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 March 31, 1999 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 March 31, 1999
8,359 shares of Class C Common Stock at March 31, 1999
<PAGE>
JACKSON PRODUCTS, INC.
INDEX
PAGE
Part I. Financial Information:
Item 1. Consolidated Financial Statements as of
March 31, 1999 and December 31, 1998 (unaudited):
Consolidated 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......... 13
Item 3. Quantitative and Qualitative Disclosure about Market Risk.14
Part II. Other Information........................................ 15
Signature Page........................................... 15
<PAGE>
JACKSON PRODUCTS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except share data)
(Unaudited)
<TABLE>
<CAPTION>
<S> <C> <C>
March 31, December 31,
ASSETS 1998 1998
------ ---- ----
Current assets:
Cash and cash equivalents.................................. $ 272 $ 327
Accounts receivable, net of allowance for doubtful accounts
of $719 and $651 in 1999 and 1998, respectively............ 25,824 18,479
Inventories................................................ 33,469 34,275
Prepaid expenses........................................... 1,117 746
-------- -------
Total current assets............................. 60,682 53,827
Property, plant, and equipment, net........................ 35,530 34,362
Intangibles................................................ 72,383 75,242
Deferred financing costs................................... 7,043 7,372
Other noncurrent assets.................................... 293 436
-------- --------
$175,931 $171,239
======== ========
LIABILITIES AND STOCKHOLDERS' DEFICIT
-------------------------------------
Current liabilities:
Accounts payable........................................... $ 14,382 $ 15,313
Accrued and other liabilities.............................. 5,966 6,056
Accrued interest........................................... 5,714 3,044
Accrued income taxes....................................... 1,075 1,075
-------- -------
Total current liabilities........................ 27,137 25,488
Long-term debt............................................. 196,244 190,389
Other noncurrent liabilities............................... 3,074 3,074
Stockholders' deficit:
Class A Common Stock, $.01 par value; 100,000 shares authorized;
38,530 and 40,000 shares issued and outstanding at March
31, 1999 and December 31, 1998............................. -- --
Class C common stock, $.01 par value; 15,000 shares authorized;
8,359 and 8,526 shares issued and outstanding at March 31, 1999
and December 31, 1998...................................... -- --
Additional paid-in capital................................. 2,935 2,952
Accumulated other comprehensive income..................... (358) 59
Loans due on common stock.................................. (329) (343)
Accumulated deficit........................................ (52,772) (50,380)
-------- -------
Total stockholders' deficit (50,524) (47,712)
-------- -------
$175,931 $171,239
========= ========
See accompanying notes to consolidated financial statements.
Page 2
</TABLE>
<PAGE>
JACKSON PRODUCTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands)
(Unaudited)
<TABLE>
<CAPTION>
Three months ended
March 31,
--------------------------
1999 1998
--------------------------
<S> <C> <C>
Net sales....................................................... $ 43,640 $ 31,106
Operating expenses:
Cost of sales............................................. 29,917 21,849
Selling, general and administrative....................... 8,035 5,256
Amortization of intangibles............................... 2,965 1,764
--------- ---------
Total operating expenses........................................ 40,917 28,869
Operating income................................................ 2,723 2,237
Other:
Interest expense, net..................................... (4,404) (2,996)
Amortization of deferred financing costs.................. (375) (309)
Other..................................................... (206) (172)
--------- ---------
Loss before income tax provision................................ (2,262) (1,240)
Income tax expense.............................................. 130 159
--------- ---------
Net loss........................................................ $ (2,392) $ (1,399)
========= =========
See accompanying notes to consolidated financial statements.
Page 3
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
JACKSON PRODUCTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOW
Three months ended March 31, 1999 and 1998
(Dollars in thousands)
(Unaudited)
1998 1997
Cash flows from operating activities:
<S> <C> <C>
Net loss ........................................................... $(2,392) $ (1,399)
Adjustments to reconcile net earnings (loss) to net cash provided
by operating activities:
Depreciation ....................................................... 1,459 1,397
Amortization of deferred financing costs, intangibles
and debt discount .................................................. 3,369 2,090
Changes in operating assets and liabilities, net
of effects of acquisitions:
Accounts receivable ........................................... (7,345) (3,916)
Inventories ................................................... 806 (1,948)
Accounts payable .............................................. (931) 1,413
Accrued and other liabilities ................................. (50) (466)
Accrued interest .............................................. 2,670 (1,016)
Accrued income taxes .......................................... -- (14)
Other, net .................................................... (322) (633)
------ ------
Net cash used in operating activities: ............................. (2,736) (4,492)
Cash flows from investing activities:
Acquisition of business, including direct expenses ............ (1,278) (292)
Capital expenditures .......................................... (1,864) (809)
-------- -------
Net cash used in investing activities .............................. (3,142) (1,101)
-------- -------
Cash flows from financing activities:
Proceeds from issuance of long-term obligations ............... 5,826 5,322
Repurchase of common stock, net of loan payments .............. (3) --
-------- -------
Net cash provided by financing activities .......................... 5,823 5,322
-------- -------
Net decrease in cash ............................................... (55) (271)
Cash, beginning of period .......................................... 327 523
-------- -------
Cash, end of period ................................................ $ 272 $ 252
======== ======
See accompanying notes to consolidated financial statements
Page 4
</TABLE>
<PAGE>
JACKSON PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 1999
(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. Certain 1998 balances have
been reclassified to conform to 1999 presentation. Operating results for
the three-month period ended March 31, 1999 are not necessarily indicative
of the results that may be expected for the year ended December 31, 1999.
(2) Inventory
Inventories at March 31, 1999 consist of the following (in thousands):
Raw materials............................... $11,146
Work-in-process............................. 5,179
Finished goods.............................. 17,144
-------
$33,469
(3) Acquisitions
In 1998, the Company made several acquisitions including American Allsafe
Company and Silencio/Safety Direct, Inc. on April 22, 1998; Crystaloid
Technologies, Inc. on April 23, 1998 and the Kedman Company on July 22,
1998 (collectively the 'Acquisitions'). The results of operations of the
acquired businesses have been included in the consolidated financial
statements since their respective acquisition dates.
On December 22, 1998, the Company entered into a non-binding letter of
intent to purchase the assets of Morton Traffic Markings, a division of
Morton International, Inc. This acquisition is subject to management's due
diligence and is tentatively scheduled to close in mid May of 1999.
On January 25, 1999 Jackson Products, Inc. acquired certain of the assets
of OK Beads Inc. OK Beads manufactures reflective glass beads used in
highway safety products such as road markers, signs, paint and reflective
tape.
(4) 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 March 31, 1999. 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 7.5% at March 31,
1999. At March 31, 1999 there was $16.9 million outstanding on the
revolving credit facility and $1.4 million of letters of credit outstanding
resulting in availability of $11.7 million. At March 31, 1999 there was
$65.0 million outstanding on the acquisition facility resulting in
availability of $30.0 million.
5
<PAGE>
JACKSON PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
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').
(5) Condensed Consolidating Financial Information
Financial information regarding the Guarantors as of March 31, 1999 and
December 31, 1998 and for the three months ended March 31, 1999 and 1998 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.
6
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -(continued)
(5) Condensed Consolidating Financial Information (con't)
CONDENSED CONSOLIDATING BALANCE SHEETS
March 31, 1999
<TABLE>
<CAPTION>
Non-
Parent Guarantor Guarantor
Company Subsidiaries Subsidiary Eliminations Consolidated
-------- ------------ ---------- ------------ -----------
<S> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash ........................................................ $ -- $ -- $ 272 $ -- $ 272
Accounts receivable, net .................................... 4,827 19,163 1,834 -- 25,824
Inventories ................................................. 7,439 24,919 1,540 (429) 33,469
Prepaid expenses ............................................ 231 772 114 -- 1,117
-------- --------- --------- -------- --------
Total current assets ................................. 12,497 44,854 3,760 (429) 60,682
Property, plant and equipment ............................... 11,518 23,752 260 -- 35,530
Intangibles ................................................. 13,770 56,226 2,387 -- 72,383
Note receivable ............................................. 48,320 9,229 -- (57,549) --
Deferred financing costs .................................... 7,043 -- -- -- 7,043
Investment in subsidiaries .................................. 22,210 -- -- (22,210) --
Other noncurrent assets ..................................... -- 293 -- -- 293
-------- -------- -------- --------- --------
$ 115,358 $ 134,354 $ 6,407 $ (80,188) $ 175,931
========= ========= ========= ========= =========
LIABILITIES AND
STOCKHOLDERS' DEFICIT
Current liabilities:
Notes payable to parent ..................................... $ -- $ 53,971 $ 3,578 $ (57,549) $ --
Accounts payable ............................................ 2,904 10,413 1,065 -- 14,382
Accrued and other liabilities ............................... 3,568 1,788 610 -- 5,966
Accrued interest ............................................ 5,714 -- -- -- 5,714
Accrued taxes ............................................... 1,075 -- -- -- 1,075
-------- -------- --------- --------- ---------
Total current liabilities ............................ 13,261 66,172 5,253 (57,549) 27,137
Long-term debt ................................................... 196,244 -- -- -- 196,244
Other noncurrent liabilities ..................................... 3,074 -- -- -- 3,074
Due to parent .................................................... (47,484) 44,878 2,606 -- --
Stockholders' deficit
Common stock ................................................ -- 1 -- (1) --
Additional paid-in capital .................................. 2,934 34,499 -- (34,498) 2,935
Accumulated other comprehensive income ...................... -- (202) (156) -- (358)
Loans due on common stock ................................... (329) -- -- -- (329)
Accumulated deficit ......................................... (52,342) (10,994) (1,296) 11,860 (52,772)
--------- -------- --------- --------- -------
Total stockholders' deficit .......................... (49,737) 23,304 (1,452) (22,639) (50,524)
$ 115,358 $ 134,354 $ 6,407 $ (80,188) $ 175,931
========= ========= ========= ========= =========
</TABLE>
7
<PAGE>
JACKSON PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -(continued)
(5) Condensed Consolidating Financial Information (con't)
CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS
Three months ended March 31, 1999
<TABLE>
<CAPTION>
Non-
Parent Guarantor Guarantor
Company Subsidiaries Subsidiary Eliminations Consolidated
----------- --------------- ------------ -------------- -------------
<S> <C> <C> <C> <C> <C>
Net sales .................................... $ 12,541 $ 34,873 $ 2,106 $ (5,880) $ 43,640
Operating expenses:
Cost of sales .......................... 9,011 25,374 1,325 (5,793) 29,917
Selling, general and administrative .... 2,596 4,445 994 -- 8,035
Amortization of intangibles ............ 275 2,632 58 -- 2,965
-------- ---------- -------- -------- --------
11,882 32,451 2,377 (5,793) 40,917
Operating income (loss) ...................... 659 2,422 (271) (87) 2,723
Other
Interest expense, net .................. (3,510) (894) -- -- (4,404)
Amortization of deferred financing costs (375) -- -- -- (375)
Other .................................. 2,875 (3,081) -- -- (206)
-------- -------- -------- -------- --------
ncome (loss) before income tax provision .... (351) (1,553) (271) (87) (2,262)
Income tax expense ........................... 70 60 -- -- 130
Equity in earnings of subsidiaries ........... (1,884) -- -- 1,884 --
-------- -------- -------- -------- --------
Net income (loss) ............................ $ (2,305) $ (1,613) $ (271) $ 1,797 $ (2,392)
======== ======== ======== ======== =========
</TABLE>
8
<PAGE>
JACKSON PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -(continued)
(5) Condensed Consolidating Financial Information (con't)
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOW
Three months ended March 31, 1999
<TABLE>
<CAPTION>
Non-
Parent Guarantor Guarantor
Company Subsidiaries Subsidiary Eliminations Consolidated
------- ------------- ----------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Net cash (used in ) provided by operating activities: .... 156 (4,175) (601) 1,884 (2,736)
------- ------- ------- ------ -------
Cash flows from investing activities:
Acquisition of business, including direct expenses -- (1,278) -- -- (1,278)
Capital expenditures ............................. (645) (1,137) (82) -- (1,864)
------- ------- ------- ------- -------
Net cash used in investing activities .................... (645) (2,415) (82) -- (3,142)
------- ------- ------- ------- -------
Cash flows from financing activities:
Proceeds from issuance of long-term obligations .. 5,826 -- -- -- 5,826
Repurchase of common stock, net of loan payments . (3) -- -- -- (3)
------- ------- ------- ------- -------
Net cash provided by financing activities ................ 5,823 -- -- -- 5,823
======= ======= ======= ======= =======
Net increase (decrease) in cash .......................... $ 5,334 $(6,590) $ (683) $ 1,884 (55)
======= ======= ======= =======
Cash, beginning of period ................................ 327
-------
Cash, end of period ...................................... $ 272
=======
</TABLE>
9
<PAGE>
JACKSON PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(continued)
(5) Condensed Consolidating Financial Information (con't)
CONDENSED CONSOLIDATING BALANCE SHEET
December 31, 1998
<TABLE>
<CAPTION>
Non-
Parent Guarantor Guarantor
Company Subsidiaries Subsidiary Eliminations Consolidated
------- ------------ ---------- ------------ ------------
<S> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash ................................. $ -- $ -- $ 327 $ -- $ 327
Accounts receivable, net ............. 3,565 13,427 1,487 -- 18,479
Inventories .......................... 8,162 25,011 1,444 (342) 34,275
Prepaid expenses ..................... 259 407 80 -- 746
------- -------- ------ ---------- -------
Total current assets ................. 11,986 38,845 3,338 (342) 53,827
Property, plant and equipment ........ 11,385 22,779 198 -- 34,362
Intangibles .......................... 13,968 58,628 2,646 -- 75,242
Note receivable ...................... 48,271 9,229 -- (57,500) --
Deferred financing costs ............ 7,372 -- -- -- 7,372
Investment in subsidiaries ........... 24,094 -- -- (24,094) --
Other noncurrent assets .............. -- 436 -- -- 436
------- ------- ------ -------- -------
$117,076 $129,917 $6,182 $(81,936) $171,239
======== ======== ====== ========= ========
LIABILITIES AND
STOCKHOLDERS' DEFICIT
Current liabilities:
Notes payable to parent .............. $ -- $53,971 $3,529 $(57,500) $ --
Accounts payable ..................... 3,580 10,932 801 -- 15,313
Accrued and other liabilities ........ 3,717 1,533 806 -- 6,056
Accrued interest ..................... 3,044 -- -- -- 3,044
Accrued taxes ........................ 1,075 -- -- -- 1,075
-------- ------- ----- -------- -------
Total current liabilities ............ 11,416 66,436 5,136 (57,500) 25,488
------- ------- ------ --------- -------
Long-term debt ....................... 190,389 -- -- -- 190,389
Other noncurrent liabilities ......... 3,074 -- -- -- 3,074
Due to parent ........................ (40,374) 38,600 1,774 -- --
Stockholders' deficit
Common stock ......................... -- 1 -- (1) --
Additional paid-in capital ........... 2,951 34,499 -- (34,498) 2,952
Accumulated other comprehensive income -- (238) 297 -- 59
Loans due on common stock ............ (343) -- -- -- (343)
Accumulated deficit .................. (50,037) (9,381) (1,025) 10,063 (50,380)
-------- ------- ------- -------- --------
Total stockholders' deficit .......... (47,429) 24,881 (728) (24,436) (47,712)
-------- ------- ------- -------- --------
$117,076 $129,917 $6,182 $(81,936) $171,239
======== ======== ======== ========= ========
</TABLE>
10
<PAGE>
JACKSON PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -(continued)
(5) Condensed Consolidating Financial Information (con't)
CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS
Three months ended March 31, 1998
<TABLE>
<CAPTION>
Non
Parent Guarantor Guarantor
Company Subsidiaries Subsidiary Eliminations Consolidated
------- ------------ ---------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Net sales ............................... $ 10,435 $ 19,884 $ 2,867 $ (2,080) $ 31,106
Operating expenses:
Cost of sales ........................... 7,071 14,873 1,932 (2,027) 21,849
Selling, general and administrative ..... 2,768 1,529 959 -- 5,256
Amortization of intangibles ............. 276 1,301 187 -- 1,764
-------- -------- -------- -------- -------
10,115 17,703 3,078 (2,027) 28,869
Operating income (loss) ................. 320 2,181 (211) (53) 2,237
Other ................................... --
Interest expense, net ................... (2,996) -- -- -- (2,996)
Amortization of deferred financing costs (309) -- -- -- (309)
Other ................................... 1,344 (1,519) 3 -- (172)
-------- -------- -------- ------- -------
Income (loss) before income tax provision (1,641) 662 (208) (53) (1,240)
Income tax expense ...................... 76 38 45 -- 159
Equity in earnings of subsidiaries ...... 371 -- -- (371) --
-------- -------- -------- -------- -------
Net income (loss) ....................... $ (1,346) $ 624 $ (253) $ (424) $ (1,399)
======== ======== ======== ========= =======
</TABLE>
11
<PAGE>
JACKSON PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -(continued)
(5) Condensed Consolidating Financial Information (con't)
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOW
Three months ended March 31, 1998
<TABLE>
<CAPTION>
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... (3,017) (759) (645) (71) (4,492)
------- ------- ------- ------- -------
Cash flows from investing activities:
Acquisition of business, including direct costs. (292) -- -- -- (292)
Capital expenditures ........................... (536) (273) -- -- (809)
------- ------- ------- ------- -------
Net cash used in investing activities ................. (828) (273) -- -- (1,101)
------- ------- ------- ------- -------
Cash flows from financing activities:
Proceeds from issuance of long-term obligations. 5,322 -- -- -- 5,322
------- ------- ------- ------- -------
Net cash provided by financing activities ............. 5,322 -- -- -- 5,322
======= ======= ======= ======= =======
Net increase(decrease)in cash ......................... $ 1,477 $(1,032) $ (645) $ (71) (271)
======= ======= ======== =======
Cash, beginning of period ............................. 523
-------
Cash, end of period ................................... $ 252
=======
</TABLE>
12
<PAGE>
ITEM 2.
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 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.
On December 22, 1998, the Company entered into a non-binding letter of
intent to purchase the assets of Morton Traffic Markings, a division of
Morton International, Inc. This acquisition is subject to management's due
diligence and is tentatively scheduled to close in mid May of 1999.
On January 25, 1999 Jackson Products, Inc. acquired certain of the assets
of OK Beads Inc. OK Beads manufactures reflective glass beads used in
highway safety products such as road markers, signs, paint and reflective
tape. The Company believes the acquisition will increase manufacturing
capacity in the reflective glass bead market of its Flex-O-Lite division.
Three Months Ended March 31, 1999 Compared to Three Months Ended March 31,
1998
Net sales- Net sales for the three months ended March 31, 1999 increased
40.3% to $43.6 million from $31.1 million in 1998. The increase in sales
for this period is primarily attributed to the Acquisitions, which provided
$14.7 million in net sales. Had the Acquisitions occurred on January 1,
1998, net sales for the three month period would have been consistent for
the two periods.
Cost of sales- Cost of sales for the three months ended March 31, 1999
increased 36.9% to $29.9 million from $21.8 million in 1998, primarily as a
result of the increase in net sales. Cost of sales as a percentage of sales
decreased to 68.6% from 70.2% 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 March 31, 1999 increased
52.9% to $8.0 million from $5.3 million due primarily to the Acquisitions.
Selling, general & administrative expenses as a percentage of sales
increased from 16.9% to 18.4% due to increased expenses associated with
Lansec GmbH ("GmbH"). GmbH expenses as a percentage of sales are high
relative to the other divisions. Increased corporate administrative
expenses also attributed to the increase in selling, general and
administrative expenses due to the Acquisitions and the requirements of
being a SEC registrant.
Operating income- Operating income for the three months ended March 31,
1999 increased to $2.7 million from $2.2 million in 1998 due to the
Acquisitions, various cost reductions and the realization of manufacturing
synergies.
Income tax expense- Income tax expense for the three months ended March 31,
1999 decreased to $0.1 million from $0.2 million in 1998. 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 three months ended March 31, 1999
and 1998 was $2.7 million and $4.5 million, respectively due to
improvements in the management of working capital. Changes in working
capital resulted in cash uses of $5.2 million and $6.6 million for the
three months ended March 31, 1999 and 1998, respectively.
13
<PAGE>
Cash used in investing activities for the three months ended March 31, 1999
and 1998 was $3.1 million and $1.1 million, respectively. Capital
expenditures for the three months ended March 31, 1999 and 1998 were $1.9
million and $0.8 million, respectively.
Net cash provided by financing activities for the three months ended March
31, 1999 and 1998 was $5.8 million and $5.3 million, respectively.
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 March 31, 1999 there was $16.9
million outstanding on the revolving credit facility and $1.4 million of
letters of credit outstanding resulting in availability of $11.7 million.
The average interest rate on the outstanding borrowings was 7.5% at March
31, 1999.
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
1999.
Year 2000 Compliance
Management has initiated a comprehensive study and program to prepare the
Company's computer systems, manufacturing systems and facility systems, and
the related systems applications for the Year 2000. As it relates to
desktop hardware and software systems, the Company has begun a desktop
update and standardization effort which will address Year 2000 compliance
issues. The Company is utilizing both internal and external resources to
identify, correct or reprogram the systems for the Year 2000 compliance.
Additionally, the Company is developing a contingency plan to attempt to
address Year 2000 concerns beyond the year 2000. The Company expects these
efforts to be substantially completed by September 30, 1999.
The Company has initiated formal communication with its suppliers and large
customers to determine the extent and steps they are taking 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.
Maintenance or modification costs associated with Year 2000 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 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's
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 (desktop hardware and
software), the availability of new software and the ability of the
Company's customers and suppliers to be Year 2000 compliant.
ITEM 3.
QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
There have been no material changes in the Company's market risk during the
three months ended March 21, 1999. For additional information, refer to
Item 7 in the Company's annual report on Form 10-K for the year ended
December 31, 1998.
14
<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 September 16, 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 January 25, 1999, the Company filed a Form 8-K relating to the
acquisition of OK Beads Inc.
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 : 03/14/99 By:/s/ Christopher T. Paule
---------------------------
Christopher T. Paule
Vice President, Chief Financial
Officer and Chief Accounting Officer
15
<PAGE>
INDEX TO EXHIBITS
27. Financial Data Schedule Page
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<NAME> JACKSON PRODUCTS, INC.
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
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<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
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<CASH> 272
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<RECEIVABLES> 26,543
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<INVENTORY> 33,469
<CURRENT-ASSETS> 60,682
<PP&E> 49,429
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<TOTAL-ASSETS> 175,931
<CURRENT-LIABILITIES> 27,137
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0
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<TOTAL-LIABILITY-AND-EQUITY> 175,931
<SALES> 43,640
<TOTAL-REVENUES> 43,640
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<TOTAL-COSTS> 29,917
<OTHER-EXPENSES> 8,035
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4,375
<INCOME-PRETAX> (2,262)
<INCOME-TAX> 130
<INCOME-CONTINUING> (2,392)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
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