Aearo Announces Record Third Quarter Results
INDIANAPOLIS, August 12, 2005 - Aearo Company I (the "Company"), today announced
that net sales for the three months ended June 30, 2005 increased $16.1 million,
or 16.6%, to $113.2 million from $97.1 million in the three months ended June
30, 2004. Adjusted EBITDA increased 18.5% to $22.2 million for the third quarter
from $18.7 million in the third quarter of last year. Net income for the third
quarter increased to $10.4 million from a net loss of $14.2 million for the
third quarter of last year. This performance represents the best quarter for
sales and earnings in the Company's history.
The increase in net sales was primarily driven by organic growth in the Safety
Products and Specialty Composites segments and foreign currency translation. The
weakness of the U.S. dollar favorably impacted net sales by $1.8 million or
1.9%.
Gross profit for the third quarter increased to $55.1 million from $29.0 million
for the third quarter of last year. Gross profit in the third quarter of last
year was negatively impacted by a purchase accounting adjustment of $17.1
million due to the sale of the Company in that time period. Excluding the
effects of the purchase accounting adjustment, gross profit as a percentage of
net sales for the third quarter was 48.7% as compared to 47.4% for the third
quarter of last year.
The provision for income taxes for the three months ended June 30, 2005
increased to $1.6 million from $1.0 million for the third quarter of last year.
At September 30, 2004, the Company's net operating losses were partially offset
by a valuation allowance of $7.5 million. During the six month period ended
March 31, 2005, management determined that based on current domestic operating
results, it is more likely than not that domestic net operating losses will be
realized and consequently reversed the $7.5 million valuation allowance.
Year to Date
Net sales for the nine months ended June 30, 2005 increased $46.7 million, or
17.5%, to $313.4 million from $266.7 million in the nine months ended June 30,
2004. Adjusted EBITDA increased 27.4% to $57.2 million for the nine months ended
June 30, 2005 from $44.9 million in the nine months ended June 30, 2004. Year to
date net income increased to $27.6 million compared to a net loss of $5.7
million for the nine months ended June 30, 2004.
The increase in net sales was primarily driven by organic growth in the Safety
Products and Specialty Composites segments and foreign currency translation. The
weakness of the U.S. dollar favorably impacted net sales by $7.0 million or
2.6%.
Gross profit for the nine months ended June 30, 2005 increased 40.3% to $153.7
million from $109.5 million for the nine months ended June 30, 2004. Gross
profit in the nine months ended June 30, 2004 was negatively impacted by a
purchase accounting adjustment of $17.1 million due to the sale of the company
in that time period. Excluding the effects of the purchase accounting
adjustment, gross profit as a percentage of net sales for the nine months ended
June 30, 2005 was 49.2% as compared to 47.5% for the nine months ended June 30,
2004.
The year to date provision for income taxes decreased to $0.4 million from $3.1
million for the nine months ended June 30, 2004. At September 30, 2004, the
Company's net operating losses were partially offset by a valuation allowance of
$7.5 million. During the six month period ended March 31, 2005, management
determined that based on current domestic operating results, it is more likely
than not that domestic net operating losses will be realized and consequently
reversed the $7.5 million valuation allowance.
The Company uses Adjusted EBITDA, as defined above, a non-GAAP financial
measure, as a management tool to measure and monitor financial performance and
as part of the calculation of Company performance as stated in senior bank
facility covenants. While the Company believes Adjusted EBITDA is a useful
indicator of its ability to service debt, Adjusted EBITDA should not be
considered as a substitute for net income (loss) determined in accordance with
GAAP as an indicator of operating performance, or as an alternative to cash flow
as a measure of liquidity. Investors should be aware that Adjusted EBITDA may
not be comparable to similarly titled measures presented by other companies and
comparisons could be misleading unless all companies and analysts calculate this
measure in the same fashion.
The following table provides a reconciliation of Adjusted EBITDA to net income
for the three and nine month periods ended June 30, 2005 and 2004, respectively:
Three Months Ended Nine Months Ended
June 30, June 30,
-------------------------- ----------------------
2005 2004 2005 2004
Adjusted EBITDA $ 22,200 $ 18,739 $ 57,154 $ 44,874
Depreciation 3,125 3,006 8,131 8,937
Amortization of intangibles 1,313 101 3,928 343
Other non-cash charges (income), net (105) (43) 391 (410)
Inventory purchase accounting -- 17,067 -- 17,067
Restructuring -- -- -- (1,091)
Bond call premium -- 1,532 -- 1,532
Interest 5,856 10,292 16,785 21,128
Taxes 1,569 1,031 358 3,051
Net Income $ 10,442 $ (14,247) $ 27,561 $ (5,683)
Other non-cash charges are defined as extraordinary gains or losses, or gains or
losses from sales of assets other than in the ordinary course of business.
Holding Company Financing
On August 3, 2005, the Company's parent, Aearo Corporation, issued $54 million
of 12% senior notes (the "Holdco Notes") for approximately $54 million and used
the proceeds, net of fees and expenses, to pay a cash dividend to AC Safety
Holding Corp., the Company's ultimate parent. AC Safety Holding Corp. then used
the proceeds to make a full redemption of its then remaining outstanding
preferred stock. Prior to the fifth anniversary of closing, Aearo Corporation
will have the option of capitalizing interest of the Holdco Notes and adding it
to the principal amount. After the fifth anniversary of closing, interest will
be payable in cash quarterly.
Earnings Call
The Company has scheduled a conference call to discuss its financial results on
Monday, August 15, 2005 at 4:00 p.m. Eastern. The call in number is (866)
837-9789, conference ID 756151. A recording of the conference call will be
available for 72 hours after the completion of the call. The recording can be
accessed by dialing (888) 266-2081, conference ID 756151.
About Aearo
Headquartered in Indianapolis, Ind., Aearo Company (www.aearo.com) is one of the
world's leading designers, manufacturers and marketers of a broad range of
personal protective products and energy-absorbing products, including head and
hearing protection devices, prescription and non-prescription eyewear, and
eye/face protection devices for use in a wide variety of industrial and
household applications.
Condensed Consolidated Statements of Operations
(In Thousands)
(Unaudited)
Nine Three Six
Months Months Months
Three Months Ended Ended Ended Ended
June 30, June 30, June 30, March 31,
2005 2004 2005 2004 2004
Successor Successor Predecessor
Net sales $ 113,198 $ 97,126 $ 313,437 $ 97,126 $ 169,579
Cost of sales 58,124 68,144 159,757 68,144 89,056
------------------ ------------------ --------------- -----------------------------------
Gross profit 55,074 28,982 153,680 28,982 80,523
Selling and administrative 34,172 28,149 98,583 28,149 56,835
Research and technical services 2,234 1,966 6,665 1,966 3,623
Amortization 1,313 101 3,928 101 242
Other (income) charges, net (512) 1,690 (200) 1,690 (506)
Restructuring -- -- -- -- (1,091)
------------------ ------------------ --------------- -----------------------------------
Operating income (loss) 17,867 (2,924) 44,704 (2,924) 21,420
Interest expense, net 5,856 10,292 16,785 10,292 10,836
------------------ ------------------ --------------- -----------------------------------
Income (loss) before provision
for income taxes 12,011 (13,216) 27,919 (13,216) 10,584
Provision for income taxes 1,569 1,031 358 1,031 2,020
------------------ ------------------ --------------- -----------------------------------
Net income (loss) $ 10,442 $ (14,247) $ 27,561 $ (14,247) $ 8,564
------------------ ------------------ --------------- -----------------------------------
Condensed Consolidated Balance Sheets - Assets
(In Thousands)
June 30, September 30,
2005 2004
----------------- --------------
(Unaudited)
CURRENT ASSETS:
Cash and cash equivalents $ 16,019 $ 27,724
Accounts receivable (net of allowance for doubtful accounts of
$1,463 and $1,358, respectively) 60,553 54,159
Inventories 44,424 40,849
Deferred and prepaid expenses 5,602 4,146
----------------- ----------------
Total current assets 126,598 126,878
----------------- ----------------
LONG TERM ASSETS:
Property, plant and equipment, net 51,317 54,750
Other intangible assets, net 182,050 185,855
Other assets 13,403 15,144
Goodwill 116,596 133,745
----------------- ----------------
Total assets 489,964 516,372
================= ================
CURRENT LIABILITIES:
Current portion of long-term debt 3,455 1,639
Accounts payable and accrued liabilities 55,684 46,730
Accrued interest 3,067 6,996
Accrued income taxes 1,947 1,648
----------------- ----------------
Total current liabilities 64,153 57,013
----------------- ----------------
LONG TERM LIABILITIES:
Long-term debt 298,299 302,842
Deferred income taxes 40,587 59,699
Other liabilities 14,169 14,726
----------------- --------------
Total liabilities 417,208 434,280
----------------- --------------
STOCKHOLDER'S EQUITY:
Common stock, $.01 par value-
Authorized--100 shares
Issued and outstanding--100 shares - -
Paid in capital 101,640 101,610
Accumulated deficit (26,848) (19,415)
Accumulated other comprehensive loss (2,036) (103)
Total stockholder's equity 72,756 82,092
--------------- ----------------
Total liabilities and stockholder's equity $ 489,964 $ 516,372
================ ================
Condensed Consolidated Statements of Cash Flows
(In Thousands)
(Unaudited)
Nine Three Six
Months Months Months
Ended Ended Ended
June 30, June 30 March 31,
--------------------------------------------
2005 2004 | 2004
-----------------------------|---------------
CASH FLOWS FROM OPERATING ACTIVITIES: Successor | Predecessor
Net income (loss) $ 27,561 $ (14,247)| $ 8,564
Adjustments to reconcile net income (loss) to cash provided by |
operating activities- |
Depreciation 8,131 3,006 | 5,931
Amortization of intangible assets 3,928 101 | 242
Amortization of deferred financing costs 1,068 4,234 | 2,026
Inventory purchase accounting adjustment -- 17,067 | --
Deferred income taxes (3,310) (7)| --
Stock based compensation 30 10 |
Restructuring -- -- | (1,091)
Loss on disposal of assets 3 | 682
Changes in assets and liabilities- |
Accounts receivable (6,755) (2,242)| (1,113)
Inventories (4,166) 2 | (3,464)
Accrued income taxes 432 522 | (1,453)
Accrued interest (3,928) 767 | 3
Accounts payable and accrued liabilities 7,107 2,667 | (3,224)
Prepaid expenses and other assets 427 986 | 633
Other liabilities 1,012 928 | 1,299
Net cash provided by operating activities 31,540 13,794 | 9,035
|
CASH FLOWS FROM INVESTING ACTIVITIES: |
Additions to property, plant and equipment (5,404) (2,810)| (5,006)
Proceeds provided by disposals of property, plant and |
equipment 64 -- | 12
Net cash used by investing activities (5,340) (2,810)| (4,994)
|
CASH FLOWS FROM FINANCING ACTIVITIES: |
Distribution to shareholder to effect the merger -- (86,852)| --
Repayment of old credit facility -- (78,333)| --
Repayment of 12.5% senior subordinated notes -- (98,000)| --
Proceeds from 8.25 senior subordinated notes -- 175,000 | --
Debt issue costs -- (10,408)|
Dividend to parent (34,994) (14,305)| --
Proceeds from (repayment of) revolving credit facility, net -- (15,600)| 3,950
Proceeds from (repayment of) term loans (961) 125,000 | (8,949)
Repayment of capital lease obligations (200) (61)| (122)
Repayment of long term debt (273) (26)| (119)
|
Net cash used for financing activities (36,428) (3,585)| (5,240)
|
EFFECT OF EXCHANGE RATE ON CASH (1,477) (858)| (789)
|
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (11,705) 6,541 | (1,988)
|
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 27,724 5,313 | 7,301
|
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 16,019 $ 11,854 | $ 5,313