April 08, 2005
Securities and Exchange Commission
Division of Corporation Finance
Mail Stop 0510
Washington, DC 20549-0510
Via EDGAR
Attn: Rufus Decker
Accounting Branch Chief
Re: Aearo Company I
Form 10-K for the fiscal year ended September 30, 2004
Form 10-Q for the period ended December 31, 2004
File No. 333-116676
Dear Mr. Decker:
AearoCompany I (the "Company") has received the Staff's comments on the
Company's Form 10-K for the fiscal year ended September 30, 2004 and its Form
10-Q for the period ending December 31, 2004. Set forth below are the Staff's
comments as well as the Company's responses to each of the Staff's comments.
FORM 10-K FOR THE YEAR ENDED SEPTEMBER 30, 2004
Comment applicable to your overall filing
Comment 1: Where a comment below requests additional disclosures or other
revisions to be made, please show us in your supplemental response
what the revisions will look like. These revisions should be
included in your future filings.
Response: Where a comment has requested additional disclosures or other
revisions, we have provided additional disclosures that will be
incorporated into future filings.
Comment 2: In connection with responding to our comments, please provide, in
writing, a statement from the company acknowledging that:
The company is responsible for the adequacy and accuracy of the
disclosure in their filings;
staff comments or changes to disclosure in response to staff
comments do not foreclose the Commission from taking any action
with respect to the filing and
The company may not assert staff comments as a defense in any
proceeding initiated by the Commission or any person under
federal securities laws of the United States.
Response: The Company acknowledges its responsibility for the adequacy
and accuracy of the disclosures in our filings. We
understand that changes to our disclosure in response to staff
comments do not preclude the Commission from taking any action
with respect to our filings. We also understand that we may
not assert staff comments as a defense in any proceeding
initiated by the Commission or any person under federal
securities laws of the United States.
Item 8. Financial Statements and Supplementary Data
1. Basis of Presentation, page 40
Comment 3: Please tell us how you determined that your trademarks and trade
names have indefinite lives. Refer to paragraph 11 of SFAS 142.
Response: Following is a summary of the characteristics that the Company
considered and the events and circumstances that caused us to
conclude that our trademarks have indefinite lives:
a) The expected use of the asset by the entity. The Company's
trademarks are used to market our well-recognized brand
names and include: E-A-R(R), AOSafety(R), Peltor(R),
SafeWaze(R), yellow E-A-R(R) Classic(R) and E-A-R
Specialty Composites. These brands are well known within our
industry as well as our customer base. We believe our
customers rely on our brand reputation when selecting
personal protection products and these products have
been sold under the E-A-R(R) and E-A-R(R) Specialty
Composites trademarks since the early 1970s, the SafeWaze(R)
trademark since the mid 1990s and the Peltor(R) and
AOSafety(R) trademarks since the 1950s. The Company plans
to continuously promote its brands utilizing the above
trademarks and trade names as well as continue to develop and
introduce new products under the above trademarks and trade
names indefinitely.
b) The expected use of another asset or group of assets to
which the useful life of the intangible asset may relate.
The Company's trademarks are not related to and do not rely
on any other asset, other than the AOSafety(R) marks which
the right to its use has been conveyed via a perpetual no
fee license as a result of the Company's purchase of certain
assets from American Optical, that would limit the useful
life of its trademarks.
c) Any legal, regulatory or contractual provisions that may
limit the useful life. The Company's trademarks and trade
names are not subject to legal or regulatory provisions
that would limit their useful lives. The Company
maintains detailed schedules of all trademarks and trade
names by category, registration date, filing date, next
action date and renewal date for both U.S and international
registrations.
d) Any legal, regulatory or contractual provisions that enable
renewal or extension without substantial costs. The
Company's trademarks and trade names are not subject to legal
or regulatory provisions that prevent the Company from
renewing or extending the useful lives. The process of
renewal is routine and the costs are nominal in both the U.S.
and abroad. The Company has historically been successful in
the renewal process.
The Company may, from time to time, defend its intellectual
property rights when the Company believes that a competitor
has violated such intellectual property rights. Such
defenses would involve product specific trademarks and trade
names and may cause temporary volatility (positive in the
case of a favorable judgment and negative in the case of an
unfavorable judgment) or an interruption of cash flows. In
the Company's opinion, it would be remote that the Company
would lose a defense to sell products under its well-known
brand names. In addition, in many instances the remedy to an
intellectual property dispute can be resolved with mino
product modifications and cause only a minor interruption of
cash flows.
e) The effects of obsolescence, demand, competition and other
economic factors (such as the stability of the industry,
known technological advances, legislative action that results
in uncertain or changing regulatory environment and expected
changes in distribution channels). The Company reviews
economic and market conditions for the Personal Protection
Equipment ("PPE") industry and expects that the PPE market
will continue to experience modest and stable growth
considering the following factors:
Employers are increasingly aware of the rising costs of
insurance and liabilities related to worker injuries and
the savings that can be realized through consistent use
of effective PPE.
Government regulations promulgated by regulatory
agencies such as the Occupational Health and Safety
Administration ("OSHA"), the European Committee for
Standardization (CE") and the National Institute of
Occupational Safety and Health ("NIOSH") that mandate
the use of PPE for certain job classifications. In
addition, global companies, who expand their
manufacturing operations in emerging markets, are
adopting safety standards in the absence of local
government regulation.
Improvements in comfort, performance and style increase
the acceptance of PPE by users. We believe that
industrial users are more likely to use comfortable and
stylish products, thereby increasing regulatory
compliance and reducing the risk of injury. Such
products are particularly important to the consumer
and do it yourself ("DIY") markets.
PPE products are increasingly offered outside of the
traditional industrial markets. Consumers now
recognize the importance of safety due to the expansion
of the retail DIY market.
The expansion of military spending and homeland security
concerns has led to increased awareness and market
demand for the Company's products.
Obsolescence is not a significant issue with regard to
the nature of our products. In addition, our industry is not
prone to volatility due to technological advances.
f) The level of maintenance expenditures required to obtain the
expected future cash flows from the assets (for example, a
material level of required maintenance in relation to the
carrying amount of assets may suggest a very limited useful
life).
Due to the fact that our trademarks and trade names are well
established and have been in existence for many decades,
there are minimal maintenance expenditures necessary to
continue the indefinite future cash flows from these assets.
The Company continually reviews its finite-lived and
infinite-lived intangible assets for events or changes in
circumstances that might indicate the carrying amount of the
assets may not be recoverable.
Note 11. Commitments and Contingencies
Contingencies, page 61
Comment 4: We have read your response to comment 17. We acknowledge your
concerns. However, we feel as though the information
relating to your probable product liabilities for asbestos and
silica-related claims requested below is important for readers.
Please disclose separately for each of these types of claims the
following:
A rollforward for each period presented of your claims
activity that shows the number of claims at the beginning of
the period, increases in the number of claims, the number of
claims settled, and the ending number of claims.
The average settlement amount for cases closed in each
period.
Response: Below is the information requested for the claims in which Aearo
is named as a defendant and will be added to the MDA in future
10-K filings:
Claims (Number of Plaintiffs) Against Aearo
- ------------------------- ------------ ---------------
2003 Silica Asbestos
- ------------------------- ------------ ---------------
Number of claims at 135 563
beginning
- ------------------------- ------------ ---------------
Increases in number of 6,476 3,842
claims
- ------------------------- ------------ ---------------
Number of claims settled 13 245
- ------------------------- ------------ ---------------
Number of claims 128 12
dismissed without
payment
- ------------------------- ------------ ---------------
Ending number of claims 6,470 4,148
- ------------------------- ------------ ---------------
Average settlement $24.36 $83.24
amount for claims
settled
- ------------------------- ------------ ---------------
Average settlement $2.24 $79.35
amount for claims closed
- ------------------------- ------------ ---------------
- ---------------------- ---------------- --------------
2004 Silica Asbestos
- ---------------------- ---------------- --------------
Number of claims at 6,470 4,148
beginning
- ---------------------- ---------------- --------------
Increases in number 4,554 152
of claims
- ---------------------- ---------------- --------------
Number of claims 0 1
settled
- ---------------------- ---------------- --------------
Number of claims 22 38
dismissed without
payment
- ---------------------- ---------------- --------------
Ending number of 11,002 4,261
claims
- ---------------------- ---------------- --------------
Average settlement N/A $0
amount for claims
closed
- ---------------------- ---------------- --------------
Average settlement $0 $0
amount for claims
closed
- ---------------------- ---------------- --------------
All data was provided by the law firm of Simon, Peragine, Smith and Redfearn,
L.L.P., which tracks numbers of cases and settlements on behalf of the "AO
Defense Group" and is believed to be materially accurate. The AO Defense
Group is a voluntary association of current and former manufacturers of the
"AO Safety" brand of respirators and certain of their insurers in which
Aearo participates and through which all of its settlements have been
handled in the relevant years. In addition to the above claims, Aearo may
agree to pay a share of the settlement in particular cases even though the
company is not named as a defendant because of indemnity agreements with
prior owners of the brand and/or because of allegations that Aearo has some
risk of legal liability as a successor ("additional claims"). Aearo paid a
total of $1,671,593 for 4,325 claims that were settled between October 1,
2002 and September 30, 2004 involving both claims where Aearo was named as
a defendant and additional claims for an average of $386 per claim. In
addition, Aearo may receive the benefit of releases in some additional
cases settled by the AO Defense Group regardless of whether or not any
claim was made against Aearo.
We trust the foregoing is responsive to the Staff's comments.
Very truly yours,
Aearo Company I
Jeffrey S. Kulka
Senior Vice President, Chief Financial
Officer and Secretary