Aearo Co I (1290498) SEC Filing 10-Q Quarterly report for the period ending Friday, December 31, 2004

EX-99.2O
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exh_991-010505.txt
AEARO RESULTS OF OPERATIONS

                      Aearo Discloses Results of Operations

INDIANAPOLIS,  January  4, 2005 - Aearo  Company I (the  "Company"),  one of the
world's  leading  designers,  manufacturers  and  marketers  of a broad range of
personal protective products,  today announced that net sales for the year ended
September 30, 2004 increased  14.7% to $362.8 million from $316.4 million in the
year ended September 30, 2003. The increase in net sales was primarily driven by
organic growth in the Safety  Products and Specialty  Composites  segments,  the
impact of the  SafeWaze  acquisition  on March  14,  2003 and  foreign  currency
translation.  The  weakness  of the U.S.  dollar  and the  SafeWaze  acquisition
favorably  impacted net sales by $11.6 million and $4.5  million,  respectively.
The Safety  Products  segment  net sales in the year ended  September  30,  2004
increased  13.2% to  $274.4  million  from  $242.3  million  in the  year  ended
September 30, 2003.  The increase in net sales  resulted from a 6.7% increase in
organic growth, a 4.6% increase due to foreign  currency  translation and a 1.9%
increase due to the acquisition of SafeWaze. Organic sales growth for the Safety
Products  segment,  defined as net sales  less the  impact of  foreign  currency
translation and acquisitions,  has increased for nine consecutive quarters.  The
Company  attributes  this  growth to an  improved  economy  and its  ability  to
successfully  introduce  new  products  into the  markets it serves.  The Safety
Prescription  Eyewear  segment  net sales in the year ended  September  30, 2004
decreased  slightly  to $39.8  million  from  $40.0  million  in the year  ended
September 30, 2003. Specialty  Composites' net sales in the year ended September
30, 2004  increased  42.5% to $48.6 million from $34.1 million in the year ended
September 30, 2003. The increase was primarily  driven by market share gains and
an improving  economy  driving  volume  increases in the precision  electronics,
truck,  aircraft and industrial  markets.  The Company  tracks  measures such as
computer  and  electronic  production  data and truck  build  rates to gauge the
momentum  in the  Specialty  Composites  segment  which  has  been  experiencing
positive sales trends in the last five quarters.

Gross  profit for the year ended  September  30, 2004  increased  1.9% to $155.3
million from $152.4 million for the year ended September 30, 2003.  Gross profit
for 2004 was  adversely  affected  by a  non-recurring  charge of $17.1  million
resulting from the write-up of inventory required by SFAS No. 141 as a result of
the purchase of the Company by Bear Stearns  Merchant Capital and the subsequent
sale of  such  inventory.  Excluding  the  effects  of the  purchase  accounting
adjustment,  gross  profit  as a  percentage  of net  sales  for the year  ended
September  30, 2004 was 47.5% as compared to 48.2% for the year ended  September
30, 2003.  The slight decline in the gross profit  percentage,  exclusive of the
non-recurring  charge,  is primarily  due to  unfavorable  product mix partially
offset  by  productivity   improvements  and  the  impact  of  foreign  currency
translation.

Operating  income for the year ended September 30, 2004 decreased 26.9% to $31.2
million from $42.7  million for the year ended  September  30,  2003.  Operating
income in 2004 included a non-recurring  charge of $17.1 million  resulting from
the  write-up of  inventory  and a $1.7  million  increase in  depreciation  and
amortization as required by SFAS No. 141 due to purchase  accounting.  Excluding
the effects of the purchase accounting adjustment, operating income increased by
$7.3 million and as a percentage  of net sales for the year ended  September 30,
2004 increased to 13.8% from 13.5% for the year ended September 30, 2003.

Interest expense,  net, for the year ended September 30, 2004 increased to $26.7
million  from $19.6  million for the year ended  September  30,  2003.  Interest
expense  for the year  ended  September  30,  2004  included  the  write-off  of
approximately $3.9 million for deferred financing fees related to the redemption
of the 12.50% senior  subordinated  notes and the repayment of the Company's old
senior bank facilities. In addition, the Company incurred an incremental 30 days
of interest of $1.0 million on the 12.50% senior  subordinated notes between the
call date for the 12.50% senior  subordinated notes and the redemption date. The
balance of the  increase  is due to the  higher  level of  borrowings  under the
Company's new credit facility and the 8.25% senior subordinated notes.

Income before the  provision  for income taxes for the year ended  September 30,
2004  decreased to $4.5 million from $23.3 million for the year ended  September
30,  2003.  Income  before the  provision  for income  taxes in 2004  included a
non-recurring  charge of $17.1 million  resulting from the write-up of inventory
and a $1.7 million increase in depreciation and amortization as required by SFAS
No.  141  due  to  purchase  accounting.   In  addition,  the  Company  incurred
non-recurring  charges  of $1.5  million to call its 12.5%  senior  subordinated
notes,  $3.9  million  for the  write-off  of deferred  financing  fees and $1.0
million of incremental  interest  incurred  between the call date for the 12.50%
senior subordinated notes and the redemption date.  Excluding the effects of the
above,  income before the  provision for income taxes  increased by $6.4 million
and as a percentage of net sales for the year ended September 30, 2004 increased
to 8.2% from 7.4% for the year ended September 30, 2003.

Adjusted  EBITDA,  defined as earnings  before  interest,  taxes,  depreciation,
amortization,  inventory  purchase  accounting  adjustment,  bond  call  premium
expense and other  non-cash  charges,  increased  15.3% to $62.3 million for the
year ended September 30, 2004 from $54.0 million in the year ended September 30,
2003. A reconciliation  of Adjusted EBITDA to income before provision for income
taxes determined in accordance with accounting  principals generally accepted in
the United  States of America  ("GAAP")  is set forth  below.  The  increase  in
Adjusted  EBITDA was primarily  driven by organic growth in the Safety  Products
and Specialty  Composites  segments,  the impact of the SafeWaze  acquisition on
March 14, 2003, productivity improvements and the foreign currency translation.

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 Company  believes that the most  directly  comparable  financial  measure to
Adjusted  EBITDA in accordance  with GAAP is income before  provision for income
taxes.  The following  table  provides a  reconciliation  of Adjusted  EBITDA to
income  before  provision  for income taxes for the three months and nine months
ended September 30, 2003 and 2004, respectively:


                                                             Years Ended
                                                            September 30,
                                                          2003           2004
Adjusted EBITDA                                    $    54,008     $     62,250

Depreciation                                            11,102           10,951
Amortization of intangibles                                267            2,873
Other non-cash charges (income), net                      163             (316)
Inventory purchase accounting                               --           17,067
Bond call premium                                           --            1,532
Restructuring                                              70)          (1,091)
Interest                                                19,456           26,744
Income before provision for income taxes           $    23,290     $      4,490

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.

The Company has scheduled a conference call to discuss its financial  results on
Thursday,  January  6,  2005 at 2:00  p.m.  EST.  The  call in  number  is (800)
226-0630.  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 (800)
226-0630.

Headquartered in Indianapolis,  Ind., Aearo Company (www.aearo.com) is a leading
manufacturer and supplier of personal protective  equipment 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.

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