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 September 30, 1998 or [ ] TRANSITION
REPORTPURSUANT 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.
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(Exact name of registrant as specified in its charter)
Delaware 75-2470881
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(State or other jurisdiction of (I.R.S. Employer ID No.)
incorporation or organization)
2997 Clarkson Road, Chesterfield, Missouri 63017
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(Address of principal executive offices)
(314) 207-2700
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(Registrant's telephone number, including area code)
N/A
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(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. [X] Yes [ ] 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 September 30, 1998
8,526 shares of Class C Common Stock at September 30, 1998
<PAGE>
JACKSON PRODUCTS, INC.
INDEX
PAGE
Part I. Financial Information:
Item 1. Consolidated Financial Statements as of
September 30, 1998 and December 31, 1997 and
for the nine months endedv September 30, 1998 and
1997 (unaudited):
Consolidated Condensed Balance Sheets .................... 2
Consolidated Statements of Operations .................... 3
Consolidated 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..........16
Part II. Other Information.........................................18
Signature Page............................................18
<PAGE>
<TABLE>
<CAPTION>
JACKSON PRODUCTS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollar in Thousands)
(Unaudited)
September 30, December 31,
ASSETS 1998 1997
------ ---- ----
<S> <C> <C>
Current assets:
Cash and cash equivalents.................................. $ 516 $ 523
Accounts receivable, net of allowance for doubtful accounts
of $698 and $404 in 1998 and 1997, respectively............ 27,995 14,888
Inventories................................................ 34,617 22,837
Prepaid expenses........................................... 745 409
-------- -------
Total current assets............................. 63,873 38,657
Property, plant, and equipment............................. 33,840 20,818
Intangibles................................................ 76,973 60,050
Deferred financing costs................................... 7,160 5,180
Other noncurrent assets.................................... 504 342
-------- --------
$182,350 $125,047
======== ========
LIABILITIES AND STOCKHOLDERS' DEFICIT
-------------------------------------
Current liabilities:
Current maturities of long-term obligations................ $ -- $ 6,120
Accounts payable........................................... 16,549 11,432
Accrued and other liabilities.............................. 6,350 5,201
Accrued interest........................................... 5,430 2,102
Accrued income taxes....................................... 1,193 534
-------- -------
Total current liabilities........................ 29,522 25,389
Long-term debt, less current maturities.................... 193,368 106,381
Other noncurrent liabilities............................... 3,378 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 September
30, 1998 and December 31, 1997............................. -- --
Class C common stock, $.01 par value; 15,000 shares authorized;
8,526 and 9,048 shares issued and outstanding at September 30, 1998
and December 31, 1997...................................... -- --
Additional paid-in capital................................. 2,952 7,102
Cummulative translation adjustment......................... (90) (106)
Loans due on common stock.................................. (343) (343)
Accumulated deficit........................................ (46,437) (37,930)
-------- -------
Total stockholders' deficit (43,918) (31,277)
-------- -------
$182,350 $125,047
========= ========
See accompanying notes to consolidated financial statements.
Page 2
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
JACKSON PRODUCTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollar in Thousands)
(Unaudited)
Three months ended Nine months ended
September 30, September 30,
-------------------------- -------------------------
1998 1997 1998 1997
-------------------------- -------------------------
<S> <C> <C> <C> <C>
Net sales....................................................... $48,397 $34,111 $127,077 $96,375
Operating expenses:
Cost of sales............................................. 32,446 23,969 85,550 68,194
Selling, general and administrative....................... 7,857 3,861 19,822 11,492
Write down of assets...................................... -- -- -- 335
Amortization of intangibles............................... 2,716 3,523 6,479 12,859
--------- --------- --------- ---------
Total operating expenses........................................ 43,019 31,353 111,851 92,880
Operating income................................................ 5,378 2,758 15,226 3,495
Other:
Interest expense, net..................................... (4,387) (3,003) (11,443) (9,025)
Amortization of deferred financing costs.................. (292) (314) (1,049) (949)
Other..................................................... (105) (454) (467) (697)
--------- --------- --------- ---------
Income (loss) before income tax provision and extraordinary items 594 (1,013) 2,267 (7,176)
Income tax expense.............................................. (160) 49 153 171
Extraordinary items
Loss due to early extinguishment of debts................. -- -- (7,558) --
--------- --------- --------- ---------
Net loss........................................................ 754 ($1,062) (5,444) ($7,347)
========= ========= ========= =========
See accompanying notes to consolidated financial statements.
Page 3
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
JACKSON PRODUCTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOW
Nine months ended September 30, 1998 and 1997
(Dollar in Thousands)
(Unaudited)
1998 1997
Cash flows from operating activities:
<S> <C> <C>
Net earnings (loss) before extraordinary item ...................... $ 2,114 $ (7,347)
Adjustments to reconcile net earnings (loss) to net cash provided
by operating activities:
Depreciation ....................................................... 3,840 3,360
Write down of assets ............................................... -- 335
Net gain on sale of assets ......................................... -- (298)
Amortization of deferred financing costs, intangibles
and debt discount .................................................. 7,597 13,858
Changes in operating assets and liabilities, net
of effects of acquisitions:
Accounts receivable ........................................... (6,688) (6,645)
Inventories ................................................... (2,488) (2,827)
Accounts payable .............................................. 2,069 3,278
Accrued and other liabilities ................................. (975) 863
Accrued interest .............................................. 3,328 (894)
Accrued income taxes .......................................... (61) --
Other, net .................................................... (453) (63)
------ ------
Net cash provided by operating activities: ......................... 8,283 3,620
Cash flows from investing activities:
Capital expenditures .......................................... (4,703) (1,958)
Acquisition of business, including direct expenses ............ (46,072) --
Deferral of acquisition price, net of payments ................ 23 (2,000)
Proceeds from the sale of assets .............................. -- 1,750
-------- -------
Net cash used in investing activities .............................. (50,752) (2,208)
-------- -------
Cash flows from financing activities:
Proceeds from issuance of long-term obligations ............... 204,332 --
Repurchase of common stock, net of loan payments .............. (4,150) (20)
Repurchase of preferred stock ................................. (23,998) --
Financing costs ............................................... (7,500) --
Prepayment premium of long-term obligations ................... (2,210) --
Repayment of long-term obligations ............................ (124,012) (1,392)
-------- -------
Net cash provided by financing activities .......................... 42,462 (1,412)
-------- -------
Net increase (decrease) in cash .................................... (7) --
Cash and cash equivalents, beginning of period ..................... 523 --
-------- -------
Cash and cash equivalents, end of period ........................... $ 516 $ --
======== ======
See accompanying notes to consolidated financial statements
Page 4
</TABLE>
<PAGE>
JACKSON PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1998
(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 periods 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.
Operating results for the three and nine month periods ended September 30,
1998 are not necessarily indicative of the results that may be expected for
the year ended December 31, 1998
(2) Inventory
Inventories at September 30, 1998 consist of the following:
Raw materials................................................... $15,002
Work-in-process................................................. 4,724
Finished goods.................................................. 14,891
-------
$34,617
=======
(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.
(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 gain/loss is impacted only
by immaterial foreign currency translation adjustments.
(5) Acquisitions
On October 29, 1997, the Company acquired Lansec GmbH and Lansec S.A. (the
"Lansec Acquisition"). 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 (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.
Page 5
<PAGE>
JACKSON PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
On July 22, 1998, American Allsafe Company, a wholly owned subsidiary of
the Company acquired all of the outstanding capital stock of Kedman Company
(the " Kedman Acquisition") for $9.2 million. The Allsafe Acquisition, the
Crystaloid Acquisition and the Kedman Acquisition (collectively the
"Acquisitions") 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 date of acquisition. 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 $20.7 million were recorded in connection with the
Acquisitions.
The unaudited pro forma consolidated statement of operations of the Company
for the nine months ended September 30, 1998 and 1997 gives effect to: (i)
the Acquisitions and (ii) the refinancing (See discussion in Note 6) as if
each had occurred on the first day of the period presented. Assuming the
Acquisitions occurred on January 1, 1997, pro forma consolidated net sales
would have been $143.9 million and $141.5 million for the nine months ended
September 30, 1998 and 1997, respectively. Pro forma consolidated net
income before extraordinary items would have been $1.4 million for the nine
months ended September 30, 1998 and a net loss of $12.3 million for the
nine months ended September 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
Credit Agreement
In connection with the Allsafe Acquisition and the Crystaloid Acquisition,
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 September 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 September 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 7.9% at September
30, 1998. At September 30, 1998 there was $10.8 million outstanding on the
revolving credit facility and $1.4 million of letters of credit outstanding
resulting in availability of $17.8 million.
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 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 payments of principal, premium, interest
and liquidated damages on the Notes are unconditionally guaranteed, jointly
and severally, by the Company's domestic subsidiaries ("Guarantors").
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 September 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.
Page 6
<PAGE>
JACKSON PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(7) Condensed Consolidating Financial Information
Financial information regarding the Guarantors as of September 30, 1998 and
1997 and December 31, 1997 and for the three and nine month periods ended
September 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. Guarantor financial statements
have not been presented because management does not believe that such
financial statements are material to investors.
Page 7
<PAGE>
<TABLE>
<CAPTION>
JACKSON PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -(continued)
(7) Condensed Consolidating Financial Information (con't)
CONDENSED CONSOLIDATING BALANCE SHEETS
September 30, 1998
Non-
Parent Guarantor Guarantor
Company Subsidiaries Subsidiary Eliminations Consolidated
------- ------------ ---------- ------------ ------------
ASSETS
------
<S> <C> <C> <C> <C> <C>
Current assets:
Cash and cash equivalents ............ $ -- $ -- $ 516 $ -- $ 516
Accounts receivable, net ............. 6,836 19,444 1,715 -- 27,995
Inventories .......................... 7,649 25,912 1,352 (296) 34,617
Prepaid expenses .................... 338 385 22 -- 745
-------- --------- --------- --------- --------
Total current assets ...... 14,823 45,741 3,605 (296) 63,873
Property, plant and equipment ........ 10,932 22,694 214 -- 33,840
Intangibles .......................... 14,441 60,022 2,510 -- 76,973
Note receivable ...................... 48,091 -- -- (48,091) --
Deferred financing costs ............. 7,160 -- -- -- 7,160
Investment in subsidiaries ........... 28,651 -- -- (28,651) --
Other noncurrent assets .............. -- 449 55 -- 504
--------- --------- --------- ---------- ---------
$ 124,098 $128,906 $ 6,384 $ (77,038) $ 182,350
========= ========= ========= ========== =========
LIABILITIES AND
STOCKHOLDERS' DEFICIT
---------------------
Current liabilities:
Notes payable to parent .............. $ -- $ 44,742 $ 3,349 $ (48,091) $ --
Accounts payable ..................... 2,242 13,394 913 -- 16,549
Accrued and other liabilities ........ 3,188 1,962 1,200 -- 6,350
Accrued interest ..................... 5,430 -- -- -- 5,430
Accrued taxes ........................ 1,075 52 66 -- 1,193
------- ------- ------- -------- ------
Total current liabilities . 11,935 60,150 5,528 (48,091) 29,522
Long-term debt, less current
maturities ............................. 193,368 -- -- -- 193,368
Other noncurrent liabilities .............. 3,373 5 -- -- 3,378
Due to parent ............................. (41,046) 39,695 1,351 -- --
Preferred stock ........................... -- -- -- -- --
Stockholders' deficit
Common stock ......................... -- 1 -- (1) --
Additional paid-in capital ........... 2,951 34,499 -- (34,498) 2,952
Cumulative translation
adjustment ........................ -- (115) 25 -- (90)
Loans due on common stock ............ (343) -- -- -- (343)
Accumulated deficit .................. (46,140) (5,329) (520) 5,552 (46,437)
--------- --------- ------ --------- --------
Total stockholders' deficit (43,532) 29,056 (495) (28,947) (43,918)
--------- --------- ------- ---------- --------
$ 124,098 $ 128,906 $ 6,384 $ (77,038) $ 182,350
========= ========= ======= ========== ========
</TABLE>
Page 8
<PAGE>
<TABLE>
<CAPTION>
JACKSON PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -(continued)
(7) Condensed Consolidating Financial Information (con't)
CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS
Three months ended September 30, 1998
Non-
Parent Guarantor Guarantor
Company Subsidiaries Subsidiary Eliminations Consolidated
------- ------------ ---------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Net sales ................................ $ 13,204 $ 36,997 $ 1,895 $ (3,699) $ 48,397
Operating expenses:
Cost of sales ................ 8,435 26,342 1,249 (3,580) 32,446
Selling, general and
administrative ............ 2,515 4,373 969 -- 7,857
Amortization of
intangibles ............... 275 2,412 29 -- 2,716
------ ------ ------ ------ ------
11,225 33,127 2,247 (3,580) 43,019
Operating income (loss) .................. 1,979 3,870 (352) (119) 5,378
Other
Interest expense,net ......... (3,534) (853) -- -- (4,387)
Amortization of deferred
financing costs ........... (292) -- -- -- (292)
Other ........................ 1,959 (2,118) 54 -- (105)
------ ------- ------ ------ ------
Income (loss) before income tax .......... 112 899 (298) (119) 594
provision
Income tax expense ....................... (223) 57 6 -- (160)
Equity earnings in subsidiaries .......... 538 -- -- (538) --
Extraordinary item
Loss due to early extinguishement of debts -- -- -- -- --
-------- -------- -------- -------- -------
Net income (loss) ........................ $ 873 $ 842 $ (304) $ (657) $ 754
======== ======== ======== ======== ========
</TABLE>
Page 9
<PAGE>
<TABLE>
<CAPTION>
JACKSON PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -(continued)
(7) Condensed Consolidating Financial Information (con't)
CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS
Nine months ended September 30, 1998
Non-
Parent Guarantor Guarantor
Company Subsidiaries Subsidiary Eliminations Consolidated
------- ------------ ---------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Net sales ............................... $ 36,955 $ 92,572 $ 6,854 $ (9,304) $ 127,077
Operating expenses:
Cost of sales .................. 23,705 66,467 4,411 (9,033) 85,550
Selling, general and
administrative .............. 7,603 9,294 2,925 -- 19,822
Amortization of
intangibles ................. 825 5,625 29 -- 6,479
-------- --------- -------- --------- -------
32,133 81,386 7,365 (9,033) 111,851
Operating income (loss) ................. 4,822 11,186 (511) (271) 15,226
Other
Interest expense, net .......... (10,052) (1,391) -- -- (11,443)
Amortization of deferred
financing costs ............. (1,049) -- -- -- (1,049)
Other .......................... 5,121 (5,617) 29 -- (467)
-------- --------- -------- --------- --------
Income (loss) before income tax ......... (1,158) 4,178 (482) (271) 2,267
provision
Income tax expense ...................... (72) 187 38 -- 153
Equity earnings in subsidiaries ......... 3,471 -- -- (3,471) --
Extraordinary item
Loss due to early extinguishment of debts (7,558) -- -- -- (7,558)
-------- --------- --------- ---------- --------
Net income (loss) ....................... $ (5,173) $ 3,991 $ (520) $ (3,742) $ (5,444)
========= ========= ========= ========= =========
</TABLE>
Page 10
<PAGE>
<TABLE>
<CAPTION>
JACKSON PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -(continued)
(7) Condensed Consolidating Financial Information (con't)
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOW
Nine months ended September 30, 1998
Non-
Parent Guarantor Guarantor
Company Subsidiaries Subsdiary Eliminations Consolidated
------- ------------ --------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Cash flow from operating activities:
Net cash (used in ) provided by operating activities: ... 8,549 6,847 (1,063) (6,050) 8,283
Cash flows from investing activities:
Capital expenditures ............................. (1,201) (3,348) (154) -- (4,703)
Acquisition of business, including direct expenses (46,072) -- -- -- (46,072)
Deferral of acquisition price, net of payments ... 500 -- (477) -- 23
-------- -------- -------- -------- --------
Net cash used in investing activities ................... (46,773) (3,348) (631) -- (50,752)
Cash flows from financing activities:
Proceeds from issuance of long-term obligations .. 204,332 -- -- -- 204,332
Repurchase of common stock, net of loan payments . (4,150) -- -- -- (4,150)
Repurchase of preferred stock .................... (23,998) -- -- -- (23,998)
Financing costs .................................. (7,103) (397) -- -- (7,500)
Prepayment premium of long-term obligations ...... (2,210) -- -- -- (2,210)
Repayment of long-term obligations ............... (124,012) -- -- -- (124,012)
-------- -------- -------- -------- ---------
Net cash provided by financing activities ............... 42,859 (397) -- -- 42,462
-------- -------- -------- -------- ---------
Net decrease in cash .................................... (7)
Cash and cash equivalents, beginning of period .......... 523
----
Cash and cash equivalents, end of period ................ $ 516
=====
</TABLE>
Page 11
<PAGE>
<TABLE>
<CAPTION>
JACKSON PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENT- (contiued)
(7) 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 ... 25,180 -- -- (25,180) --
Other noncurrent assets ...... -- 342 -- -- 342
--------- ---------- --------- --------- ---------
$ 74,706 $ 73,408 $ 4,717 $ (27,784) $ 125,047
========= ========= ========= ========= =========
LIABILITIES AND
STOCKHOLDERS' DEFICIT
---------------------
Current liabilities:
Current maturies of long-
term debt ................. $ 6,120 $ -- $ -- $ -- $ 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 1,645 -- 25,389
Long-term debt, less current
maturities ....................... 106,381 -- -- -- 106,381
Other noncurrent liabilities ........ 3,368 -- 235 -- 3,603
Due to parent ....................... (40,244) 39,986 2,837 (2,579) --
Preferred stock ..................... 20,951 -- -- -- 20,951
Stockholders' deficit
Common stock ................. -- 1 -- (1) --
Additional paid-in capital ... 7,102 34,499 -- (34,499) 7,102
Cumulative translation
adjustment ................ -- (106) -- -- (106)
Loans due on common stock .... (343) -- -- -- (343)
Accumulated deficit .......... (37,905) (9,320) -- 9,295 (37,930)
-------- --------- --------- --------- ---------
Total stockholders' deficit (31,146) 25,074 -- (25,205) (31,277)
--------- --------- --------- --------- ---------
$ 74,706 $ 73,408 $ 4,717 ($ 27,784) $ 125,047
========= ========= ========= ========= =========
</TABLE>
Page 12
<PAGE>
<TABLE>
<CAPTION>
JACKSON PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -(continued)
(7) Condensed Consolidating Financial Information (con't)
CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS
Three months ended September 30, 1998
Non-
Parent Guarantor Guarantor
Company Subsidiaries Subsidiary Eliminations Consolidated
------- ----------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Net sales ................................ $ 13,204 $ 36,997 $ 1,895 $ (3,699) $ 48,397
Operating expenses:
Cost of sales ................ 8,435 26,342 1,249 (3,580) 32,446
Selling, general and
administrative ............ 2,515 4,373 969 -- 7,857
Amortization of
intangibles ............... 275 2,412 29 -- 2,716
-------- -------- -------- -------- --------
11,225 33,127 2,247 (3,580) 43,019
Operating income (loss) .................. 1,979 3,870 (352) (119) 5,378
Other
Interest expense,net ......... (3,534) (853) -- -- 4,387)
Amortization of deferred
financing costs ........... (292) -- -- -- (292)
Other ........................ 1,959 (2,118) 54 -- (105)
------- ------- ------- ------- -------
Income (loss) before income tax .......... 112 899 (298) (119) 594
provision
Income tax expense ....................... (223) 57 6 -- (160)
Equity earnings in subsidiaries .......... 538 -- -- (538) --
Extraordinary item
Loss due to early extinguishement of debts -- -- -- -- --
-------- -------- -------- -------- --------
Net income (loss) ........................ $ 873 $ 842 $ (304) $ (657) $ 754
======== ======== ======== ======== ========
</TABLE>
Page 13
<PAGE>
<TABLE>
<CAPTION>
JACKSON PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -(continued)
(7) Condensed Consolidating Financial Information (con't)
CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS
Nine months ended September 30, 1997
Non
Parent Guarantor Guarantor
Company Subsidiaries Subsidiary Eliminations Consolidated
------- ------------ ---------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Net sales ........................... $ 35,686 $ 66,208 $ -- $ (5,519) $ 96,375
Operating expenses:
Cost of sales .......... 23,634 50,084 -- (5,524) 68,194
Selling, general and
administrative ...... 6,617 4,875 -- -- 11,492
Write down of assets ... -- 335 -- -- 335
Amortization of
intangibles ......... 10,214 2,645 -- -- 12,859
-------- -------- -------- -------- --------
40,465 57,939 -- (5,524) 92,880
Operating income (loss) ............. (4,779) 8,269 -- 5 3,495
Other ...............................
Interest expense, net .. (9,025) -- -- -- (9,025)
Amortization of deferred
financing costs ..... (949) -- -- -- (949)
Other .................. 5,484 (6,181) -- -- (697)
------- -------- -------- -------- -------
Income (loss) before income tax ..... (9,269) 2,088 -- 5 (7,176)
provision
Income tax expense .................. 50 121 -- -- 171
Equity earnings in subsidiaries ..... 1,967 -- -- (1,967) --
-------- -------- -------- -------- -------
Net income (loss) ................... $ (7,352) $ 1,967 $ -- $ (1,962) $ (7,347)
======== ======== ======== ======== ========
</TABLE>
Page 14
<PAGE>
<TABLE>
<CAPTION>
JACKSON PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -(continued)
(7) Condensed Consolidating Financial Information (con't)
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOW
Nine months ended September 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: ... 1,018 4,569 (1,967) 3,620
Cash flows from investing activities:
Capital expenditures ........................... (1,423) (535) -- 1,958)
Deferral of acquisition, net of payments ...... -- (2,000) -- (2,000)
Proceeds from the sale of assets .............. 946 804 -- 1,750
------- ------- -------- -------
Net cash used in investing activities ................... (477) (1,731) -- (2,208)
Financing activities
Repayment of long-term obligations ............. (1,392) -- -- (1,392)
Repurchase of common stock, net of loan payments (20) -- -- (20)
------- -------- -------- -------
Net cash provided from financing activities ............. (1,412) -- -- (1,412)
------- -------- -------- -------
Net increase in cash and cash equivalents ............... --
Cash and cash equivalents, beginning of period .......... --
-------
Cash and cash equivalents, end of period ................ $ --
=======
</TABLE>
Page 15
<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, as well as with the Company's other filings
with the Securities and Exchange Commission. 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 October 29, 1997, the Company acquired Lansec GmbH and Lansec S.A. (the
"Lansec Acquisition"). 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 (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. On
July 22, 1998, American Allsafe Company acquired all of the outstanding capital
stock of Kedman Company (the " Kedman Acquisition") for $9.2 million. Operating
results of the Allsafe Acquisition, the Crystaloid Acquisition and the Kedman
Acquisition (collectively, the "Acquisitions") have been included in the
financial statements of the Company as of these dates.
Three Months Ended September 30, 1998 Compared to Three Months Ended September
30, 1997
Net sales- Net sales for the three months ended September 30, 1998
increased 41.9% to $48.4 million from $34.1 million in 1997. The increase in
sales for this period is primarily attributed to the Acquisitions and the Lansec
Acquisition which provided $16.0 million in net sales for the three months ended
September 30, 1998. Had the Acquisitions occurred on January 1, 1997, net sales
for the three month period would have declined slightly to $48.7 million in 1998
from $49.9 million in 1997. The Company believes that a softening U.S. economy
and the weakened Asian economy hampered overall internal growth for the quarter
ending September 30, 1998.
Cost of sales- Cost of sales for the three months ended September 30, 1998
increased 35.4% to $32.4 million from $24.0 million in 1997, primarily as a
result of the increase in net sales. Cost of sales as a percentage of sales
decreased to 67.0% from 70.3% due to various cost reductions, a favorable
product mix and improved margins associated with the Acquisitions.
Selling, general & administrative expenses- Selling, general and
administrative expenses for the three months ended September 30, 1998 increased
103.5% to $7.9 million from $3.9 million due to the Acquisitions. Selling,
general & administrative expenses as a percentage of sales increased from 11.3%
to 16.2% due to the distribution costs associated with the newly acquired
European operation.
Operating income- Operating income for the three months ended September 30,
1998 increased to $5.4 million from $2.8 million in 1997 due to the
Acquisitions, various cost reductions and reduced amortization expenses as
certain intangibles were fully amortized during 1997.
Income tax expense- Income tax expense for the three months ended September
30, 1998 decreased to ($0.2 million) from $0.2 million in 1997. The Company's
effective income tax rate is substantially lower than the statutory rate due to
non-deductible amortization expenses for certain intangibles.
Nine Months Ended September 30, 1998 Compared to Nine Months Ended September 30,
1997
Net sales- Net sales for the nine months ended September 30, 1998 increased
31.9 % to $127.1 million from $96.4 million in 1997. The increase in sales
resulted from internal growth and the Acquisitions. The Acquisitions and the
Lansec Acquisition contributed $30.3 million in net sales for the nine months
ended September 30, 1998. Had the Acquisitions occurred on January 1, 1997, net
sales would have increased by 2.0% to $144.0 million from $141.5 million in
1997. As discussed above, the Company's believes that its nine month performance
was impacted by a softening U.S. economy and the weakened Asian economy for the
three month period ended September 30, 1998.
Cost of sales- Cost of sales for the nine months ended September 30, 1998
increased 25.5% to $85.6 million from $68.2 million in 1997, primarily as a
result of the increase in net sales. Cost of sales as a percentage of sales
decreased to 67.3% from 70.8% due to various cost reductions, a favorable
product mix and improved margins associated with the Acquisitions.
Page 16
<PAGE>
Selling, general & administrative expenses- Selling, general and
administrative expenses for the nine months ended September 30, 1998 increased
72.5% to $19.8 million from $11.5 million due to the Acquisitions. Selling,
general & administrative expenses as a percentage of net sales increased to
15.6% from 11.9% due the distribution costs associated with the newly acquired
European operation.
Operating income- Operating income for the nine months ended September 30,
1998 increased to $15.2 million from $3.5 million in 1997 due to the
Acquisitions, various cost reductions and reduced amortization expenses as
certain intangibles were fully amortized during 1997.
Income tax expense- Income tax expense for the nine months ended September
30, 1998 remained unchanged at $0.2 million. 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
Liquidity and Capital Resources
Cash provided by operating activities for the nine months ended September 30,
1998 and 1997 was $8.3 million and $3.6 million, respectively. Changes in
working capital resulted in cash uses of $5.3 million and $6.3 million for the
nine months ended September 30, 1998 and 1997, respectively.
Cash used in investing activities for the nine months ended September 30, 1998
and 1997 was $50.8 million and $2.2 million, respectively. The 1998 period
includes $46.1 million expended for the Acquisitions. Capital expenditures for
the nine months ended September 30, 1998 and 1997 were $4.7 million and $2.0
million, respectively.
Net cash provided by financing activities for the nine months ended September
30, 1998 was $42.5 million and a use of cash of $1.4 million in 1997. The
Acquisitions were principally financed with the proceeds of the Senior
Subordinated Notes and the New Credit Facility.
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 September 30, 1998 there was $10.8 million outstanding on
the revolving credit facility and $1.4 million of letters of credit outstanding
resulting in availability of $17.8 million. The average interest rate on the
outstanding borrowings was 7.9% at September 30, 1998.
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").
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.
Year 2000 Compliance
Management has initiated a comprehensive study and program to prepare the
company' computer systems, manufacturing systems and facility systems, and the
related systems applications for the Year 2000. The company is utilizing both
internal and external resources to identify, correct or reprogram the systems
for the Year 2000 compliance. The Company expects these efforts to be
substantially completed by June 30, 1999. Maintenance or modification cost will
be expensed as incurred, while the costs of new software will be capitalized and
amortized over the software's useful life. The Company currently does not expect
the amounts required to be incurred to have a material effect on its financial
condition, result of operations or liquidity. The Company has initiated formal
communication with its suppliers and large customers to determine the extent and
steps they are talking to be Year 2000 compliant. To date no significant issues
have been identified that management has not addressed; however there can be no
guarantee that the systems of other companies on which the Company's businesses
rely will be converted in a timely way and would not have an adverse effect on
the Company's businesses. The costs of the project, are immaterial, and the date
on which the Company believes it will be complete with Year 2000 modifications
are based on management' current best estimates, which were derived utilizing
numerous assumptions of future events, including the continued availability of
certain resources, third-party modification plans and other factors. However,
there can be no guarantee that these estimates will be achieved and actual
results could differ materially from those anticipated. Specific factors that
might cause such material differences include, but are not limited to, the
availability and cost of personnel trained in this area, the ability to locate
and correct all relevant computer codes, the availability of new software and
the ability of the Company's customers and suppliers to be Year 2000 compliant.
Page 17
<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
On August 4, 1998, the Company filed a Form 8-K relating to the
acquisition of the Kedman Company by American Allsafe Company, a wholly
owned subsidiary of the Company.
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 : 11/12/98 By:/s/ Christopher T. Paule
---------------------------
Christopher T. Paule
Vice President, Chief Financial
Officer and Chief Accounting Officer
Page 18
<PAGE>
INDEX TO EXHIBITS
27. Financial Data Schedule
<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> 9-Mos
<FISCAL-YEAR-END> Dec-31-1998
<PERIOD-START> Jul-01-1998
<PERIOD-END> Sep-30-1998
<EXCHANGE-RATE> 1
<CASH> 516
<SECURITIES> 0
<RECEIVABLES> 27,995
<ALLOWANCES> 698
<INVENTORY> 34,617
<CURRENT-ASSETS> 63,873
<PP&E> 33,840
<DEPRECIATION> 11,989
<TOTAL-ASSETS> 182,350
<CURRENT-LIABILITIES> 29,522
<BONDS> 193,368
0
0
<COMMON> 0
<OTHER-SE> (343)
<TOTAL-LIABILITY-AND-EQUITY> 182,350
<SALES> 127,077
<TOTAL-REVENUES> 127,077
<CGS> 85,550
<TOTAL-COSTS> 85,550
<OTHER-EXPENSES> 19,822
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 11,443
<INCOME-PRETAX> 2,267
<INCOME-TAX> 153
<INCOME-CONTINUING> (2,114)
<DISCONTINUED> 0
<EXTRAORDINARY> (7,558)
<CHANGES> 0
<NET-INCOME> (5,444)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
