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, 1999 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
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(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)
(636) 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. [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 June 30, 1999
8,526 shares of Class C Common Stock at June 30, 1999
<PAGE>
JACKSON PRODUCTS, INC.
INDEX
PAGE
Part I. Financial Information:
Item 1. Consolidated Financial Statements as of
June 30, 1999 and December 31, 1998 and the three
and six months ended June 30, 1999 and 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 15
Item 3. Quantitative and Qualitative Disclosure about Market Risk 17
Part II. Other Information 17
Signature Page 18
<PAGE>
JACKSON PRODUCTS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except share data)
(Unaudited)
<TABLE>
<CAPTION>
June 30, December 31,
ASSETS 1999 1998
------ --------------- --------------
<S> <C> <C>
Current assets:
Cash $ 240 $ 327
Accounts receivable, net of allowance for doubtful accounts of $853
and $651 in 1999 and 1998, respectively. 39,358 18,479
Inventories 38,673 34,275
Prepaid expenses 1,515 746
--------------- ----------------
Total current assets 79,786 53,827
Property, plant, and equipment, net 45,643 34,362
Intangibles 89,806 75,242
Deferred financing costs 6,716 7,372
Other noncurrent assets 286 436
--------------- ----------------
$ 222,237 $ 171,239
=============== ================
LIABILITIES AND STOCKHOLDERS' DEFICIT
-------------------------------------
Current liabilities:
Accounts payable $ 20,977 $ 15,313
Accrued and other liabilities 7,138 6,056
Accrued interest 3,250 3,044
Accrued income taxes 1,075 1,075
--------------- ----------------
Total current liabilities 32,440 25,488
--------------- ----------------
Long-term debt 234,160 190,389
Other noncurrent liabilities 3,074 3,074
Stockholders' deficit:
Class A common stock, $.01 par value; 100,000 shares authorized;
38,530 shares issued and outstanding at June 30, 1999
and December 31, 1998. - -
Class C common stock, $.01 par value; 15,000 shares authorized; 8,526
shares issued and outstanding at June 30, 1999 and December 31, 1998 - -
Additional paid-in capital 2,952 2,952
Accumulated other comprehensive income (585) 59
Loans due on common stock (329) (343)
Accumulated deficit (49,475) (50,380)
--------------- -----------------
Total stockholders' deficit (47,437) (47,712)
--------------- -----------------
$ 222,237 $ 171,239
=============== =================
</TABLE>
See accompanying notes to consolidated financial statements.
-2-
<PAGE>
JACKSON PRODUCTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands)
(Unaudited)
<TABLE>
<CAPTION>
Three months ended Six months ended
June 30, June 30,
-------------------------- -------------------------------
1999 1998 1999 1998
----------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Net sales.................................................. $ 59,473 $ 47,574 $ 103,113 $ 78,680
Operating expenses:
Cost of sales......................................... 38,477 31,255 68,394 53,191
Selling, general and administrative................... 8,733 6,709 16,768 11,878
Amortization of intangibles........................... 3,123 2,000 6,088 3,763
--------- --------- ----------- ----------
Total operating expenses.................................. 50,333 39,964 91,250 68,832
Operating income........................................... 9,140 7,610 11,863 9,848
Other:
Interest expense, net................................. (4,753) (4,060) (9,157) (7,056)
Amortization of deferred financing costs.............. (376) (447) (751) (757)
Other................................................. (189) (191) (395) (363)
--------- --------- ----------- ----------
Income before income tax provision and extraordinary item 3,822 2,912 1,560 1,672
Income tax expense......................................... 525 154 655 313
Extraordinary item
Loss due to early extinguishment of debts, net of tax - (7,558) - (7,558)
========= =========== =========== ==========
Net income (loss).......................................... $ 3,297 $ (4,800) $ 905 $ (6,199)
========= =========== =========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
-3-
<PAGE>
JACKSON PRODUCTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOW
(Dollars in thousands)
(Unaudited)
<TABLE>
<CAPTION>
Six months ended June 30,
1999 1998
-------------- --------------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 905 $ (6,199)
Adjustments to reconcile net income (loss) to net cash provided
by operating activities:
Depreciation 3,013 2,462
Amortization of deferred financing costs, intangibles
and debt discount 6,895 4,562
Extraordinary item - 5,348
Changes in operating assets and liabilities, net
of effects of acquisitions:
Accounts receivable (13,212) (8,319)
Inventories (805) (1,373)
Accounts payable 2,308 2,412
Accrued and other liabilities 629 72
Accrued interest 206 496
Accrued income taxes - 1
Other, net (1,552) (442)
------------ ------------
Net cash used in operating activities: (1,613) (980)
Cash flows from investing activities:
Acquisition of business, including direct expenses (38,593) (36,259)
Capital expenditures (3,610) (1,895)
Deferral of acquisition price, net of payments - 132
------------ ------------
Net cash used in investing activities (42,203) (38,022)
Cash flows from financing activities:
Proceeds from issuance of long-term obligations 43,715 195,103
Repurchase of common stock, net of loan payments 14 (4,150)
Repurchase of preferred stock - (23,998)
Financing costs - (7,500)
Repayment of long term obligations - (120,505)
------------ ------------
Net cash provided by financing activities 43,729 38,950
Net decrease in cash and cash equivalents (87) (52)
Cash and cash equivalents, beginning of period 327 523
------------ ------------
Cash and cash equivalents, end of period $ 240 $ 471
============ ===========
</TABLE>
See accompanying notes to consolidated financial statements.
-4-
<PAGE>
JACKSON PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 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 six-month period
ended June 30, 1999 are not necessarily indicative of the results that may be
expected for the year ended December 31, 1999.
(2) Inventory
Inventories at June 30, 1999 consist of the following (in thousands):
Raw materials...................................... $15,710
Work-in-process................................... 6,103
Finished goods.................................... 16,860
-------
$38,673
=======
(3) Acquisitions
In 1998, Jackson Products, Inc. (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 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 January 25, 1999, the Company 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.
On May 17, 1999, the Company, through its wholly owned subsidiary,
TMT-Pathway, L.L.C., acquired the assets of Morton Traffic Markings, a division
of Morton International, Inc. for $39.5 million. TMT-Pathway, L.L.C.
manufactures and distributes traffic coatings and specialized coating
applications equipment for the highway safety industry. The TMT-Pathway
acquisition was accounted for using the purchase method of accounting.
Accordingly, the total purchase cost has been allocated to assets and
liabilities of the Company based on their respective fair value. Intangible
assets in the amount of $21.1 million were recorded in connection with the
acquisition and are being amortized over five years.
The unaudited pro forma consolidated statement of operations information of
the Company for the six months ended June 30, 1999 and 1998 gives effect to: (i)
the Acquisitions, the OK Beads acquisition and the TMT-Pathway acquisition; and
(ii) the refinancing, as discussed in Note 4, as if each had occurred on the
first day of the period presented. Assuming the Acquisitions, the OK Beads
acquisition and the TMT-Pathway acquisition occurred on January 1, 1998 pro
forma consolidated net sales would have been $113.7 million and $112.0 million
for the six months ended June 30, 1999 and 1998, respectively; the pro forma
consolidated net loss would have been $1.4 million and $6.4 million for the six
months ended June 30, 1999 and 1998, respectively; and the pro forma
consolidated net income (loss) before extraordinary items would have been ($1.4)
million and $1.5 million for the six months ended June 30, 1999 and 1998,
respectively. These pro forma amounts represent unaudited data and in the
opinion of management of the registrant, are not indicative of actual results
had the acquisitions been consummated at the beginning of the respective fiscal
years.
-5-
<PAGE>
JACKSON PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(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 provided for a
line of credit in the aggregate amount of $125.0 million. This credit agreement
was increased to $135.0 million during the second quarter of 1999. The line
consists of an acquisition line facility in the principal amount of $105.0
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, 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 June 30, 1999. At June 30, 1999 there was
$15.2 million outstanding on the revolving credit facility and $1.4 million of
letters of credit outstanding resulting in availability of $13.4 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 91/2% 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 June 30, 1999 and
December 31, 1998 and for the three and six months ended June 30, 1999 and 1998
is presented below for the purpose of complying with the reporting requirements
of the Guarantor 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. TMT-Pathway L.L.C. was acquired in 1999 and is reflected in the
financial statements as one of the guarantor subsidiaries.
-6-
<PAGE>
JACKSON PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -(continued)
(5) Condensed Consolidating Financial Information (con't)
CONDENSED CONSOLIDATING BALANCE SHEETS
June 30, 1999
<TABLE>
<CAPTION>
Non-
Parent Guarantor Guarantor
Company Subsidiaries Subsidiary Eliminations Consolidated
------- ------------ ---------- ------------ ------------
<S> <C> <C> <C> <C> <C>
ASSETS
------
Current assets:
Cash $ - $ - $ 240 $ - $ 240
Accounts receivable, net 5,652 32,020 1,686 - 39,358
Inventories 8,058 29,266 1,782 (433) 38,673
Prepaid expenses 508 897 110 - 1,515
------------ ----------- ------------ ------------ -----------
Total current assets 14,218 62,183 3,818 (433) 79,786
Property, plant and equipment 11,886 33,487 270 - 45,643
Intangibles 13,248 74,201 2,357 - 89,806
Note receivable 84,613 9,229 - (93,842) -
Deferred financing costs 6,716 - - - 6,716
Investment in subsidiaries 24,648 - - (24,648) -
Other noncurrent assets - 286 - - 286
------------ ----------- ------------ ------------ -----------
$ 155,329 $ 179,386 $ 6,445 $ (118,923) $ 222,237
============ =========== ============ ============ ===========
LIABILITIES AND
STOCKHOLDERS' DEFICIT
---------------------
Current liabilities:
Notes payable to parent $ - $ 90,265 $ 3,577 $ (93,842) $ -
Accounts payable 3,862 16,413 702 - 20,977
Accrued and other liabilities 3,677 2,942 519 - 7,138
Accrued interest 3,251 1 - (2) 3,250
Accrued taxes 1,075 - - - 1,075
------------ ----------- ------------ ------------ -----------
Total current liabilities 11,865 109,621 4,798 (93,844) 32,440
Long-term debt 234,160 - - - 234,160
Other noncurrent liabilities 3,074 - - - 3,074
Due to parent (47,350) 43,774 3,576 - -
Stockholders' deficit
Common stock - - - -
Additional paid-in capital 2,950 34,499 - (34,497) 2,952
Accumulated other comprehensive income - (217) (368) - (585)
Loans due on common stock (329) - - - (329)
Accumulated deficit (49,041) (8,291) (1,561) 9,418 (49,475)
------------ ----------- ------------ ------------ -----------
Total stockholders' deficit (46,420) 25,991 (1,929) (25,079) (47,437)
------------ ----------- ------------ ------------ -----------
$ 155,329 $ 179,386 $ 6,445 $ (118,923) $ 222,237
============ =========== ============ ============ ===========
</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 June 30, 1999
<TABLE>
<CAPTION>
Non-
Parent Guarantor Guarantor
Company Subsidiaries Subsidiary Eliminations Consolidated
------- ------------ ---------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Net sales $ 16,138 $ 49,030 $ 1,898 $ (7,593) $ 59,473
Operating expenses:
Cost of sales 10,914 33,946 1,206 (7,589) 38,477
Selling, general and administrative 2,908 4,898 927 - 8,733
Amortization of intangibles 184 2,909 30 - 3,123
---------- ----------- --------- --------- ---------
14,006 41,753 2,163 (7,589) 50,333
Operating income (loss) 2,132 7,277 (265) (4) 9,140
Other
Interest expense, net (3,614) (1,139) - - (4,753)
Amortization of deferred financing costs (376) - - - (376)
Other 2,821 (3,010) - - (189)
---------- ----------- --------- --------- ---------
Income (loss) before income tax provision 963 3,128 (265) (4) 3,822
Income tax expense 100 425 - - 525
Equity in earnings (loss) of subsidiaries 2,438 - - (2,438) -
---------- ----------- --------- --------- ---------
Net income (loss) $ 3,301 $ 2,703 $ (265) $ (2,442) $ 3,297
=========== =========== ========== ========== =========
</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 OPERATIONS
Six months ended June 30, 1999
<TABLE>
<CAPTION>
Non-
Parent Guarantor Guarantor
Company Subsidiaries Subsidiary Eliminations Consolidated
------- ------------ ---------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Net sales $ 28,679 $ 83,903 $ 4,004 $ (13,473) $ 103,113
Operating expenses:
Cost of sales 19,925 59,320 2,531 (13,382) 68,394
Selling, general and administrative 5,504 9,343 1,921 - 16,768
Amortization of intangibles 459 5,541 88 - 6,088
--------- --------- --------- ---------- -----------
25,888 74,204 4,540 (13,382) 91,250
Operating income (loss) 2,791 9,699 (536) (91) 11,863
Other
Interest expense, net (7,124) (2,033) - - (9,157)
Amortization of deferred financing costs (751) - - - (751)
Other 5,696 (6,091) - - (395)
--------- --------- --------- ---------- -----------
Income (loss) before income tax provision 612 1,575 (536) (91) 1,560
Income tax expense 170 485 - - 655
Equity in earnings (loss) of subsidiaries 554 - - (554) -
--------- --------- --------- ---------- -----------
Net income (loss) $ 996 $ 1,090 $ (536) $ (645) $ 905
========= ========= ========= =========== ============
</TABLE>
-9-
<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
Six months ended June 30, 1999
<TABLE>
<CAPTION>
Parent Guarantor Non-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 $ (304) $ 606 $ (1,361) $ (554) $ (1,613)
---------- ---------- --------- -------- ----------
Cash flows from investing activities:
Acquisition of business, including
direct expenses - (38,593) - - (38,593)
Capital expenditures (1,292) (2,218) (100) - (3,610)
---------- ---------- --------- -------- ----------
Net cash used in investing activities (1,292) (40,811) (100) - (42,203)
---------- ---------- --------- -------- ----------
Cash flows from financing activities:
Proceeds from issuance of long-term
obligations 43,715 - - - 43,715
Repurchase of common stock, net of
loan payments 14 - - - 14
---------- ---------- --------- -------- ----------
Net cash provided by financing activities 43,729 - - - 43,729
---------- ---------- --------- -------- ----------
Net increase (decrease) in cash and
cash equivalents $ 42,133 $ (40,205) $ (1,461) $ (554) (87)
========== ========== ========= =======
Cash and cash equivalents, beginning of period 327
----------
Cash and cash equivalents, end of period $ 240
==========
</TABLE>
-10-
<PAGE>
JACKSON PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -(continued)
(5) Condensed Consolidating Financial Information (con't)
<TABLE>
CONDENSED CONSOLIDATING BALANCE SHEETS
December 31, 1998
<CAPTION>
Parent Guarantor Non-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 incom - (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>
-11-
<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 June 30, 1998
<TABLE>
<CAPTION>
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 (loss) 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 (benefit) 75 92 (13) - 154
Equity in earnings (loss) of subsidiaries 2,562 - - (2,562) -
Extraordinary items
Loss due to early extinguishement of debts (7,558) - - - (7,558)
---------- --------- -------- --------- ---------
Net income (loss) $ (4,701) $ 2,525 $ 37 $ (2,661) $ (4,800)
========== ========= ======== ========= =========
</TABLE>
-12-
<PAGE>
JACKSON PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)
(5) Condensed Consolidating Financial Information (con't)
CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS
Six months ended June 30, 1998
<TABLE>
<CAPTION>
Parent Guarantor Non-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 (loss) 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 in earnings (loss) of subsidiaries 2,748 - - (2,748) -
Extraordinary items
Loss due to early extinguishment of debts (7,558) - - - (7,558)
-------- --------- -------- --------- ---------
Net income (loss) $ (6,047) $ 2,964 $ (216) $ (2,900) ($6,199)
========= ========= ======== ========= =========
</TABLE>
-13-
<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
Six months ended June 30, 1998
<TABLE>
<CAPTION>
Parent Guarantor Non-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:
Acquisition of business, including
direct costs of acquisitions (36,259) - - - (36,259)
Capital expenditures (846) (1,030) (19) - (1,895)
Deferral of acquisition price,
net of payments 500 - (368) - 132
--------- -------- ----------- ---------- -----------
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 payaments (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 increase (decrease) in cash and
cash equivalents $ 4,782 $ 2,178 $ (4,927) $ (2,085) (52)
========= ========= ============ ==========
Cash and cash equivalents, beginning of period 523
-----------
Cash and cash equivalents, end of period $ 471
===========
</TABLE>
-14-
<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 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.
On May 17, 1999, the Company acquired the assets of Morton Traffic
Markings, a division of Morton International, Inc. (renamed by the Company
TMT-Pathway, LLC), for $39.5 million (the "TMT-Pathway Acquisition").
TMT-Pathway, LLC manufactures and distributes traffic coatings and specialized
coating applications equipment for the highway safety industry. Operating
results of the TMT-Pathway Acquisition have been included in the financial
statements of the Company as of this date.
Three Months Ended June 30, 1999 Compared to Three Months Ended June 30, 1998
Net sales- Net sales for the three months ended June 30, 1999 increased
25.0% to $59.5 million from $47.6 million in 1998. The increase in sales for
this period is primarily attributed to the Kedman Acquisition and the
TMT-Pathway Acquisition, which provided $9.7 million in net sales. Had the
Acquisitions and the TMT-Pathway Acquisition occurred on January 1, 1998,
comparable net sales for the three month periods would have increased by $1.5
million, or 2.4%.
Cost of sales- Cost of sales for the three months ended June 30, 1999
increased 23.0% to $38.5 million from $31.3 million in 1998, primarily as a
result of the increase in net sales. Cost of sales as a percentage of sales
decreased to 64.7% from 65.7% due to various cost reductions and improved
margins associated with the Acquisitions.
Selling, general & administrative expenses- Selling, general and
administrative expenses for the three months ended June 30, 1999 increased 29.9%
to $8.7 million from $6.7 million due primarily to the Kedman Acquisition and
the TMT-Pathway Acquisition. Selling, general & administrative expenses as a
percentage of sales increased from 14.1% to 14.7% due to increased corporate
administrative expenses attributed to the acquisitions and the requirements of
being a SEC registrant.
Operating income- Operating income for the three months ended June 30, 1999
increased to $9.1 million from $7.6 million in 1998 due to the acquisitions and
the realization of various cost reductions.
Income tax expense- Income tax expense for the three months ended June 30,
1999 increased to $0.5 million from $0.2 million in 1998. The Company's
effective income tax rate is substantially lower than the statutory rate due to
the Company's utilization of net operating losses.
-15-
<PAGE>
Six Months Ended June 30, 1999 Compared to Six Months Ended June 30, 1998
Net sales- Net sales for the six months ended June 30, 1999 increased 31.0%
to $103.1 million from $78.7 million in 1998. The increase in sales for this
period is primarily attributed to the Acquisitions and the TMT-Pathway
Acquisition, which provided $26.2 million in net sales. Had the Acquisitions and
the TMT-Pathway Acquisition occurred on January 1, 1998, net sales for the
comparable six month periods would have increased by $1.7 million, or 1.5%, for
the two periods.
Cost of sales- Cost of sales for the six months ended June 30, 1999
increased 28.6% to $68.4 million from $53.2 million in 1998, primarily as a
result of the increase in net sales. Cost of sales as a percentage of sales
decreased to 66.3% from 67.6% due to various cost reductions and improved
margins associated with the Acquisitions.
Selling, general & administrative expenses- Selling, general and
administrative expenses for the six months ended June 30, 1999 increased 41.2%
to $16.8 million from $11.9 million due primarily to the Kedman Acquisition and
the TMT-Pathway Acquisition. Selling, general & administrative expenses as a
percentage of sales increased from 15.1% to 16.3% due to increased corporate
administrative expenses associated with the acquisitions and the requirements of
being a SEC registrant.
Operating income- Operating income for the six months ended June 30, 1999
increased to $11.9 million from $9.8 million in 1998 due to strong performance
by the acquisitions and the realization of various cost reductions.
Income tax expense- Income tax expense for the six months ended June 30,
1999 increased to $0.7 million from $0.3 million in 1998. The Company's
effective income tax rate is substantially lower than the statutory rate due to
the Company's utilization of net operating losses.
Liquidity and Capital Resources
Cash used in operating activities for the six months ended June 30, 1999
and 1998 was $1.6 million and $1.0 million, respectively due to the TMT
Acquisition and its seasonal nature.
Cash used in investing activities for the six months ended June 30, 1999
and 1998 was $42.2 million and $38.0 million, respectively. Capital expenditures
for the six months ended June 30, 1999 and 1998 were $3.6 million and $1.9
million, respectively.
Net cash provided by financing activities for the six months ended June 30,
1999 and 1998 was $43.7 million and $39.0 million, respectively. The TMT-Pathway
LLC, Allsafe and Crystaloid acquisitions 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 . This credit agreement was amended during the second quarter of
1999 to increase the line of credit to $135.0 million, consisting of an
acquisition line facility in the principal amount of $105.0 million and a
revolving credit facility in the principal amount of $30.0 million. At June 30,
1999 there was $15.2 million outstanding on the revolving credit facility and
$1.4 million of letters of credit outstanding resulting in availability of $13.4
million. The average interest rate on the outstanding borrowings was 7.5% at
June 30, 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 91/2% 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.
-16-
<PAGE>
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
six months ended June 30, 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.
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.
On May 17, 1999, the Company filed a Form 8-K relating to the
acquisition of TMT-Pathway.
On August 2, 1999, the Company filed a Form 8-KA relating to the
acquisition of TMT- Pathway.
-17-
<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: 08/11/99 By: /s/ Christopher T. Paule
---------------------------
Christopher T. Paule
Vice President, Chief Financial
Officer and Chief Accounting Officer
-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> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> APR-01-1999
<PERIOD-END> JUN-30-1999
<EXCHANGE-RATE> 1
<CASH> 240
<SECURITIES> 0
<RECEIVABLES> 39,358
<ALLOWANCES> 853
<INVENTORY> 38,673
<CURRENT-ASSETS> 79,786
<PP&E> 45,643
<DEPRECIATION> 15,245
<TOTAL-ASSETS> 222,237
<CURRENT-LIABILITIES> 32,440
<BONDS> 234,160
0
0
<COMMON> 0
<OTHER-SE> (329)
<TOTAL-LIABILITY-AND-EQUITY> 222,237
<SALES> 103,113
<TOTAL-REVENUES> 103,113
<CGS> 68,394
<TOTAL-COSTS> 68,394
<OTHER-EXPENSES> 16,768
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 9,157
<INCOME-PRETAX> 1,560
<INCOME-TAX> 655
<INCOME-CONTINUING> 905
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 905
<EPS-BASIC> 0
<EPS-DILUTED> 0
</TABLE>
