10-Q 1 e10-q.txt AEARO CORPORATION 1 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 -------------------- FORM 10-Q QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 2000 Commission file number 33-96190 AEARO CORPORATION (Exact name of registrant as specified in its charter) -------------------- Delaware 13-3840450 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 5457 West 79th Street Indianapolis, Indiana 46268 (Address of principal executive offices) (Zip Code) (317) 692-6666 (Registrant's telephone number, including area code) -------------------- Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No --- --- 2 AEARO CORPORATION TABLE OF CONTENTS FORM 10-Q FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2000 PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS CONDENSED CONSOLIDATED BALANCE SHEETS AS OF JUNE 30, 2000 (UNAUDITED) AND SEPTEMBER 30, 1999 3-4 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) FOR THE THREE MONTH AND NINE MONTH PERIODS ENDED JUNE 30, 2000 AND 1999 5 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) FOR THE NINE MONTHS ENDED JUNE 30, 2000 AND 1999 6 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) 7-11 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 12-19 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 20 PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS 21 ITEM 2. CHANGES IN SECURITIES 21 ITEM 3. DEFAULTS UPON SENIOR SECURITIES 21 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS 21 ITEM 5. OTHER INFORMATION 21 ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 21 SIGNATURE PAGE 22 3 PART I ITEM 1. FINANCIAL STATEMENTS AEARO CORPORATION CONDENSED CONSOLIDATED BALANCE SHEETS--ASSETS (DOLLARS IN THOUSANDS) JUNE 30, SEPTEMBER 30, 2000 1999 ---------- ------------- (Unaudited) CURRENT ASSETS: Cash and cash equivalents $ 3,780 $ 4,050 Accounts receivable (net of reserve for doubtful accounts of $1,471 and $1,296, respectively) 45,792 43,801 Inventories 35,003 33,286 Deferred and prepaid expenses 3,792 3,750 --------- -------- Total current assets 88,367 84,887 --------- -------- PROPERTY, PLANT AND EQUIPMENT, NET 54,772 55,881 INTANGIBLE ASSETS, NET 130,555 137,776 OTHER ASSETS 2,329 3,749 --------- -------- Total assets $276,023 $282,293 ========= ======== The accompanying notes are an integral part of these condensed consolidated financial statements. 3 4 AEARO CORPORATION CONDENSED CONSOLIDATED BALANCE SHEETS--LIABILITIES AND STOCKHOLDERS' EQUITY (DOLLARS IN THOUSANDS) JUNE 30, SEPTEMBER 30, 2000 1999 --------- ------------- (Unaudited) CURRENT LIABILITIES: Current portion of long-term debt $ 18,630 $ 16,093 Accounts payable and accrued liabilities 38,340 40,528 Accrued interest 6,549 3,400 U.S. and foreign income taxes 4,904 3,758 -------- -------- Total current liabilities 68,423 63,779 -------- -------- LONG-TERM DEBT 186,990 198,716 DEFERRED INCOME TAXES 628 825 OTHER LIABILITIES 2,523 2,499 COMMITMENTS AND CONTINGENCIES STOCKHOLDERS' EQUITY: Preferred stock, $.01 par value- (Redemption value of $84,496 and $76,834, respectively) Authorized--200,000 shares Issued and outstanding--45,000 shares -- -- Common stock, $.01 par value- Authorized--200,000 shares Issued and outstanding--102,175 and 102,538, respectively 1 1 Additional paid-in capital 32,193 32,566 Accumulated deficit (2,955) (9,662) Cumulative foreign currency translation adjustments (11,780) (6,431) -------- -------- Total stockholders' equity 17,459 16,474 -------- -------- Total liabilities and stockholders' equity $276,023 $282,293 ======== ======== The accompanying notes are an integral part of these condensed consolidated financial statements. 4 5 AEARO CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AND SHARE AMOUNTS) (Unaudited)
FOR THE THREE MONTHS ENDED FOR THE NINE MONTHS ENDED JUNE 30, JUNE 30, -------------------------- ------------------------- 2000 1999 2000 1999 ------- ------ ------- ------ NET SALES $ 80,158 $ 75,384 $229,782 $216,903 COST OF SALES 42,254 40,363 122,333 117,816 -------- -------- -------- -------- Gross profit 37,904 35,021 107,449 99,087 SELLING AND ADMINISTRATIVE 24,388 21,956 71,346 65,381 RESEARCH AND TECHNICAL SERVICES 1,423 1,180 4,141 3,424 AMORTIZATION OF INTANGIBLES 1,684 1,673 5,175 5,088 OTHER (INCOME) CHARGES, NET (319) (7) (728) 578 -------- -------- -------- -------- Operating income 10,728 10,219 27,515 24,616 INTEREST EXPENSE, NET 6,140 5,974 18,299 18,402 -------- -------- -------- -------- Income before provision for income taxes 4,588 4,245 9,216 6,214 PROVISION FOR INCOME TAXES 1,095 1,041 2,509 2,152 -------- -------- -------- -------- Net income 3,493 3,204 6,707 4,062 PREFERRED STOCK DIVIDEND ACCRUED 2,626 2,313 7,662 6,725 -------- -------- -------- -------- Net Income (Loss) applicable to Common Shareholders $ 867 $ 891 $ (955) $ (2,663) ======== ======== ======== ======== BASIC AND DILUTED NET INCOME (LOSS) PER COMMON SHARE $ 8.49 $ 8.70 $ (9.35) $ (25.99) ======== ======== ========= ======== BASIC AND DILUTED WEIGHTED AVERAGE COMMON SHARES 102,088 102,588 102,175 102,475 ======== ======== ========= ========
The accompanying notes are an integral part of these condensed consolidated financial statements. 5 6 AEARO CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (DOLLARS IN THOUSANDS) (Unaudited)
FOR THE NINE MONTHS ENDED JUNE 30, -------------------------------------------- 2000 1999 ------------------- ------------------ CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 6,707 $ 4,062 Adjustments to reconcile net income to cash provided by operating activities- Depreciation 7,488 7,119 Amortization of intangible assets and deferred financing costs 6,607 6,625 Deferred income taxes (123) (41) Other, net 56 253 Changes in assets and liabilities- Accounts receivable (4,440) (450) Inventories (1,232) (1,318) Accounts payable and accrued liabilities 2,174 1,826 Other, net 2,200 1,587 ------- -------- Net cash provided by operating activities 19,437 19,663 ------- -------- CASH FLOWS FROM INVESTING ACTIVITIES: Additions to property, plant and equipment (7,155) (5,040) Acquisition of Norhammer and Livax (3,970) - Proceeds provided by disposals of property, plant and equipment 10 22 ------- -------- Net cash used by investing activities (11,115) (5,018) ------- -------- CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from (repayment of) revolving credit facility, net 4,300 (5,000) Repayment of term loans (10,635) (9,242) Repayment of external long-term debt (145) (1,350) (Repurchase) sale of common stock, net (286) 50 (Decrease) increase in shareholder notes, net (87) 112 ------- -------- Net cash used by financing activities (6,853) (15,430) ------- -------- EFFECT OF EXCHANGE RATE CHANGES ON CASH (1,739) (932) ------- -------- DECREASE IN CASH AND CASH EQUIVALENTS (270) (1,717) CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 4,050 6,737 ------- -------- CASH AND CASH EQUIVALENTS, END OF PERIOD $ 3,780 $ 5,020 ======= ======== CASH PAID FOR: Interest $13,844 $ 14,077 ======= ======== Income taxes $ 1,709 $ 1,280 ======= ========
The accompanying notes are an integral part of these condensed consolidated financial statements. 6 7 AEARO CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, 2000 (UNAUDITED) (1) CONDENSED CONSOLIDATED FINANCIAL STATEMENTS In the opinion of management, the accompanying unaudited condensed consolidated financial statements contain all adjustments necessary to present fairly, in accordance with accounting principles generally accepted in the United States, the Company's financial position, results of operations and cash flows for the interim periods presented. Such adjustments consisted of only normal recurring items. These condensed consolidated financial statements do not include all disclosures associated with annual financial statements and accordingly should be read in conjunction with the consolidated financial statements and notes thereto included in the Company's Annual Report on Form 10-K. The Company's results are subject to seasonal fluctuations. Therefore, the results of operations for the interim periods shown in this report are not necessarily indicative of results for any future interim period or for the entire year. (2) FORMATION ACQUISITION AND FINANCING Aearo Corporation, a Delaware corporation, and its direct wholly owned subsidiary, Aearo Company, a Delaware corporation (collectively referred to herein as "the Company") manufactures and sells products under the brand names: AOSafety(R), E-A-R(R), and Peltor(R). These products are sold through three reportable segments, which are Safety Products, Safety Prescription Eyewear and Specialty Composites. The Safety Products segment manufactures and sells hearing protection devices, non-prescription safety eyewear, face shields, reusable and disposable respirators, hard hats and first aid kits. The Safety Prescription Eyewear segment manufactures and sells prescription eyewear products that are designed to protect the eyes from the typical hazards encountered in the industrial work environment. The Company's Safety Prescription Eyewear segment purchases component parts (lenses and the majority of its frames) from various suppliers, grinds, shapes and applies coatings to the lenses in accordance with the customer's prescription, and then assembles the glasses using the customer's choice of frame. The Specialty Composites segment manufactures and sells a wide array of energy-absorbing materials that are incorporated into other manufacturers' products to control noise, vibration and shock. Aearo Corporation was formed by Vestar Equity Partners, L.P. (Vestar) in June 1995 to effect the acquisition of substantially all of the assets and liabilities of Cabot Safety Corporation and certain affiliates (the Predecessor) all of which were wholly owned by Cabot Corporation (Cabot), (the Formation Acquisition). The Formation Acquisition closed on July 11, 1995, when Aearo Corporation acquired substantially all of the assets and certain liabilities of the Predecessor for cash, preferred stock and a 42.5% common equity interest in Aearo Corporation. Aearo Corporation immediately contributed the acquired assets and liabilities to Aearo Company, a wholly owned subsidiary of Aearo Corporation, pursuant to an asset transfer agreement dated June 13, 1995. Aearo Corporation has no other material assets, liabilities or operations other than those that result from its ownership of the common stock of Aearo Company. The Formation Acquisition has been accounted for as a purchase transaction effective as of July 11, 1995, in accordance with Accounting Principles Board Opinion No. 16, Business Combinations, and EITF Issue No. 88-16, Basis in Leveraged Buyout Transactions, and accordingly, the consolidated financial statements for the periods subsequent to July 11, 1995 reflect the purchase price, including transaction costs, allocated to tangible and intangible assets acquired and liabilities assumed, based on a portion of their estimated fair 7 8 AEARO CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, 2000 (UNAUDITED) values as of July 11, 1995. The valuation of assets and liabilities acquired reflect carryover basis for the percentage ownership retained by Cabot. (3) SIGNIFICANT ACCOUNTING POLICIES Use of Estimates. The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates. Reclassifications. Certain amounts included in the prior years' financial statements may have been reclassified to conform to the current period presentation. The reclassifications have no impact on net income previously reported. Revenue Recognition. The Company generally recognizes revenue upon shipment of its products to customers. Foreign Currency Translation. Assets and liabilities of the Company's foreign operations are translated at period-end exchange rates. Revenues and expenses are translated at the approximate average monthly rate during the period. Translation gains and losses are reflected as a separate component of stockholders' equity. Foreign currency gains and losses arising from transactions by any of the Company's subsidiaries are reflected in net income. Income Taxes. Deferred tax assets and liabilities are determined based on the difference between the financial statement and tax basis of assets and liabilities using enacted tax rates. Intangible Assets. Intangible assets consist primarily of the costs of goodwill, patents, and trademarks purchased in business acquisitions. Intangible assets are amortized on the straight-line basis over either 25 years or an estimated useful life, whichever is shorter. Net Income (Loss) per Common Share. Basic net income (loss) per common share is computed by dividing net income (loss) applicable to common shareholders by the weighted average number of shares of common stock outstanding during the year. Diluted net income (loss) per common share is calculated the same as basic except, if not antidilutive, stock options are included using the treasury stock method to the extent that average share trading price exceeds exercise price. Comprehensive Income. The Company's only item of comprehensive income relates to foreign currency translation adjustments, and is presented separately on the balance sheet as a component of stockholders' equity as required. If presented on the statements of operations, comprehensive income would be approximately $1.7 million, and approximately $1.4 million, less than the reported net income due to foreign currency translation adjustments for the three months ended June 30, 2000, and the three months ended June 30, 1999, respectively. For the nine month time periods as presented on the statement of operations, comprehensive income would be approximately $5.3 million, and $4.2 million, less than reported net income due to foreign currency translation adjustments for the nine months ended June 30, 2000, and 1999, respectively. 8 9 AEARO CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, 2000 (UNAUDITED) Accounting for Derivative Instruments and Hedging Activities. The Company is required to adopt the provisions of SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities no later than the first quarter of the fiscal year beginning October 1, 2000. SFAS No. 133 establishes accounting and reporting standards requiring that every derivative instrument (including certain derivative instruments embedded in other contracts) be recorded in the balance sheet as either an asset or a liability measured at its fair value. SFAS No. 133 requires that changes in the derivative's fair value be recognized currently in earnings unless specific hedge accounting criteria are met. Special accounting for qualifying hedges allows a derivative's gains and losses to offset related results on the hedged item in the income statement, and requires that a company must formally document, designate and assess the effectiveness of transactions that receive hedge accounting. The Company has not yet quantified the impact of adopting SFAS No. 133 on the consolidated financial statements and has not determined the timing of or method of the adoption of SFAS No. 133. However, SFAS No. 133 could increase volatility in earnings and other comprehensive income. (4) INVENTORIES Inventories consisted of the following (dollars in thousands): JUNE 30, SEPTEMBER 30, 2000 1999 ----------- ------------- (unaudited) Raw materials $ 9,019 $ 8,725 Work in process 7,632 7,649 Finished goods 18,352 16,912 ------- ------- $35,003 $33,286 ======= ======= Inventories are stated at the lower of cost or market, cost being determined using the first-in, first-out method. (5) DEBT The Company's debt structure includes $100.0 million of Senior Subordinated Notes (Notes) due 2005, as well as a senior bank facility comprised of (i) term loans denominated in U.S., Canadian, British, and German currencies (Term Loans) and (ii) a revolving credit facility with a maturity of May 30, 2002 providing for up to $25.0 million (Revolving Credit Facility), (collectively the Senior Bank Facilities). Under the terms of both the Senior Bank Facilities and the Notes indenture, Aearo Company is required to comply with certain financial covenants and restrictions with which Aearo Company was in compliance at June 30, 2000. At June 30, 2000, the amounts outstanding on the term loans and the revolving credit facility were approximately $92.5 million and $10.2 million, respectively. 9 10 AEARO CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, 2000 (UNAUDITED) (6) COMMITMENTS AND CONTINGENCIES Lease Commitments. The Company leases certain transportation vehicles, warehouse facilities, office space, and machinery and equipment under cancelable and noncancelable leases, most of which expire within 10 years and may be renewed by the Company. Contingencies. The Company is a defendant in various lawsuits and administrative proceedings which are being handled in the ordinary course of business. In the opinion of management of the Company, these suits and claims should not result in final judgments or settlements which, in the aggregate, would have a material adverse effect on the Company's financial condition or results of operations. (7) ACQUISITIONS On October 28, 1999, the Company acquired Ontario based Norhammer Limited for approximately Canadian $5.5 million. The transaction was accounted for using the purchase method of accounting, and accordingly, the operating results of Norhammer have been included with those of the Company subsequent to October 28, 1999. On June 1, 2000, the Company acquired Norway based Livax A/S for approximately $0.3 million. The transaction was accounted for using the purchase method of accounting, and accordingly, the operating results of Livax have been included with those of the Company subsequent to June 1, 2000. (8) SEGMENT REPORTING The Company manufactures and sells products under the brand names: AOSafety(R), E-A-R(R), and Peltor(R). These products are sold through three reportable segments, which are Safety Products, Safety Prescription Eyewear and Specialty Composites. NET SALES TO EXTERNAL CUSTOMERS BY BUSINESS SEGMENT (DOLLARS IN THOUSANDS)
THREE MONTHS ENDED NINE MONTHS ENDED JUNE 30, JUNE 30, ------------------------ ------------------------ 2000 1999 2000 1999 ---- ---- ---- ---- Safety Products $58,040 $55,665 $164,049 $158,355 Safety Prescription Eyewear 10,387 8,863 30,181 26,484 Specialty Composites 11,731 10,856 35,552 32,064 ------- ------- -------- -------- TOTAL $80,158 $75,384 $229,782 $216,903 ======= ======= ======== ========
Intersegment sales of the Specialty Composites segment to the Safety Products segment totaled $1.1 million and $1.2 million for the three months ended June 30, 2000 and 1999, respectively. Intersegment sales totaled $2.8 million and $2.7 million for the nine months ended June 30, 2000 and 1999, respectively. The intersegment sales value is determined at fully absorbed inventory cost at standard rates plus 25%. 10 11 AEARO CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, 2000 (UNAUDITED) EBITDA BY BUSINESS SEGMENT AND RECONCILIATION TO INCOME BEFORE PROVISION FOR INCOME TAXES (DOLLARS IN THOUSANDS)
THREE MONTHS ENDED NINE MONTHS ENDED JUNE 30, JUNE 30, ------------------------ ----------------------- 2000 1999 2000 1999 ---- ---- ---- ---- Safety Products $13,618 $ 12,192 $35,042 $30,972 Safety Prescription Eyewear 1,113 844 3,041 2,769 Specialty Composites 1,237 550 3,409 2,162 Reconciling items (771) 636 (1,226) 969 ------- -------- ------- ------- Total EBITDA 15,197 14,222 40,266 36,872 Interest 6,140 5,974 18,299 18,402 Depreciation 2,625 2,288 7,488 7,119 Amortization 1,684 1,673 5,175 5,088 Non-operating expense 160 42 88 49 ------- -------- ------- ------- INCOME BEFORE TAX PROVISION $ 4,588 $ 4,245 $ 9,216 $ 6,214 ======= ======== ======= =======
EBITDA is defined as earnings before interest, taxes, depreciation, amortization, and non-operating income or expense. Non-operating income or expense is further defined as extraordinary gains or losses, or gains or losses from sales of assets other than in the ordinary course of business. While the Company believes EBITDA is a useful indicator of its ability to service debt, EBITDA should not be considered as a substitute for net income determined in accordance with generally accepted accounting principles as an indicator of operating performance or as an alternative to cash flow as a measure of liquidity. Investors should be aware that EBITDA as presented above 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. 11 12 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion should be read in conjunction with the Condensed Consolidated Financial Statements of the Company, including notes thereto, appearing elsewhere in this Report. This Report contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. The Company's actual results could differ materially from those set forth in such forward-looking statements. The factors that might cause such a difference include, among others, the following: risks associated with indebtedness; risks related to acquisitions; risks associated with the conversion to a new management information system; high level of competition in the Company's markets; importance and costs of product innovation; risks associated with international operations; product liability exposure; unpredictability of patent protection and other intellectual property issues; dependence on key personnel; the risk of adverse effect of economic and regulatory conditions on sales; and risks associated with environmental matters. RESULTS OF OPERATIONS -- THREE MONTHS ENDED JUNE 30, 2000 COMPARED TO THREE MONTHS ENDED JUNE 30, 1999 UNAUDITED (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
THREE MONTHS ENDED THREE MONTHS ENDED ------------------------- ------------------------- Change - Favorable (UNFAVORABLE) June 30, Percent of June 30, Percent of ------------------ 2000 Net Sales 1999 Net Sales Amount Percent -------- ---------- -------- ---------- ------ ------- Net Sales Safety Products $ 58,040 72.4 $ 55,665 73.8 $ 2,375 4.3 Safety Prescription Eyewear 10,387 13.0 8,863 11.8 1,524 17.2 Specialty Composites 11,731 14.6 10,856 14.4 875 8.1 ----------- ------- ----------- ------- --------- Total net sales 80,158 100.0 75,384 100.0 4,774 6.3 Cost of Sales 42,254 52.7 40,363 53.5 (1,891) (4.7) ----------- ------- ----------- ------- ---------- Gross profit 37,904 47.3 35,021 46.5 2,883 8.2 Operating Expenses- Selling and administrative 24,388 30.4 21,956 29.1 (2,432) (11.1) Research and technical services 1,423 1.8 1,180 1.6 (243) (20.6) Amortization of intangibles 1,684 2.1 1,673 2.2 (11) (0.7) Other (income) charges, net (319) (0.4) (7) -- 312 -- ------------ -------- ------------ ------ --------- Operating income 10,728 13.4 10,219 13.6 509 5.0 Interest expense, net 6,140 7.7 5,974 7.9 (166) (2.8) ----------- -------- ----------- ------- ---------- Income before provision for income taxes 4,588 5.7 4,245 5.6 343 8.1 Provision for income taxes 1,095 1.4 1,041 1.4 (54) (5.2) ----------- ------- ----------- ------- ---------- Net income 3,493 4.4 3,204 4.3 289 9.0 Preferred stock dividend accrued 2,626 3.3 2,313 3.1 (313) (13.5) ----------- ------- ----------- ------- ---------- Income applicable to common shareholders $ 867 1.1 $ 891 1.2 $ (24) (2.7) ========== ====== ========== ======= ========= Income per common share $ 8.49 $ 8.70 $ (0.21) (2.4) ========== ========== ========= EBITDA $ 15,197 19.0 $ 14,222 18.9 $ 975 6.9 =========== ======= =========== ======= =========
12 13 Net Sales. Net sales in the three months ended June 30, 2000 increased 6.3% to $80.2 million from $75.4 million in the three months ended June 30, 1999. Safety Products net sales in the three months ended June 30, 2000 increased 4.3% to $58.0 million from $55.7 million in the three months ended June 30, 1999. This increase was driven by growth in sales of the hearing, eyewear, head and respiratory protection product lines. The success of product introductions led by the Lexa(R) eyewear and E-A-Rsoft(TM) hearing protection lines drove the strong volume growth which was offset somewhat by changes in foreign exchange. The strength of the US dollar relative to European currencies had the impact of reducing sales by approximately $2.1 million in the three months ended June 30, 2000, as compared to the three months ended June 30, 1999. The Safety Prescription Eyewear segment net sales in the three months ended June 30, 2000 increased 17.2% to $10.4 million from $8.9 million in the three months ended June 30, 1999. The Safety Prescription Eyewear segment net sales for the three months ended June 30, 2000 included approximately $1.2 million of sales from Safety Optical that was acquired in August 1999. Specialty Composites' net sales in the three months ended June 30, 2000 increased 8.1% to $11.7 million from $10.9 million in the three months ended June 30, 1999. The increase was primarily driven by continued growth in the electronic segments of the precision equipment market, including computer and personal communication system (PCS) applications. Gross Profit. Gross Profit in the three months ended June 30, 2000 increased 8.2% to $37.9 million from $35.0 million in the three months ended June 30, 1999. Gross Profit as a percentage of net sales in the three months ended June 30, 2000 was 47.3% as compared to 46.5% in the three months ended June 30, 1999. This improvement in the Gross Profit percentage of net sales is primarily due to increased productivity in the manufacturing plants which was strong enough to offset the negative impact of changes in foreign exchange rates. The strong US dollar relative to European currencies negatively affects gross profits as the impact Europe's manufacturing costs are not proportional to the impact on net sales due the majority of Europe's manufacturing costs occurring outside of the European Monetary Union. Selling and Administrative Expenses. Selling and administrative expenses in the three months ended June 30, 2000 increased 11.1% to $24.4 million from $22.0 million in the three months ended June 30, 1999. Selling and administrative expenses as a percentage of net sales in the three months ended June 30, 2000 was 30.4% as compared to 29.1% in the three months ended June 30, 1999. The spending increase is primarily due to increased spending in selling and marketing, professional services, and E-commerce. The increase in selling and marketing is part of the Company 's campaign to build brand awareness and loyalty by more strongly promoting its global brands. Research and Technical Service Expenses. Research and technical service expenses in the three months ended June 30, 2000 increased 20.6% to $1.4 million from $1.2 million in the three months ended June 30, 2000. The increase is attributed to additional focus in the design and development of new products and technologies. Amortization of Intangibles. Amortization expense in the three months ended June 30, 2000 of $1.7 million was at the same level as the three months ended June 30, 1999. Amortization expense was affected by additional goodwill associated with the recent acquisitions of Safety Optical and Norhammer that was mostly offset by favorable changes in foreign currency translation. Other (income) charges, net. Other (income) charges, net was income of $0.3 million for the three months ended June 30, 2000 as compared to a breakeven position for the three months ended June 30, 1999. This change was primarily a result of net foreign currency transaction gains in the three months ended June 30, 2000. Operating Income. Operating income improved 5.0% to $10.7 million in the three months ended June 30, 2000 from $10.2 million in the three months ended June 30, 1999. This improvement was due primarily to increases in sales, increased gross profit as a percentage of sales, and the change in net foreign currency transaction gains and losses, partially offset by increased spending in selling, administrative, and technical services expenses. Operating 13 14 income as a percentage of net sales in the three months ended June 30, 2000 was 13.4% as compared to 13.6% in the three months ended June 30, 1999. Interest Expense, Net. Interest expense, net in the three months ended June 30, 2000 increased 2.8% to $6.1 million from $6.0 million in the three months ended June 30, 1999. The increase in interest expense was due to an increase in the weighted average interest rates in effect for the three months ended June 30, 2000 as compared to the three months ended June 30, 1999, somewhat offset by a reduction in average borrowings. Provision For Income Taxes. The provision for income taxes in the three months ended June 30, 2000 was $1.1 million compared to $1.0 million in the three months ended June 30, 1999, reflecting an increased level of income before provision for income taxes. Net Income. Net income for the three months ended June 30, 2000 increased 9.0% to $3.5 million from $3.2 million for the three months ended June 30, 1999. EBITDA. EBITDA is defined as earnings before interest, taxes, depreciation, amortization, and non-operating income or expense. Non-operating income or expense is further defined as extraordinary gains or losses, or gains or losses from sales of assets other than in the ordinary course of business. While the Company believes EBITDA is a useful indicator of its ability to service debt, EBITDA should not be considered as a substitute for net income determined in accordance with generally accepted accounting principles as an indicator of operating performance or as an alternative to cash flow as a measure of liquidity. Investors should be aware that EBITDA as presented below 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. EBITDA CALCULATION UNAUDITED (DOLLARS IN THOUSANDS)
Three Months Ended Change June 30, Favorable (Unfavorable) ------------------------ ------------------------- 2000 1999 AMOUNT PERCENT ---- ---- ------ ------- Operating Income $10,728 $10,219 $509 5.0% Add Backs: Depreciation 2,625 2,288 337 14.7% Amortization of Intangibles 1,684 1,673 11 0.7% Non-operating expense, net 160 42 118 -- ------- ------- ---- EBITDA $15,197 $14,222 $975 6.9% ======= ======= ====
EBITDA for the three months ended June 30, 2000 was $15.2 million as compared to $14.2 million for the three months ended June 30, 1999. This improvement was due primarily to increased levels of sales, increased gross profit as a percentage of sales, and foreign currency transaction gains, partially offset by increased spending in selling, administrative and technical services expense. EBITDA as a percentage of net sales in the three months ended June 30, 2000 was 19.0% as compared to 18.9% in the three months ended June 30, 1999. 14 15 RESULTS OF OPERATIONS--NINE MONTHS ENDED JUNE 30, 2000 COMPARED TO NINE MONTHS ENDED JUNE 30, 1999 UNAUDITED (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
NINE MONTHS ENDED NINE MONTHS ENDED Change - Favorable ------------------------- ------------------------ (UNFAVORABLE) June 30, Percent of June 30, Percent of ------------- 2000 Net Sales 1999 Net Sales Amount Percent -------- ---------- -------- ---------- ------ ------- Net Sales Safety Products $164,049 71.4 $158,355 73.0 $ 5,694 3.6 Safety Prescription Eyewear 30,181 13.1 26,484 12.2 3,697 14.0 Specialty Composites 35,552 15.5 32,064 14.8 3,488 10.9 --------- ----- -------- ----- -------- Total net sales 229,782 100.0 216,903 100.0 12,879 5.9 Cost of Sales 122,333 53.2 117,816 54.3 (4,517) (3.8) --------- ----- -------- ----- -------- Gross profit 107,449 46.8 99,087 45.7 8,362 8.4 Operating Expenses- Selling and administrative 71,346 31.0 65,381 30.1 (5,965) (9.1) Research and technical services 4,141 1.8 3,424 1.6 (717) (20.9) Amortization of intangibles 5,175 2.3 5,088 2.3 (87) (1.7) Other (income) charges, net (728) (0.3) 578 0.3 1,306 - --------- ----- -------- ----- -------- Operating income 27,515 12.0 24,616 11.3 2,899 11.8 Interest expense, net 18,299 8.0 18,402 8.5 103 0.6 --------- ----- -------- ----- -------- Income before provision for income taxes 9,216 4.0 6,214 2.9 3,002 48.3 Provision for income taxes 2,509 1.1 2,152 1.0 (357) (16.6) --------- ----- -------- ----- --------- Net income 6,707 2.9 4,062 1.9 2,645 65.1 Preferred stock dividend accrued 7,662 3.3 6,725 3.1 (937) (13.9) --------- ----- -------- ----- --------- Loss applicable to common shareholders $ (955) (0.4) $ (2,663) (1.2) $ 1,708 64.1 ========= ===== ======== ===== ======== Loss per common share $ (9.35) $ (25.99) $ 16.64 64.0 ========= ======== ======== EBITDA $ 40,266 17.5 $ 36,872 17.0 $ 3,394 9.2 ========= ===== ======== ===== ========
Net Sales. Net sales in the nine months ended June 30, 2000 increased 5.9% to $229.8 million from $216.9 million in the nine months ended June 30, 1999. Safety Products net sales in the nine months ended June 30, 2000 increased 3.6% to $164.0 million from $158.4 million in the nine months ended June 30, 1999. This increase was driven by growth in sales of the hearing, eyewear and respiratory protection product lines. The success of product introductions led by the Lexa(R) eyewear and E-A-Rsoft(TM) hearing protection lines, as well as growth of the Peltor(R) brand in Europe, drove the strong volume growth which was offset somewhat by changes in foreign exchange. The strength of the US dollar relative to European currencies had the impact of reducing sales by approximately $5.6 million in the nine months ended June 30, 2000, as compared to the nine months ended June 30, 1999. The Safety Prescription Eyewear segment net sales in the nine months ended June 30, 2000 increased 14.0% to $30.2 million from $26.5 million in the nine months ended June 30, 1999. The Safety Prescription Eyewear segment net sales for the nine months ended June 30, 2000 included approximately $3.5 million of sales from Safety Optical that was acquired in August 1999. Specialty Composites' net sales in the nine months ended June 30, 2000 increased 10.9% to $35.6 million from $32.1 million in the nine months ended June 30, 1999. The increase was primarily driven by continued growth in the electronic segments of the precision equipment market, 15 16 including computer and personal communication system (PCS) applications, as well as growth in the transportation market. Gross Profit. Gross Profit in the nine months ended June 30, 2000 increased 8.4% to $107.4 million from $99.1 million in the nine months ended June 30, 1999. Gross Profit as a percentage of net sales in the nine months ended June 30, 2000 was 46.8% as compared to 45.7% in the nine months ended June 30, 1999. This significant improvement in the Gross Profit percentage of net sales is primarily due to increased productivity in the manufacturing plants which was strong enough to offset the negative impact of changes in foreign exchange rates. The strong US dollar relative to European currencies negatively affects gross profits as the impact on the majority of Europe's manufacturing costs are not proportional to the impact on net sales due the majority of Europe's manufacturing costs occurring outside of the European Monetary Union. Selling and Administrative Expenses. Selling and administrative expenses in the nine months ended June 30, 2000 increased 9.1% to $71.3 million from $65.4 million in the nine months ended June 30, 1999. Selling and administrative expenses as a percentage of net sales in the nine months ended June 30, 2000 increased to 31.0% of net sales as compared to 30.1% of net sales in the nine months ended June 30, 1999. The spending increase is primarily due to increased spending in selling and marketing, professional services, and E-commerce. The increase in selling and marketing is part of the Company 's campaign to build brand awareness and loyalty by more strongly promoting its global brands. Research and Technical Service Expenses. Research and technical service expenses in the nine months ended June 30, 2000 increased 20.9% to $4.1 million from $3.4 million in the nine months ended June 30, 1999. The increase is attributed to additional focus in the design and development of new products and technologies. Amortization of Intangibles. Amortization expense in the nine months ended June 30, 2000 increased 1.7% to $5.2 million from $5.1 million in the nine months ended June 30, 1999. Amortization expense was affected by additional goodwill associated with the recent acquisitions of Safety Optical and Norhammer that was mostly offset by favorable changes in foreign currency translation. Other (income) charges, net. Other (income) charges, net was income of $0.7 million for the nine months ended June 30, 2000 as compared to an expense of $0.6 million for the nine months ended June 30, 1999. This change was primarily a result of net foreign currency transaction gains in the nine months ended June 30, 2000 as compared to net foreign currency transaction losses in the nine months ended June 30, 1999. Operating Income. Operating income improved 11.8% to $27.5 million in the nine months ended June 30, 2000 from $24.6 million in the nine months ended June 30, 1999. This improvement was due primarily to increases in sales, productivity improvements in the manufacturing plants and the change in net foreign currency transaction gains and losses, partially offset by increased spending in selling, administrative, and technical services expenses. Operating income as a percentage of net sales in the nine months ended June 30, 2000 was 12.0% as compared to 11.3% in the nine months ended June 30, 1999. Interest Expense, Net. Interest expense, net in the nine months ended June 30, 2000 decreased 0.6% to $18.3 million from $18.4 million in the nine months ended June 30, 1999. The reduction in interest expense was due to a reduction in average borrowings offset somewhat by an increase in the weighted average interest rates in effect for the nine months ended June 30, 2000 as compared to the nine months ended June 30, 1999. Provision For Income Taxes. The provision for income taxes in the nine months ended June 30, 2000 was $2.5 million compared to $2.2 million in the nine months ended June 30, 1999, reflecting an increased level of income before provision for income taxes. 16 17 Net Income. Net income for the nine months ended June 30, 2000 increased 65.1% to $6.7 million from $4.1 million for the nine months ended June 30, 1999. EBITDA. EBITDA is defined as earnings before interest, taxes, depreciation, amortization, and non-operating income or expense. Non-operating income or expense is further defined as extraordinary gains or losses, or gains or losses from sales of assets other than in the ordinary course of business. While the Company believes EBITDA is a useful indicator of its ability to service debt, EBITDA should not be considered as a substitute for net income determined in accordance with generally accepted accounting principles as an indicator of operating performance or as an alternative to cash flow as a measure of liquidity. Investors should be aware that EBITDA as presented below 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. EBITDA CALCULATION UNAUDITED (DOLLARS IN THOUSANDS)
Nine Months Ended Change June 30, Favorable (Unfavorable) ------------------------ ------------------------- 2000 1999 AMOUNT PERCENT ---- ---- ------ ------- Operating Income $27,515 $24,616 $2,899 11.8% Add Backs: Depreciation 7,488 7,119 369 5.2% Amortization of Intangibles 5,175 5,088 87 1.7% Non-operating expense, net 88 49 39 79.6% ------- ------- ------ EBITDA $40,266 $36,872 $3,394 9.2% ======= ======= ======
EBITDA for the nine months ended June 30, 2000 was $40.3 million as compared to $36.9 million for the nine months ended June 30, 1999. This improvement was due primarily to improvements in sales volume, gross profit, net foreign currency transaction gains and losses, partially offset by increased spending in Selling, Administrative, and Technical expenses. EBITDA as a percentage of net sales in the nine months ended June 30, 2000 was 17.5% as compared to 17.0% in the nine months ended June 30, 1999. EFFECTS OF CHANGES IN EXCHANGE RATES In general, the Company's results of operations are affected by changes in exchange rates. Subject to market conditions, the Company prices its products in Europe and Canada in local currency. While many of the Company's selling and distribution costs are also denominated in these currencies, a large portion of product costs are U.S. Dollar denominated. As a result, a decline in the value of the U.S. Dollar relative to other currencies can have a favorable impact on the profitability of the Company and an increase in the value of the U.S. Dollar relative to these other currencies can have a negative effect on the profitability of the Company. As a result of the acquisition of Peltor, the Company's operations are also affected by changes in exchange rates relative to the Swedish Krona. A decline in the value of the Krona relative to other currencies can have a favorable impact on the profitability of the Company and an increase in the value of the Krona relative to other currencies can have a negative impact on the profitability of the Company. The Company utilizes forward foreign currency contracts to mitigate the effects of changes in foreign currency rates on profitability. 17 18 EFFECTS OF INFLATION In recent years, inflation has been modest and has not had a material impact upon the results of the Company's operations. YEAR 2000 COMPLIANCE The Company did not experience significant problems related to systems recognizing date sensitive information as a result of the year 2000. The costs associated with making its information systems year 2000 compliant were not material. LIQUIDITY AND CAPITAL RESOURCES The Company's sources of funds have consisted primarily of operating cash flow and debt financing. The Company's uses of those funds consist principally of debt service, capital expenditures and acquisitions. The Company's debt structure includes $100.0 million of Senior Subordinated Notes (Notes) due 2005, as well as a senior bank facility comprised of (i) term loans denominated in U.S., Canadian, British and German currencies (Term Loans) and (ii) a revolving credit facility with a maturity of May 30, 2002 providing for up to $25.0 million (Revolving Credit Facility), (collectively the Senior Bank Facilities). Under the terms of both the Senior Bank Facilities and the Notes indenture, Aearo Company is required to comply with certain financial covenants and restrictions with which Aearo Company was in compliance at June 30, 2000. At June 30, 2000 the amounts outstanding on the Term Loans and the Revolving Credit Facility were approximately $92.5 million and $10.2 million, respectively. Maturities under the Company's Term Loans are: $4.6 million for the remainder of fiscal 2000, $19.5 million in fiscal 2001, $33.1 million in fiscal 2002, and $35.3 million in fiscal 2003. Other than upon a change of control or as a result of certain asset sales, or in the event that certain excess funds exist at the end of a fiscal year, the Company will not be required to make any principal payments in respect of the Notes until maturity. The Company is required to make interest payments with respect to both the Senior Bank Facilities and the Notes. The Company's net cash provided by operating activities for the nine months ended June 30, 2000 totaled $19.4 million as compared to $19.7 million for the nine months ended June 30, 1999. The decrease was due primarily to a decrease of $2.9 million in the Company's net changes in assets and liabilities, partially offset by a $2.6 million improvement in net income. The Company's net changes in assets and liabilities were primarily driven by growth in receivables. Net cash used by investing activities was $11.1 million for the nine months ended June 30, 2000 as compared to $5.0 million for the nine months ended June 30, 1999. The increase in net cash used by investing activities is attributed to the acquisition of Ontario based Norhammer Limited for $3.6 million, the acquisition of Norway based Livax A/S for aproximately $0.3 million, and a higher level of capital expenditures in the nine months ended June 30, 2000 as compared to the nine months ended June 30, 1999. Net cash used by financing activities for the nine months ended June 30, 2000 was $6.9 million compared with net cash used by financing activities for the nine months ended June 30, 1999 of $15.4 million. The change in cash used by financing activities of $8.6 million is primarily attributed to additional borrowings under the revolving credit facility of $4.3 million for the nine months ended June 30, 2000 compared to repayments of $5.0 million in the nine months ended June 30, 1999, a decrease in the repayment of long term debt of $1.2 million, and an increase of $1.4 million in the scheduled principal repayments on the Term Loans. Scheduled principal 18 19 repayments on the Term Loans were $10.6 million and $9.2 million for the nine months ended June 30, 2000 and 1999, respectively. The Company has a substantial amount of indebtedness. The Company relies on internally generated funds, and to the extent necessary, on borrowings under the Revolving Credit Facility (subject to certain customary drawing conditions) to meet its liquidity needs. The Company anticipates that operating cash flow will be adequate to meet its operating and capital expenditure requirements for the next several years, although there can be no assurances that existing levels of sales and normalized profitability, and therefore cash flow, will be maintained in the future. Levels of sales and profitability may be impacted by service levels, continued new product development, worldwide economic conditions and competitive pressures. In particular, the Company expects that profitability over the remainder of fiscal 2000 will be adversely affected by the strength of the U.S. Dollar relative to the Euro. In addition, the Company may make additional acquisitions in the future and would rely on internally generated funds and, to the extent necessary, on borrowings to finance such acquisitions. It is also anticipated that over the next several years the level of debt service and the requirements placed on the Company's Senior Bank Facilities will require that the Company amend its credit agreement with its syndicate of lenders, or otherwise change its capital structure. 19 20 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The Company is exposed to market risks related to change in foreign currencies, interest rates and commodity pricing. The Company uses derivatives to mitigate the impact of changes in foreign currencies and interest rates. FOREIGN CURRENCY RISK In general, the Company's results of operations are affected by changes in exchange rates. Subject to market conditions, the Company prices its products in Europe and Canada in local currency. While many of the Company's selling and distribution costs are also denominated in these currencies, a large portion of product costs are U.S. Dollar denominated. As a result, a decline in the value of the U.S. Dollar relative to other currencies can have a favorable impact on the profitability of the Company and an increase in the value of the U.S. Dollar relative to these other currencies can have a negative effect on the profitability of the Company. In particular, the Company expects that sales and profitability over the remainder of fiscal year 2000 will be adversely affected by the strength of the U.S. Dollar relative to the Euro. To mitigate the impacts of changes in exchange rates the Company executes two hedging programs: one for transaction exposures, and the other for the cash flows of the European operations. The Company utilizes forward contracts for transaction exposures and a combination of forward contracts, put options and zero premium collars for cash flow exposures. During the three months ended June 30, 2000 there was no significant impact on net income due to transaction hedges, while the cash flow hedges created a gain of $0.5 million. In addition, the Company limits foreign exchange impacts on the balance sheet with foreign denominated debt in Great Britain Pound Sterling (GBP) and German Marks (DEM). The Company does not consider the notional amount of outstanding hedge contracts at June 30, 2000 as material. It is anticipated that the settlement of outstanding contracts will not have a material impact on the profitability of the Company. INTEREST RATES The Company is exposed to market risk changes in interest rates through its debt. The Company utilizes interest rate swaps to reduce the impact of increased interest rates in its floating rate debt. With the continuing increases in interest rates since June of 1999 the Company unwound its zero premium collar on February 28, 2000, rolling gains into a new interest rate swap that matches the notional amounts of the credit agreement by loan currency. The new interest rate swap will expire August 31, 2001. The Company is of the opinion that it is well positioned to manage interest expense through August 2001 and have mitigated the risks of continued interest rate hikes and the related profit impact from the Company's Financial Statements through these efforts. COMMODITY RISK The Company is subject to market risks with respect to industry pricing in paper and crude oil as it relates to various commodity items. Items with potential impact are paperboard, packaging films, nylons, resins, propylene, ethylene, plasticizer and freight. The Company manages pricing exposures on larger volume commodities such as polycarbonate, polyols and polyvinyl chloride via price negotiations utilizing alternative supplier competitive pricing. The Company sources some products and parts from Far East sources where resource availability, competition, and infrastructure stability has provided a favorable purchasing environment. The Company does not enter into derivative instruments to manage commodity risk. 20 21 PART II ITEM 1. LEGAL PROCEEDINGS Various lawsuits and claims arise against the Company in the ordinary course of its business. Most of these lawsuits and claims relate to the Company's safety eyewear and respiratory product lines and primarily involve accidents and/or exposures occurring after the Company's predecessor acquired the AOSafety Division from American Optical Corporation in April 1990. The Company is contingently liable with respect to numerous lawsuits involving respirators manufactured by American Optical Corporation prior to the acquisition of the AOSafety Division in April 1990. These lawsuits typically involve plaintiffs alleging that they suffer from asbestosis or silicosis, and that such condition results in part from respirators which were negligently designed or manufactured. The defendants in these lawsuits are often numerous, and include, in addition to respirator manufacturers, employers of the plaintiffs and manufacturers of sand (used in sand blasting) and asbestos. Responsibility for legal costs, as well as for settlements and judgments, is shared contractually by the Company, American Optical Corporation and a prior owner of American Optical Corporation. The Company and Cabot have entered into an arrangement relating to certain respirator claims asserted after July 11, 1995 (the date of the Company's formation) whereby, so long as the Company pays to Cabot an annual fee of $400,000, which the Company has elected to pay, Cabot will retain responsibility and liability for, and indemnify the Company against, certain legal claims alleged to arise out of the use of respirators manufactured prior to July 1995. The Company has the right to discontinue the payment of such annual fee at any time, in which case the Company will assume responsibility for and indemnify Cabot with respect to such claims. ITEM 2. CHANGES IN SECURITIES None. ITEM 3. DEFAULTS UPON SENIOR SECURITIES None. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS None. ITEM 5. OTHER INFORMATION None. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits 27.1 -- Financial Data Schedule (b) Reports on Form 8-K None 21 22 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. Date: August 2, 2000 AEARO CORPORATION /s/ Bryan J. Carey ------------------------------------------- Bryan J. Carey Executive Vice President, Chief Financial Officer, Treasurer, Assistant Secretary and Managing Director - Europe /s/ Jeffrey S. Kulka ------------------------------------------- Jeffrey S. Kulka Corporate Controller 22 23 EXHIBIT INDEX EXHIBITS DESCRIPTION -------- ----------- 27.1* -- Financial Data Schedule. *Filed herewith. 23