<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-----------------------------
POST-EFFECTIVE AMENDMENT NO. 3
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
<TABLE>
<CAPTION>
Title of Class Amount
-------------- ------
<S> <C>
12% Senior Subordinated Notes Maximum of
Due December 31, 2002 $66,138,406
</TABLE>
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
July 12, 1996
POST-EFFECTIVE AMENDMENT NO. 3 TO FORM T-3
Filed herewith as Exhibit T3E-7 is the Quarterly Financial Statements for the
three month period ended March 31, 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. 3 TO FORM T-3 IS JULY 12, 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.
* 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 12th day of July, 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> <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>
<CAPTION>
<S> <C> <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>
<CAPTION>
<S> <C> <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 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-7
SAN JACINTO HOLDINGS INC. AND SUBSIDIARY
CONSOLIDATED QUARTERLY FINANCIAL STATEMENTS
THREE MONTH PERIOD ENDED MARCH 31, 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
for 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
May 15, 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 quarter ended March 31, 1996.
FINANCIAL AND OPERATING HIGHLIGHTS
Net sales in the first quarter of 1996 are $52.0 million, reflecting an
increase of $1.0 million (or 2.0%) above last years sales levels. The sales
increase reflects growth in sales of computer forms (7.7%), brokerage products
(23.3%), and payroll processing services (22.0%). 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, brokerage products and payroll processing continue to be
addressed strategically and operationally throughout the Company.
Earnings from Operations - earnings before amortization of intangibles,
interest expense, and taxes - in the first quarter of 1996 are $3.6 million
compared to $5.2 million in 1995, a $1.6 million (or 29.8%) decline. The decline
in earnings is attributable to a reduction in gross profit margin caused by an
anticipated increase in paper costs, the primary material in the Company's
products, and the continued shift in product mix from manual forms to computer
forms and brokerage products. During the second half of 1995 the Company
experienced significant increases in paper and paper related supply cost; paper
costs have stabilized during the first quarter of 1996. These price increases
have been partially passed through to customers. Computer forms and brokerage
product sales carry greater material, direct labor and overhead than manual
forms resulting in a lower gross profit margin.
<PAGE> 3
The Company's net loss before extraordinary item for the first quarter
of 1996, after amortization, interest expense and taxes, is $4.5 million
compared to $2.1 million for the same period in 1995, a $2.4 million increase.
The increase loss is attributable to the reduction in gross profit described
above, and a $0.9 million 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 $4.8 million for the first quarter of 1996
and 1995.
The Company operations in the United Kingdom continue to grow. Net
sales for the first quarter of 1996 are 4.2% above 1995 sales level. This growth
is in both manual and computer form sales. During the same period, earnings
increased approximately 2.7% which is attributable to the sales growth noted
partially off-set by increased administrative costs.
FINANCIAL RESTRUCTURING
As more fully described in the Notes to the Consolidated Financial
Statements, on January 26, 1996, in the Company consummated an exchange offer of
substantially all of its existing 8% Senior Subordinated Notes due December 31,
2000 and 8% Subordinated Debentures due December 31, 2000 into 12% Senior
Subordinated Notes due December 31, 2002. The tendering Note and Debenture
holders were also issued common stock of the Company equal to 5% of the
outstanding capital stock. The exchange offer is accounted for as an
extinguishment of debt and resulted in an extraordinary gain of $2.4 million.
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 financial restructuring
extends the average life to the Company's indebtedness and enhances the
Company's financial resources to support operations.
2
<PAGE> 4
FOCUS IN 1996
The North American Sales and Marketing function, as we communicated to
you in our letter to Stockholders and Bondholders dated September 29, 1995, is
being consolidated and relocated to Dallas, Texas. We believe this move
represents a positive step in strengthening the Company's competitive position
and should result in an improved sales and profitability outlook in the years
ahead. Approximately 80% of the positions have been filled and the cost of the
transition (which was recorded in the consolidated financial statements in
September 1995) approximates the original cost estimate. As planned the benefits
of this centralized will be reflected in the Company's operating results in 1997
and beyond.
The Company continues to focus its efforts on completing the conversion
of its computer system to the AS/400 platform. A major component of the
conversion is the design and coding of the order processing and management
software. The completion of the conversion is anticipated to occur in the third
quarter of 1996, as scheduled.
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,
<TABLE>
<CAPTION>
<S> <C> <C>
/s/Elvis L. Mason /s/Richard H. Gommel
Elvis L. Mason Richard H. Gommel
Chairman and President and
Chief Executive Officer Chief Operating Officer
San Jacinto Holdings Inc. Safeguard Business Systems, Inc.
Safeguard Business Systems, Inc.
</TABLE>
3
<PAGE> 5
SAN JACINTO HOLDINGS INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
($000 omitted)
<TABLE>
<CAPTION>
March 31, December 31,
1996 1995
---- ----
(UNAUDITED)
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 2,444 $ 2,802
Receivables less allowance 25,280 27,072
Inventories 7,754 8,809
Other current assets 1,899 2,248
--------- ---------
Total current assets 37,377 40,931
Property, plant and equipment - net 18,412 17,739
Excess purchase price over net assets acquired 44,309 44,671
Customer list 30,227 34,545
Other assets 5,185 4,973
--------- ---------
Total assets $ 135,510 $ 142,859
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY)
Current liabilities:
Current debt obligations $ 7,816 $ 7,395
Accounts payable 10,510 9,741
Accrued expenses 14,859 14,612
--------- ---------
Total current liabilities 33,185 31,748
Long-term debt 109,558 100,853
Deferred interest -- 14,805
Other liabilities 6,683 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
999,960 shares in 1995 11 10
Additional paid-in capital 94,143 94,143
Deficit (106,709) (104,591)
Foreign currency translation adjustment (1,361) (1,292)
--------- ---------
Total stockholders' equity (deficiency) (13,916) (11,730)
--------- ---------
Total liabilities and stockholders' equity (deficiency) $ 135,510 $ 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 Months Ended March 31,
1996 1995
---- ----
<S> <C> <C>
Net sales $ 51,952 $ 50,945
Cost of sales 24,173 22,114
-------- --------
Gross profit 27,779 28,831
Selling expense 19,993 19,810
General & administrative expense 4,689 4,485
Other income - cash received greater than
carrying value of distributor receivables (550) (659)
Amortization expense 4,757 4,813
Interest expense 3,334 2,447
-------- --------
Loss from operations before income taxes
and extraordinary item (4,444) (2,065)
Income taxes provision 75 80
-------- --------
Loss before extraordinary item (4,519) (2,145)
Extraordinary item:
Gain on early extinguishment of debt 2,401 --
-------- --------
Net loss $ (2,118) $ (2,145)
======== ========
</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 MARCH 31, 1996
($000 OMITTED)
UNAUDITED
<TABLE>
<CAPTION>
Foreign
Additional Currency
Preferred Stock Common Stock Paid In Translation
Shares Amount Shares Amount Capital Deficit Adjustment
------ ------ ------ ------ ------- ------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance -
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 52,424 1
Stock in conjunction
with Exchange Offer
Net Loss (2,118)
Unrealized Loss on
Foreign Currency
Translation (69)
---- ------- --------- --- ------- --------- -------
Balance -
March 31, 1996 - $ - 1,052,384 $11 $94,143 $106,709) $(1,361)
==== ======= ========= === ======= ========= =======
</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>
Three Months Ended March 31,
1996 1995
---- ----
<S> <C> <C>
Cash Flows from Operating Activities:
Net loss $ (2,118) $(2,145))
Adjustments to reconcile net loss to cash
provided by operating activities:
Extraordinary item (2,401) --
Amortization 4,757 4,813
Depreciation 1,325 1,123
Unrealized exchange gain (loss) (164) 297
(Increase) decrease in operating assets:
Receivables 1,792 2,728
Inventories 1,056 211
Other assets 417 306
Increase (decrease) in operating liabilities:
Accounts payable 866 1,732
Accrued expense and other liabilities (253) 2,846
Deferred interest expense -- (123)
-------- --------
Net cash provided by operating activities 5,277 11,788
Cash Flows from Investing Activities:
Purchase of machinery and equipment (1,871) (392)
Adjustment due to currency fluctuations
and foreign purchase price adjustments 177 58
-------- --------
Net cash used in investing activities (1,694) (334)
-------- --------
Cash Flows from Financing Activities:
Repayment of long-term debt and
capital lease obligations (17,557) (3,652)
Temporary borrowings from (repayment of) revolving loans 14,047 (10,200)
Net proceeds from (repayment of)
foreign obligations 788 (3)
Deferred financing costs (1,219) --
-------- --------
Net cash used in financing activities (3,941) (13,855)
-------- --------
Decrease in cash and cash equivalents (358) (2,401)
Cash and cash equivalents at beginning of period 2,802 2,716
-------- --------
Cash and cash equivalents at end of period $ 2,444 $ 315
======== ========
</TABLE>
7
<PAGE> 9
SAN JACINTO HOLDINGS INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE MONTH PERIOD ENDED MARCH 31, 1996
($000 omitted)
(UNAUDITED)
(Continued)
Supplemental disclosure of noncash investing and financing activities:
Capital lease obligations of $304 and $158 were incurred during the
first quarter 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 $2,025 $1,101
</TABLE>
See notes to consolidated financial statements
8
<PAGE> 10
SAN JACINTO HOLDINGS INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTH PERIOD ENDED MARCH 31, 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. Financial Restructuring
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 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 on 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.
9
<PAGE> 11
SAN JACINTO HOLDINGS INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTH PERIOD ENDED MARCH 31, 1996
(UNAUDITED)
(continued)
Note C. Inventories:
Inventories consist of the following:
<TABLE>
<CAPTION>
March 31, 1996 December 31, 1995
-------------- -----------------
($000 omitted)
<S> <C> <C>
Finished goods $ 3,904 $ 4,062
Work-in-process 679 629
Raw materials 3,171 4,118
----- -----
$ 7,754 $ 8,809
===== =====
</TABLE>
Note D. Long-Term Debt:
<TABLE>
<CAPTION>
March 31, 1996 December 31, 1995
-------------- -----------------
($000 omitted)
<S> <C> <C>
New Revolving Loan $ 13,300 $ -
New Term Loan 6,350 -
Revolving Credit Loan - 15,582
Amended Exchange Loan 25,438 24,656
12% Senior Subordinated Notes 65,878 -
8% Senior Subordinated Notes 297 39,998
8% Subordinated Debentures 3 21,801
Capital Lease Obligations 2,627 2,913
Foreign Obligations 3,481 3,298
----- -----
117,374 108,248
Less current debt obligations (7,816) (7,395)
------ ------
$109,558 $100,853
======= =======
</TABLE>
10
<PAGE> 12
SAN JACINTO HOLDINGS INC. AND SUBSIDIARY
MANAGEMENT DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THREE MONTH PERIOD ENDED MARCH 31, 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 period ended March 31,
1996 1995
---- ----
<S> <C> <C>
Net sales 100.0% 100.0%
Cost of sales 46.5 43.4
---- ----
Gross profit 53.5 56.6
Selling expense 38.5 38.9
General & administrative expense 9.0 8.8
Other income - Distributor receivables (1.0) (1.3)
Amortization expense 9.2 9.5
Interest expense 6.4 4.8
---
Loss from operations before income taxes
and extraordinary item (8.6) (4.1)
Income tax provision 0.1 0.1
--- ---
Loss before extraordinary item (8.7) (4.2)
Extraordinary Item:
Gain on early extinguishment of debt 4.6 -
--- ----
Net Loss (4.1)% (4.2)%
=== ===
</TABLE>
COMPARISON OF THE THREE MONTH PERIOD ENDED MARCH 31, 1996 TO THE THREE MONTH
PERIOD ENDED MARCH 31, 1995.
Net Sales. Net sales for the first quarter of 1996 are $52.0 million compared
to $50.9 million in 1995, representing an increase of 2.0%. This sales growth
reflects a 7.7% growth in computer forms, a 24.4% payroll and data processing
growth and a 15.6% growth in brokered products sales, partially off-set by a
7.7% decline in manual forms sales. Computer forms sales volume approximates
1995 level for the period; the first quarter 1996 sales increase is
attributable to price increases. The decline in manual forms sales in 1996 is
offset in part by a 3.8% average price increase.
Gross profit. Gross profit margin is 53.5% of net sales for the first quarter
of 1996 compared to 56.6% for the same period in 1995. The decline in margin
is a result of the change in the Company's product mix from manual forms to
computer forms and brokerage products. Computer forms and brokerage products
carry greater material, direct labor and overhead costs (as a percentage of
sales), resulting in a lower gross profit margin than for manual forms.
Additionally, during the third quarter of 1995 paper and paper related supply
costs, the primary material in the Company's products, increased
significantly. These price increases have been partially passed through to
customers.
11
<PAGE> 13
SAN JACINTO HOLDINGS INC. AND SUBSIDIARY
MANAGEMENT DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THREE MONTH PERIOD ENDED MARCH 31, 1996
(continued)
Results of Operations - Continued
Selling expense. Selling expenses are $20.0 million in the first quarter of
1996 compared to $19.8 million for the same period in 1995, representing 38.5%
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 fairly constant over the last several years. The
dollar increase in selling expense is attributable to increased commission
costs associated with the sales growth noted above.
General and administrative. General and administrative expenses are $4.7
million for the first quarter of 1996 compared to $4.5 million for 1995,
representing 9.0% and 8.8% of net sales in each year. The increase in the
first quarter of 1996 is primarily a result of inflationary increases.
Other Income - distributor receivables. Other income (cash received greater
than carrying value of Distributor receivables) is $0.6 million for the first
quarter of 1996 and 1995 representing 1.0% and 1.3% of net sales in each
period. In connection with the Company's purchase price allocation for the
acquisition of Safeguard as a December 31, 1986, the value assigned to
distributor receivables associated with loans and advances previously made by
Safeguard to facilitate 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 the evaluation by an independent
valuation firm 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 was $4.7 million for the first
three months of 1996 and 1995. The expense consists of the amortization of
intangible assets, including; the customer list, excess purchase price over
net assets acquired and deferred financing costs.
Interest Expense. Interest expense is $3.3 million for the first quarter of
1996 and $2.4 million for the same period in 1995. The increase in interest
expense is attributable to the rise in the Company's effective interest rate
from 8% to 12% per annum.
Income Tax. The Company's provision for income tax is related to its
operations in the United Kingdom. No income tax liability is incurred in the
United States as a result of net losses from operations.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary sources of liquidity are cash flow generated from
operations, cash on hand and borrowing capacity under the new Revolving Loan.
The Company's cash flow from operating activities is $5.3 million for the
first quarter of 1996. As of March 31, 1996, the Company has $2.4 million in
cash and cash equivalents, working capital of $4.2 million and a ratio of
current assets to current liabilities of approximately 1.1:1. As of March 31,
1995, the Company has $4.7 million in availability under the new Revolving
Loan and the equivalent of $0.5 million available through a short term line of
credit maintained by the Company's subsidiary in the United Kingdom.
12
<PAGE> 14
SAN JACINTO HOLDINGS INC. AND SUBSIDIARY
MANAGEMENT DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THREE MONTH PERIOD ENDED MARCH 31, 1996
(continued)
LIQUIDITY AND CAPITAL RESOURCES- CONTINUED
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 quarter of 1996 are $1.2 million in
machinery, equipment and software purchases, in addition to $1.0 million in
costs associated with the construction of a new production facility in the
United Kingdom. This new facility will be financed by a construction loan, the
proceeds from the sale of the existing facility and cash flow from operations.
The Company anticipates total capital expenditures in 1996 of $6.0 million. A
significant portion of the capital investment in machinery, equipment and
software in 1996 is for the installation of an integrated computerized order
entry system, and the upgrade of existing manufacturing production equipment.
These expenditures, excluding the new facility in United Kingdom, will be
funded substantially 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.
The Company believes that the combination of cash flow from operations
and funds available under the Revolving Loan will be sufficient to meet its
working capital, debt service and capital expenditure requirements.
13
