed combined
statement of operations. During the year ended March 29, 1996, AO recorded
net sales of $1.4 million to the AO Singapore operation, which are included
in the historical financial statements used in the unaudited pro forma
condensed combined statement of operations. The pro forma adjustments
eliminate the AO sales to AO Singapore. In addition, Neolens recorded
sales of $1.2 million to Sola during the twelve months ended January 31,
1996. The pro forma adjustments eliminate the Neolens sales to Sola.
(2) Represents amortization of the write-up of property, plant and
equipment over an estimate of its composite useful life. Amortization of
the property, plant and equipment write-up has been allocated to cost of
sales as the most significant write-ups relate to laboratory assets in
France and manufacturing assets in Mexico. The composite useful life
assumed in these pro forma financial statements is eight years.
(3) Represents the amortization of goodwill and other intangible
assets arising upon the AO Acquisition and the Neolens Acquisition, over 40
years for goodwill, and over seven years for the non-compete agreement (in
accordance with the terms of the purchase agreement between Sola and AOC),
reflecting an estimate of the amortizable lives of such intangibles.
<TABLE>
<CAPTION>
(In thousands)
<S> <C>
Amortization of goodwill........... $ 1,787
Amortization of non-compete
agreement........................ 215
-----------
Total amortization................. $ 2,002
===========
</TABLE>
(4) Reflects the Company's estimate of additional general and
administrative expenses that will be incurred after the AO Acquisition.
The estimated costs relate primarily to expenditures on treasury, legal and
tax and accounting expenses.
(5) Reflects the reversal of $1.2 million of Corporate allocation
from AOC, which will not continue after the AO Acquisition. The Corporate
allocation includes legal, financial and administrative services primarily
provided by AOC.
(6) Represents the additional interest expense for the fiscal year
ended March 31, 1996 that would have been incurred had the AO Acquisition
and the Neolens Acquisition taken place on April 1, 1995, computed as
follows (In thousands):
<TABLE>
<CAPTION>
<S> <C>
Reduction in interest expense due to
reduced interest rate under the New
Credit Agreement........................ $ (169)
Reduction in interest expense incurred
by Neolens when converted to New
Credit Agreement........................ (233)
Interest expense on increased
borrowings of $124.9 million at 6.94%
per annum............................... 8,668
Interest expense savings on additional
borrowings of $124.9 million due to
reduced interest rate under New
Credit Agreement........................ (937)
Amortization of bank issue expenses
over the life of the New Credit
Agreement (three to five years)......... 194
----------
Change in interest expense............... $ 7,523
==========
</TABLE>
SOLA INTERNATIONAL INC.
NOTES TO UNAUDITED PRO FORMA CONDENSED
COMBINED STATEMENT OF OPERATIONS - (CONTINUED)
FISCAL YEAR ENDED MARCH 31, 1996
A change of 1/4% in the interest rate payable on the outstanding
balance under the New Credit Agreement would change annual interest expense
by approximately $0.3 million before the effect of income taxes.
(7) Adjustment to reflect income tax effects assuming a combined
state and federal effective income tax rate of 35% for the companies
acquired in the AO Acquisition and the Neolens Acquisition. Interest
payments on the acquisition debt will be funded, in part, through interest
received from the AO subsidiaries that is attributable to that portion of
acquisition debt which can be allocated to foreign subsidiaries and through
dividends remitted from its subsidiaries. The Company anticipates that
withholding taxes will be paid on certain interest and dividend income on
remittance to the Company and that the deductibility of such taxes through
foreign tax credits will be subject to certain limitations. In addition,
the AO and Neolens historical tax charges in their statements of operations
have benefitted from tax NOL's in certain jurisdictions. Following the AO
Acquisition and the Neolens Acquisition any benefit from such NOL's will be
charged directly to goodwill.
<PAGE>
