<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
POST-EFFECTIVE AMENDMENT NO. 8
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
August 15, 1997
POST-EFFECTIVE AMENDMENT NO. 8 TO FORM T-3
Filed herewith as Exhibit T3E-12 is the Quarterly Financial Statements for the
three and six month periods ended June 30, 1997 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. 8 TO FORM T-3 IS
AUGUST 15, 1997.
<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.
<PAGE> 4
** 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.
** 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.
* Filed herewith.
** Filed previously.
<PAGE> 5
** 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 T3E-9 - Quarterly Financial Statements for the three
and nine month periods ended September 30, 1996.
** EXHIBIT T3E-10 - 1996 Annual Report of the Company and
Safeguard Business Systems, Inc.
** EXHIBIT T3E-11 - Quarterly Financial Statements for the three
month period ended March 31, 1997.
* EXHIBIT T3E-12 - Quarterly Financial Statements for the three
and six month periods ended June 30, 1997.
** 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.
<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 15th day of August, 1997.
(SEAL)
SAN JACINTO HOLDINGS INC.
Attest: By: /s/ Elvis L. Mason
----------------------------------------
Name: Elvis L. Mason
Title: President and Chief Executive Officer
/s/ Michael D. Magill
- - ---------------------------------
Name: Michael D. Magill
Title: Senior Vice President, CFO
<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
</TABLE>
* Filed herewith.
** Filed previously.
<PAGE> 8
<TABLE>
<S> <C>
Supplement to Exchange Offer and Consent Solicitation...
** 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
</TABLE>
* Filed herewith.
** Filed previously.
<PAGE> 9
<TABLE>
<S> <C>
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-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 T3E-9 Quarterly Financial Statements for the three and nine
month periods ended September 30, 1996.
** EXHIBIT T3E-10 1996 Annual Report of the Company and Safeguard
Business Systems, Inc.
** EXHIBIT T3E-11 Quarterly Financial Statements for the three month
period ended March 31, 1997.
</TABLE>
* Filed herewith.
** Filed previously.
<PAGE> 10
<TABLE>
<S> <C>
* EXHIBIT T3E-12 Quarterly Financial Statements for the three
and six month periods ended June 30, 1997
</TABLE>
* Filed herewith.
** Filed as part of or as the exhibit indicated to the Form T-3 filed with
the Commission on December 1, 1995 and incorporated herein by reference.
*** Filed as part of or as the exhibit indicated to the Form T-3 filed with
the Commission on December 15, 1995 and incorporated herein by reference.
**** Filed as Exhibit T3C to the Application for Qualification of Indenture on
Form T-3 (No. 22-21350) filed by the Company with the Securities and
Exchange Commission on November 21, 1991 and incorporated herein by
reference.
2
<PAGE> 1
EXHIBIT T3E-12
SAN JACINTO HOLDINGS INC. AND SUBSIDIARY
CONSOLIDATED QUARTERLY FINANCIAL STATEMENTS
FOR THE PERIOD ENDED JUNE 30, 1997
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Chairman's Letter 1 - 3
Report of the Chief Financial Officer 4 - 5
Financial Statements & Notes 6 - 11
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 in the Company's 1996 Annual Report. 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 12 - 14
and Results of Operations
</TABLE>
<PAGE> 2
August 15, 1997
TO ALL STOCKHOLDERS AND BONDHOLDERS:
Enclosed are the consolidated financial statements of San Jacinto
Holdings Inc. (the "Company") and its operating subsidiary, Safeguard Business
Systems, Inc. ("Safeguard") for the three and six month periods ended June 30,
1997 and June 30, 1996.
OPERATING RESULTS
Operating earnings (EBITDA) in the 2nd quarter were disappointing, but
are not expected to remain at this lower level in future periods. EBITDA
declined by $2.5 million in this quarter due primarily to unanticipated problems
arising out of the computer conversion (AS/400) which took place in the 1st
quarter. These operating problems resulted in much higher levels of expenses and
caused disruptions in production, shipping and billing across the entire
company. Customer service was adversely affected which negatively impacted cash
flow.
Decisive management actions were taken and significant improvements
have been achieved. In spite of these disruptions, which also created major
problems for our independent distributor network, sales did reflect a modest
increase over prior year. The change in sales mix continues and this trend is
expected to continue in future periods. Operating earnings (EBITDA) for the
first half of 1997 totaled $7.5 million compared to the 1996 level of $10.0
million.
An additional problem existed in this period in the form of excessive
expenses in several categories - selling and marketing, as well as general and
administrative expenses - anticipating greater growth in revenue which did not
occur. A more prudent level of expenses must be maintained in this Company and
that issue has now been dealt with.
1
<PAGE> 3
CHANGES IN SENIOR MANAGEMENT
Subsequent to the close of the quarter ended June 30, two senior
management changes have taken place. In July, the Company announced the
appointment of Michael Magill as Senior Vice President and Chief Financial
Officer. Mike is a proven and seasoned financial executive and adds considerable
strength to the management team. Please refer to my letter dated July 10 to
shareholders and bondholders for further information.
In early August, Doug Reiter submitted his resignation as Vice Chairman
and Chief Executive Officer of Safeguard. The Board of Directors requested that
I resume my previous service as Chief Executive Officer which I agreed to do. My
letter to you dated August 5, with attachments, discusses this change and
includes a letter from Doug Reiter commenting on his resignation.
STATUS OF FRANCHISING PROPOSAL
The introduction of a franchise system by Safeguard, as announced in
the first quarter, has been placed on an indefinite hold. Management's proposal
of such a system, particularly in a period dominated by severe operating
problems, became very controversial throughout the existing distribution
channel. Recent discussions with many distributors have resulted in very
positive agreements as to future actions, objectives and mutually acceptable
procedures through which much needed changes can and will be implemented. We
have every reason to believe that this independent distributor network will
support the basic need to move forward with a broad range of new programs and
operating systems for the future. This must be done in an atmosphere of mutual
trust and confidence between the Company and its independent distributors.
MANAGEMENT PRIORITIES
Despite these unexpected operating disruptions in recent months,
fundamental changes are well underway in Safeguard which I fully expect to
result in a much improved outlook for the long term. Management's priorities for
the months ahead are clearly identified and they are: (1) restore all operations
to a high level of quality, performance and reliability as quickly as possible;
(2) remain committed to our independent distributor network, implementing
effectively mutually agreed upon changes to cope with competitive market
conditions; and, (3) achieve solid gains and improvements in sales and
profitability for both the Company and its independent distributors. We will
remain totally
2
<PAGE> 4
focused on these objectives. There will be no doubt as to the management team's
commitment and dedication to achieving these goals. Absent external events over
which we may have no control, I believe these objectives are achievable.
CONFERENCE CALL FOR INVESTORS
A conference telephone call for all shareholders and bondholders will
be scheduled by management in early September. Mike Magill, our Chief Financial
Officer, will announce the time and arrangements for this call well in advance.
This procedure will be followed after the close of each future reporting period.
We hope you will find it convenient and beneficial to participate in a regular
discussion and review of operations with senior management of the Company. We
appreciate your continued support.
Sincerely,
Elvis L. Mason
Chairman and C.E.O.
3
<PAGE> 5
REPORT OF THE CHIEF FINANCIAL OFFICER
FINANCIAL AND OPERATING HIGHLIGHTS
Net sales for the second quarter of 1997 are $52.1 million, reflecting
growth of $1.9 million or 3.8% from the same quarter in 1996. For the first six
months of 1997, net sales are $103.6 million reflecting a $1.4 million increase
or 1.4% above sales levels of $102.2 million for the comparable period in 1996.
The first six months' sales results reflect a 5.2% and 22.5% growth in sales of
computer forms and sourced products (products produced by other vendors and sold
through Safeguard), respectively. This growth is off-set by a 4.9% decline in
manual form sales. The changes in sales trends from manual forms to computer
forms and sourced products continues to be addressed strategically and
operationally throughout the Company. The first six months of 1997 includes one
less work day resulting in less time for plant production than in the same
period in 1996.
Earnings from operations before amortization, depreciation, interest
and income taxes (EBITDA) for the quarter ended June 30,1997 are $2.5 million
compared to $5.0 million for the comparable period in 1996, reflecting a $2.5
million decline. EBITDA for the six months ended June 30, 1997 was $7.5 million
compared to $10.0 million for the comparable six month period in 1996. The
decline in operating results for the quarter ended June 30, 1997 is attributable
to a 3.8%, as a percentage of net sales, decline in gross profit compared to the
comparable period in 1996. The reduction in gross profit is a result of
increased material costs attributable to the shift in product mix, and increased
overhead costs associated with equipment costs in support of the technological
advances in the Company's computer systems. Administrative costs for the second
quarter and first six months of 1997 have also increased as a result of
additional equipment costs in support of the Company's computer hardware and
software enhancements.
4
<PAGE> 6
The Company's operations in Europe remain strong. Net sales for the
first six months of 1997 are 9.9% above 1996 levels. This growth is in both
manual and computer form sales. Earnings from operations are $1.1 million, which
is $0.3 million or 43.0% above the earnings in the first six months of 1996,
excluding the $0.7 gain on the sale of an existing manufacturing facility in
June of 1996.
The Company's net loss before extraordinary item is $7.9 million in the
second quarter of 1997 compared to a net loss of $5.0 million for the same
period in 1996. The net loss for the six month period is $13.3 million compared
to a net loss of $9.5 million in 1996. The decline in operating results as
discussed above is attributable to a decline in gross profit and an increase in
administrative costs. These losses include amortization (non-cash charges) of
$9.6 million for the first six months of 1997 and $9.7 million for the same
period in 1996.
The Company expanded and amended its credit facilities with its
financial institutions after the close of the second quarter. This allowed the
Company to expand its source of funding due to the decrease in EBITDA during the
second quarter of 1997.
CHANGE IN FISCAL YEAR
The Company has elected to remain on a calendar year end for 1997,
deferring any change until a future period.
The Company has celebrated 40 years of leadership in the small business
arena serving the marketplace as an information systems company with a total
service approach. Safeguard's management and employees are dedicated to
maintaining and expanding this preeminent position in the small business
marketplace in the coming years. We appreciate your continuing support.
Sincerely,
Michael D. Magill
Senior Vice President
Chief Financial Officer
5
<PAGE> 7
SAN JACINTO HOLDINGS INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
($000 omitted)
(Unaudited)
<TABLE>
<CAPTION>
June 30, December 31,
1997 1996
---- ----
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 1,089 $ 482
Receivables less allowances 29,504 27,912
Inventories 8,506 8,678
Other current assets 1,748 2,480
--------- ---------
Total current assets 40,847 39,552
Property, machinery and equipment - net 21,472 20,855
Excess purchase price over net assets acquired 42,501 43,225
Customer list 8,636 17,273
Other assets 3,166 2,813
--------- ---------
Total assets $ 116,622 $ 123,718
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY)
Current liabilities:
Current debt obligations $ 10,066 $ 8,708
Accounts payable 19,409 14,476
Accrued expenses 16,362 16,572
--------- ---------
Total current liabilities 45,837 39,756
Long-term debt 109,511 110,017
Other liabilities 8,365 7,631
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 11 11
Additional paid-in capital 94,143 94,143
Deficit (140,211) (126,880)
Foreign currency translation adjustment (1,034) (960)
--------- ---------
Total stockholders' equity (deficiency) (47,091) (33,686)
--------- ---------
Total liabilities and stockholders' equity $ 116,622 $ 123,718
========= =========
</TABLE>
See notes to consolidated financial statements
6
<PAGE> 8
SAN JACINTO HOLDINGS INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
($000 omitted)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Six Months
Ended June 30, Ended June 30,
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net sales $ 52,145 $ 50,257 $ 103,604 $ 102,209
Cost of sales 26,198 23,316 51,216 47,489
-------- -------- --------- ---------
Gross profit 25,947 26,941 52,388 54,720
Selling expense 20,340 19,841 40,185 39,834
General & administrative expense 5,417 3,969 9,481 8,658
Other income - cash received greater than
carrying value of distributor receivables (517) (550) (989) (1,100)
Amortization expense 4,824 5,009 9,636 9,766
Interest expense 3,739 3,636 7,379 6,970
-------- -------- --------- ---------
Loss from operations before income taxes
and extraordinary item (7,856) (4,964) (13,304) (9,408)
Income tax provision (benefit) (61) 65 27 140
-------- -------- --------- ---------
Loss before extraordinary item (7,795) (5,029) (13,331) (9,548)
Extraordinary item:
Gain on early extinguishment of debt -- -- -- 2,401
-------- -------- --------- ---------
Net loss $ (7,795) $ (5,029) $ (13,331) $ (7,147)
======== ======== ========= =========
</TABLE>
See notes to consolidated financial statements.
7
<PAGE> 9
SAN JACINTO HOLDINGS INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
PERIOD FROM JANUARY 1, 1996
TO JUNE 30, 1997
($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, 1996 -- $ 999,960 $ 10 $94,143 $ (104,591) $ (1,292)
--
Net loss (22,289)
Issuance of common
stock in conjunction
with exchange offer 52,424 1
Unrealized gain on
foreign currency
translation 332
------ ---- ------- ----- ------- ---------- --------
Balance -
December 31, 1996 -- -- 1,052,834 11 94,143 (126,880) (960)
Net loss (13,331)
Unrealized loss on
foreign currency
translation -- -- -- -- -- -- (74)
------ ---- --------- ----- ------- --------- --------
Balance -
June 30, 1997 -- $ -- 1,052,384 $ 11 $94,143 ($140,211) ($1,034)
====== ==== ========= ===== ======= ========= ========
</TABLE>
See notes to consolidated financial statements.
8
<PAGE> 10
SAN JACINTO HOLDINGS INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
($000 omitted)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Six Months
Ended June 30, Ended June 30,
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Cash Flows from Operating Activities:
Net loss $(7,795) $(5,029) $(13,331) $ (7,147)
Adjustments to reconcile net loss to cash
provided by operating activities:
Extraordinary item -- -- -- (2,401)
Amortization 4,824 5,009 9,636 9,766
Depreciation 1,833 1,349 3,766 2,674
(Gain) loss on sale of assets 67 (725) 67 (725)
Unrealized exchange gain (loss) (137) 227 (74) 63
(Increase) decrease in operating assets:
Receivables (240) (219) (1,592) 1,573
Inventories (280) (616) 172 440
Other assets (74) 86 (750) 503
Increase (decrease) in operating liabilities:
Accounts payable 4,693 (1,141) 4,933 (275)
Accrued expense and other liabilities 1,798 1,071 524 818
------- ------- -------- --------
Net cash provided by operating activities 4,689 12 3,351 5,289
Cash Flows from Investing Activities:
Purchase of property, machinery and equipment (1,355) (1,556) (3,588) (3,427)
Proceeds from sale of assets 787 1,176 787 1,176
Adjustment due to currency fluctuations
and foreign purchase price adjustments (190) (148) 243 29
------- ------- -------- --------
Net cash used in investing activities (758) (528) (2,558) (2,222)
------- ------- -------- --------
Cash Flows from Financing Activities:
Repayment of long-term debt and capital
lease obligations (2,965) (1,783) (4,684) (19,340)
Borrowings from (repayment of) revolving loans (1,472) 1,610 3,364 15,657
Net proceeds from (repayment of) foreign obligations 1,109 (608) 1,134 180
Deferred financing costs -- (311) -- (1,530)
------- ------- -------- --------
Net cash used in financing activities (3,328) (1,092) (186) (5,033)
------- ------- -------- --------
Increase (decrease) in cash and cash equivalents 603 (1,608) 607 (1,966)
Cash and cash equivalents at beginning of period 486 2,444 482 2,802
------- ------- -------- --------
Cash and cash equivalents at end of period $ 1,089 $ 836 $ 1,089 $ 836
======= ======= ======== ========
</TABLE>
9
<PAGE> 11
SAN JACINTO HOLDINGS INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
($000 omitted)
(Unaudited)
(Continued)
Supplemental disclosure of non-cash investing and financing activities:
Capital lease obligations of $1,038 and $838 were entered into during
the first six months of 1997 and 1996 respectively, to acquire
machinery and equipment.
Supplemental disclosure of cash flow information:
<TABLE>
<CAPTION>
Three Months Six Months
Ended June 30, Ended June 30,
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Earnings Before Interest, Taxes, Depreciation &
Amortization (EBITDA) $2,540 $5,030 $7,477 $10,002
Earnings Before Interest, Taxes & Amortization
(EBITA) $ 707 $3,681 $3,711 $ 7,328
Cash paid during the period for:
Interest $1,749 $1,856 $3,336 $ 3,881
</TABLE>
See notes to consolidated financial statements
10
<PAGE> 12
SAN JACINTO HOLDINGS INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THREE AND SIX MONTH PERIODS ENDED JUNE 30, 1997 & 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 1996 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, 1996 are derived from the Company's audited financial statements as
of that date.
NOTE B. INVENTORIES:
<TABLE>
<CAPTION>
Inventories consist of the following: June 30, 1997 December 31, 1996
------------- -----------------
($000 omitted)
<S> <C> <C>
Raw Material $5,025 $5,327
Work-in-process 327 352
Finished Goods 3,154 2,999
------ ------
Total $8,506 $8,678
====== ======
</TABLE>
<TABLE>
<CAPTION>
NOTE C. LONG-TERM DEBT: June 30, 1997 December 31, 1996
-------------- ------------- -----------------
($000 omitted)
<S> <C> <C>
Revolving Loans $ 20,888 $ 17,525
Term Loan 5,742 6,500
Amended Exchange Loan 20,097 22,633
12% Senior Subordinated Notes 65,878 65,878
8% Senior Subordinated Notes 3 3
8% Subordinated Debentures 321 321
Capital lease obligations 2,168 2,519
Foreign obligations 4,480 3,346
-------- -------
119,577 118,725
Less current debt obligations (10,066) (8,708)
-------- -------
Total $109,511 $110,017
======== ========
</TABLE>
On July 29, 1997, Safeguard amended the revolving loan agreements with
its bank. The amended agreements provide for an additional $4.0 million
in short-term borrowing capacity. The Revolving Loan under the Loan and
Security Agreement, secured by eligible accounts receivable and
inventories, was amended to provide a $1.5 million overadvance. The
overadvance will be reduced by $0.5 million per month beginning August
28, 1997 until the advance is repaid. The $4.0 million Revolving Loan
was amended to allow for borrowings up to $6.5 million. The borrowing
capacity will be reduced by $0.1 million per month beginning January 1,
1998 until it is reduced to $4.0 million.
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, 1997 & 1996
RESULTS OF OPERATIONS
The following commentary presents management's discussion and analysis of the
Company's financial condition and results of operations. Certain of the
statements included below, including those regarding future financial
performance or results, or that are not historical facts, are or contain
"forward-looking" information as that term is defined in the Securities Act of
1933, as amended. The words "expect", "believe", "anticipate", "project",
"estimate", and similar expressions are intended to identify forward-looking
statements. The Company cautions readers that any such statements are not
guarantees of future performance or events and such statements involve risks,
uncertainties and assumptions, including but not limited to industry conditions,
general economic conditions, interest rates, competition, ability of the Company
to successfully manage its growth, and other factors discussed below and in the
Company's Annual Report on Form 10-K for the year ended December 31, 1996 and
Form 10-Q for the quarter ended March 31, 1997. Should one or more of these
risks or uncertainties materialize or should the underlying assumptions prove
incorrect, those actual results and outcomes may differ materially from those
indicated in the forward-looking statements. This review should be read in
conjunction with the information provided in the financial statements,
accompanying notes and selected financial data appearing in the Company's Annual
Report for the year ended December 31, 1996 and the quarter ended
March 31, 1997.
The following table sets forth, for the periods indicated, selected financial
data as a percentage of net sales.
<TABLE>
<CAPTION>
Three Month Period Six Month Period
Ended June 30, Ended June 30,
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net sales 100.0% 100.0% 100.0% 100.0
Cost of sales 50.2 46.4 49.4 46.5
----- ----- ----- ----
Gross profit 49.8 53.6 50.6 53.5
Selling expense 39.0 39.5 38.8 39.0
General & administrative expense 10.4 7.9 9.2 8.5
Other income-distributor receivables (1.0) (1.1) (1.0) (1.1)
Amortization expense 9.3 10.0 9.3 9.6
Interest expense 7.2 7.2 7.1 6.8
----- ----- ----- ----
Loss from operations before income taxes
and extraordinary item (15.0) (9.9) (12.8) (9.2)
Income tax provision (benefit) (0.1) 0.1 0.1 0.1
----- ----- ----- ----
Loss before extraordinary item (14.9) (10.0) (12.9) (9.3)
Extraordinary item -- -- -- --
----- ----- ----- ----
Net loss (14.9)% (10.0)% (12.9)% (9.3)
===== ===== ===== ====
</TABLE>
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, 1997 & 1996
COMPARISON OF THE THREE AND SIX MONTH PERIODS ENDED JUNE 30, 1997, AND FOR THE
THREE AND SIX MONTH PERIODS ENDED JUNE 30, 1996.
NET SALES. Net sales for the second quarter of 1997 are $52.1 million compared
to $50.3 million for the same period in 1996, representing a sales growth of
3.8%. For the first six months of 1997, net sales are $103.6 million, reflecting
growth of $1.4 million or 1.4% in comparison to 1996. The sales growth during
the first six months reflects a 5.2% growth in computer forms and a 22.5% growth
in sourced product sales. This growth is partially off-set by the continuing but
slowing decline in manual forms sales. Approximately 70% of the growth in
computer forms is related to volume increases, with the remainder attributable
to price increases. The decline in manual forms sales is off-set in part by a
3.5% average price increase.
The Company's sales growth in 1997 has been influenced by several factors. The
Company's computer hardware and software system conversion, initiated in the
first quarter of 1997, delayed implementation of certain marketing programs
intended to positively effect sales. In addition, a significant amount of
communications with the Company's distributor network occurred during the second
quarter of 1997 regarding proposed changes to its distribution channel. Analysis
indicates that the distributors' sales performance was adversely effected by
these announcements. The first six months of 1997 includes one less work day
resulting in less time for plant production than in the same period in 1996.
GROSS PROFIT. Gross profit margin is 49.8% of net sales for the second quarter
of 1997 and 53.6% in 1996. For the first six months, the gross margin is 50.6%
of net sales in 1997 compared to 53.5% in 1996. The decline in gross profit
margin is attributable to the change in the Company's product mix from manual
forms sales to computer forms and sourced products. Computer forms and sourced
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. Overhead costs have also increased in 1997 as a result of
additional equipment costs in support of technological advances in the computer
systems, although approximately 1% of the decrease in gross profit margin was
due to the conversion to the new computer system.
SELLING EXPENSE. Selling expenses are $20.3 million in the second quarter of
1997 compared to $19.8 million for the same period in 1996, representing 39.0%
and 39.5% of net sales in each period. For the six months, selling expenses are
$40.2 million in 1997 compared to $39.8 million in 1996, representing 38.8% and
39.0% 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 dollar increase in selling costs is
attributable to increased commission costs associated with the Company's sales
growth partially offset by the postponement of certain marketing programs.
GENERAL AND ADMINISTRATIVE. General and administrative expenses are $5.4 million
for the second quarter of 1997 compared to $4.0 million in 1996. For the first
six months, general and administrative expenses are $9.5 million in 1997 and
$8.7 million in 1996. The increase in costs is due to greater equipment costs,
partially off-set by legal and benefit cost reductions. In addition, the second
quarter and six month period in 1996 include $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 $0.5 million for the second
quarter 1997 and $0.6 million for the same period in 1996, representing 1.0% of
net sales in 1997 and 1.1% in 1996. Other income for the six month period is
$1.0 million in 1997 and $1.1 million in 1996. 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
13
<PAGE> 15
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, 1997 & 1996
RESULTS OF OPERATIONS - Continued
made by Safeguard to facilitate the purchase of account protection and future
income 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 $4.8 million for the second
quarter of 1997 and $5.0 million in 1996. Amortization expense is $9.6 million
and $9.8 million for the first six months of 1997 and 1996, 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.
INTEREST EXPENSE. Interest expense is $3.7 million for the second quarter of
1997 and $3.6 million for the same period in 1996. For the first six months,
interest expense is $7.4 million in 1997 in comparison to $7.0 million in 1996.
The slight increase in interest expense in 1997 is attributable to the rise in
the Company's average outstanding borrowings.
INCOME TAX PROVISION. 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.
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 revolving loans. The
Company's cash flows from operating activities provided $3.4 million in the
first six months of 1997. As of June 30, 1997, the Company had $1.1 million in
cash and cash equivalents, $2.0 million in availability under the revolving
loans. At that date, the Company had a working capital deficiency of $5.0
million and a ratio of current assets to current liabilities of 0.9:1.
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 1997 are $4.6 million in equipment
purchase and software development cost. The Company anticipates total capital
expenditures in 1997 of $6.0 million, which will include the completion of the
installation of an integrated computerized order entry system, the installation
of sales force automation system, and the upgrade of existing manufacturing
production equipment. These expenditures will be funded through additional
capital lease obligations and cash flow from operations.
At the end of the second quarter, the Company notified its bondholders that the
interest payment due June 30, 1997 would be postponed pursuant to the 30 day
grace period allowed pursuant to the Indenture Agreement on the 12% Subordinated
Bonds. This notice was sent pending completion of proposed changes in existing
senior lenders' credit agreements with Safeguard to compensate for the
unexpected operating problems. The interest payment was made to all bondholders
of record during the grace period and no default occurred. During the grace
period the Company amended its credit facilities to provide for a $4.0 million
increase in short-term borrowing capacity with its financial institutions (see
Note C to the financial statements) which provided sufficient funds for the
Company to make its interest payment to its bondholders. Future interest
payments of the Company are expected to be made out of improved operating
results and cash flow as well as any asset sales which might be made, although
the ability to accurately project futures sales volume, and events outside of
the Company's control could have an impact on future interest payments. The
Company has met all of its debt obligations and is not currently in default of
any of its loan agreements. The Company continues to monitor its cash position
and believes that sufficient funding alternatives exist to meet its current
obligations as they come due.
14
