<PAGE> 1
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM 8-K/A
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
------------------------
Date of Report (Date of earliest event reported): May 30, 1996
AEARO CORPORATION
(Exact name of Registrant as specified in charter)
DELAWARE 0-26942 13-3840450
(State or other jurisdiction (Commission file number) (IRS employer
of incorporation) identification no.)
ONE WASHINGTON MALL, EIGHTH FLOOR, BOSTON, MASSACHUSETTS 02108-2610
(Address of principal executive offices) (Zip Code)
(617) 371-4200
(Registrant's telephone number, including area code)
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ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS
ACQUISITION OF PELTOR
On May 30, 1996, the Company, through one of its subsidiaries, acquired all
issued and outstanding capital stock of Peltor Holding AB, a Swedish
corporation ("Peltor"), from Active I Malmo AB of Malmo, Sweden, and certain of
its subsidiaries, for approximately $86.0 million. The Company financed the
Peltor acquisition using additional borrowings under its bank facilities.
Peltor was founded in the early 1950s and is the world's leading
manufacturer of ear muff hearing protection devices, including specialty muffs
capable of two-way radio frequency communications. Peltor markets its products
worldwide through safety and industrial distributors to industry, government,
military and recreational markets. Its sales for the year ended December 31,
1995 were approximately $39 million. Peltor is based in Varnamo, Sweden, has
manufacturing facilities in Sweden, Rhode Island and Germany and has sales
offices in Scandinavia, Germany, France, England, and the United States. Mr.
Leif Palmaer, the President of Peltor, and Mr. Leif Anderzon, the Executive Vice
President of Peltor, who have been the principal operating officers of Peltor
since 1981, will continue in the same capacities.
Peltor manufactures, assembles and sells a broad line of ear muffs, hard
caps/visors, noise attenuation headsets and wireless and hardwire communication
headsets. Peltor's products serve a variety of end user markets where protection
from harmful high and low frequency noise is sought or the need for easy
communication in noisy or remote environments exists, such as in the
construction, heavy machinery, airport, forestry, textile and mining industries.
Peltor has recently focused on the high-end communications market, which has
recently grown faster than the market for traditional ear muffs. Peltor's
leadership position in innovation and product quality was attested by the
selection of its ear muff products as the basis for the new, pan-European
standards for ear muff hearing protection.
ITEM 5. OTHER EVENTS
ELECTION OF NEW DIRECTOR
On May 27, 1996, Samuel L. Hayes, III, was elected a director of the
Company and its wholly-owned subsidiary, Cabot Safety Corporation. Since 1971,
Professor Hayes has taught at the Harvard Business School, and he currently
holds the Jacob H. Schiff Chair in Investment Banking. His teaching and research
have focused on the capital markets and corporate financial management.
Professor Hayes is also a director of Tiffany & Co., Ernst Home Centers, and
certain Eaton Vance mutual funds.
CHANGE OF NAME
On May 29, 1996, the Company changed its name from Cabot Safety Holdings
Corporation to Aearo Corporation.
AMENDED AND RESTATED CREDIT AGREEMENT
On May 29, 1996, the Company entered into an amended and restated credit
agreement (the "Amended Credit Agreement") with Bankers Trust Company, as
administrative agent, to provide for additional borrowings to finance the
acquisition of Peltor. The Amended Credit Agreement provides for (a) a secured
term loan facility consisting of an A tranche and a B tranche providing for up
to $90 million of A term loans and $50 million of B term loans (collectively,
the "Term Loans") (a portion of the A tranche is denominated in an equivalent
amount of foreign currencies) and (b) a secured revolving credit facility (the
"Revolving Credit Facility") providing for up to $25 million of revolving loans
(a portion of which may be denominated in foreign currencies) for general
corporate purposes and, as to $15 million thereof, to finance permitted
1
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acquisitions. As part of the Revolving Credit Facility, the Amended Credit
Agreement provides for the issuance of letters of credit in an aggregate face
amount of up to $5 million. The full amount of the Term Loans and no advances
under the Revolving Credit Facility were outstanding immediately after giving
effect to the acquisition of Peltor. The Term Loans will amortize quarterly over
a seven-year period as follows: $2.0 million for the balance of fiscal 1996;
$8.2 million in fiscal 1997; $10.6 million in fiscal 1998; $13.0 million in
fiscal 1999; $16.0 million in fiscal 2000; $20.7 million in fiscal 2001; $34.4
million in fiscal 2002; and $35.25 million in fiscal 2003. Amounts repaid or
prepaid in respect of the Term Loans may not be reborrowed. Loans and letters of
credit under the Revolving Credit Facility will be available at any time prior
to the maturity of the Term Loans.
The Company will be required to make mandatory prepayments of loans, and
letters of credit will be mandatorily reduced, in amounts and at times subject
to exceptions to be agreed upon, (a) in respect of 75% of consolidated excess
cash flow, or 50% if there is no default and if a certain leverage ratio is met
(after giving effect to debt service on senior and subordinated debt), (b) in
respect of 100% of the net cash proceeds from the sale or other disposition of
certain assets by the Company and (c) in respect of 100% of the net cash
proceeds from the issuance of debt or equity securities by the Company,
provided: (i) that the Company may make permitted acquisitions and capital
expenditures, subject to certain dollar limits; (ii) that the proceeds received
from an offering of common stock occurring on or prior to December 31, 1996 may
be used either to pay down senior subordinated notes pursuant to the so called
"IPO clawback" provisions thereof or redeemable preferred stock, so long as the
first $25 million of such proceeds are used either to redeem senior subordinated
notes or to repay in part the Term Loans; (iii) that with respect to any other
equity issuance, $20 million may be used for permitted acquisitions; (iv) that
the Company may incur certain permitted indebtedness subordinated to the bank
debt of up to $25 million; and (v) that up to $15 million in excess cash flow
may be used to repay the senior subordinated notes. At the Company's option,
loans may be voluntarily prepaid, and revolving loan commitments and letter of
credit outstandings may be permanently reduced, in whole or in part, at any time
in certain minimum amounts.
At the Company's option, the interest rates per annum applicable to the
loans are either an adjusted rate based on the London Interbank Offered Rate
plus a margin of (x) 2.25% in the case of A Term Loans and Revolving Loans and
(y) 2.75% in the case of B Term Loans, or the Base Rate (as defined herein) plus
a margin of (x) 1.00% in the case of A Term Loans and Revolving Loans and (y)
1.50% in the case of B Term Loans (in the case of A Term and Revolving Loans,
these margins shall be decreased if the Company, on a consolidated basis,
achieves certain leverage ratios). The Base Rate is the higher of Bankers Trust
Company's announced prime lending rate and the Overnight Federal Funds rate plus
0.50%. The Company must pay certain fees in connection with the credit
facilities, including a commitment fee (ranging from 0.375% to 0.50%) on the
undrawn portion of the commitments in respect of the Revolving Credit Facility
based upon the Company's leverage ratio, and fees relating to the issuance of
letters of credit.
The Amended Credit Agreement contains a number of significant covenants
that, among other things, restrict the ability of the Company to dispose of
assets, incur additional indebtedness, repay other indebtedness or amend other
debt instruments, pay dividends, create liens on assets, enter into leases,
investments or acquisitions, engage in mergers or consolidations, make capital
expenditures, create subsidiaries, issue capital stock or engage in certain
transactions with subsidiaries and affiliates and otherwise restrict corporate
activities. In addition, under the Amended Credit Agreement the Company is
required to comply with specified financial ratios and tests, including a
minimum fixed charge coverage ratio, a minimum interest coverage ratio, a
maximum leverage ratio and a maximum capital expenditures test. The Amended
Credit Agreement also contains provisions that prohibit modifications to the
terms of the senior subordinated notes and prohibit the Company from refinancing
the senior subordinated notes, in each case, without the consent of the lenders
or as otherwise provided for in the Amended Credit Agreement.
2
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REGISTRATION STATEMENT WITH RESPECT TO INITIAL PUBLIC OFFERING OF COMMON STOCK
On June 3, 1996, the Company filed with the Securities and Exchange
Commission a Registration Statement on Form S-1 under the Securities Act of
1933, as amended, with respect to the offering of 5,500,000 shares of common
stock (plus 825,000 shares to cover over-allotments, if any) through an
underwriting group led by Goldman, Sachs & Co. and Donaldson, Lufkin, & Jenrette
Securities Corporation. The net proceeds from the proposed offering, estimated
to be approximately $70.3 million, will be used as follows: (i) approximately
$39.4 million will be used to redeem up to $35.0 million principal amount of
12 1/2% senior subordinated notes due 2005 of the Company's wholly-owned
subsidiary Cabot Safety Corporation, (ii) approximately $25.3 million will be
used to retire outstanding shares of the Company's 12 1/2% redeemable preferred
stock, and (iii) the balance will be used to reduce bank debt. The Company has
subsequently terminated this offering.
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS
(A) FINANCIAL STATEMENTS OF BUSINESS ACQUIRED
The financial statements of Peltor Holdings AB are included on pages 5 to
17.
(B) PRO FORMA FINANCIAL INFORMATION
The pro forma financial statements of Peltor Holdings AB are included on
pages 18 to 25.
(C) EXHIBITS
The following exhibit was filed under cover of the Form 8-K filed on June
13, 1996.
2.1 Stock Purchase Agreement by and among Cabot Safety Corporation, Peltor
Holding AB, Leif Palmaer Invest AB, Leif Anderzon AB and Active I
Malmo AB, dated April 25, 1996, as amended May 15, 1996.
3
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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.
CABOT SAFETY HOLDINGS CORPORATION
/S/ MARK V.B. TREMALLO
-----------------------------------
Mark V.B. Tremallo
Vice President, General Counsel and
Secretary
Date: August 12, 1996
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INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of
PELTOR HOLDING AB
Sweden
We have audited the accompanying consolidated balance sheets of Peltor
Holding AB as of December 31, 1994 and 1995, and the related consolidated
statements of operations, stockholders' equity, and cash flows for each of the
three years in the period ended December 31, 1995. 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 in the United States of America. 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.
The Company has presented its consolidated financial statements on a
historical cost basis of accounting; in our opinion, accounting principles
generally accepted in the United States of America require that such
consolidated financial statements be presented using purchase accounting on a
push down basis to reflect the change in ownership of the Company that occurred
in August 1994. Use of purchase accounting on a push down basis would result in
presenting the 1994 consolidated statements of operations, stockholders' equity,
and cash flows on predecessor and successor basis and presenting the
consolidated balance sheet for 1994 and 1995 on a successor basis, giving effect
to the change of ownership in consolidated financial statements. The effect of
the application of purchase accounting on a push down basis on the 1994
predecessor and successor results of operations and cash flows has not been
determined. The pro-forma impact of the change of ownership, assuming that the
change in ownership had occurred as of January 1, 1994, on the results of
operations has been presented in Note 1. The application of purchase accounting
on a push down basis would not have had any material impact on the 1995 results
of operations or cash flows. The application of purchase accounting on a push
down basis would have increased aggregate consolidated stockholders' equity at
December 31, 1994 and 1995 by $3,300,000 and $2,900,000, respectively,
determined on a pro-forma basis assuming the change in ownership had occurred on
January 1, 1994, as described in Note 1.
In our opinion, except for the effects of not applying purchase accounting
on a push down basis as discussed in the preceding paragraph, such consolidated
financial statements present fairly, in all material respects, the financial
position of Peltor Holding AB as of December 31, 1994 and 1995, and the results
of their operations and their cash flows for each of the three years in the
period ended December 31, 1995 in conformity with generally accepted accounting
principles in the United States of America.
As discussed in Note 1, the consolidated financial statements of Peltor
Holding AB have been presented in United States of America Dollars using the
basis of translation described therein.
DELOITTE & TOUCHE AB
Malmo, Sweden
May 31, 1996
5
<PAGE> 7
PELTOR HOLDING AB
<TABLE>
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1994 AND 1995 AND MARCH 31, 1996
(IN THOUSANDS OF U.S. DOLLARS, EXCEPT PER SHARE AMOUNTS)
ASSETS
<CAPTION>
MARCH 31,
1994 1995 1996
------- ------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Current assets:
Cash and cash equivalents.............................. $ 4,582 $ 6,475 $ 6,273
Accounts receivable, net of allowance for doubtful
accounts of $37 and $28 at December 31, 1995 and
1994, respectively................................... 4,004 4,778 6,201
Inventory.............................................. 7,119 9,127 9,711
Prepaid expenses and deferred income................... 172 255 367
Deferred income taxes.................................. 188 210 218
Receivable from related party.......................... 2,082 -- --
Other current assets................................... 477 720 515
------- ------- -------
Total current assets.............................. 18,624 21,565 23,285
------- ------- -------
Property, plant and equipment, net.......................... 5,519 6,488 6,550
Long-term note receivable and other assets.................. 47 8 8
Deferred income taxes....................................... 1,674 -- --
------- ------- -------
Total assets...................................... $25,864 $28,061 $29,843
======= ======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable....................................... $ 1,422 $ 2,343 $ 2,720
Accrued interest....................................... 42 1 --
Accrued expenses and other current liabilities......... 2,034 2,936 3,447
Due to related party................................... -- 1,174 5,910
Current tax liability.................................. 305 679 1,188
Current portion of long-term debt...................... 130 4,311 2,952
------- ------- -------
Total current liabilities......................... 3,933 11,444 16,217
Deferred income taxes....................................... -- 39 40
------- ------- -------
Long-term debt.............................................. 8,778 950 1,070
------- ------- -------
Committments and Contingencies
Stockholders' equity:
Common Stock, par value of $.71 per share;
878,050 shares issued and outstanding.................. 620 620 620
Contributed capital.................................... 5,651 5,651 5,651
Capital deficiency at inception........................ (4,755) (4,755) (4,755)
Retained earnings...................................... 11,850 13,690 10,785
Cumulative translation adjustments..................... (213) 422 215
------- ------- -------
Total stockholders' equity........................ 13,153 15,628 12,516
------- ------- -------
Total liabilities and stockholders' equity........ $25,864 $28,061 $29,843
======= ======= =======
</TABLE>
See notes to consolidated financial statements.
6
<PAGE> 8
PELTOR HOLDING AB
<TABLE>
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1993, 1994 AND 1995
AND THE THREE MONTH PERIODS ENDED MARCH 31, 1995 AND 1996
(IN THOUSANDS OF U.S. DOLLARS)
<CAPTION>
MARCH 31,
-----------------
1993 1994 1995 1995 1996
------- ------- ------- ------ -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net Sales..................................... $24,741 $30,126 $39,284 $9,620 $10,705
Cost of sales................................. 11,346 13,887 18,930 4,594 5,658
------- ------- ------- ------ -------
Gross profit.................................. 13,395 16,239 20,354 5,026 5,047
------- ------- ------- ------ -------
Operating expenses:
Selling, general and administrative...... 6,645 7,632 9,017 2,215 2,551
Research and development................. 851 1,222 1,227 277 340
Management fee to related party.......... -- -- 1,479 -- --
------- ------- ------- ------ -------
Total operating expenses............ 7,496 8,854 11,723 2,492 2,891
------- ------- ------- ------ -------
Operating profit.............................. 5,899 7,385 8,631 2,534 2,156
------- ------- ------- ------ -------
Non-operating income (expenses):
Interest Income.......................... 510 218 229 51 94
Interest expense......................... (1,618) (821) (464) (159) (62)
Currency (gain) loss..................... (1,478) 146 260 -- 23
------- ------- ------- ------ -------
Total non-operating income
(expenses)........................ (2,586) (457) 25 (108) 55
------- ------- ------- ------ -------
Income before income taxes.................... 3,313 6,928 8,656 2,426 2,211
Income tax expense............................ (965) (2,247) (2,967) (776) (700)
------- ------- ------- ------ -------
Net income.................................... $ 2,348 $ 4,681 $ 5,689 $1,650 $ 1,511
======= ======= ======= ====== =======
</TABLE>
See notes to consolidated financial statements.
7
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PELTOR HOLDING AB
<TABLE>
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1993, 1994 AND 1995 AND THE THREE MONTHS PERIOD ENDED
MARCH 31, 1996
(IN THOUSANDS OF U.S. DOLLARS, EXCEPT PER SHARE AMOUNTS)
<CAPTION>
VOTING
COMMON STOCK CAPITAL CUMULATIVE
---------------- CONTRIBUTED DEFICIENCY RETAINED TRANSLATION
SHARES AMOUNT CAPITAL AT INCEPTION EARNINGS ADJUSTMENTS TOTAL
------- ------ ----------- ------------ -------- ----------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1993............. 878,050 $620 $ 2,277 $(4,755) $ 4,821 $ 31 $ 2,994
Net income...................... 2,348 2,348
------- ---- ------- ------- ------- ----- -------
Balance, December 31, 1993........... 878,050 620 2,277 (4,755) 7,169 31 5,342
Net income...................... 4,681 4,681
Cumulative Translation
Adjustment.................... (244) (244)
Contributed Capital............. 3,374 3,374
------- ---- ------- ------- ------- ----- -------
Balance, December 31, 1994........... 878,050 620 5,651 (4,755) 11,850 (213) 13,153
Net income...................... 5,689 5,689
Dividends....................... (3,849) (3,849)
Cumulative Translation
Adjustment.................... 635 635
------- ---- ------- ------- ------- ----- -------
Balance, December 31, 1995........... 878,050 620 5,651 (4,755) 13,690 422 15,628
(Unaudited)
Net income...................... 1,511 1,511
Dividends....................... (4,416) (4,416)
Cumulative Translation
Adjustment.................... (207) (207)
------- ---- ------- ------- ------- ----- -------
Balance, March 31, 1996
(Unaudited)........................ 878,050 $620 $ 5,651 $(4,755) $10,785 $ 215 $12,516
======= ==== ======= ======= ======= ===== =======
</TABLE>
See notes to consolidated financial statements.
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PELTOR HOLDING AB
<TABLE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1993, 1994 AND 1995
AND THE THREE MONTH PERIODS ENDED MARCH 31, 1995 AND 1996
(IN THOUSANDS OF U.S. DOLLARS)
<CAPTION>
MARCH 31,
-----------------
1993 1994 1995 1995 1996
------ ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
(UNAUDITED)
OPERATING ACTIVITIES
Net income...................................... $2,348 $ 4,681 $ 5,689 $ 1,650 $ 1,511
Adjustment to reconcile net income to net cash
provided by operating activities:
Depreciation................................. 739 873 858 213 246
Deferred income taxes........................ 489 1,620 (1,790) -- --
Provision for doubtful accounts.............. 12 28 37 -- --
Gain (loss) on sale of assets................ (5) 3 45 -- --
Changes in assets and liabilities which provided
cash:
Decrease (Increase) in accounts receivable... (686) 283 (314) (1,535) (1,393)
Decrease (Increase) in prepaid expenses and
other current assets....................... (545) (1,423) 1,942 255 300
Increase in inventory........................ (385) (322) (1,144) (452) (562)
Increase in accounts payable and accrued
liabilities................................ 378 911 4,860 5,951 4,449
Other, net................................... -- 124 (33) -- --
------ ------- ------- ------- -------
Net cash provided by operating
activities............................ 2,345 6,778 10,150 6,082 4,551
------ ------- ------- ------- -------
INVESTING ACTIVITIES
Proceeds from sale of equipment................. 8 78 91 -- --
Additions to property, plant and equipment...... (889) (653) (1,326) (365) (299)
Deferred costs and other........................ 490 (210) 1,833 -- (214)
------ ------- ------- ------- -------
Net cash provided (used) in investing
activities............................ (391) (785) 598 (365) (513)
------ ------- ------- ------- -------
FINANCING ACTIVITIES
Cash dividends paid............................. -- -- (3,849) (3,849) (4,416)
(Payments) Increase of principal on amounts
borrowed..................................... (918) (2,880) (4,703) (4,667) 346
------ ------- ------- ------- -------
Net cash used in financing activities... (918) (2,880) (8,552) (8,516) (4,070)
------ ------- ------- ------- -------
Effect of exchange rate changes on cash and
short term investments....................... 31 (46) (303) 575 (170)
------ ------- ------- ------- -------
Increase in cash and cash equivalents........... 1,067 3,067 1,893 (2,224) (202)
Cash and cash equivalents, beginning of
period....................................... 448 1,515 4,582 4,582 6,475
------ ------- ------- ------- -------
Cash and cash equivalents, end of period........ $1,515 $ 4,582 $ 6,475 $ 2,358 $ 6,273
====== ======= ======= ======= =======
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the year for:
Income taxes................................. $ 929 $ 508 $ 849 $ 247 $ 207
====== ======= ======= ======= =======
Interest, net................................ $1,111 $ 639 $ 284 $ 204 $ 62
====== ======= ======= ======= =======
</TABLE>
See notes to consolidated financial statements.
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<PAGE> 11
PELTOR HOLDING AB
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1993, 1994 AND 1995
AND THE THREE MONTH PERIODS ENDED MARCH 31, 1995 AND 1996 (UNAUDITED)
(IN THOUSANDS OF U.S. DOLLARS)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accompanying financial statements have been prepared in conformity with
generally accepted accounting principles in the United States of America. The
significant accounting policies of the Company are described below.
DESCRIPTION OF BUSINESS
Peltor Holding AB (Peltor or the Company) is incorporated in and has its
primary operations headquartered in Varnamo Sweden. The Company is primarily a
manufacturer and distributor of hearing protection equipment. The Company also
has operations in Germany, France, the United States of America, and the United
Kingdom. The accompanying consolidated financial statements include the accounts
of Peltor and its subsidiaries. All significant inter-company accounts and
transactions have been eliminated.
The Company was formed in 1991 when the Founding Shareholders capitalized
the Company with a stock issuance of approximately $280 and sold the underlying
operations to the Company for approximately $10,600. Contemporaneously, the
Company issued additional shares in exchange for approximately $2,500 to a then
unrelated third party (the Investor). Upon completion of these transactions, the
Founding Shareholders owned 64% of the outstanding stock of the Company, 31% of
the stock of the Company was owned by the Investor, and 5% of the stock of the
Company was owned by employees.
<TABLE>
In August 1994 the Investor exercised its option to purchase all the stock
of the Company owned by the Founding Shareholders, including the 5% of previous
employee ownership that was acquired by the Founding Shareholders in 1994 for
approximately $8,500. Accounting principles generally accepted in the United
States of America require that the accompanying consolidated financial
statements be presented using purchase accounting on a push down basis to
reflect the resulting change in ownership of the Company. Use of purchase
accounting on a push down basis would result in presenting the 1994 consolidated
statements of operations, stockholders' equity, and cash flows on predecessor
and successor basis and presenting the consolidated balance sheet for 1994 and
1995 on a successor basis, giving effect to the change of ownership in
consolidated financial statements. The effect of the application of purchase
accounting on a push down basis on the 1994 predecessor and successor results of
operations and cash flows has not been determined. The pro-forma impact of the
change of ownership, assuming that the change in ownership had occurred as of
January 1, 1994, on the results of operations is as follows:
<CAPTION>
(unaudited)
<S> <C>
Net sales................................................... $30,126
Cost of sales............................................... 16,587
-------
Gross profit................................................ 13,539
Operating expenses:
Selling, general and administrative....................... 7,998
Research and development.................................. 1,222
-------
Total operating expenses............................... 9,220
-------
Operating profit............................................ 4,319
-------
</TABLE>
10
<PAGE> 12
PELTOR HOLDING AB
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED DECEMBER 31, 1993, 1994 AND 1995
AND THE THREE MONTH PERIODS ENDED MARCH 31, 1995 AND 1996 (UNAUDITED)
(IN THOUSANDS OF U.S. DOLLARS)
<TABLE>
<CAPTION>
(unaudited)
<S> <C>
Non-operating income (expenses):
Interest income........................................... 218
Interest expense.......................................... (821)
Currency loss............................................. 146
-------
Total non operating income (expense)................... (457)
-------
Income before income taxes.................................. 3,862
Income taxes................................................ (1,489)
-------
Net income.................................................. $2,373
=======
</TABLE>
The application of purchase accounting on a push down basis would not have
had any material impact on the 1995 results of operations or cash flows. The
application of purchase accounting on a push down basis would have increased
aggregate consolidated stockholders' equity at December 31, 1994 and 1995 by
approximately $3,300 and $2,900 (unaudited), respectively, determined on a
pro-forma basis assuming the change in ownership had occurred on January 1,
1994. This increase is primarily due to the excess of the purchase price over
historical amounts that would be allocated to intangible assets. The use of
purchase accounting on a push down basis would also have resulted in certain
reclassifications in the components of shareholders' equity. Such
reclassifications would have resulted in the elimination of historical retained
earnings, capital deficiency at inception, and cumulative translation
adjustments as of the date of the change in ownership with a corresponding
increase in contributed capital.
CASH AND CASH EQUIVALENTS consist of cash and highly liquid debt
instruments such as commercial paper and money market accounts purchased with an
original maturity date of less than three months.
INVENTORY is stated at the lower of cost or market, cost being determined
using the first-in, first-out method.
PROPERTY, PLANT AND EQUIPMENT are stated at cost. For financial reporting
purposes, depreciation is provided using the straight-line method over estimated
useful lives. Estimated useful lives are 25 years for building and improvements
and 3 to 8 years for machinery and equipment.
On an ongoing basis, management of the Company evaluates the carrying value
of property, plant and equipment by reviewing the performance of the underlying
operations, in particular, the future undiscounted operating cash flows
generated from the property, plant and equipment.
INCOME TAXES are recorded for all periods under the provisions of Statement
of Financial Accounting Standards (SFAS) No. 109, Accounting for Income Taxes.
SFAS No. 109 requires an asset and liability approach that recognizes deferred
tax assets and liabilities for the differences between the financial statement
carrying amount and the tax basis of existing assets and liabilities. Deferred
tax assets and liabilities are measured using enacted tax rates in effect for
years in which these temporary differences are expected to be recovered or
settled. Under SFAS No. 109, the effect of a change in tax rates on deferred tax
assets and liabilities is recognized in the period that includes the enactment
date. In addition, future tax benefits that result in deferred tax assets are
recognized to the extent realization of such benefits is more likely than not.
11
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PELTOR HOLDING AB
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED DECEMBER 31, 1993, 1994 AND 1995
AND THE THREE MONTH PERIODS ENDED MARCH 31, 1995 AND 1996 (UNAUDITED)
(IN THOUSANDS OF U.S. DOLLARS)
SALES are recognized upon shipment of products to customers, when title and
risk of loss have passed to the customer.
FOREIGN CURRENCY TRANSLATION of the consolidated financial statements from
the Swedish Kronor, the Company's function currency, into United States of
America Dollars have been prepared pursuant to Rule 3-20 of Regulation S-X of
the Securities Act of 1933, as amended. Under these provisions, the consolidated
financial statements are translated into United States of America Dollars using
a methodology consistent with that established in SFAS No. 52, Foreign Currency
Translation. Under SFAS No. 52, assets and liabilities are translated at period
end exchange rates and revenues and expenses are translated at average rates.
Translations gains and losses are reflected as a separate component of
shareholders' equity. In connection with the translation of the consolidated
financial statements into United States of America Dollars, the cumulative
effect of translation on periods prior to January 1, 1993 has not been
recognized.
Foreign currency gains and losses arising from transactions are reflected
in the results of operations.
ESTIMATES are made in the preparation of consolidated financial statements
in accordance with accounting principles generally accepted in the United States
of America and in Sweden. In making these estimates the Company makes
assumptions about amounts reported in the consolidated financial statements.
These estimates include the allowance for doubtful accounts, obsolete inventory,
and deferred income taxes, among others. These assumptions could change based
upon future experience and, accordingly, actual results may differ from these
estimates.
INTERIM RESULTS included in the accompanying interim unaudited consolidated
financial statements as of March 31, 1996 and for the three-month periods ended
March 31, 1995 and 1996 have been prepared on the same basis as the audited
consolidated financial statements and, in the opinion of management, include all
adjustments, consisting only of normal recurring adjustments, necessary for a
fair presentation of the consolidated financial position and operating results
of the Company for such periods.
2. INVENTORY
<TABLE>
Inventory consisted of the following at December 31:
<CAPTION>
MARCH 31,
1994 1995 1996
---- ---- ---------
(UNAUDITED)
<S> <C> <C> <C>
Raw materials.............................. $2,265 $3,244 $3,550
Work in process............................ 2,449 2,506 2,750
Finished goods............................. 2,405 3,377 3,411
------ ------ ------
$7,119 $9,127 $9,711
====== ====== ======
</TABLE>
12
<PAGE> 14
PELTOR HOLDING AB
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED DECEMBER 31, 1993, 1994 AND 1995
AND THE THREE MONTH PERIODS ENDED MARCH 31, 1995 AND 1996 (UNAUDITED)
(IN THOUSANDS OF U.S. DOLLARS)
3. PROPERTY, PLANT AND EQUIPMENT
<TABLE>
Property, plant and equipment consisted of the following at December 31:
<CAPTION>
1994 1995
---- ----
<S> <C> <C>
Land............................................. $ 383 $ 477
Buildings and improvements....................... 5,115 5,993
Machinery and equipment.......................... 4,372 5,495
------- -------
9,870 11,965
Less accumulated depreciation.................... (4,351) (5,477)
------- -------
$ 5,519 $ 6,488
======= =======
</TABLE>
Depreciation expense for the years ended December 31, 1993, 1994 and 1995
was $739, $873 and $858, respectively.
The Company leases certain property and equipment under agreements
generally with terms of four years and certain renewal options. Rental expense
for the years ended December 31, 1993, 1994 and 1995 was approximately $58, $58
and $61, respectively.
<TABLE>
The minimum annual rental commitments under noncancelable operating leases
are as follows for each of the five years subsequent to December 31, 1995:
<S> <C>
1996.............................................................. $ 43
1997.............................................................. 43
1998.............................................................. 43
1999.............................................................. 25
2000.............................................................. 25
2001 and thereafter............................................... 177
</TABLE>
4. LONG-TERM DEBT
<TABLE>
Long-term debt consisted of the following on December 31:
<CAPTION>
1994 1995
---- ----
<S> <C> <C>
Industrikredit AB payable September 30, 1996.......................... $ 383 $ 404
(10.35% effective rate at December 31, 1995)
Industrikredit AB payable April 30, 1998.............................. 28 22
(12.25% effective rate at December 31, 1995)
Industrikredit AB (15.5% effective rate at December 31, 1994)......... 18 --
Gota Bank Currency Notes.............................................. 7,410 3,817
Ostgota Bank $100,000 payable April 30, 1996
(6.75% rate at December, 1995)
Richard Bowen $466,891 payable March 1999............................. 589 565
(7.75% rate at December 1995)
Bezink Sparkasse Ettlingen payable March 31, 1997..................... 480 453
(5.357% effective rate at December 31, 1995)
8,908 5,261
------ -------
Less current portion.................................................. (130) (4,311)
====== =======
$8,778 $ 950
====== =======
</TABLE>
At December 31, 1995 substantially all the assets of the Company are
pledged to collateralize the loans payable.
13
<PAGE> 15
PELTOR HOLDING AB
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED DECEMBER 31, 1993, 1994 AND 1995
AND THE THREE MONTH PERIODS ENDED MARCH 31, 1995 AND 1996 (UNAUDITED)
(IN THOUSANDS OF U.S. DOLLARS)
<TABLE>
The Gota Bank Currency Notes outstanding at December 31, 1994 and 1995 were
due in various foreign currencies, as follows:
<CAPTION>
1994 1995
------ ------
<S> <C> <C>
Deutsche Marks (DEM)....................................... $4,649 $3,068
Dutch Guilders (NLG)....................................... 1,801 --
(CHF)....................................... 960 749
------ ------
$7,410 $3,817
====== ======
</TABLE>
At December 31, 1995 certain loans payable, primarily loans from
Industrikredit AB and the Gota Bank Currency Notes, have been classified as
current based upon managements intent to repay these loans prior to December 31,
1996.
<TABLE>
Annual maturities of all indebtedness, giving effect to managements
intentions discussed above, at December 31, 1995 are as follows:
<CAPTION>
<S> <C>
1996.............................................................. $4,311
1997.............................................................. 414
1998.............................................................. 25
1999.............................................................. 511
------
$5,261
======
</TABLE>
5. ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES
<TABLE>
Accrued expenses consisted of the following at December 31:
<CAPTION>
1994 1995
------ ------
<S> <C> <C>
Payroll and benefits............................... $1,418 $1,795
Value added taxes and other payables............... 616 1,141
------ ------
$2,034 $2,936
====== ======
</TABLE>
6. INCOME TAXES
<TABLE>
The provision for income taxes consisted of the following for the years
ended December 31:
<CAPTION>
1993 1994 1995
----- ------- ------
<S> <C> <C> <C>
Current:
Swedish....................................... $ 772 $ 3,002 $ 208
Foreign....................................... 682 865 969
Deferred........................................ (489) (1,620) 1,790
----- ------- ------
Total................................. $ 965 $ 2,247 $2,967
===== ======= ======
</TABLE>
14
<PAGE> 16
PELTOR HOLDING AB
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED DECEMBER 31, 1993, 1994 AND 1995
AND THE THREE MONTH PERIODS ENDED MARCH 31, 1995 AND 1996 (UNAUDITED)
(IN THOUSANDS OF U.S. DOLLARS)
<TABLE>
The components of the net deferred asset were as follows at December 31:
<CAPTION>
1994 1995
------ ----
<S> <C> <C>
Deferred Tax Assets:
Inventory....................................... $ 177 $210
Other assets.................................... 22 --
Tax credits..................................... 1,673 --
------ ----
Total...................................... 1,872 210
Deferred Tax Liability -- Net income carryforward.... (10) (39)
------ ----
Total...................................... $1,862 $171
====== ====
</TABLE>
<TABLE>
Deferred tax assets (liabilities) are reported in the consolidated balance
sheet as follows at December 31:
<CAPTION>
1994 1995
------ ----
<S> <C> <C>
Current................................................... $ 188 $210
Non Current............................................... 1,674 (39)
------ ----
Total........................................... $1,862 $171
====== ====
</TABLE>
<TABLE>
A reconciliation of the statutory Swedish income tax rate of 28% to the
effective rates of 34.3% , 32.4% and 29.1% for the years ended December 31,
1993, 1994 and 1995, respectively, is as follows:
<CAPTION>
1993 1994 1995
----- ------ ------
<S> <C> <C> <C>
Computed tax expense at the expected statutory
rate............................................. $ 929 $1,939 $2,422
Foreign income taxes at higher rates............... 246 300 339
Income tax adjustments............................. -- -- 201
Non deductible expenses and other.................. (146) 22 5
Tax exempt income.................................. (64) (14) --
----- ------ ------
Income tax expense................................. $ 965 $2,247 $2,967
===== ====== ======
</TABLE>
No valuation allowance has been established for deferred taxes, as all
deferred taxes most likely will be realized.
One of the Swedish subsidiaries has been the subject of a routine tax audit
by the Swedish tax authorities. The preliminary conclusion of the audit is that
the subsidiary should be charged up to an additional $2,557 in taxes, fees and
interest. The Company has consulted with outside legal advisors and as a result
has recognized $213 as an expense in 1995, representing the likely tax charge
related to this matter. In the opinion of management of the Company and its
legal advisors the ultimate outcome of this matter will not be materially
different from the estimate accrued in 1995.
15
<PAGE> 17
PELTOR HOLDING AB
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED DECEMBER 31, 1993, 1994 AND 1995
AND THE THREE MONTH PERIODS ENDED MARCH 31, 1995 AND 1996 (UNAUDITED)
(IN THOUSANDS OF U.S. DOLLARS)
7. RELATED PARTY TRANSACTIONS
The Company has entered into employment agreements extending for periods up
to 12 months with certain key officers of the Company. These officers are in
some cases also members of the Board of Directors and shareholders of the
Company.
The Founding Shareholders of the Company, as defined in Note 1, jointly own
APAB AB. APAB AB has entered into a royalty agreement with Peltor. The royalties
paid in 1994 and 1995, respectively, amounts to $26 and $28. Certain other
former shareholders also have a royalty agreement with Peltor for the rest of
their lives. Royalties paid in 1994 and 1995 amounts to $41 and $44.
Subsequent to the Investor's additional investment in the Company in 1994
(see Note 1), the Investor, as defined in Note 1, provided various
administrative and strategic services. During 1995, the Company paid a
management fee of $1,470 to the Investor related to these services. At December
31, 1995, $1,174 of these fees remain outstanding and are reported as a current
liability. Such amounts are noninterest bearing.
During 1994, the Company purchased an investment from the Investor for
approximately $1,062, which represented the Investors carrying value and the
fair value of the investment at the date purchased. The investment had a tax
basis of approximately $13,005 which carried over from the Investor. During
1994, the Company sold this investment for the approximate carrying value of
$1,062 and received a tax benefit of approximately $3,374. As no amounts were
remitted by the Company to the Investor for this tax benefit, it has been
reflected as a capital contribution in the accompanying consolidated financial
statements.
8. FOREIGN EXCHANGE CONTRACTS
The Company periodically enters into foreign exchange contracts for hedging
purposes. At December 31, 1994 and 1995, there were no such contracts
outstanding. Gains and losses on the contracts which result from market risk
associated with changes in the market values of the underlying currencies are
deferred and reported as a part of the hedged item.
The Company does not enter into foreign exchange contracts for trading
purposes.
9. LITIGATION AND UNASSERTED CLAIMS
The Company is subject to legal proceedings and claims which arise in the
ordinary course of business. In the opinion of management of the Company, the
ultimate resolution of such legal proceedings and claims will not have a
material effect on the consolidated financial position or results of operations
of the Company.
10. RETAINED EARNINGS
Dividend distributions are required to be approved by a vote of the
shareholders. Dividends are allowed only to the extent of retained earnings,
based upon financial statements prepared in accordance with generally accepted
accounting principles in Sweden, which differ from accounting principles used to
prepare these consolidated financial statements. Retained earnings as determined
using accounting principles generally accepted in Sweden were approximately
$15,758 at December 31, 1995.
16
<PAGE> 18
PELTOR HOLDING AB
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED DECEMBER 31, 1993, 1994 AND 1995
AND THE THREE MONTH PERIODS ENDED MARCH 31, 1995 AND 1996 (UNAUDITED)
(IN THOUSANDS OF U.S. DOLLARS)
11. FINANCIAL INSTRUMENTS
Financial instruments include cash and cash equivalents, accounts
receivable and long term debt.
The estimated fair values of financial instruments are determined using
available market information and valuation methodologies. However, considerable
judgment is required in interpreting data to develop the estimates of fair
value. Accordingly, the estimates as of December 31, 1995 and 1994 are not
necessarily indicative of the amounts that the Company could realized in a
current market exchange. The use of different market assumptions and/or
estimation methodologies may have a material effect on the estimated fair value
amounts.
The fair value estimates are based on pertinent information available to
management as of December 31, 1995 and 1994. Although management is not aware of
any factors that would significantly affect the estimated fair value amounts,
such amounts have not been comprehensively revalued for purposes of these
consolidated financial statements since that date, and current estimates of fair
value may differ significantly from the amounts estimated as of December 31,
1995 and 1994.
The Company places its cash and cash equivalents with high credit quality
financial institutions, thereby minimizing exposure to concentrations of credit
risk. Credit risk with respect to accounts receivable is limited due to the
number of customers comprising the Company's customer base.
At December 31, 1995 and 1994, the fair value of financial instruments
approximates the recorded amounts.
12. FOREIGN OPERATIONS
Approximately 30% of net sales for the years ended December 31, 1993, 1994
and 1995 were derived from operations outside of Europe. These net sales were
generated primarily in the United States of America. Cost of sales represents
approximately 48% of net sales outside of Europe for the years ended December
31, 1993, 1994 and 1995. The underlying net assets outside of Europe were less
than 10% for all periods presented.
17
<PAGE> 19
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
The following unaudited pro forma consolidated financial statements of
the Company for the fiscal year ended September 30, 1995 and the six months
ended March 31, 1996 were derived from the Company's historical financial
statements included elsewhere in this Prospectus, adjusted to give effect to
(i) the Formation Acquisition and the financing thereof, (ii) the Eastern
Acquisition and related financing, and (iii) the Peltor Acquisition and related
financing (collectively, the Acquisitions). The pro forma balance sheet data
give effect to the Peltor Acquisition and the financing thereof as if they had
occurred on March 31, 1996. The pro forma consolidated statements of operations
of the Company for the six months ended March 31, 1996 and for the year ended
September 30, 1995 reflect the Acquisition as if they had occurred on October
1, 1994.
The pro forma consolidated financial statements are provided for
informational purposes only and are not necessarily indicative of the financial
position or operating results that would have occurred had the Acquisitions been
consummated on the dates, or at the beginning of the period, for which the
consummation of the Acquisitions is being given effect, nor is it necessarily
indicative of future operating results or financial position. The pro forma
adjustments do not reflect any operating efficiencies and cost savings which the
Company believes are achievable or the cost of achieving any such operating
efficiencies and cost savings. The pro forma adjustments do include the
Company's estimate of incremental costs necessary to operate the Company on a
stand-alone basis as a result of the Formation Acquisition.
The unaudited pro forma consolidated financial statements have been
prepared using the purchase method of accounting, whereby the total cost of the
Acquisitions will be allocated to the tangible and intangible assets acquired
and liabilities assumed based upon their respective fair values at the effective
date of the acquisitions. Such allocations will be based on studies and
valuations which have not yet been completed. Accordingly, the allocations
reflected in the pro forma consolidated financial statements are preliminary and
subject to revision, however, the Company does not expect material changes to
the allocation of the purchase price.
The following unaudited pro forma consolidated financial statements have
been prepared from, and should be read in conjunction with, the Company's and
Peltor's historical consolidated financial statements, including the notes
thereto, included elsewhere in this Prospectus.
18
<PAGE> 20
AEARO CORPORATION
<TABLE>
UNAUDITED PRO FORMA CONSOLIDATED
STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED SEPTEMBER 30, 1995
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<CAPTION>
PREDECESSOR SUCCESSOR PELTOR YEAR EASTERN YEAR
OCTOBER 1, JULY 12, 1995 TO ENDED ENDED
1994 TO SEPTEMBER 30, DECEMBER 31, NOVEMBER 30, PRO FORMA PRO FORMA
JULY 11, 1995 1995 1995 1995 ADJUSTMENTS AS ADJUSTED
------------- ---------------- ------------ ------------ ----------- -----------
(NOTE 1)
<S> <C> <C> <C> <C> <C> <C>
Net Sales.................................. $154,712 $47,900 $39,284 $13,813 $ -- $255,709
Cost of Sales.............................. 87,674 29,319 18,930 10,114 (1,041) 144,996
-------- ------- ------- ------- -------- --------
Gross profit........................... 67,038 18,581 20,354 3,699 1,041 110,713
-------- ------- ------- ------- -------- --------
Operating Expenses:
Selling and administrative............... 47,149 13,146 9,017 3,092 (808) 71,596
Research and technical service........... 2,273 551 1,227 -- -- 4,051
Amortization............................. 4,361 838 -- -- 3,397 8,596
Other charges (income), net.............. (233) 70 1,219 41 (1,479) (382)
-------- ------- ------- ------- -------- --------
Operating profit....................... 13,488 3,976 8,891 566 (69) 26,852
Interest Expense, net...................... 5,673 4,135 235 5 17,143 27,191
-------- ------- ------- ------- -------- --------
Income (loss) before income taxes...... 7,815 (159) 8,656 561 (17,212) (339)
Provision (Benefit) for Income Taxes....... 3,009 425 2,967 41 (6,442) --
-------- ------- ------- ------- -------- --------
Net income (loss)...................... 4,806 (584) 5,689 520 (10,770) (339)
Preferred Stock Dividend Accrued........... -- 1,283 -- -- -- 1,283
-------- ------- ------- ------- -------- --------
Earnings (Loss) Applicable to Common
Shareholders............................. $ 4,806 $(1,867) $ 5,689 $ 520 $(10,770) $ (1,622)
======== ======= ======= ======= ======== ========
Net Income (Loss) per Share (Note 2)....... $ (16.22)
========
Weighted average number of common shares
outstanding (Note 2)..................... 100,000
</TABLE>
19
<PAGE> 21
AEARO CORPORATION
<TABLE>
UNAUDITED PRO FORMA CONSOLIDATED
STATEMENTS OF OPERATIONS
FOR THE SIX MONTHS ENDED MARCH 31, 1996
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<CAPTION>
SUCCESSOR PELTOR EASTERN
OCTOBER 1, OCTOBER 1, OCTOBER 1, 1995
1995 TO 1995 TO TO DECEMBER 31, PRO FORMA PRO FORMA
MARCH 31, 1996 MARCH 31, 1996 1995 ADJUSTMENTS AS ADJUSTED
-------------- -------------- --------------- ----------- -----------
(NOTE 1)
<S> <C> <C> <C> <C> <C>
Net Sales......................................... $112,716 $20,707 $3,035 $ -- $136,458
Cost of Sales..................................... 62,340 10,442 2,320 190 75,292
-------- ------- ------ ------- --------
Gross profit.................................. 50,376 10,265 715 (190) 61,166
-------- ------- ------ ------- --------
Operating Expenses:
Selling and administrative...................... 33,354 5,283 688 -- 39,325
Research and technical service.................. 1,593 605 -- -- 2,198
Amortization expense............................ 1,956 -- -- 2,181 4,137
Other charges (income), net..................... (3) 1,111 (3) (1,565) (460)
-------- ------- ------ ------- --------
Operating profit.............................. 13,476 3,266 30 (806) 15,966
Interest Expense, net............................. 9,068 (50) 1 4,055 13,074
-------- ------- ------ ------- --------
Income (loss) before income taxes............. 4,408 3,316 29 (4,861) 2,892
Provision (Benefit) for Income Taxes (Note 1(f)).... 1,938 1,061 12 (1,577) 1,434
-------- ------- ------ ------- --------
Net income (loss)............................. 2,470 2,255 17 (3,284) 1,458
Preferred Stock Dividend Accrued.................. 3,033 -- -- -- 3,033
-------- ------- ------ ------- --------
Earnings (Loss) Applicable to Common
Shareholders.................................... $ (563) $ 2,255 $ 17 $(3,284) $ (1,575)
======== ======= ====== ======= ========
Net Income (Loss) per Share ...................... $ 15.75
========
Weighted average number of common shares
outstanding..................................... 100,000
</TABLE>
20
<PAGE> 22
AEARO CORPORATION
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED SEPTEMBER 30, 1995
AND FOR THE SIX MONTHS ENDED MARCH 31, 1996
(DOLLARS IN THOUSANDS)
<TABLE>
(1) Pro forma adjustments to the consolidated statements of operations are
summarized in the following table and are described in the notes below:
Pro forma adjustments for the year ended September 30, 1995 are as follows:
<CAPTION>
PRO FORMA ADJUSTMENTS
----------------------------------------
FORMATION
ACQUISITION PELTOR EASTERN TOTAL
----------- ------ ------- -------
<S> <C> <C> <C> <C>
Cost of sales....................................... $(1,443) $ 357 $ 45 $(1,041)(a)
Selling and administrative.......................... (808) -- -- (808)(b)/(c)
Amortization........................................ (1,151) 4,177 371 3,397 (d)
Interest expense, net............................... 8,733 7,809 601 17,143 (e)
Other charges (income), net......................... -- (1,479) -- (1,479)(g)
Pro forma adjustments for the six months ended March 31, 1996 are as
follows:
<CAPTION>
PRO FORMA ADJUSTMENTS
--------------------------
PELTOR EASTERN TOTAL
------ ------- -------
<S> <C> <C> <C>
Cost of sales.................................................. $ 179 $ 11 $ 190 (a)
Amortization expenses.......................................... 2,088 93 2,181 (d)
Interest expense, net.......................................... 3,905 150 4,055 (e)
Other charges (income), net.................................... (1,565) -- (1,565)(g)
<FN>
- ---------------
(a) Adjustments reflect increases in depreciation resulting from the
preliminary purchase price allocation to fixed assets.
The adjustment related to the Formation Acquisition for the year ended
September 30, 1995 also reflects the elimination of a nonrecurring increase
in cost of sales resulting from the preliminary purchase price allocation
which increased the estimated fair value of finished goods inventories by
$3,640 on October 1, 1994. This amount was recorded in cost of sales as the
acquired inventory was sold during the period ended September 30, 1995.
(b) Reflects the estimated increased costs (primarily insurance and other
administrative costs) to be incurred by the Company on a stand-alone basis
of $1,092 as a result of the Formation Acquisition for the year ended
September 30, 1995. With regard to the increased costs to be incurred, the
Company had been run as a separate entity when owned by Cabot Corporation
with separate information systems, benefits and a separate audit. The
primary areas of shared services were in insurance as the Company
participated in combined programs with Cabot Corporation as well as in tax
and legal oversight. The Company estimated the costs of obtaining
stand-alone insurance by obtaining quotes from underwriters and
subsequently placed insurance with these underwriters for similar amounts.
Similarly, the company has been obtaining tax and legal advice for amounts
not materially different than those estimated in the pro forma adjustments.
The following is a detailed review of these costs on an annual basis:
<CAPTION>
<S> <C>
Insurance Premiums/Deductibles................................... $ 900
Tax Planning..................................................... 100
Management Fee................................................... 400
------
Total Increase......................................... $1,400
======
</TABLE>
21
<PAGE> 23
AEARO CORPORATION
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED SEPTEMBER 30, 1995
AND FOR THE SIX MONTHS ENDED MARCH 31, 1996 -- (CONTINUED)
(c) Reflects the elimination of non-recurring charges of approximately $800 and
$1,100 related to taxes and penalties resulting from delinquency in the
remittance of value-added tax payments to the French government and the
termination of the Old Cabot Safety Corporation stock option plan,
respectively, for the year ended September 30, 1995.
<TABLE>
(d) A summary of pro forma intangible assets after the Acquisitions and their
related useful lives are as follows (dollars in millions):
<CAPTION>
ESTIMATED
ANNUAL
AMOUNT LIFE AMORTIZATION
------ ---- ------------
<S> <C> <C> <C>
Formation Acquisition:
Goodwill............................. $55.1 25.0 $2.2
Other Intangibles.................... 37.2 21.6 1.7
Eastern:
Goodwill............................. 3.1 25.0 .1
Non compete.......................... .2 5.0 --
Consulting agreement................. .8 5.0 .2
Other intangibles.................... 2.0 25.0 .1
Peltor:
Goodwill and other intangibles....... 58.1 25.0 2.2
Non compete.......................... 10.0 5.0 2.0
----
Pro forma amortization.......... $8.6
====
</TABLE>
Estimated useful lives of intangibles are determined by management after
reviewing the nature of the item and other relevant business considerations such
as the rate of technological change in the Company's manufacturing processes and
products, the Company's strong market position, and the fragmented nature of the
industry. Non compete agreements are amortized over the life of the related
agreements. Other intangibles primarily consist of tradenames and trademarks.
The allocation of purchase price for the Peltor acquisition is preliminary and
subject to further studies and appraisals. Management does not, however, expect
the finalization of the purchase price to be materially different than the
allocation used for the pro forma financial statements.
22
<PAGE> 24
AEARO CORPORATION
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED SEPTEMBER 30, 1995
AND FOR THE SIX MONTHS ENDED MARCH 31, 1996 -- (CONTINUED)
(e) Reflects interest expense on indebtedness incurred in connection with the
Acquisitions as if they had been completed on October 1, 1994.
<TABLE>
The following table summarizes the Acquisition pro forma adjustments to
interest expense for the year ended September 30, 1995:
<CAPTION>
FORMATION
ACQUISITION PELTOR EASTERN
----------- ------ -------
<S> <C> <C> <C>
Pro forma interest expense --
Senior secured revolving credit facility(i).......... $ 401 $ -- $ --
Senior secured term loan at 8.0%..................... 2,808 7,226 601
Senior subordinated notes at 12.5%................... 9,750 -- --
Other third-party debt............................... 423 -- --
Amortization of debt issuance costs(ii).............. 1,024 583 --
------- ------ ----
Pro forma interest expense (iii).................. 14,406 7,809 601
Historical interest expense....................... 5,673 -- --
------- ------ ----
Net interest expense adjustment.............. $ 8,733 $7,809 $601
======= ====== ====
- ------------
<FN>
(i) Amounts include a commitment fee of .5% of the total unused portion of
available credit.
(ii) The costs incurred that were associated with the Formation Acquisition
debt financing of $9,300 have been capitalized as deferred charges and are
being amortized over the assumed term of the related debt -- five years
for the Senior Secured Revolving Credit Facility and Senior Secured Term
Loan and ten years for the Subordinated Notes. Costs related to the Peltor
debt financing totaling $3,500 were capitalized and are being amortized
over the allowed six year term of the related debt.
(iii) Upon completion of the Acquisitions, the Company expects to have
approximately $135 million in variable rate debt. A 1/8 of one percent
change in the base rate would change interest expense by approximately
$168.
</TABLE>
(f) Income tax adjustments have been calculated using estimated statutory
income tax rates. The tax adjustments related to Eastern include amounts
necessary to reflect its historical tax provisions as if it were operated
as a C Corporation. The primary difference between the provision calculated
at statutory rates and the amount reflected in the pro forma statements is
attributable to nondeductible goodwill associated with the Peltor
Acquisition.
(g) Reflects the elimination of a management fee charged to Peltor by Active
(parent company) considered to be a non-recurring group contribution.
23
<PAGE> 25
AEARO CORPORATION
<TABLE>
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
MARCH 31, 1996
(DOLLARS IN THOUSANDS)
<CAPTION>
COMPANY PELTOR PRO FORMA
HISTORICAL HISTORICAL ADJUSTMENTS PRO FORMA
---------- ---------- ----------- ---------
(NOTE 1)
<S> <C> <C> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents..................... $ 2,447 $ 6,273 $ (5,273) $ 3,447
Accounts receivable, net...................... 35,907 6,201 -- 42,108
Inventories................................... 28,087 9,711 1,000 38,798
Deferred and prepaid expenses................. 3,075 1,100 -- 4,175
-------- ------- -------- --------
Total current assets....................... 69,516 23,285 (4,273) 88,528
Property, Plant and Equipment, net.............. 54,111 6,550 2,500 63,161
Intangible Assets............................... 95,434 -- 68,084 163,518
Other Assets.................................... 7,120 8 3,500 10,628
-------- ------- -------- --------
Total assets............................... $226,181 $29,843 $ 69,811 $325,835
======== ======= ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Notes payable................................. $ -- $ 5,910 $ (5,910) $ --
Current portion of long-term debt............. 7,039 2,952 (2,952) 7,039
Accounts payable and accrued liabilities...... 32,133 6,167 2,000 40,300
U.S. and foreign income taxes................. 731 1,188 -- 1,919
-------- ------- -------- --------
Total current liabilities.................. 39,903 16,217 (6,862) 49,258
-------- ------- -------- --------
Long-Term Debt.................................. 149,073 1,070 89,189 239,332
-------- ------- -------- --------
Deferred Income Taxes........................... -- 40 -- 40
-------- ------- -------- --------
Other Long-Term Liabilities..................... 2,860 -- -- 2,860
-------- ------- -------- --------
Stockholders' Equity:
Preferred stock............................... -- -- -- --
Common stock.................................. 1 620 (620) 1
Additional paid-in capital.................... 32,652 896 (896) 32,652
Retained earnings............................. 1,886 10,785 (10,785) 1,886
Foreign currency translation adjustment....... (194) 215 (215) (194)
-------- ------- -------- --------
Total stockholders' equity................. 34,345 12,516 (12,516) 34,345
-------- ------- -------- --------
Total liabilities and stockholders'
equity................................... $226,181 $29,843 $ 69,811 $325,835
======== ======= ======== ========
</TABLE>
See accompanying notes to unaudited pro forma consolidated balance sheet.
24
<PAGE> 26
AEARO CORPORATION
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
MARCH 31, 1996
(DOLLARS IN THOUSANDS)
<TABLE>
(1) Pro forma adjustments to the Unaudited Pro Forma Consolidated Balance Sheet
are summarized in the following table and are described in the notes below:
<CAPTION>
PURCHASE PRICE
ALLOCATION/PELTOR
FINANCING(A)
-----------------
<S> <C>
Cash........................................................................ $ (5,273)
Inventories................................................................. 1,000
Property, plant and equipment............................................... 2,500
Intangible assets........................................................... 68,084
Deferred charges............................................................ 3,500
Notes payable............................................................... (5,910)
Current portion of long-term debt........................................... (2,952)
Accrued liabilities......................................................... 2,000
U.S. and foreign income taxes............................................... --
Senior secured facilities .................................................. 89,189
Subordinated notes.......................................................... --
Common Stock................................................................ (620)
Additional paid-in capital.................................................. (896)
Retained earnings........................................................... (10,785)
Foreign currency translation adjustment..................................... (215)
<FN>
- ---------------
(a) Reflects the acquisition of assets and liabilities as follows:
<CAPTION>
<S> <C>
Cash paid to Peltor........................................................ $81,100
Acquisition costs.......................................................... 4,500
-------
Total consideration and acquisition costs........................ 85,600
Historical Cost of Net Assets Acquired..................................... 12,516
-------
Excess of consideration paid over historical cost........................ $73,084
=======
Allocation of Excess of Consideration Paid over Historical Cost:
Inventories.............................................................. $ 1,000
Property, plant and equipment, net....................................... 2,500
Deferred financing costs................................................. 3,500
Intangible assets........................................................ 68,084
Accrued liabilities...................................................... (2,000)
-------
$73,084
=======
</TABLE>
25
