<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
POST-EFFECTIVE AMENDMENT NO. 4
TO
FORM T-3
FOR APPLICATIONS FOR QUALIFICATION OF INDENTURES
UNDER THE
TRUST INDENTURE ACT OF 1939
SAN JACINTO HOLDINGS INC.
(NAME OF APPLICANT)
2121 San Jacinto Street, Suite 1000
Dallas, Texas 75201
(Address of Principal Executive Offices)
SECURITIES ISSUED UNDER
THE INDENTURE QUALIFIED
Title of Class Amount
-------------- ------
12% Senior Subordinated Notes Maximum of
Due December 31, 2002 $66,138,406
Name and Address of Agent
for Service of Process:
Elvis L. Mason
San Jacinto Holdings Inc.
2121 San Jacinto Street, Suite 1000
Dallas, Texas 75201
with a copy to:
J. Kenneth Menges, Jr., P.C.
Akin, Gump, Strauss, Hauer & Feld, L.L.P.
1700 Pacific Avenue, Suite 4100
Dallas, Texas 75201-4618
Effective Date of Form T-3: January 25, 1996
This Document Consists of ____ Pages
Exhibit Index Begins on Page ____
<PAGE> 2
August 2, 1996
POST-EFFECTIVE AMENDMENT NO. 3 TO FORM T-3
Filed herewith as Exhibit T3E-8 is the Quarterly Financial Statements for the
three and six month periods ended June 30, 1996 of San Jacinto Holdings Inc.
(the "Company") and Safeguard Business Systems, Inc. which is required to be
furnished to holders of the Company's 12% Senior Subordinated Notes (the "New
Notes") and filed with the Securities and Exchange Commission pursuant to
Section 4.03 of the indenture between the Company and U.S. Trust Company of
Texas, N.A., as Trustee which governs the New Notes of the Company.
THE DATE OF THIS POST-EFFECTIVE AMENDMENT NO. 4 TO FORM T-3 IS AUGUST 2, 1996.
<PAGE> 3
Contents of Application for Qualification. This application for qualification
comprises:
(a) One page, numbered 1.
** (b) The Statement of Eligibility and Qualification of U.S. Trust
Company of Texas, N.A. as trustee under the New Notes
Indenture to be qualified.
(c) The following exhibits in addition to those filed as part of
the Statement of Eligibility and Qualification of the trustee.
** EXHIBIT T3A - Certificate of Incorporation, with all
amendments thereto, of the Company.
** EXHIBIT T3B - Amended and Restated By-laws of the Company.
** EXHIBIT T3C-1 - Indenture dated as of ___________, 1995,
between the Company and U.S. Trust Company of Texas, N.A., as
Trustee.
** EXHIBIT T3C-2 - Indenture dated as of ____________, 1995,
between the Company and U.S. Trust Company of Texas, N.A., as
Trustee pursuant to the Supplement to Exchange Offer and
Consent Solicitation.
** EXHIBIT T3C-3 - Indenture dated as of _____________, 1996,
between the Company and U.S. Trust Company of Texas, N.A., as
Trustee pursuant to the Third Supplement to Exchange Offer and
Consent Solicitation.
** EXHIBIT T3C-4 - Amended Indenture dated as of January 26,
1996, between the Company and U.S. Trust Company of Texas,
N.A., as Trustee.
EXHIBIT T3D - Not Applicable.
** EXHIBIT T3E-1 - Exchange Offer and Consent Solicitation.
** EXHIBIT T3E-2(a) - Form of Letter of Transmittal to holders of
the Company's 8% Senior Subordinated Notes due December 31,
2000.
** EXHIBIT T3E-2(b) - Form of Letter of Transmittal to holders of
the Company's 8% Subordinated Debentures due December 31,
2000.
** EXHIBIT T3E-2(c) - Form of Letter of Transmittal to holders of
the Company's 8% Senior Subordinated Notes due December 31,
2000 pursuant to the Supplement to Exchange Offer and Consent
Solicitation.
** EXHIBIT T2E-2(d) - Form of Letter of Transmittal to holders of
the Company's 8% Subordinated Debentures due December 31, 2000
pursuant to the Supplement to Exchange Offer and Consent
Solicitation.
** EXHIBIT T3E-2(e) - Form of Letter of Transmittal to holders of
the Company's 8% Senior Subordinated Notes due December 31,
2000 pursuant to the Third Supplement to Exchange Offer and
Consent Solicitation.
** EXHIBIT T3E-2(f) - Form of Letter of Transmittal to holders of
the Company's 8% Subordinated Debentures due December 31, 2000
pursuant to the Third Supplement to Exchange Offer and Consent
Solicitation.
** EXHIBIT T3E-3(a) - Form of Notice of Guaranteed Delivery to be
provided to holders of the Company's 8% Senior Subordinated
Notes due December 31, 2000.
** EXHIBIT T3E-3(b) - Form of Notice of Guaranteed Delivery to be
provided to holders of the Company's 8% Subordinated
Debentures due December 31, 2000.
<PAGE> 4
** EXHIBIT T3E-3(c) - Form of letter to Brokers, Dealers,
Commercial Banks, Trust Companies and Other Nominees.
** EXHIBIT T3E-3(d) - Form of letter to be sent by Brokers,
Dealers, Commercial Banks, Trust Companies and Other Nominees
to their clients.
** EXHIBIT T3E-3(e) - Form of Notice of Guaranteed Delivery to be
provided to holders of the Company's 8% Senior Subordinated
Notes due December 31, 2000 pursuant to the Supplement to
Exchange Offer and Consent Solicitation.
** EXHIBIT T3E-3(f) - Form of Notice of Guaranteed Delivery to be
provided to holders of the Company's 8% Subordinated
Debentures due December 31, 2000 pursuant to the Supplement to
Exchange Offer and Consent Solicitation.
** EXHIBIT T3E-3(g) - Form of letter to Brokers, Dealers,
Commercial Banks, Trust Companies and Other Nominees pursuant
to the Supplement to Exchange Offer and Consent Solicitation.
** EXHIBIT T3E-3(h) - Form of letter to be sent by Brokers,
Dealers, Commercial Banks, Trust Companies and Other Nominees
to their clients pursuant to the Supplement to Exchange Offer
and Consent Solicitation.
** EXHIBIT T3E-3(i) - Form of Notice of Guaranteed Delivery to be
provided to holders of the Company's 8% Senior Subordinated
Notes due December 31, 2000 pursuant to the Third Supplement
to Exchange Offer and Consent Solicitation.
** EXHIBIT T3E-3(j) - Form of Notice of Guaranteed Delivery to be
provided to holders of the Company's 8% Subordinated
Debentures due December 31, 2000 pursuant to the Third
Supplement to Exchange Offer and Consent Solicitation.
** EXHIBIT T3E-(k) - Form of letter to Broker, Dealers,
Commercial Banks, Trust Companies and Other Nominees pursuant
to the Third Supplement to Exchange Offer and Consent
Solicitation.
** EXHIBIT T3E-(l) - Form of letter to be sent by Brokers,
Dealers, Commercial Banks, Trust Companies and Other Nominees
to their clients pursuant to the Third Supplement to Exchange
Offer and Consent Solicitation.
** EXHIBIT T3E-4(a) - Supplement to Exchange Offer and Consent
Solicitation.
** EXHIBIT T3E-4(b) - Second Supplement to Exchange Offer and
Consent Solicitation.
** EXHIBIT T3E-4(c) - Third Supplement to Exchange Offer and
Consent Solicitation.
** EXHIBIT T3E-5 - Notice of Extension of Expiration Date.
** EXHIBIT T3E-6 - 1995 Annual Report of the Company and
Safeguard Business Systems, Inc.
** EXHIBIT T3E-7 - Quarterly Financial Statements for the three
month period ended March 31, 1996.
* EXHIBIT T3E-8 - Quarterly Financial Statements for the three
and six month periods ended June 30, 1996.
* Filed herewith.
** Filed previously.
3
<PAGE> 5
** EXHIBIT T3F - A cross reference sheet showing the exact
location of the provisions of the New Notes Indenture inserted
therein pursuant to Section 310 through 318(A), inclusive, of
the Act (included as part of Exhibit T3C).
* Filed herewith.
** Filed previously.
4
<PAGE> 6
SIGNATURE
Pursuant to the requirements of the Trust Indenture Act of 1939, the applicant,
San Jacinto Holdings Inc., a corporation organized and existing under the laws
of the State of Delaware, has duly caused this Post-Effective Amendment to be
signed on its behalf by the undersigned, thereunto duly authorized, and its seal
to be hereunto affixed and attested, all in the City of Fort Washington,
Pennsylvania on the 2th day of August, 1996.
(SEAL)
SAN JACINTO HOLDINGS INC.
Attest: By: /s/ Elvis L. Mason
----------------------------------------
Name: Elvis L. Mason
Title: President and Chief Executive Officer
/s/ James R. Braun
----------------------
Name: James R. Braun
Title: Secretary
5
<PAGE> 7
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NO. EXHIBIT PAGE
- ----------- ------- ----
<S> <C>
** EXHIBIT T3A Certificate of Incorporation, with all amendments
thereto, of the Company.................................
** EXHIBIT T3B Amended and Restated By-laws of the Company.............
** EXHIBIT T3C-1 Indenture dated as of ___________, 1995, between the
Company and U.S. Trust Company of Texas, N.A., as
Trustee.................................................
** EXHIBIT T3C-2 Indenture dated as of ___________, 1995, between the
Company and U.S. Trust Company of Texas, N.A., as
Trustee pursuant to the Supplement to Exchange Offer
and Consent Solicitation................................
** EXHIBIT T3C-3 Indenture dated as of _________, 1996, between the
Company and U.S. Trust Company of Texas, N.A., as
Trustee pursuant to the Third Supplement to Exchange
Offer and Consent Solicitation..........................
** EXHIBIT T3C-4 Amended Indenture dated as of January 26, 1996, between
the Company and U.S. Trust Company of Texas, N.A., as
Trustee.................................................
EXHIBIT T3D Not Applicable
** EXHIBIT T3E-1 Exchange Offer and Consent Solicitation.................
** EXHIBIT T3E-2(a) Form of Letter of Transmittal to holders of the
Company's 8% Senior Subordinated Notes due December 31,
2000....................................................
** EXHIBIT T3E-2(b) Form of Letter of Transmittal to holders of the
Company's 8% Subordinated Debentures due December 31,
2000....................................................
** EXHIBIT T3E-2(c) Form of Letter of Transmittal to holders of the
company's 8% Senior Subordinated Notes due December 31,
2000 pursuant to the Supplement to Exchange Offer and
Consent Solicitation....................................
** EXHIBIT T3E-2(d) Form of Letter of Transmittal to holders of the
Company's 8% Subordinated Debentures due December 31,
2000 pursuant to the Supplement to Exchange Offer and
Consent Solicitation....................................
** EXHIBIT T3E-2(e) Form of Letter of Transmittal to holders of the
Company's 8% Senior Subordinated Notes due December 31,
2000 pursuant to the Third Supplement to Exchange Offer
and Consent Solicitation................................
</TABLE>
* Filed herewith.
** Filed previously.
<PAGE> 8
<TABLE>
<S> <C>
** EXHIBIT T3E-2(f) Form of Letter of Transmittal to holders of the
Company's 8% Senior Subordinated Debentures due
December 31, 2000 pursuant to the Third Supplement to
Exchange Offer and Consent Solicitation.................
** EXHIBIT T3E-3(a) Form of Notice of Guaranteed Delivery to be provided to
holders of the Company's 8% Senior Subordinated Notes
due December 31, 2000...................................
** EXHIBIT T3E-3(b) Form of Notice of Guaranteed Delivery to be provided to
holders of the Company's 8% Subordinated Debentures due
December 31, 2000.......................................
** EXHIBIT T3E-3(c) Form of letter to Brokers, Dealers, Commercial Banks,
Trust Companies and Other Nominees......................
** EXHIBIT T3E-3(d) Form of letter to be sent by Brokers, Dealers,
Commercial Banks, Trust Companies and Other Nominees to
their clients...........................................
** EXHIBIT T3E-3(e) Form of Notice of Guaranteed Delivery to be provided to
holders of the Company's 8% Senior Subordinated Notes
due December 31, 2000 pursuant to the Supplement to
Exchange Offer and Consent Solicitation.................
** EXHIBIT T3E-3(f) Form of Notice of Guaranteed Delivery to be provided to
holders of the Company's 8% Subordinated Debentures due
December 31, 2000 pursuant to the Supplement to
Exchange Offer and Consent Solicitation.................
** EXHIBIT T3E-3(g) Form of letter to Brokers, Dealers, Commercial Banks,
Trust Companies and Other Nominees pursuant to
the Supplement to Exchange Offer and Consent
Solicitation...
** EXHIBIT T3E-3(h) Form of letter to be sent by Brokers, Dealers,
Commercial Banks, Trust Companies and Other Nominees to
their clients pursuant to the Supplement to Exchange
Offer and Consent Solicitation..........................
** EXHIBIT T3E-3(i) Form of Notice of Guaranteed Delivery to be provided to
holders of the Company's 8% Senior Subordinated Notes
due December 31, 2000 pursuant to the Third Supplement
to Exchange Offer and Consent Solicitation..............
** EXHIBIT T3E-3(j) Form of Notice of Guaranteed Delivery to be provided to
holders of the Company's 8% Subordinated Debentures due
December 31, 2000 pursuant to the Third Supplement to
Exchange Offer and Consent Solicitation.................
</TABLE>
* Filed herewith.
** Filed previously.
<PAGE> 9
<TABLE>
<S> <C>
** EXHIBIT T3E-3(k) Form of letter to Broker, Dealers, Commercial Banks,
Trust Companies and Other Nominees pursuant to the
Third Supplement to Exchange Offer and Consent
Solicitation............................................
** EXHIBIT T3E-3(l) Form of letter to be sent by Brokers, Dealers,
Commercial Banks, Trust Companies and Other Nominees to
their clients pursuant to the Third Supplement to
Exchange Offer and Consent Solicitation.................
** EXHIBIT T3E-4(a) Supplement to Exchange Offer and Consent Solicitation...
** EXHIBIT T3E-4(b) Second Supplement to Exchange Offer and Consent
Solicitation............................................
** EXHIBIT T3E-4(c) Third Supplement to Exchange Offer and Consent
Solicitation............................................
** EXHIBIT T3E-5 Notice of Extension of Expiration Date..................
** EXHIBIT T3E-6 1995 Annual Report of the Company and Safeguard
Business Systems, Inc.
** EXHIBIT T3E-7 Quarterly Financial Statements for the three
month period ended March 31, 1996.
* EXHIBIT T3E-8 Quarterly Financial Statements for the three and six
month periods ended June 30, 1996.
** EXHIBIT T3F A cross reference sheet showing the
exact location of the provisions of the New
Notes Indenture inserted therein pursuant to
Section 310 through 318(A), inclusive, of the
Act (included as part of Exhibit T3C).
</TABLE>
* Filed herewith.
** Filed previously.
8
<PAGE> 1
EXHIBIT 99 T3E-8
SAN JACINTO HOLDINGS INC. AND SUBSIDIARY
CONSOLIDATED QUARTERLY FINANCIAL STATEMENTS
THREE AND SIX MONTH PERIODS ENDED JUNE 30, 1996
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Letter to Stockholders and Bondholders 1 - 3
Financial Statements 4 - 10
The accompanying unaudited interim consolidated financial
statements were prepared on a consistent basis utilizing the
accounting policies described in the Summary of Significant
Accounting Policies included in the notes to the consolidated
financial statements of the Company for the years ended
December 31, 1995 and 1994. These policies and the Notes to
Consolidated Financial Statements should be read in
conjunction with the accompanying statements. These interim
statements have been drawn from unaudited internal data and
include all adjustments which the Company believes necessary
to a fair presentation of the statements. The interim
operating results are not necessarily indicative of the
results expected for the full year.
Management's Discussion and Analysis of Financial,
Condition and Results of Operations 11 - 13
</TABLE>
<PAGE> 2
August 2, 1996
TO ALL STOCKHOLDERS AND BONDHOLDERS:
Enclosed are the consolidated financial statements of San Jacinto
Holdings Inc. and its operating subsidiary, Safeguard Business Systems, Inc.,
for the three and six month periods ended June 30, 1996.
FINANCIAL AND OPERATING HIGHLIGHTS
Net sales in the second quarter of 1996 are $50.3 million, reflecting
an increase of $0.9 million (or 1.8%) above the second quarter of 1995. For the
first six months of 1996, net sales are $102.2 million reflecting a $1.9 million
growth (or 1.9%) above last years sales levels. The sales increase reflects
growth in sales of computer forms (7.5%), brokered products (16.4%) and payroll
processing service (16.8%). This growth is off-set by a 7.7% decline in manual
form sales. The changes in sales trends from manual forms to computer forms,
brokered products and payroll processing are being addressed strategically and
operationally throughout the Company.
Earnings from Operations - earnings before amortization of intangibles,
interest expense, and taxes - in the second quarter of 1996 are $3.7 million
compared to $4.1 million in 1995, a $0.4 million (or 10.0%) decline. The decline
in earnings is attributable to planned increases in selling and administrative
expenses. The increased costs are in support of the centralization of the sales
and marketing function, and the conversion and redesign of the Company's
computer system hardware and software. Off-setting the increase in
administrative costs, June 1996 includes a $0.7 million gain on the sale of a
manufacturing facility in the United Kingdom. Earnings from operations for the
six month period are $7.3 million in 1996, a $2.0 million (or 21.1%) decrease in
comparison to 1995. The decline in earnings is attributable to planned increases
in selling and administrative expense as noted above, and a 2.9% reduction in
gross profit margin due to a change in sales mix, from manual systems to
computer forms and brokered products. Computer forms and brokered products carry
greater material, direct labor and overhead cost than manual forms resulting in
a lower gross profit margin.
<PAGE> 3
The Company's net loss before extradinary item for the second quarter
of 1996, after amortization, interest expense and taxes, is $5.0 million
compared to $3.2 million for the same period in 1995. The net loss before
extraordinary item for the six month period is $9.5 million in 1996 compared to
$5.3 million in 1995. The increased loss is attributable to increased selling
and administrative costs, a reduction in gross profit and an increase in
interest expense due to a rise in the Company's effective borrowing rate from 8%
to 12%, as more fully described in the notes to the consolidated financial
statements. These losses include amortization (non-cash) charges of $9.8 million
for the first six months of 1996 and $9.7 million for the same period in 1995.
The Company's operations in the United Kingdom remain strong. Net sales
for the second quarter and first six months of 1996 are 4.1% above 1995 sales
level for the same periods. This growth is in both manual and computer form
sales. During the second quarter of 1996, earnings from operations are $1.5
million, a $0.6 million increase. The earnings growth is attributable primarily
to a $0.7 million gain on the sales of an existing manufacturing facility in
June 1996. The construction and relocation to the new facility was completed in
April 1996. This relocation resulted in short term production inefficiencies as
the new facility became fully operational. By June the new facility returned to
previous efficiency levels.
THIRD QUARTER 1996 FOCUS
In 1994, the Company began to implement the decision to migrate from
its current computer system's mainframe technology to an AS/400 platform. This
AS/400 platform technology provides the Company with enhanced operating
capabilities and flexibility. The initial phases of the conversion completed in
1994 and 1995 included the financial and inventory management systems. The final
phase, scheduled to be completed in the fourth quarter of 1996, includes the
design and coding of the order processing, accounts receivable and management
software.
Upon completion of this major project, the Company's financial,
manufacturing and order management systems will be fully integrated and have the
ability to provide enhanced and more timely information access. In addition this
system will be a basis for more efficient operations of a variety of the
Company's functions. Costs and profitability benefits are expected to be
realized in 1997 and thereafter.
The Company has successfully implemented the consolidation of its North
American Sales and Marketing function which was announced in September 1995. The
facility was showcased to employees, distributors and local dignitaries of the
Dallas community at a recently held open house. The operation of
-2-
<PAGE> 4
the facility will continue to be enhanced throughout the second half of 1996
focusing on distributor training and support, customer lead generation, national
accounts and local referral sources, marketing promotions, and enhanced customer
communications capabilities. As planned, this very major restructuring is
expected to favorably impact sales growth and earnings beginning in 1997.
The Company is committed to continuing its long history of success in
serving small business customers. Safeguard's management and employees are
dedicated to achieving these objectives. We appreciate your continuing support.
Sincerely,
/s/ Elvis L. Mason /s/ Richard H. Gommel
Elvis L. Mason Richard H. Gommel
Chairman and President and
Chief Executive Officer Chief Operating Officer
Safeguard Business Systems, Inc. Safeguard Business Systems, Inc.
-3-
<PAGE> 5
SAN JACINTO HOLDINGS INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
($000 omitted)
<TABLE>
<CAPTION>
June 30, December 31,
1996 1995
--------- ---------
ASSETS (Unaudited)
Current assets:
<S> <C> <C>
Cash and cash equivalents $ 836 $ 2,802
Receivables less allowances 25,499 27,072
Inventories 8,369 8,809
Other current assets 1,611 2,248
--------- ---------
Total current assets 36,315 40,931
Property, machinery and equipment - net 18,851 17,739
Excess purchase price over net assets acquired 43,948 44,671
Customer list 25,909 34,545
Other assets 5,369 4,973
--------- ---------
Total assets $ 130,392 $ 142,859
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY)
Current liabilities:
Current debt obligations $ 8,272 $ 7,395
Accounts payable 9,466 9,741
Accrued expenses 15,924 14,612
--------- ---------
Total current liabilities 33,662 31,748
Long-term debt 108,854 100,853
Deferred interest -- 14,805
Other liabilities 6,689 7,183
Stockholders' equity (deficiency):
Preferred stock:
$5.00 Junior Preferred Stock, par value $.01 a share
Authorized 1,000,000 shares, $5 cumulative
No shares issued and outstanding
Common stock, par value $.01 a share:
Authorized 2,000,000 shares,
Issued and outstanding 1,052,384 shares in 1996 and 11 10
999,960 shares in 1995
Additional paid-in capital 94,143 94,143
Deficit (111,738) (104,591)
Foreign currency translation adjustment (1,229) (1,292)
--------- ---------
Total stockholders' equity (deficiency) (18,813) (11,730)
--------- ---------
Total liabilities and stockholders' equity (deficiency) $ 130,392 $ 142,859
========= =========
</TABLE>
See notes to consolidated financial statements.
- 4 -
<PAGE> 6
SAN JACINTO HOLDINGS INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
($000 omitted)
(UNAUDITED)
<TABLE>
<CAPTION>
Three Month Period Six Month Period
Ended June 30, Ended June 30,
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net sales $50,257 $49,351 $102,209 $100,296
Cost of sales 23,316 22,881 47,489 44,995
------- ------- -------- --------
Gross profit 26,941 26,470 54,720 55,301
Selling expense 19,841 19,161 39,834 38,971
General & administrative expense 3,969 3,804 8,658 8,289
Other income -- cash received greater than (1,244)
carrying value of distributor receivables (550) (585) (1) 9,627
Amortization expense 5,009 4,814 9,766 4,832
Interest expense 3,636 2,385 6,970 (5,174)
------- ------- -------- --------
Loss from operations before income taxes 151
and extraordinary item (4,964) (3,109) (9,408) (5,325)
Income tax (benefit) provision 65 71 140 151
------- ------- -------- --------
Loss before extraordinary item (5,029) (3,180) (9,548) (5,325)
Extraordinary item:
Gain on early extinguishment of debt -- -- 2,401 --
------- ------- -------- --------
Net loss $(5,029) $(3,180) $ (7,147) $ (5,325)
======= ======= ======== ========
</TABLE>
See notes to consolidated financial statements.
- 5 -
<PAGE> 7
SAN JACINTO HOLDINGS INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
PERIOD FROM JANUARY 1, 1995
TO JUNE 30, 1996
($000 omitted)
(UNAUDITED)
<TABLE>
<CAPTION>
Foreign
Additional Currency
Preferred Stock Common Stock Paid In Translation
Shares Amount Shares Amount Capital Deficit Adjustment
------ ------ ------ ------ ------- ------- ----------
Balance -
<S> <C> <C> <C> <C> <C> <C> <C>
January 1, 1995 -- $ -- 999,960 $ 10 $ 94,143 $ (86,037) $ (1,424)
Net loss (18,554)
Unrealized gain on
foreign currency
translation -- -- -- -- -- -- 132
--------- --------- --------- --------- --------- --------- ---------
Balance -
December 31, 1995 -- -- 999,960 10 94,143 (104,591) (1,292)
Issuance of common
stock in conjunction
with exchange offer 52,424 1
Net loss (7,147)
Unrealized gain on
foreign currency
translation -- -- -- -- -- -- 63
--------- --------- --------- --------- --------- --------- ---------
Balance -
June 30, 1996 -- $ -- 1,052,384 $ 11 $ 94,143 ($111,738) ($ 1,229)
========= ========= ========= ========= ========= ========= =========
</TABLE>
See notes to consolidated financial statements.
- 6-
<PAGE> 8
SAN JACINTO HOLDINGS INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
($000 omitted)
(UNAUDITED)
<TABLE>
<CAPTION>
Six Months Ended June 30,
1996 1995
---- ----
Cash Flows from Operating Activities:
<S> <C> <C>
Net loss $ (7,147) $ (5,325)
Adjustments to reconcile net loss to cash
provided by operating activities:
Extraordinary Item (2,401) --
Amortization 9,766 9,627
Depreciation 2,674 2,262
Gain on sale of assets (725) --
Unrealized exchange gain 63 320
(Increase) decrease in operating assets:
Receivables 1,573 2,230
Inventories 440 (188)
Other assets 503 300
Increase (decrease) in operating liabilities:
Accounts payable (275) 2,384
Accrued expense and other liabilities 818 539
Deferred interest
-- 864
-------- --------
Net cash provided by operating activities 5,289 13,013
Cash Flows from Investing Activities:
Purchase of property, machinery and equipment (3,427) (1,799)
Proceeds from sale of assets 1,176 --
Adjustment due to currency fluctuations
and foreign purchase price adjustments 29 180
-------- --------
Net cash used in investing activities (2,222) (1,619)
-------- --------
Cash Flows from Financing Activities:
Repayment of long-term debt and capital lease obligations (19,340) (7,468)
Temporary borrowings from (repayment of ) revolving loans 15,657 (5,500)
Net proceeds from (repayment of) foreign obligations 180 (3)
Deferred financing costs (1,530) --
-------- --------
Net cash used in financing activities (5,033) (12,971)
-------- --------
Decrease in cash and cash equivalents (1,966) (1,577)
Cash and cash equivalents at beginning of period 2,802 2,716
-------- --------
Cash and cash equivalents at end of period $ 836 $ 1,139
======== ========
</TABLE>
- 7 -
<PAGE> 9
SAN JACINTO HOLDINGS INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE AND SIX MONTH PERIODS ENDED JUNE 30, 1996
($000 omitted)
(UNAUDITED)
(Continued)
Supplemental disclosure of noncash investing and financing activities:
PIK ("Payment in Kind") Debentures totaling $11 and $806 were issued in
the second quarter of 1996 and 1995, respectively. The PIK Debentures
are in payment of accrued interest on the Company's 8% Subordinated
Debentures.
Capital lease obligations of $838 and $504 were entered into during the
first six months of 1996 and 1995 respectively, to acquire certain
machinery and equipment.
Supplemental disclosure of cash flow information:
Cash paid during the period for:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Interest $3,881 $3,640
</TABLE>
See notes to consolidated financial statements
- 8 -
<PAGE> 10
SAN JACINTO HOLDINGS INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THREE AND SIX MONTH PERIODS ENDED JUNE 30, 1996
(UNAUDITED)
Note A. Unaudited Interim Consolidated Financial Statements:
Basis of presentation - The accompanying interim financial statements
have been prepared by the Company without audit. These statements
include all adjustments which management believes necessary for a fair
presentation of the statements and have been prepared on a consistent
basis using the accounting policies described in the Summary of
Significant Accounting Policies in the notes to the consolidated
financial statements included in the Company's 1995 audited financial
statements. These policies and notes to consolidated financial
statements should be read in conjunction with the accompanying interim
financial statements. The interim operating results are not necessarily
indicative of the operating results expected for the full year. The
accompanying financial statements as of and for the year ended December
31, 1995 are derived from the Company's audited financial statements as
of that date.
Note B. Inventories:
Inventories consist of the following:
<TABLE>
<CAPTION>
June 30, 1996 December 31, 1995
------------- -----------------
($000 omitted)
<S> <C> <C>
Finished goods $ 4,536 $ 4,062
Work-in-process 770 629
Raw materials 3,063 4,118
------------ ------------
$ 8,369 $ 8,809
============ ============
</TABLE>
Note C. Long-Term Debt:
<TABLE>
<CAPTION>
June 30, 1996 December 31, 1995
------------- -----------------
($000 omitted)
<S> <C> <C>
New Revolving Loan $ 14,293 $ --
New Term Loan 6,125 --
Revolving Credit Loan -- 15,582
Amended Exchange Loan 24,503 24,656
12% Senior Subordinated Notes 65,878 --
8% Senior Subordinated Notes 3 39,998
8% Subordinated Debentures 308 21,801
Capital lease obligations 2,538 2,913
Foreign obligations 3,478 3,298
------------ ------------
117,126 108,248
Less current debt obligations (8,272) (7,395)
------------ ------------
$ 108,854 $ 100,853
============ ============
</TABLE>
-9-
<PAGE> 11
SAN JACINTO HOLDINGS INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THREE AND SIX MONTH PERIODS ENDED JUNE 30, 1996
(UNAUDITED)
Note C. Long-Term Debt: (continued)
On January 26, 1996, the Company consummated an exchange offer of its
existing 8% Senior Subordinated Notes due December 31, 2000 (the
"Existing Notes") and 8% Subordinated Debentures due December 31, 2000
("Existing Debentures") for 12% Senior Subordinated Notes due December
31, 2002 (the "New Notes"). Of the Existing Notes and the associated
deferred interest, 99.99% were tendered; the tendering Existing Notes
were exchanged at a rate of $1,000 in New Notes for each $1,000 in
tendering Existing Notes and deferred interest. Of the Existing
Debentures, 98.6% were tendered; the tendering Existing Debentures were
exchanged at a rate of $850 in New Notes for each $1,000 in tendering
Existing Debentures. In addition to New Notes, each tendering Existing
Note and Existing Debenture holder was issued a pro rata share of
Common Stock of the Company equal to 5% of the outstanding Capital
Stock after giving effect to this exchange offer. The exchange offer,
based upon its terms, is accounted for as an extinguishment and
resulted in an extraordinary gain of $2.4 million after deducting
related expenses.
In conjunction with the Exchange Offer described above, on January 26,
1996 the Company and Safeguard also refinanced existing bank debt. The
refinancing plan included payment in full of the Revolving Credit Loan
and unpaid deferred interest on an existing Term Loan, and the
amendment of the existing Exchange Loan Agreement. The existing
Exchange Loan was converted to a $25,750,000 Term Loan bearing interest
at 12% per annum payable in monthly installments over a five year
period beginning March 1996. Safeguard also entered into a Loan and
Security Agreement which includes a Revolving Loan and a Term Loan. The
new Revolving Loan allows for borrowing against eligible accounts
receivable and inventories up to a maximum of $23,500,000. This new
Revolving Loan bears interest at the prime leading rate plus 1% of
Eurodollar Rate plus 2.75% for a five year term, with automatic renewal
for successive one year periods. This new Term Loan, under the Loan and
Security Agreement, is for $6,500,000 bearing interest at 12% per annum
payable in monthly installments over a five year period beginning
February 1996.
-10-
<PAGE> 12
SAN JACINTO HOLDINGS INC. AND SUBSIDIARY
MANAGEMENT DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THREE AND SIX MONTH PERIODS ENDED JUNE 30, 1996
Results of Operations
The following table sets forth, for the periods indicated, selected financial
data as a percentage of net sales.
<TABLE>
<CAPTION>
Three Month Six Month
Period Period
Ended June 30, Ended June 30,
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net sales 100.0% 100.0% 100.0% 100.0%
Cost of sales 46.4 46.4 46.5 44.9
---- ---- ---- ----
Gross profit 53.6 53.6 53.5 55.1
Selling expense 39.5 38.8 39.0 38.9
General & administrative expense 7.9 7.7 8.5 8.3
Other income - distributor receivables (1.1) (1.2) (1.1) (1.3)
Amortization expense 10.0 9.8 9.6 9.6
Interest expense 7.2 4.8 6.0 4.8
---- ---- ---- ----
Loss from operations before income taxes
and extraordinary item (9.9) (6.3) (9.2) (5.2)
Income tax provision 0.1 0.1 0.1 0.1
---- ---- ---- ----
Loss before extraordinary item (10.0) (6.4) (9.3) (5.3)
Extraordinary item - - 2.3 -
---- ---- ---- ----
Net loss (10.0)% (6.4)% (7.0)% (5.3)%
===== ===== ===== =====
</TABLE>
COMPARISON OF THE SIX MONTH PERIOD ENDED JUNE 30, 1996 TO THE SIX MONTH PERIOD
ENDED JUNE 30, 1995.
NET SALES. Net sales for the second quarter of 1996 are $50.3 million compared
to $49.4 million for the same period in 1995, representing a sales growth of
1.8%. For the first six months of 1996, net sales are $102.2 million, reflecting
growth of $1.9 million or 1.9% in comparison to 1995. The sales growth during
the first six months reflects a 7.5% growth in computer forms and a 16.4% growth
in brokered product sales partially off-set by a 7.7% decline in manual forms
sales. Approximately 80% of the growth in computer forms and brokered product
sales is related to volume increases, with the remainder attributable to price
increases during the second half of 1995. The decline in manual forms sales is
off-set in part by a 3.3% average price increase.
GROSS PROFIT. Gross profit margin is 53.6% of net sales for the second quarter
of 1996 and 1995. For the first six months, the gross margin is 53.5% of net
sales in 1996 compared to 55.1% in 1995. The decline in margin, for the first
six months of 1996 in comparison to 1995, is a result of the change in the
Company's product mix from manual forms sales to computer forms and brokered
products. In addition the Company has also experienced increases in paper and
paper related supply costs, a primary materials in the Company's products,
during the second half of 1995 ; these price increases have been partially
passed through to customers. Computer forms and brokerage products, high growth
product lines, carry greater material, direct labor and overhead costs (as a
percentage of sales) resulting in lower gross profit margin than for manual
forms. However, as the sales volume of these product lines continue to increase,
the Company believes that resulting economies of scale and efficiencies will
positively impact these margins.
- 11 -
<PAGE> 13
SAN JACINTO HOLDINGS INC. AND SUBSIDIARY
MANAGEMENT DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THREE AND SIX MONTH PERIODS ENDED JUNE 30, 1996
(Continued)
Results of Operations - Continued
SELLING EXPENSE. Selling expenses are $19.8 million in the second quarter of
1996 compared to $19.2 million for the same period in 1995, representing 39.5%
and 38.8% of net sales in each period. For the first six months, selling
expenses are $39.8 million in 1996 compared to $39.0 million in 1995,
representing 39.0% and 38.9% of net sales in each period. Commissions to
independent distributors account for approximately 80% of total selling costs
and, as a percent of total sales, has remained constant. The increase in selling
costs, as a percentage of net sales, in the second quarter and six month period,
is attributable to planned increases in sales support staffing levels.
GENERAL AND ADMINISTRATIVE. General and administrative expenses are $4.0 million
for the second quarter of 1996 compared to $3.8 million in 1995. For the first
six months, general and administrative expenses are $8.7 million in 1996 and
$8.3 million in 1995. The 4.5% increase in costs during the six month period is
due to planned cost increases partially offset by a $0.7 million gain on the
sale of a production facility in the United Kingdom.
OTHER INCOME - Distributor Receivables. Other income (cash received greater than
carrying value of Distributor receivables) is $0.6 million for the second
quarter 1996 and 1995, representing 1.1% of net sales in 1996 and 1.2% in 1995.
Other income for the six month period is $1.1 million in 1996 and $1.2 million
in 1995. In connection with the Company's purchase price allocation for the
acquisition of Safeguard in December 1986, the value assigned to distributor
receivables associated with loans and advances previously made by Safeguard to
facilitate the purchase of account protection rights by distributors was $4.8
million, net of deferred interest income of approximately $7.8 million. This
value was primarily based on an independent valuation of the distributor
receivables which aggregated approximately $26.0 million as of December 31,
1986. Due to the effect of collection and distributor advance policies
instituted in 1988, the net distributor receivables balance was reduced to zero
by early 1992. Cash collection of this distributor receivable are expected to
continue in amounts approximating $2.0 million through the year 2000.
AMORTIZATION EXPENSE. Amortization expense is $5.0 million for the second
quarter of 1996 and $4.8 million in 1995. Amortization expense is $9.8 million
and $9.6 million for the first six months of 1996 and 1995, respectively. The
expense consists primarily of the amortization of intangible assets, including
the customer list, excess purchase price over net assets acquired and deferred
financing costs. The increase in amortization costs in the second quarter and
six month period of 1996 is attributable to additional deferred financing costs
associated with the Company's financial restructuring in January 1996.
INTEREST EXPENSE. Interest expense is $3.6 million for the second quarter of
1996 and $2.4 million for the same period in 1995. For the first six months,
interest expense is $7.0 million in 1996 in comparison to $4.8 million in 1995.
The increase in interest expense in 1996 is attributable to the rise in the
Company's effect interest rate from 8% to 12% per annum in connection with the
Company's debt refinancing in January 1996..
INCOME TAX. The Company's provision for income tax is related to its operations
in the United Kingdom. No tax liability is incurred in the United States as a
result of net losses from operations.
-12-
<PAGE> 14
SAN JACINTO HOLDINGS INC. AND SUBSIDIARY
MANAGEMENT DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THREE AND SIX MONTH PERIODS ENDED JUNE 30, 1996
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary sources of liquidity are cash flows generated from
operations, cash on hand and borrowing capacity under the new Revolving Loan.
The Company's cash flows from operating activities is $5.3 million in the first
six months of 1996. As of June 30, 1996, the Company had $0.8 million in cash
and cash equivalents, working capital of $2.7 million and a ratio of current
assets to current liabilities of 1.1:1. At that date, the Company also had $4.2
million in availability under the new Revolving Loan and the equivalent of $0.7
million available through a short term line of credit maintained by the
Company's subsidiary in the United Kingdom.
The Company's ongoing liquidity requirements arise primarily from capital
expenditures, working capital needs and debt service. The Company's capital
expenditures for the first six months of 1996 are $3.1 million in machinery and
equipment, in addition to $1.2 million in costs associated with the construction
of a new facility in the United Kingdom. This new facility was financed by a
construction loan and cash flow from operations. The facility in the United
Kingdom was sold in June 1996; the net proceeds from the sale of this facility
was $1.2 million. The Company anticipates total capital expenditures in 1996 of
$6.0 million, which will include the installation of an integrated computerized
order entry system and the upgrade of existing manufacturing production
equipment. These expenditures will be funded through additional capital lease
obligations and cash flow from operations.
As more fully described in the Notes to the Consolidated Financial Statements,
on January 26, 1996, the Company consummated an exchange of substantially all of
its existing 8% Senior Subordinated Notes due December 31, 2000 and 8%
subordinated Debentures due December 31, 2000, for 12% Senior Subordinated notes
due December 31, 2002. Tendering note and debenture holders were also issued
common stock of the Company equal to 5% of the outstanding capital stock. In
conjunction with the Exchange Offer, the Company and Safeguard refinanced its
existing bank debt. The refinancing included payment in full of a bank loan and
deferred interest, the amendment of an existing bank loan, and entering into a
new revolver/term loan facility. The exchange and refinancing provides an
extension of the average life of the Company's indebtedness and increases the
Company's financial resources to support operations.
-13-
