<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
__________________
FORM 10-Q
_____________
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR THE QUARTER ENDED MARCH 31, 1998
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM _______________ TO
__________________
COMMISSION FILE NUMBER 333-43195
COMMISSION FILE NUMBER 333-43195-01
SCOVILL FASTENERS INC.
SCOVILL HOLDINGS INC.
(EXACT NAME OF REGISTRANTS AS SPECIFIED IN THEIR RESPECTIVE CHARTERS)
<TABLE>
<CAPTION>
<S> <C> <C>
Delaware 3965 95-3959561
Delaware 6719 58-2365743
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification Number)
</TABLE>
SCOVILL FASTENERS INC.
SCOVILL HOLDINGS INC.
1802 SCOVILL DRIVE
CLARKESVILLE, GEORGIA 30523
706-754-4181
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF REGISTRANTS' PRINCIPAL EXECUTIVE OFFICES)
___________________
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 [ ] No [X] (Not subject to filing
requirements for past 90 days.)
Number of shares of Common Stock outstanding as of April 15, 1998 was 4,655,500.
<PAGE>
SCOVILL HOLDINGS INC.
SCOVILL FASTENERS INC.
QUARTERLY REPORT ON FORM 10-Q
FOR THE QUARTER ENDED MARCH 31, 1998
TABLE OF CONTENTS
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<CAPTION>
PART I - FINANCIAL INFORMATION Page No.
------------
Item 1. Financial Statements -
<S> <C>
Consolidated Balance Sheets at March 31, 1998 and December 31, 1997.............3
Consolidated Statements of Operations for the three months ended
March 31, 1998 and 1997......................................................4
Consolidated Statements of Cash Flows for the three months ended
March 31, 1998 and 1997......................................................5
Notes to Consolidated Financial Statements.......................................6
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations................................................................7
PART II - OTHER INFORMATION
Item 1. Legal Proceedings................................................................9
Item 2. Changes in Securities and Use of Proceeds........................................9
Item 3. Defaults Upon Senior Securities..................................................9
Item 4. Submission of Matters to a Vote of Security Holders..............................9
Item 5. Other Information................................................................9
Item 6. Exhibits and Reports on Form 8-K.................................................9
SIGNATURES.......................................................................10
</TABLE>
-2-
<PAGE>
SCOVILL HOLDINGS INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1998 1997
(Unaudited)
------------------------------------
<S> <C> <C>
ASSETS
Current Assets
Cash and cash equivalents......................................................... $ 1,193 $ 2,821
Accounts receivable, net of allowances of $1,086 and $894, respectively .......... 16,778 11,502
Inventories....................................................................... 24,580 24,292
Other............................................................................. 751 839
-------- --------
Total Current Assets........................................................... 43,302 39,454
-------- --------
Property, Plant and Equipment, Net.................................................. 71,885 72,505
Intangible Assets................................................................... 113,770 114,243
-------- --------
$ 228,957 $ 226,202
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Current maturities of long-term debt.............................................. $ 1,447 $ 1,649
Accounts payable.................................................................. 9,850 11,458
Accrued liabilities............................................................... 9,526 9,470
Accrued interest.................................................................. 4,098 1,062
-------- --------
Total Current Liabilities...................................................... 24,921 23,639
-------- --------
Long-Term Liabilities
Revolving line of credit.......................................................... 2,500 --
Long-term debt.................................................................... 128,187 128,199
Employee benefits................................................................. 24,502 24,499
Deferred income taxes............................................................. 4,830 5,380
Other............................................................................. 3,589 3,676
-------- --------
Total Long-Term Liabilities.................................................... 163,608 161,754
-------- --------
Series A Cumulative Redeemable Exchangeable Preferred Stock, $.001 par value,
200,000 shares authorized, none at March 31, 1998 and 100,000 issued at
December 31, 1998 (liquidation preference of $100 per share).................... -- 9,400
-------- --------
Stockholders' Equity
Series B Preferred Stock, $.0001 par value, 16,200,000 shares authorized,
4,655,500 at March 31, 1998 and 3,655,500 at December 31, 1997 shares issued
and outstanding.................................................................. -- --
Common stock, $.0001 par value, 6,000,000 shares authorized,
4,655,500 at March 31, 1998 and 3,655,500 at December 31, 1997 shares issued and
outstanding..................................................................... -- --
Additional paid-in capital--preferred ............................................ 49,942 39,700
Additional paid-in capital--common................................................ 503 400
Predecessor basis adjustment...................................................... (7,831) (7,831)
Retained earnings (deficit)....................................................... (2,467) (781)
Foreign currency translation adjustment........................................... 281 (79)
-------- --------
Total Stockholders' Equity.................................................... 40,428 31,409
-------- --------
$228,957 $226,202
======== ========
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these statements.
-3-
<PAGE>
SCOVILL HOLDINGS INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS)
The consolidated financial statements of the Company and the Predecessor-KSCO
are not comparable in certain respects (Note 1).
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<CAPTION>
THE COMPANY PREDECESSOR - KSCO
-------------------------------------------------------------
THREE MONTHS ENDED MARCH 31,
1998 (UNAUDITED) 1997 (UNAUDITED)
-------------------------------------------------------------
<S> <C> | <C>
Net sales ....................... $24,598 | $24,179
Cost of sales..................... 18,110 | 17,239
------- | -------
Gross profit.................... 6,488 | 6,940
Selling, general and |
administrative expenses.......... 4,078 | 4,076
Amortization expense.............. 987 | 745
------- | -------
Operating income................ 1,423 | 2,119
Other expense (income)............ (99) | 194
Interest expense.................. 3,643 | 790
------- | -------
Income (loss) before income |
tax provision (benefit).......... (2,121) | 1,135
Income tax provision |
(benefit)........................ (665) | 410
------- | -------
Net income (loss)................. $(1,456) | $ 725
------- | -------
Dividends on redeemable |
preferred stock.................. 230 | --
------- | -------
Net income (loss) available |
to common stockholders.......... $(1,686) | $ 725
======= | =======
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these statements.
-4-
<PAGE>
SCOVILL HOLDINGS INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
The consolidated financial statements of the Company and the Predecessor-KSCO
are not comparable in certain respects (Note 1).
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<CAPTION>
THE COMPANY PREDECESSOR - KSCO
-----------------------------------------------------
THREE MONTHS ENDED MARCH 31,
1998 (UNAUDITED) 1997 (UNAUDITED)
-----------------------------------------------------
<S> <C> | <C>
Cash Flows from Operating |
Activities: |
Net income (loss) available |
to common stockholders................. $ (1,686) | $ 725
Adjustments to reconcile net |
income (loss) available to |
common stockholders to net |
cash provided by (used in) |
operating activities: |
Depreciation and |
amortization......................... 3,964 | 2,136
Deferred income taxes................. 79 | (241)
Non-operating Preferred |
Stock Dividends..................... 345 |
Changes in operating |
assets and liabilities: |
Accounts receivable, |
net............................... (5,276) | (2,684)
Inventories........................ (288) | (1,296)
Other current assets............... 88 | 231
Accounts payable................... (1,608) | (137)
Accrued liabilities................ 3,005 | 2,589
Other assets and |
liabilities....................... (760) | (210)
-------- | -------
Net cash provided by (used |
in) operating activities............... (2,137) | 1,113
-------- | -------
Cash Flows from Investing |
Activities: |
Additions to property, plant |
and equipment.......................... (1,777) | (936)
-------- | -------
Net cash used in investing |
activities............................. (1,777) | (936)
-------- | -------
Cash Flows from Financing |
Activities: |
Net borrowings on line of |
credit................................. 2,500 | 156
Proceeds of long-term debt.............. -- | 213
Repayments of long-term debt............ (214) | --
Redemption of preferred |
stock and payments of dividends....... (10,345) | --
Issuance of common and |
preferred stock........................ 10,345 | --
-------- | -------
Net cash provided by |
financing activities................... 2,286 | 369
-------- | -------
Net Increase (Decrease) in |
Cash................................... (1,628) | 546
Cash at Beginning of Period............. 2,821 | 603
-------- | -------
Cash at End of Period................... $ 1,193 | $ 1,149
======== | =======
|
Supplemental Disclosure of |
Cash Flow Information |
Interest paid......................... $ 416 | $ 763
======== | ========
Income taxes paid..................... $ -- | $ --
======== | =======
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these statements.
-5-
<PAGE>
SCOVILL HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(ALL AMOUNTS EXPRESSED IN THOUSANDS, OR AS OTHERWISE NOTED)
NOTE 1. BASIS OF PRESENTATION AND BUSINESS
The interim financial statements presented herein include the accounts of
Scovill Holdings Inc. ("Holdings") and its wholly owned subsidiaries (together
with Holdings, the "Company") as of March 31, 1998 and December 31, 1997 and for
the three months ended March 31, 1998, and of Predecessor -- KSCO (defined
below) for the three months ended March 31, 1997.
The accompanying unaudited consolidated financial statements have been
prepared pursuant to the rules of the Securities and Exchange Commission ("SEC")
and include all adjustments, consisting only of normal recurring adjustments
which are in the opinion of the Company necessary for a fair statement of the
results of the interim periods. The operating results for the three months
ended March 31, 1998 and 1997 are not indicative of the results that would be
obtained for the entire fiscal year or any other interim period. Certain
information and footnote disclosures normally included in annual financial
statements prepared in accordance with generally accepted accounting principles
have been omitted from these consolidated financial statements pursuant to the
applicable rules and regulations of the SEC. These financial statements should
be read in conjunction with the audited consolidated financial statements and
notes thereto included in the annual report on Form 10-K for the year ended
December 31, 1997.
Scovill Acquisition Inc. ("SAI") and Holdings, both Delaware corporations,
were formed by Saratoga Partners III L.P. in 1997 to effect the acquisition of
Scovill Fasteners Inc., a Delaware Corporation ("Fasteners"). Pursuant to a
Stock Purchase Agreement, SAI, then a wholly-owned subsidiary of Holdings,
purchased all of the capital stock of KSCO Acquisition Corporation ("KSCO" or
"Predecessor-KSCO") on November 26, 1997 for a purchase price of approximately
$168.8 million less the amount of indebtedness of the Company existing
immediately prior to closing of the acquisition (including indebtedness that was
not repaid in connection with the transactions). Concurrently with the
acquisition, SAI merged with and into KSCO, and KSCO merged with and into
Fasteners, with Fasteners surviving the mergers. As a result, Fasteners is
currently a wholly owned subsidiary of Holdings. The purchase of KSCO capital
stock by SAI and the mergers of SAI and KSCO into Fasteners are together
referred to as the "Saratoga Acquisition." The effect of such changes
significantly impairs the comparability of the results of operations of the
Company and the Predecessor-KSCO.
In connection with the Saratoga Acquisition, the Company issued $100 million of
11.25% Senior Notes due 2007 (the "Notes"), pursuant to an Indenture, dated
November 26, 1997. The proceeds of the Notes offering were used to finance, in
part, the purchase by SAI of all of the capital stock of KSCO which then owned
all of the capital stock of the Company. Following the mergers described above,
the Notes became obligations of Fasteners. In connection with the Saratoga
Acquisition, Fasteners entered into a new senior secured credit facility (the
"New Credit Facility"), consisting of a $28.0 million term loan (the "Term
Loan") and a $25.0 million revolving credit facility (the "Revolving Credit
Facility").
NOTE 2. INVENTORIES
Inventories consisted of the following at:
-6-
<PAGE>
<TABLE>
<CAPTION>
March 31, 1998 December 31, 1997
----------------------------------------------------------------------------
<S> <C> <C>
Raw materials $ 3,041 $ 2,792
Work in process 6,783 6,310
Finished goods 14,756 15,190
----------------------------------------------------------------------------
$24,580 $24,292
============================================================================
</TABLE>
NOTE 3. PREFERRED STOCK REDEMPTION
In February 1998, the Company sold additional shares of common stock for
approximately $10.3 million. The proceeds were used to redeem the outstanding
redeemable exchangeable preferred stock and warrants.
NOTE 4. NEW ACCOUNTING STANDARDS
The Company adopted Statement of Financial Accounting Standards No. 130,
"Reporting Comprehensive Income" ("SFAS 130"), Statement of Financial Accounting
Standards No. 131, "Disclosures About Segments of an Enterprise and Related
Information" ("SFAS 131"), and Statement of Financial Accounting Standards No.
132, "Employers' Disclosures about Pensions and Other Postretirement Benefits -
an amendment of FASB Statements No. 87, 88, and 106" ("SFAS 132), effective
January 1, 1998. SFAS 130 establishes standards to measure all changes in
equity that result from transactions and other economic events other than
transactions with owners. Comprehensive income is the total of net income and
all other nonowner changes in equity. SFAS 131 introduces a new segment
reporting model called the "management approach." The management approach is
based on the manner in which management organizes segments within a company for
making operating decisions and assessing performance. The management approach
replaces the notion of industry and geographic segments. SFAS 132 revises
disclosures about pension and other postretirement benefit plans, yet it does
not change the measurement or recognition of those plans. The disclosures
relative to SFAS 130, 131 and 132 do not significantly affect the Company's
current disclosures and will be presented in the Company's 1998 Annual Report on
Form 10-K.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following "Safe Harbor Statement" is made pursuant to the Private
Securities Litigation Reform Act of 1995. Certain of the statements contained in
the body of this Report are forward-looking statements (rather than historical
facts) that are subject to risks and uncertainties that could cause actual
results to differ materially from those described in the forward-looking
statements. Such forward-looking statements are based on management's current
plans and expectations and are subject to a number of uncertainties that could
cause actual results to differ materially from those described in such
statements. Such uncertainties and risks include, but are not limited to: the
highly leveraged nature of the Company, its substantial debt service
requirements and the substantial operating and financing restrictions on the
Company by the terms of the New Credit Facility, the Indenture, and the other
agreements governing the Company's indebtedness; the risks and uncertainties
inherent in doing business abroad, the volatility of the price of raw materials;
increasing domestic and foreign competition; increasingly complex and stringent
environmental laws and regulations; delays or difficulties associated with
systems conversion and Year 2000 compliance; and general economic conditions.
The preceding list of uncertainties, however, is not intended to be exhaustive,
and should be read in conjunction with other cautionary statements in the
Company's publicly-filed reports and its final Form S-1 Registration Statement,
dated December 24, 1997 (Commission File No. 333-43195).
THREE MONTHS ENDED MARCH 31, 1998 (COMPANY) COMPARED WITH THREE MONTHS ENDED
MARCH 31, 1997 (PREDECESSOR-KSCO)
Net Sales Net sales increased $0.4 million, or 1.7% from $24.2 million to $24.6
million. Such increase is primarily a result of increased sales in Asian markets
and domestic apparel markets.
-7-
<PAGE>
Gross Profit Gross profit decreased $0.4 million, or 6.5% from $6.9 million to
$6.5 million, of which $0.3 million is attributed to a lower sales mix in
Scovill-Europe.
Selling, General and Administrative Expenses ("SG&A") SG&A remained consistent
at $4.1 million and was 16.6% of sales for the three months ended March 31, 1998
compared to 16.9% for the three months ended March 31, 1997.
Operating Income Operating income decreased $0.7 million primarily as a result
of a decrease in gross profit of $0.4, in addition to an increase in
amortization expense of $0.2 million as a result of increased goodwill in
connection with the Saratoga Acquisition.
Interest Expense Interest expense increased by $2.9 million as a result of the
increase in debt from the Saratoga Acquisition.
Income Tax Provision (Benefit) The income tax benefit was $0.7 million in the
three months ended March 31, 1998 compared to a provision of $0.4 million in the
three months ended March 31, 1997.
Net Income (Loss) The net loss available to common stockholders was $1.7
million in the three months ended March 31, 1998 compared to net income of $0.7
million in the three months ended March 31, 1997 attributable to the factors
discussed above.
LIQUIDITY AND CAPITAL RESOURCES
Historically, the Company derived its cash from funds generated by operations
and from third-party financings. As of March 31, 1998 and December 31, 1997,
$2.5 million and $0 borrowings were outstanding under the Revolving Credit
Facility. In December 1997, the Company issued $100 million of Notes, the
proceeds of which were used to finance, in part, the purchase by SAI of all of
the capital stock of KSCO which then owned all of the capital stock of the
Company. The Company's liquidity requirements consist primarily of scheduled
payments of principal and interest on its indebtedness, working capital needs
and capital expenditures. The Company believes that its operating cash flow,
together with borrowings under the New Credit Facility, will be sufficient to
meet its operating expenses and capital requirements, and its debt service
requirements over the next twelve months and beyond.
Cash Flows
Net cash used in the Company's operating activities was $2.1 million for the
first three months of 1998. Principal working capital changes included increases
of $5.3 million and $0.3 million in accounts receivable and inventories,
respectively, and a net increase of accounts payable and accrued liabilities of
$1.4 million. The Company's cash used in investing activities during the first
three months of 1998 was $1.8 million for capital expenditures. Net cash
provided by financing activities was $2.3 million, of which $2.5 million
represents borrowings under the Revolving Credit Facility.
The Indenture and the New Credit Facility place significant restrictions on
the Company's ability to incur additional indebtedness, pay dividends or
repurchase stock or make other distributions, create liens, make certain
investments, sell assets, or enter into mergers or consolidations.
-8-
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
Not Applicable
Item 2. Changes in Securities and the Use of Proceeds
In February 1998, Holdings sold an additional 1,000,000 shares of
each of common stock and Series B Preferred Stock for approximately $10.3
million, which sale was exempt from registration pursuant to Section 4(2) of the
Securities Act of 1933 because of the private nature of the transaction and the
financial sophistication of the purchaser involved. The proceeds from the sale
were used to redeem the outstanding Series A Cumulative Redeemable Exchangeable
Preferred Stock and Warrants.
Item 3. Defaults Upon Senior Securities
Not Applicable
Item 4. Submission of Matters to a Vote of Security Holders
Not Applicable
Item 5. Other Information
Not Applicable
Item 6. Exhibits and Reports on Form 8-K
(a) 27 - Financial Data Schedule
(b) Reports on Form 8-K
None
-9-
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
Scovill Holdings Inc.
Scovill Fasteners Inc.
Date: May 1, 1998 /s/ David J. Barrett
-----------------------
David J. Barrett,
Chief Executive Officer and Director
Date: May 1, 1998 /s/ Martin A. Moore
----------------------
Martin A. Moore
Executive Vice President,
Chief Financial Officer and
Principal Accounting Officer
-10-
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<PERIOD-START> JAN-01-1998
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> MAR-31-1998
<CASH> 1,193
<SECURITIES> 0
<RECEIVABLES> 16,778
<ALLOWANCES> 1,086
<INVENTORY> 24,580
<CURRENT-ASSETS> 43,302
<PP&E> 71,885
<DEPRECIATION> 1,403
<TOTAL-ASSETS> 228,957
<CURRENT-LIABILITIES> 24,921
<BONDS> 128,187
0
0
<COMMON> 0
<OTHER-SE> 40,428
<TOTAL-LIABILITY-AND-EQUITY> 228,957
<SALES> 24,598
<TOTAL-REVENUES> 24,598
<CGS> 18,110
<TOTAL-COSTS> 22,188<F1>
<OTHER-EXPENSES> 888<F2>
<LOSS-PROVISION> 60
<INTEREST-EXPENSE> 3,643
<INCOME-PRETAX> (2,121)
<INCOME-TAX> (665)
<INCOME-CONTINUING> (1,456)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,456)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
<FN>
<F1> cogs, sellimg, G&A
<F2> amortization and other
</FN>
</TABLE>
