UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1998 or [ ] TRANSITION REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
For the transition period from................. to..............................
Commission File Number:........... 333-53987....................................
Jackson Products, Inc.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 75-2470881
- --------------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer ID No.)
incorporation or organization)
2997 Clarkson Road, Chesterfield, Missouri 63017
- --------------------------------------------------------------------------------
(Address of principal executive offices)
(314) 207-2700
- --------------------------------------------------------------------------------
(Registrant's telephone number, including area code)
N/A
- --------------------------------------------------------------------------------
(Former name, former address and former fiscal year, if changed since last
report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. [ ] Yes [X] No
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Sections 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court. [ ] Yes [ ] No
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
38,530 shares of Class A Common Stock at June 30, 1998
8,526 shares of Class C Common Stock at June 30, 1998
<PAGE>
JACKSON PRODUCTS, INC.
INDEX
PAGE
----
Part I. Financial Information:
Item 1. Consolidated Financial Statements as of
June 30, 1998 and December 31, 1997 and
for the six months ended June 30, 1998 and
1997 (unaudited):
Consolidated Condensed Balance Sheets 2
Consolidated Statements of Operations 3
Condensed Consolidating Statements of Cash Flow 4
Notes to Consolidated Financial Statements 5
Item 2. Management's Discussion and Analysis
of Financial Condition and Results
of Operations 15
Part II. Other Information 16
Signature Page 17
1
<PAGE>
<TABLE>
<CAPTION>
JACKSON PRODUCTS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
June 30, December 31,
1998 1997
---- ----
(Unaudited)
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents ......................................... $ 471 $ 523
Accounts receivable, net of allowance for doubtful accounts of $622
and $404 in 1998 and 1997, respectively .......................... 28,046 14,888
Inventories ....................................................... 31,871 22,837
Prepaid expenses .................................................. 437 409
Total current assets ..................................... 60,825 38,657
Property, plant, and equipment .................................... 30,797 20,818
Intangibles ....................................................... 72,821 60,050
Deferred financing costs .......................................... 7,053 5,180
Other noncurrent assets ........................................... 551 342
-------- -------
$ 172,047 $ 125,047
========= =========
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Current maturities of long-term obligations ....................... $ -- $ 6,120
Accounts payable .................................................. 15,335 11,432
Accrued and other liabilities ..................................... 6,439 5,201
Accrued interest .................................................. 2,598 2,102
Accrued taxes ..................................................... 1,330 534
Total current liabilities ................................ 25,702 25,389
Long-term debt, less current maturities ........................... 187,620 106,381
Other noncurrent liabilities ...................................... 3,370 3,603
Series A cumulative, 13.25%, exchangeable preferred stock,
$.01 par value; 2,000 shares authorized, 1,700 shares issued
and outstanding (liquidation value of $23,065 in 1997) ............ -- 20,951
Stockholders' deficit:
Class A Common Stock, $.01 par value; 100,000 shares authorized;
38,530 and 40,000 shares issued and outstanding at June 30, 1998 .... -- --
and 1997, respectively
Class C common stock, $.01 par value; ............................... -- --
15,000 shares authorized; 8,526 and 9,048 shares issued and
outstanding at June 30, 1998 and 1997,
Additional paid-in capital .......................................... 2,952 7,102
Cumulative translation adjustment .................................. (62) (106)
Loans due on common stock ........................................... (343) (343)
Accumulated deficit ................................................. (47,192) (37,930)
Total stockholders' deficit .............................. (44,645) (31,277)
-------- --------
$ 172,047 $ 125,047
========= =========
See accompanying notes to consolidated financial statements.
</TABLE>
2
<PAGE>
<TABLE>
<CAPTION>
JACKSON PRODUCTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Three months ended Six months ended
June 30, June 30,
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net sales ....................................................... $ 47,574 $ 35,581 $ 78,680 $ 62,264
Operating expenses:
Cost of sales ............................................. 31,255 25,087 53,191 44,227
Selling, general, and administrative ...................... 6,709 3,916 11,878 7,631
Write down of assets ...................................... -- 335 -- 335
Amortization of intangibles ............................... 2,000 4,664 3,763 9,334
Total operating expenses ........................................ 39,964 34,002 68,832 61,527
Operating income ................................................ 7,610 1,579 9,848 737
Other:
Interest expense, net ..................................... (4,060) (3,014) (7,056) (6,022)
Amortization of deferred financing costs .................. (447) (317) (757) (635)
Other ..................................................... (191) (70) (363) (243)
Income (loss) before income tax provision and....................
extraordinary item ............................................... 2,912 (1,822) 1,672 (6,163)
Income tax expense .............................................. 154 92 313 122
Extraordinary item
Loss due to early extinguishment of debts, net of tax...... (7,558) -- (7,558) --
======== ======== ======== ========
Net loss ........................................................ ($ 4,800) ($ 1,914) ($ 6,199) ($ 6,285)
======== ======== ======== ========
See accompanying notes to consolidated financial statements.
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
JACKSON PRODUCTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOW
Six Months Ended June 30,
1998 1997
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net loss ...................................................... $ (6,199) $ (6,285)
Depreciation .................................................. 2,462 2,595
Write down of assets........................................... ---- 335
Amortization of deferred financing costs, intangibles
and debt discount ............................................. 4,562 10,004
Extraordinary item ............................................ 5,348 ----
Changes in operating assets and liabilities, net
of effects of acquisitions:
Accounts receivable ....................................... (8,319) (5,509)
Inventories ............................................... (1,373) (2,940)
Accounts payable .......................................... 2,412 2,384
Accrued and other liabilities ............................. 72 502
Accrued interest .......................................... 496 98
Accrued taxes ............................................. 1 --
Other, net ................................................ (442) (9)
----- -----
Net cash (used in ) provided by operating activities: ......... (980) 1,175
Cash flows from investing activities:
Capital expenditures ...................................... (1,895) (1,178)
Acquisition of businesses, including direct expenses........ (36,259) (2,000)
Deferral of acquisition price, net of payments ............ 132 --
Proceeds from the sale of assets .......................... -- 1,167
----- -----
Net cash used in investing activities ......................... (38,022) (2,011)
Cash flows from financing activities:
Proceeds from issuance of long-term obligations ............ 195,103 929
Repurchase of common stock, net of loan payments ........... (4,150) (20)
Repurchase of preferred stock .............................. (23,998) --
Financing costs ............................................ (7,500) --
Repayment of long-term obligations ......................... (120,505) --
-------- -------
Net cash provided by financing activities ..................... 38,950 909
Net increase (decrease) in cash ............................... (52) 73
Cash and cash equivalents, beginning of period ................ 523 --
--- ---
Cash and cash equivalents, end of period ...................... $ 471 $ 73
========= =====
</TABLE>
4
<PAGE>
JACKSON PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(1) Basis of Presentation
The accompanying unaudited consolidated condensed financial statements
include all normal recurring adjustments, which are, in the opinion of
management of the registrant, necessary for a fair statement of the
operating results for the period presented. These financial statements have
been prepared in accordance with the instructions to Form 10-Q and
therefore do not include all information and footnotes necessary for a fair
presentation of financial position, results of operations, and changes in
cash flows in conformity with generally accepted accounting principles.
(2) Inventory
Inventories at June 30, 1998 consist of the following:
Raw materials.......................................... $13,838
Work-in-process........................................ 4,419
Finished goods......................................... 13,614
-------
$31,871
=======
(3) Intangible Assets
The excess of cost over the net tangible assets acquired consists of
patents, customer lists, technology-related agreements, and goodwill, and
is amortized on a straight-line basis over periods from 2-15 years. The
Company periodically re-evaluates the carrying value of its intangibles and
its other long-term assets based on the expected undiscounted cash flows
over the remaining life of the related assets. Certain intangibles which
were created at the inception of the Company became fully amortized in 1997
(4) Comprehensive Income
Effective January 1, 1998, the Company adopted Statement of Financial
Accounting Standards (SFAS) No. 130, "Comprehensive Income." SFAS No. 130
requires all items that are required to be recognized under accounting
standards as components of comprehensive income be reported in a financial
statement that is displayed with the same prominence as other financial
statements. The provisions of the SFAS No. 130 however, need not be applied
to immaterial items. The Company's comprehensive loss is impacted only by
immaterial foreign currency translation adjustments.
(5) Acquisitions
On April 22, 1998, the Company, through its subsidiaries, Jackson
Acquisition, Inc. and Crystaloid Technologies, Inc., acquired all of the
outstanding capital stock of American Allsafe Company and Silencio/Safety
Direct, Inc. for $29.1 million, as adjusted, (the Allsafe Acquisition") and
all of the outstanding capital stock of Crystaloid Electronics, Inc., for
$6.5 million (the "Crystaloid Acquisition"), $0.5 million of which is
payable in 18 months subject to certain conditions. The Allsafe Acquisition
and the Crystaloid Acquisition were accounted for using the purchase method
of accounting. Accordingly, total purchase costs for each of these
transactions has been allocated to the assets and liabilities of the
Company based on their respective fair values at
5
<PAGE>
JACKSON PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
April 22, 1998. The results of operations of the acquired businesses have
been included in the consolidated financial statements since their
respective acquisition dates. Intangible assets totaling approximately
$10,875 and $3,715 were recorded in connection with the Allsafe Acquisition
and Crystaloid Acquisition, respectively.
The unaudited pro forma consolidated statement of operations of the Company
for the six months ended June 30, 1998 and 1997 gives effect to :(i) the
Allsafe Acquisition and the Crystaloid Acquisition (ii) the acquisition of
Lansec; and (iii) the refinancing as if each had occurred on the first day
of the period presented. Assuming the Allsafe Acquisition and the
Crystaloid Acquisition occurred on January 1, 1997 pro forma consolidated
net sales would have been $91.5 million and $82.0 million for the six
months ended June 30, 1998 and 1997, respectively; the pro forma
consolidated net loss would have been $6.9 million and $17.7 million for
the six months ended June 30, 1998 and 1997, respectively; and the pro
forma consolidated net income before extraordinary items would have been
$0.7 million for six months ended June 30, 1998 and a net loss of $9.8
million for the six months ended June 30, 1997. These amounts represent
unaudited data and in management's opinion are not indicative of actual
results had the acquisitions been consummated at the beginning of the
respective fiscal years.
(6) Financing activities
In connection with the refinancing and the Allsafe Acquisition and the
Crystaloid Acquisition, the Company recorded $7.6 million of extraordinary
expense for the period ended June 30, 1998 consisting of the write-off of
deferred financing costs, unamortized debt discount and a prepayment
premium. Additionally, a portion of the refinancing proceeds were utilized
to repay senior debt, senior subordinated notes, preferred stock and the
repurchase of common stock from an institutional investor.
Credit Agreement
In connection with the Acquisitions, the Company entered into a credit
agreement (the "New Credit Facility") with BankBoston, N.A. and Mercantile
Bank National Association, which will provide for a line of credit in the
aggregate amount of $125.0 million consisting of an acquisition line
facility in the principal amount of $95.0 million and a revolving credit
facility in the principal amount of $30.0 million. The New Credit Facility
also contains several financial covenants, which require the Company to
maintain certain financial ratios and restrict the Company's ability to
incur indebtedness. The Company was in compliance with these covenants at
June 30, 1998. The commitment fee on the unused portion of the Revolver and
the Acquisition Facility is 1/2 % per annum, payable quarterly.
Borrowings under the Credit Agreement bear interest, at the option of the
Company, at a rate per annum equal to (i) the Base Rate (as defined in the
Credit Agreement) plus 0.75% for the Revolver and the Acquisition Facility
or (ii) the LIBOR Rate (as defined in the Credit Agreement) plus 2.25% for
the Revolver and the Acquisition Facility. For each fiscal quarter
following June 30, 1998, the factor added to either the Base Rate or the
LIBOR Rate will be adjusted based on the ratio of the Company's Total Debt
to Operating Cash Flow (as defined in the Credit Agreement). The average
interest rate on the outstanding borrowings was 7.91% at June 30, 1998.
Senior Subordinated Notes
On April 16, 1998, the Company offered $115.0 million aggregate principal
amount of Senior Subordinated Notes (the "Notes") due April 15, 2005 (the
"Offering"). The Notes will bear interest at the rate of 9 1/2% per annum,
payable semi-annually in arrears on April 15 and October 15 on each year,
commencing October 15, 1998. The payment of principal, premium, interest
and liquidated damages on the Notes are unconditionally guaranteed, jointly
and severally, by the Company's domestic subsidiaries ("Guarantors").
(7) Subsequent Events
On July 22, 1998, American Allsafe Company, a wholly owned subsidiary of
the Company acquired all of the outstanding capital stock of Kedman Company
for a total purchase price of approximately $10 million.
(8) Condensed Consolidating Financial Information
Financial information regarding the Guarantors as of June 30, 1998 and
1997, for the three months ended June 30, 1998 and 1997 and for the six
months ended June 30, 1998 and 1997 is presented below for the purpose of
complying with the reporting requirements of the Guarantors subsidiaries.
The financial information regarding the Guarantors is being presented
through condensed consolidating financial statements since the guarantees
are full and unconditional and are joint and several. Gurantor financial
statements have not been presented because management does not believe that
such financial statements are material to investors.
6
<PAGE>
<TABLE>
<CAPTION>
JACKSON PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS- (continued)
(8) Condensed Consolidating Financial Information-(con't)
CONDENSED CONSOLIDATING BALANCE SHEETS
At June 30, 1998
Non-
Parent Guarantor Guarantor
Company Subsidiaries Subsidiary Eliminations Consolidated
------- ------------ ---------- ------------ ------------
ASSETS
------
<S> <C> <C> <C> <C> <C>
Current Assets:
Cash and cash equivalents ............. $ -- $ -- $ 471 $ -- $ 471
Accounts receivable, net .............. 5,776 20,217 2,053 -- 28,046
Inventories ........................... 8,184 22,752 1,112 (177) 31,871
Prepaid expenses ..................... 164 252 21 -- 437
Total current assets ...... 14,124 43,221 3,657 (177) 60,825
Property, plant and equipment ......... 11,133 19,501 163 -- 30,797
Intangibles ........................... 14,771 55,525 2,525 -- 72,821
Note receivable from subsidiaries ..... 38,592 -- -- (38,592) --
Deferred financing costs .............. 7,053 -- -- -- 7,053
Investment in subsidiaries ............ 25,438 -- -- (25,438) --
Other noncurrent assets ............... -- 522 29 -- 551
========= ========= ========= ========= =========
$ 111,111 $ 118,769 $ 6,374 $ (64,207) $ 172,047
========= ========= ========= ========= =========
LIABILITIES AND
STOCKHOLDERS' DEFICIT
---------------------
Current liabilities:
Notes payable to parent ............... $ -- $ 35,513 $ 3,079 $ (38,592) $ --
Accounts payable ...................... 2,176 12,195 964 -- 15,335
Accrued and other liabilities ......... 3,496 1,869 1,074 -- 6,439
Accrued interest ...................... 2,598 -- -- -- 2,598
Accrued taxes ......................... 482 638 210 -- 1,330
Total current
liabilities ............ 8,752 50,215 5,327 (38,592) 25,702
Long-term debt, less current
maturities .............................. 187,620 -- -- -- 187,620
Other noncurrent liabilities ............... 3,370 -- -- -- 3,370
Due to parent .............................. (44,225) 40,551 171 3,845 --
Preferred stock ............................ -- -- -- -- --
Stockholders' deficit
Common stock .......................... -- -- 233 (233) --
Additional paid-in capital ............ 342 34,500 1,127 (35,626) 2,951
Cumulative translation
adjustment ......................... -- (141) 74 5 (62)
Loans due on common stock ............. (343) -- -- -- (343)
Accumulated deficit ................... (44,405) (6,356) (216) 6,394 (44,583)
Total stockholders' deficit (44,406) 28,003 1,218 (29,460) (44,645)
========= ========= ========= ========= =========
$ 111,111 $ 118,769 $ 6,374 $ (64,207) $ 172,047
========= ========= ========= ========= =========
</TABLE>
7
<PAGE>
<TABLE>
<CAPTION>
JACKSON PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS- (continued)
(8) Condensed Consolidating Financial Information (con't)
CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS
Three months ended June 30, 1998
Non-
Parent Guarantor Guarantor
Company Subsidiaries Subsidiary Eliminations Consolidated
------- ------------ ---------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Net Sales ................................ $ 13,316 $ 35,691 $ 2,092 $ (3,525) $ 47,574
Operating expenses:
Cost of sales ............... 8,199 25,252 1,230 (3,426) 31,255
Selling, general and
administrative ........... 2,320 3,392 997 -- 6,709
Amortization of
intangibles .............. 275 1,912 (187) -- 2,000
10,794 30,556 2,040 (3,426) 39,964
Operating income ......................... 2,522 5,135 52 (99) 7,610
Other
Interest expense, net ........ (3,523) (537) -- -- (4,060)
Amortization of deferred
financing costs .......... (447) -- -- -- (447)
Other ....................... 1,818 (1,981) (28) -- (191)
Income (loss) before income tax .......... 370 2,617 24 (99) 2,912
provision
Income tax expense ....................... 75 92 (13) -- 154
Equity earnings (loss) in subsidiaries ... 2,562 -- -- (2,562) --
Extraordinary item
Loss due to early extinguishement of debts (7,558) -- -- -- (7,558)
Net income (loss) ........................ $ (4,701) $ 2,525 $ 37 $ (2,661) $ (4,800)
======== ======== ======== ======== ========
</TABLE>
8
<PAGE>
<TABLE>
<CAPTION>
JACKSON PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS- (continued)
(8) Condensed Consolidating Financial Information (con't)
CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS
Six months ended June 30, 1998
Non-
Parent Guarantor Guarantor
Company Subsidiaries Subsidiary Eliminations Consolidated
------- ------------ ---------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Net Sales ............................... $ 23,751 $ 55,575 $ 4,959 $ (5,605) $ 78,680
Operating expenses:
Cost of sales .................. 15,085 40,397 3,162 (5,453) 53,191
Selling, general and
administrative .............. 5,088 4,834 1,956 -- 11,878
Amortization of
intangibles ................. 550 3,213 -- -- 3,763
20,723 48,444 5,118 (5,453) 68,832
Operating income ........................ 3,028 7,131 (159) (152) 9,848
Other
Interest expense, net .......... (6,519) (537) -- -- (7,056)
Amortization of deferred
financing costs ............. (757) -- -- -- (757)
Other .......................... 3,162 (3,500) (25) -- (363)
Income (loss) before income tax ......... (1,086) 3,094 (184) (152) 1,672
provision
Income tax expense ...................... 151 130 32 -- 313
Equity earnings (loss) in subsidiaries .. 2,748 -- -- (2,748) --
Extraordinary item
Loss due to early extinguishment of debts (7,558) -- -- -- (7,558)
Net income (loss) ....................... $ (6,047) $ 2,964 $ (216) $ (2,900) ($ 6,199)
======== ======== ======== ======== ========
</TABLE>
9
<PAGE>
<TABLE>
<CAPTION>
JACKSON PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS- (continued)
(8) Condensed Consolidating Financial Information (con't)
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOW
Six months ended June 30, 1998
Non-
Parent Guarantor Guarantor
Company Subsidiaries Subsidiary Eliminations Consolidated
------- ------------ ---------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Cash flow from operating activities:
Net cash (used in ) provided by operating activities: ...... 2,040 3,605 (4,540) (2,085) (980)
Cash flows from investing activities:
Capital expenditures ................................ (846) (1,030) (19) -- (1,895)
Acquisition of business, including direct costs
of acquisitions ................................... (36,259) -- -- -- (36,259)
Deferral of acquisition price, net of payments ...... 500 -- (368) -- 132
Proceeds from the sale of assets .................... -- -- -- --
--- ------ ------ ------ -------
Net cash used in investing activities ...................... (36,605) (1,030) (387) -- (38,022)
Cash flows from financing activities:
Proceeds from issuance of long-term obligations ..... 195,103 -- -- -- 195,103
Repurchase of common stock, net of loan payments .... (4,150) -- -- -- (4,150)
Retirement of preferred stock ....................... (23,998) -- -- -- (23,998)
Financing costs ..................................... (7,103) (397) -- -- (7,500)
Repayment of long-term obligations .................. (120,505) -- -- -- (120,505)
-------- ------- ------ ----- --------
Net cash (used in) provided by financing activities ........ 39,347 (397) -- -- 38,950
Net decrease in cash ....................................... (52)
Cash and cash equivalents, beginning of period ............. 523
---
Cash and cash equivalents, end of period ................... $ 471
=========
</TABLE>
10
<PAGE>
<TABLE>
<CAPTION>
JACKSON PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS- (continued)
(8) Condensed Consolidating Financial Information (con't)
CONDENSED CONSOLIDATING BALANCE SHEETS
At December 31, 1997
Non-
Parent Guarantor Guarantor
Company Subsidiaries Subsidiary Eliminations Consolidated
------- ------------ ------------ ------------ -------------
ASSETS
------
<S> <C> <C> <C> <C> <C>
Current Assets:
Cash and cash equivalents ........ $ -- $ -- $ 523 $ --- $ 523
Accounts receivable, net ......... 7,565 8,426 1,476 (2,579) 14,888
Inventories ...................... 8,064 14,322 476 (25) 22,837
Prepaid expenses ................ 256 104 49 --- 409
Total current assets ...... 15,885 22,852 2,524 (2,604) 38,657
Property, plant and equipment .... 11,625 9,035 158 --- 20,818
Intangibles ...................... 16,836 41,179 2,035 --- 60,050
Deferred financing costs ......... 5,180 -- -- --- 5,180
Investment in subsidiaries ....... 25,438 -- -- (25,438) ---
Other noncurrent assets .......... -- 342 -- --- 342
========= ========= ========= ========= =========
$ 74,964 $ 73,408 $ 4,717 $ (28,042) $ 125,047
========= ========= ========= ========= =========
LIABILITIES AND
STOCKHOLDERS' DEFICIT
---------------------
Current liabilities:
Current maturies of long-
term debt ..................... $ 6,120 $ -- $ 2,579 $(2,579) $ 6,120
Accounts payable ................. 3,743 7,493 196 -- 11,432
Accrued and other liabilities .... 2,949 855 1,397 -- 5,201
Accrued interest ................. 2,102 -- -- -- 2,102
Accrued taxes .................... 482 -- 52 -- 534
Total current
liabilities ............ 15,396 8,348 4,224 (2,579) 25,389
Long-term debt, less current
maturities ......................... 106,381 -- -- -- 106,381
Other noncurrent liabilities .......... 3,368 -- 235 -- 3,603
Due to parent ......................... (39,986) 39,986 -- -- --
Preferred stock ....................... 20,951 -- -- -- 20,951
Stockholders' deficit
Common stock ..................... -- 1 29 (30) --
Additional paid-in capital ....... 7,102 34,499 229 (34,728) 7,102
Cumulative translation
adjustment .................... -- (106) -- -- (40)
Loans due on common stock ........ (343) -- -- -- (343)
Accumulated deficit .............. (37,905) ( 9,320) -- 9,295 (37,930)
Total stockholders' deficit (31,146) 25,074 258 (25,463) (31,277)
========= ========= ========= ========= =========
$ 74,964 $ 73,408 $ 258 $ (25,463) $ 125,047
========= ========= ========= ========= =========
</TABLE>
11
<PAGE>
<TABLE>
<CAPTION>
JACKSON PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS- (continued)
(8) Condensed Consolidating Financial Information (con't)
CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS
Three months ended June 30, 1997
Parent Guarantor
Company Subsidiaries Eliminations Consolidated
------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net Sales ............................ $ 12,511 $ 25,154 $ (2,084) $ 35,581
Operating expenses:
Cost of sales ........... 8,457 18,714 (2,084) 25,087
Selling, general and
administrative ....... 2,281 1,635 -- 3,916
Write down of assets .... -- 335 -- 335
Amortization of
intangibles .......... 3,617 1,047 -- 4,664
14,355 21,731 (2,084) 34,002
Operating income ..................... (1,844) 3,423 -- 1,579
Other
Interest expense,net .... (3,014) -- -- (3,014)
Amortization of deferred
financing costs ...... (317) -- -- (317)
Other ................... (398) 328 -- (70)
Income (loss) before income tax ...... (5,573) 3,751 -- (1,822)
provision
Equity earnings (loss) in subsidiaries 3,697 -- (3,697) --
Income tax expense ................... 38 54 -- 92
======== ======== ======== ========
Net income (loss) .................... $ (1,914) $ 3,697 $ (3,697) $ (1,914)
======== ======== ======== ========
</TABLE>
12
<PAGE>
<TABLE>
<CAPTION>
JACKSON PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS- (continued)
(8) Condensed Consolidating Financial Information (con't)
CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS
Six months ended June 30, 1997
Parent Guarantor
Company Subsidiaries Eliminations Consolidated
------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net Sales ............................ $ 22,900 $ 42,824 $ (3,460) $ 62,264
Operating expenses:
Cost of sales ............ 15,709 31,983 (3,465) 44,227
Selling, general and
administrative ........ 4,511 3,120 -- 7,631
Write down of assets ..... -- 335 -- 335
Amortization of
intangibles ........... 7,239 2,095 -- 9,334
27,459 37,533 (3,465) 61,527
Operating income ..................... (4,559) 5,291 5 737
Other
Interest expense, net .... (6,022) -- -- (6,022)
Amortization of deferred
financing costs ....... (635) -- -- (635)
Other .................... 3,186 (3,429) -- (243)
Income (loss) before income tax ...... (8,030) 1,862 5 (6,163)
provision
Income tax expense ................... 44 78 -- 122
Equity earnings (loss) in subsidiaries 1,784 -- (1,784) --
======== ======== ======== ========
Net income (loss) .................... $ (6,290) $ 1,784 $ (1,779) $ (6,285)
======== ======== ======== ========
</TABLE>
13
<PAGE>
<TABLE>
<CAPTION>
JACKSON PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS- (continued)
(8) Condensed Consolidating Financial Information (con't)
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOW
Six months ended June 30, 1997
Parent Guarantor
Company Subsidiaries Eliminations Consolidated
------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
Cash flow from operating activities:
Net cash (used in ) provided by operating activities: ....... (242) 3,201 (1,784) 1,175
Cash flows from investing activities:
Capital expenditures ................................ (825) (353) -- (1,178)
Acquisition of business ............................. -- (2,000) -- (2,000)
Deferral of acquisition ............................. -- -- -- --
Proceeds from the sale of assets .................... 363 804 -- 1,167
Net cash used in investing activities ....................... (462) (1,549) -- (2,011)
Financing activities
Repayment of long-term obligations .................. 929 -- -- 929
Repayment of common stock, net of loan payments ..... (20) -- -- (20)
Net cash provided from financing activities ................. 909 -- -- 909
Net increase in cash and cash equivalents ................... 73
Cash and cash equivalents, beginning of period .............. --
Cash and cash equivalents, end of period .................... $ 73
=======
</TABLE>
14
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
The following discussion and analysis of the Company's financial condition
and results should be read in conjunction with the Company's consolidated
financial statements, including the notes. All statements, trend analysis
and other information contained in this filing relative to markets for the
Company's services and trends in the Company's operations or financial
results, as well as other statements, including words such as "anticipate,"
"believe," "plan," "estimate," "expect," and "intent" and other similar
expressions, constitute forward-looking statements as defined in Section
21E(i)(1) of the Exchange Act and are subject to business and economic
risks and actual results may differ materially from those contemplated by
the forward-looking statements.
On April 22, 1998 the Company, through its subsidiary, Jackson Acquisition,
Inc. acquired all of the outstanding capital stock of American Allsafe
Company and Silencio/Safety Direct, Inc. for $29.1 million, net of a
working capital adjustment of $0.4 million (the "Allsafe Acquisition"). On
April 23, 1998 the Company, through its subsidiary, Crystaloid
Technologies, Inc., acquired all of the outstanding capital stock of
Crystaloid Electronics, Inc., for $6.5 million (the "Crystaloid
Acquisition"), $0.5 million of which is payable in 18 months subject to
certain conditions. Operating results of Allsafe and Crystaloid have been
included in the financial statements of the Company as of these dates.
Three Months Ended June 30, 1998 Compared to Three Months ended June 30, 1997
Net sales- Net sales for the three months ended June 30, 1998 increased
33.7% to $47.6 million from $35.6 million in 1997. The increase in net sales
resulted from the growth of personal safety products associated with the April
1998 Allsafe Acquisition, the Crystaloid Acquisition and the October 1997
acquisition of Lansec (the "Lansec Acquisition").
Cost of sales- Cost of sales for the three months ended June 30, 1998
increased 24.6% to $31.3 million from $25.1 million in 1997, primarily as a
result of the increase in net sales. Cost of sales as a percentage of sales
decreased to 65.7% from 70.5% due to various cost reduction programs and higher
margins associated with the acquired companies.
Selling, general & administrative expenses- Selling, general and
administrative expenses for the three months ended June 30, 1998 increased 71.3%
to $6.7 million from $3.9 million due to the Allsafe Acquisition, the Crystaloid
Acquisition and Lansec Acquisition. Selling, general & administrative expenses
as a percentage of sales increased from 11% to 14% due to increased distribution
costs at Lansec.
Operating income- Operating income for the three months ended June 30,
1998 increased to $7.6 million from $1.6 million in 1997 due to the Allsafe
Acquisition and the Crystaloid Acquisition and a reduction in amortization
expenses as certain intangibles were fully amortized during 1997.
Income tax expense- Income tax expense for the three months ended June
30, 1998 increased to $0.2 million due to an increase in foreign taxes. The
Company's effective income tax rate is substantially lower than the statutory
rate due to non-deductible amortization expenses for certain intangibles.
Six Months Ended June 30, 1998 Compared to Six Months ended June 30, 1997
Net sales- Net sales for the six months ended June 30, 1998 increased
26.4 % to $78.7 million from $62.3 million in 1997. The increase in net sales
resulted from the growth of personal safety products associated with the April
1998 Allsafe Acquisition, the Crystaloid Acquisition and the Lansec
Acquisition.
Cost of sales- Cost of sales for the six months ended June 30, 1998
increased 20% to $53.1 million from $44.2 million in 1997, primarily as a result
of the increase in net sales. Cost of sales as a percentage of sales decreased
to 67.5% from 71% due to various cost reduction programs and higher margins
associated with the acquired companies.
Selling, general & administrative expenses- Selling, general and
administrative expenses for the six months ended June 30, 1998 increased 56.8%
to $12.0 million from $7.6 million due to the Allsafe Acquisition, the
Crystaloid Acquisition and the Lansec Acquisition. Selling, general &
administrative expenses as a percentage of net sales increased to 15% from 12%
due to an increase in distribution costs at Lansec.
Operating income- Operating income for the six months ended June 30,
1998 increased to $9.9 million from $0.7 million in 1997 due to the Allsafe
Acquisition, the Crystaloid Acquisition and a reduction in amortization
amortization expenses as certain intangibles were fully amortized during 1997.
Income tax expense- Income tax expense for the six months ended June
30, 1998 increased to $0.3 million from $0.1 million due to an increase in
foreign taxes. The Company's effective income tax rate is substantially lower
than the statutory rate due to non-deductible amortization expenses for certain
intangibles.
Liquidity and Capital Resources
Cash used by operating activities for the six months ended June 30, 1998 was
$0.9 million and a source of cash of $1.2 million in 1997. Changes in working
capital resulted in cash uses of $7.2 million and $5.5 million for the six
months ended June 30, 1998 and 1997, respectively.
Cash used in investing activities for the six months ended June 30, 1998 and
1997 was $38.0 million and $2.0 million, respectively. The 1998 period includes
$36.3 million expended for the acquisition of businesses, principally in
connection with the Allsafe Acquisition and the Crystaloid Acquisition. Capital
expenditures for the six months ended June 30, 1998 and 1997 were $1.9 million
and $1.2 million, respectively.
Net cash provided by financing activities for the six months ended June 30, 1998
and 1997 were $39 million and $0.9 million, respectively. The Allsafe
Acquisition and Crystaloid Acquisition were principally financed with the
proceeds of the Senior Subordinated Notes and the New Credit Facility. (See
below).
Effective April 22, 1998, the Company entered into a credit agreement (the "New
Credit Facility") with BankBoston, N.A. and Mercantile Bank National
Association, which will provide for a line of credit in the aggregate amount of
$125.0 million consisting of an acquisition line facility in the principal
amount of $95.0 million and a revolving credit facility in the principal amount
of $30.0 million. At June 30, 1998 there was $14.0 million outstanding on the
revolving credit facility.
On April 16, 1998, the Company offered $115 million aggregate principal amount
of Senior Subordinated Notes (the "Notes") due April 15, 2005 (the "Offering").
The Notes will bear interest at the rate of 9 1/2% per annum, payable
semi-annually in arrears on April 15 and October 15 on each year, commencing
October 15, 1998. The payment of principal, premium, interest and liquidated
damages on the Notes are unconditionally guaranteed, jointly and severally, by
the Company's domestic subsidiaries ("Guarantors").
The Company believes that cash flow from operations together with available
borrowing capacity are sufficient to fund working capital requirements, debt
service requirements, and capital expenditures for the remainder of 1998.
15
<PAGE>
PART II. OTHER INFORMATION
Item 1. - Legal Proceedings
There has been no change to matters discussed in Business - Legal Proceedings in
the Company's Registration Statement on Form S-4 as filed with the Securities
and Exchange Commission on August 11, 1998.
Item 2. - Changes in Securities
None
Item 3. - Defaults Upon Senior Securities
None
Item 4. - Submission of Matters to a Vote of Security Holders
None
Item 5. - Other Information
None
Item 6. - Exhibits and Reports on Form 8-K
(a) Exhibits. The following exhibits are included with this
report:
Exhibit 27 - Financial Data Schedule
(b) Reports on Form 8-K
No reports on Form 8-K were filed by the Company during the
reporting period.
16
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
JACKSON PRODUCTS, INC.
(Registrant)
Date : 8/14/98 By:/s/ Christopher T. Paule
---------------------------
Christopher T. Paule
Vice President, Chief Financial
Officer and Chief Accounting Officer
17
<PAGE>
INDEX TO EXHIBITS
27. Financial Data Schedule Page 19
18
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
(Replace this text with the legend)
</LEGEND>
<CIK> 0000906737
<NAME> Jackson Products, Inc.
<MULTIPLIER> 1
<CURRENCY> U.S. Dollars
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> Dec-31-1998
<PERIOD-START> Apr-01-1998
<PERIOD-END> Jun-30-1998
<EXCHANGE-RATE> 1
<CASH> 471
<SECURITIES> 0
<RECEIVABLES> 28,046
<ALLOWANCES> 622
<INVENTORY> 31,871
<CURRENT-ASSETS> 60,825
<PP&E> 30,797
<DEPRECIATION> 10,574
<TOTAL-ASSETS> 172,047
<CURRENT-LIABILITIES> 25,702
<BONDS> 187,620
0
0
<COMMON> 0
<OTHER-SE> 343
<TOTAL-LIABILITY-AND-EQUITY> 172,047
<SALES> 78,680
<TOTAL-REVENUES> 78,680
<CGS> 53,191
<TOTAL-COSTS> 53,191
<OTHER-EXPENSES> 11,878
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 7,056
<INCOME-PRETAX> 1,672
<INCOME-TAX> 313
<INCOME-CONTINUING> (6,199)
<DISCONTINUED> 0
<EXTRAORDINARY> 7,558
<CHANGES> 0
<NET-INCOME> (6,199)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
