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, 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
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(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 September 30, 1999
8,526 shares of Class C Common Stock at September 30, 1999
<PAGE>
JACKSON PRODUCTS, INC.
INDEX
PAGE
Part I. Financial Information:
Item 1. Consolidated Financial Statements as of
September 30, 1999 and December 31, 1998 and the three
and nine months ended September 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 18
Part II. Other Information 18
Signature Page 19
<PAGE>
JACKSON PRODUCTS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except share data)
(Unaudited)
<TABLE>
<CAPTION>
September 30, December 31,
ASSETS 1999 1998
------
-------------- -------------
<S> <C> <C>
Cash $ 308 $ 327
Accounts receivable, net of allowance for doubtful accounts of $993
and $651 in 1999 and 1998, respectively. 40,105 18,479
Inventories 39,725 34,275
Prepaid expenses 1,922 746
-------------- -------------
Total current assets 82,060 53,827
Property, plant, and equipment, net 45,495 34,362
Intangibles 86,867 75,242
Deferred financing costs 6,389 7,372
Other noncurrent assets 5 436
-------------- -------------
$ 220,816 $ 171,239
============== =============
LIABILITIES AND STOCKHOLDERS' DEFICIT
-------------------------------------
Current liabilities:
Accounts payable $ 16,924 $ 15,313
Accrued and other liabilities 8,517 6,056
Accrued interest 6,039 3,044
Accrued income taxes 1,400 1,075
-------------- -------------
Total current liabilities 32,880 25,488
-------------- -------------
Long-term debt 230,659 190,389
Other noncurrent liabilities 3,067 3,074
Stockholders' deficit:
Class A common stock, $.01 par value; 100,000 shares authorized;
38,530 shares issued and outstanding at September 30, 1999
and December 31, 1998. - -
Class C common stock, $.01 par value; 15,000 shares authorized; 8,526
shares issued and outstanding at September 30, 1999 and December 31, 1998 - -
Additional paid-in capital 2,952 2,952
Accumulated other comprehensive income (625) 59
Loans due on common stock (329) (343)
Accumulated deficit (47,788) (50,380)
-------------- -------------
Total stockholders' deficit (45,790) (47,712)
-------------- -------------
$ 220,816 $ 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 Nine months ended
September 30, September 30,
-------------------------- ------------------------
1999 1998 1999 1998
------------- ------------ ----------- ----------
<S> <C> <C> <C> <C>
Net sales..................................................... $ 65,124 $ 48,397 $ 168,237 $ 127,077
Operating expenses:
Cost of sales............................................. 43,882 32,446 112,276 85,550
Selling, general and administrative....................... 9,281 7,857 26,049 19,822
Amortization of intangibles............................... 4,480 2,716 10,624 6,479
-------- -------- --------- ---------
Total operating expenses...................................... 57,643 43,019 148,949 111,851
Operating income.............................................. 7,481 5,378 19,288 15,226
Other:
Interest expense, net..................................... (5,138) (4,387) (14,237) (11,443)
Amortization of deferred financing costs.................. (375) (292) (1,126) (1,049)
Intercompany interest and other........................... (219) (105) (616) (467)
-------- -------- --------- ---------
Income before income tax provision and extraordinary item 1,749 594 3,309 2,267
Income tax expense (benefit).................................. 62 (160) 717 153
Extraordinary item
Loss due to early extinguishment of debts, net of tax - - - (7,558)
-------- -------- --------- ---------
Net income (loss)............................................. $ 1,687 $ 754 $ 2,592 $ (5,444)
======== ======== ========= =========
</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>
Nine months ended September 30,
1999 1998
----------------- -----------------
<S> <C> <C>
Cash flows from operating activities:
Net income before extraordinary item $ 2,592 $ 2,114
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation 4,814 3,840
Amortization of deferred financing costs, intangibles
and debt discount 11,750 7,597
Changes in operating assets and liabilities, net
of effects of acquisitions:
Accounts receivable (14,059) (6,688)
Inventories (2,057) (2,488)
Accounts payable (1,745) 2,069
Accrued and other liabilities 672 (975)
Accrued interest 2,995 3,328
Accrued income taxes 325 (61)
Other, net (1,893) (453)
--------------- ----------------
Net cash provided by operating activities 3,394 8,283
Cash flows from investing activities:
Capital expenditures (5,040) (4,703)
Acquisition of businesses, including direct expenses (38,593) (46,072)
Deferral of acquisition price, net of payments - 23
--------------- ----------------
Net cash used in investing activities (43,633) (50,752)
Cash flows from financing activities:
Proceeds from issuance of long-term obligations 39,491 204,332
Repurchase of common stock, net of loan payments 14 (4,150)
Repurchase of preferred stock - (23,998)
Financing costs - (7,500)
Prepayment of premium of long-term obligations - (2,210)
Net borrowings/(repayment) of long term obligations 715 (124,012)
--------------- ----------------
Net cash provided by financing activities 40,220 42,462
Net decrease in cash and cash equivalents (19) (7)
Cash and cash equivalents, beginning of period 327 523
--------------- ----------------
Cash and cash equivalents, end of period $ 308 $ 516
=============== ================
</TABLE>
See accompanying notes to consolidated financial statements.
-4-
<PAGE>
JACKSON PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 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 nine-month period ended September 30, 1999 are not necessarily
indicative of the results that may be expected for the year ended December
31, 1999.
(2) Inventory
Inventories at September 30, 1999 consist of the following (in thousands):
Raw materials......................................... $15,912
Work-in-process....................................... 8,931
Finished goods........................................ 14,882
-------
$39,725
(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") for approximately $1.0 million. OK Beads manufactures
reflective glass beads used in highway safety and industrial applications.
On May 17, 1999, the Company, through its wholly owned subsidiary,
TMT-Pathway, L.L.C. ("TMT-Pathway"), acquired the assets of Morton Traffic
Markings, a division of Morton International, Inc. for $36.3 million, net
of a $1.7 million purchase price adjustment. TMT-Pathway 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 three to five years. The results of operations of the
acquired business has been included in the consolidated financial
statements since the acquisition date.
The unaudited pro forma consolidated statement of operations information of
the Company for the nine months ended September 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, the TMT-Pathway acquisition and
the refinancing occurred on January 1, 1998, pro forma consolidated net
sales would have been $178.8 million and $175.7 million for the nine months
ended September 30, 1999 and 1998, respectively; the pro forma consolidated
net income (loss) would have been $0.3 million and ($7.4) million for the
nine months ended September 30, 1999 and 1998, respectively; and the pro
forma consolidated net income before extraordinary items would have been
$0.3 million and $0.2 million for the nine months ended September 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 in conjunction with the Acquisitions. 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 September 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 New Credit Facility outstanding borrowings was
7.5% at September 30, 1999. At September 30, 1999 there was $11.7 million
outstanding on the revolving credit facility and $1.4 million of letters of
credit outstanding resulting in availability of $16.9 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 of 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 September 30, 1999 and
December 31, 1998 and for the three and nine months ended September 30,
1999 and 1998 is presented below for the purpose of complying with the
reporting requirements of the Guarantors. 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 was acquired in 1999 and
is reflected as a Guarantor in the financial statements.
-6-
<PAGE>
JACKSON PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -(continued)
(5) Condensed Consolidating Financial Information (con't)
CONDENSED CONSOLIDATING BALANCE SHEETS
September 30, 1999
<TABLE>
<CAPTION>
Non
Parent Guarantor Guarantor
Company Subsidiaries Subsidiary Elimination Consolidated
------- ------------ ---------- ----------- ------------
<S> <C> <C> <C> <C> <C>
ASSETS
------
Current assets:
Cash $ - $ - $ 308 $ - $ 308
Accounts receivable, net 5,781 32,852 1,472 - 40,105
Inventories 7,831 30,565 1,845 (516) 39,725
Prepaid expenses 984 806 132 - 1,922
---------- --------- --------- ---------- -----------
Total current assets 14,596 64,223 3,757 (516) 82,060
Property, plant and equipment 11,516 33,722 257 - 45,495
Intangibles 12,925 71,598 2,344 - 86,867
Note receivable 84,613 9,229 - (93,842) -
Deferred financing costs 6,389 - - - 6,389
Investment in subsidiaries 25,962 - - (25,962) -
Other noncurrent assets - 5 - - 5
--------- --------- --------- ---------- ---------
$ 156,001 $ 178,777 $ 6,358 $ (120,320) $ 220,816
========= ========= ========= ========== =========
LIABILITIES AND
STOCKHOLDERS' DEFICIT
---------------------
Current liabilities:
Notes payable to parent $ - $ 90,265 $ 3,577 $ (93,842) $ -
Accounts payable 1,384 15,121 419 - 16,924
Accrued and other liabilities 4,301 3,678 538 - 8,517
Accrued interest 6,039 - - - 6,039
Accrued taxes 1,400 - - - 1,400
--------- --------- --------- ---------- ---------
Total current liabilities 13,124 109,064 4,534 (93,842) 32,880
Long-term debt 230,659 - - - 230,659
Other noncurrent liabilities 3,067 - - - 3,067
Due to parent (46,201) 42,118 4,083 -
Stockholders' deficit
Common stock - - - - -
Additional paid-in capital 2,950 34,499 - (34,497) 2,952
Accumulated other comprehensive income - (215) (410) - (625)
Loans due on common stock (329) - - - (329)
Accumulated deficit (47,269) (6,689) (1,849) 8,019 (47,788)
--------- --------- --------- ---------- ---------
Total stockholders' deficit (44,648) 27,595 (2,259) (26,478) (45,790)
--------- --------- --------- ---------- ---------
$ 156,001 $ 178,777 $ 6,358 $ (120,320) $ 220,816
========= ========= ========= ========== =========
</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 September 30, 1999
<TABLE>
<CAPTION>
Non
Parent Guarantor Guarantor
Company Subsidiaries Subsidiary Eliminations Consolidated
------- ------------ ---------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Net sales $ 13,683 $ 57,060 $ 1,654 $ (7,273) $ 65,124
Operating expenses:
Cost of sales 10,048 39,983 1,039 (7,188) 43,882
Selling, general and administrative 2,599 5,779 903 - 9,281
Amortization of intangibles 305 4,175 - - 4,480
-------- -------- ------- --------- --------
12,952 49,937 1,942 (7,188) 57,643
Operating income (loss) 731 7,123 (288) (85) 7,481
Other
Interest expense, net (3,436) (1,702) - - (5,138)
Amortization of deferred financing costs (375) - - - (375)
Intercompany interest and other 3,884 (4,103) - - (219)
-------- -------- ------- --------- --------
Income (loss) before income tax provision 804 1,318 (288) (85) 1,749
Income tax expense (benefit) 346 (284) - - 62
Equity in earnings (loss) of subsidiaries 1,314 - - (1,314) -
-------- -------- ------- --------- --------
Net income (loss) $ 1,772 $ 1,602 $ (288) $ (1,399) $ 1,687
======== ======== ======= ========= ========
</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
Nine months ended September 30, 1999
<TABLE>
<CAPTION>
Non
Parent Guarantor Guarantor
Company Subsidiaries Subsidiary Eliminations Consolidated
------- ------------ ---------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Net sales $ 42,362 $ 140,963 $ 5,658 $ (20,746) $ 168,237
Operating expenses:
Cost of sales 29,973 99,303 3,570 (20,570) 112,276
Selling, general and administrative 8,103 15,122 2,824 - 26,049
Amortization of intangibles 820 9,716 88 - 10,624
-------- --------- ------- --------- ---------
38,896 124,141 6,482 (20,570) 148,949
Operating income (loss) 3,466 16,822 (824) (176) 19,288
Other
Interest expense, net (10,502) (3,735) - - (14,237)
Amortization of deferred financing costs (1,126) - - - (1,126)
Intercompany interest and other 9,578 (10,194) - - (616)
-------- --------- ------- --------- ---------
Income (loss) before income tax provision 1,416 2,893 (824) (176) 3,309
Income tax expense 516 201 - - 717
Equity in earnings (loss) of subsidiaries 1,868 - - (1,868) -
-------- --------- ------- --------- ---------
Net income (loss) $ 2,768 $ 2,692 $ (824) $ (2,044) $ 2,592
======== ========= ======= ========= =========
</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
Nine months ended September 30, 1999
<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 $ 8,687 $ (1,683) $ (1,742) $ (1,868) $ 3,394
-------- --------- -------- -------- --------
Cash flows from investing activities:
Capital expenditures (1,570) (3,349) (121) - (5,040)
Acquisition of businesses, including direct expenses (38,593) - - - (38,593)
-------- --------- -------- -------- --------
Net cash used in investing activities (40,163) (3,349) (121) - (43,633)
-------- --------- -------- -------- --------
Cash flows from financing activities:
Proceeds from issuance of long-term obligations 39,491 - - - 39,491
Repurchase of common stock, net of loan payments 14 - - - 14
Net borrowings/(repayment) of long term obligations 715 - - - 715
-------- ---------- -------- ------- --------
Net cash provided by financing activities 40,220 - - - 40,220
-------- ---------- -------- -------- --------
Net increase (decrease) in cash and cash equivalents $ 8,744 $ (5,032) $ (1,863) $ (1,868) (19)
======== ========= ======== ========
Cash and cash equivalents, beginning of period 327
--------
Cash and cash equivalents, end of period $ 308
========
</TABLE>
-10-
<PAGE>
JACKSON PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -(continued)
(5) Condensed Consolidating Financial Information (con't)
CONDENSED CONSOLIDATING BALANCE SHEETS
December 31, 1998
<TABLE>
<CAPTION>
Non
Parent Guarantor Guarantor
Company Subsidiaries Subsidiary Elimination 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>
-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 September 30, 1998
<TABLE>
<CAPTION>
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)
Intercompany interest and 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) -
-------- -------- ------- -------- -------
Net income (loss) $ 873 $ 842 $ (304) $ (657) $ 754
======== ======== ======= ======= =======
</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
Nine months ended September 30, 1998
<TABLE>
<CAPTION>
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)
Intercompany interest and 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>
-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
Nine months ended September 30, 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 $ 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 businesses, 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) 0 0 42,462
------- ------- -------- -------- --------
Net increase (decrease) in cash $ 4,635 $ 3,102 $ (1,694) $ (6,050) (7)
======= ======= ======== ========
Cash and cash equivalents, beginning of period 523
-------
Cash and cash equivalents, end of period $ 516
=======
</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.
EBITDA represents net income plus interest, taxes, depreciation, amortization
and certain non-cash charges. EBITDA is not included herein as operating data
and should not be construed as a substitute for operating income or a better
indicator of liquidity than cash flow from operating activities, which are
determined in accordance with GAAP. The Company has included EBITDA because the
Company understands that it is one measure used by certain investors to
determine the Company's operating cash flow and historical ability to service
its indebtedness and because the Cash Flow Coverage Ratio, when calculated on a
Pro Forma Basis is calculated on a similar basis. EBITDA has not been reduced by
management and directors fees, both of which are subordinated to the Company's
obligations under the Notes.
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 was
payable in 18 months subject to certain conditions. The $0.5 million has not
been repaid to date. 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") for approximately $1.0 million. 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 $36.3 million (the "TMT-Pathway Acquisition"), net of a
$1.7 million purchase price adjustment. 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 since the date of
acquisition.
Three Months Ended September 30, 1999 Compared
to Three Months Ended September 30, 1998
- ----------------------------------------------
Net sales- Net sales for the three months ended September 30, 1999 increased
34.6% to $65.1 million from $48.4 million in 1998. The increase in sales for
this period is primarily attributed to the TMT-Pathway Acquisition, which
provided $18.1 million in net sales, and strong highway safety demand offset by
a 9.5% decline in personal safety sales. Had the TMT-Pathway Acquisition
occurred on January 1, 1998, comparable net sales for the three month periods
would have reflected an increase of $2.0 million, or 3.1%. The decline in
personal safety sales is a result of soft economic conditions in the worldwide
welding market, the effect of the strong dollar on the Company's sales within
Europe when compared to the prior year and a decline in the Company's avionic
sales at its Crystaloid division.
-15-
<PAGE>
Cost of sales- Cost of sales for the three months ended September 30, 1999
increased 35.2% to $43.9 million from $32.4 million in 1998, primarily as a
result of the increase in net sales. Cost of sales as a percentage of sales
increased to 67.4% from 67.0%.
Selling, general & administrative expenses- Selling, general and administrative
expenses for the three months ended September 30, 1999 increased 18.1% to $9.3
million from $7.9 million due primarily to the TMT-Pathway Acquisition. Selling,
general & administrative expenses as a percentage of sales decreased from 16.2%
to 14.3%.
EBITDA- EBITDA for the three months ended September 30, 1999 increased 45.3% to
$13.8 million from $9.5 million during the same period ended September 30, 1998.
This growth is due to the TMT-Pathway Acquisition and strong highway safety
demand offset by a decline in personal safety sales, as discussed previously.
Had the Acquisitions and the TMT-Pathway Acquisition taken place on January 1,
1998, EBITDA would have increased by $0.7 million, or 5.3%.
Operating income- Operating income for the three months ended September 30, 1999
increased to $7.5 million from $5.4 million in 1998 due to the TMT-Pathway
Acquisition.
Income tax expense- Income tax expense for the three months ended September 30,
1999 increased to $0.1 million from ($0.2 million) in 1998. The increase
reflects higher state income taxes associated with the increase in income before
taxes of $1.2 million.
Nine Months Ended September 30, 1999 Compared
to Nine Months Ended September 30, 1998
- ---------------------------------------------
Net sales- Net sales for the nine months ended September 30, 1999 increased
32.4% to $168.2 million from $127.1 million in 1998. The increase in sales for
this period is primarily attributed to the Acquisitions and the TMT-Pathway
Acquisition, which provided $44.5 million in net sales, and strong highway
safety demand offset by a 4.3% decline in pro forma personal safety sales. Had
the Acquisitions and the TMT-Pathway Acquisition occurred on January 1, 1998,
net sales for the comparable nine month periods would have reflected an increase
of $3.1 million, or 1.8%. The decline in personal safety sales is attributable
to soft economic conditions in the worldwide welding market, the effect of the
strong dollar on the Company's sales within Europe when compared to the prior
year and a decline in the Company's avionic sales at its Crystaloid division.
Cost of sales- Cost of sales for the nine months ended September 30, 1999
increased 31.2% to $112.3 million from $85.6 million in 1998, primarily as a
result of the increase in net sales. Cost of sales as a percentage of sales
decreased to 66.7% from 67.3% due to improved margins associated with the
Acquisitions.
Selling, general & administrative expenses- Selling, general and administrative
expenses for the nine months ended September 30, 1999 increased 31.4% to $26.0
million from $19.8 million due primarily to the Acquisitions and the TMT-Pathway
Acquisition. Selling, general & administrative expenses as a percentage of sales
decreased from 15.6% to 15.5%.
EBITDA- EBITDA for the nine months ended September 30, 1999 increased 36.1% to
$34.7 million from $25.5 million during the same period ended September 30,
1998. This growth is primarily attributable to the Acquisitions and the TMT-
Pathway Acquisition, and strong highway safety demand offset by a decline in
personal safety sales, as discussed previously. Had the Acquisitions and the
TMT-Pathway Acquisition taken place on January 1, 1998, EBITDA would have
increased by $0.4 million, or 1.1%.
Operating income- Operating income for the nine months ended September 30, 1999
increased to $19.3 million from $15.2 million in 1998 due to increased sales.
Income tax expense- Income tax expense for the nine months ended September 30,
1999 increased to $0.7 million from $0.2 million in 1998. The increase reflects
higher state and foreign income taxes associated with the increase in income
before taxes of $1.0 million.
-16-
<PAGE>
Liquidity and Capital Resources
- -------------------------------
Cash provided by operating activities for the nine months ended September 30,
1999 and 1998 was $3.4 million and $8.3 million, respectively due to the
TMT-Pathway Acquisition and its seasonal nature.
Cash used in investing activities for the nine months ended September 30, 1999
and 1998 was $43.6 million and $50.8 million, respectively. Capital expenditures
for the nine months ended September 30, 1999 and 1998 were $5.0 million and $4.7
million, respectively.
Net cash provided by financing activities for the nine months ended September
30, 1999 and 1998 was $40.2 million and $42.5 million, respectively. The
Acquisitions and TMT-Pathway acquisition were principally financed with the
proceeds of the Senior Subordinated Notes and the new Credit Facility (see
below).
Effective April 22, 1998, the Company entered into a credit agreement (the "New
Credit Facility") with BankBoston, N.A. and Mercantile Bank National
Association, which will provide for a line of credit in the aggregate amount of
$125.0 million. 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 September
30, 1999 there was $11.7 million outstanding on the revolving credit facility
and $1.4 million of letters of credit outstanding resulting in availability of
$16.9 million. The average interest rate on the New Credit Facility outstanding
borrowings was 7.5% at September 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 bear interest at the rate of 9 1/2% per annum, payable semi-annually
in arrears on April 15 and October 15 of each year. 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.
-17
<PAGE>
Year 2000 Compliance
- --------------------
Management has completed 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 completed a desktop update and
standardization effort, which addressed Year 2000 compliance issues. The Company
utilized both internal and external resources to identify, correct or reprogram
the systems for the Year 2000 compliance. Additionally, the Company has
developed a contingency plan to attempt to address Year 2000 concerns beyond the
Year 2000. The specific actions identified in the contingency plan differ
depending on the circumstances, but most include manual work-arounds, deployment
of backup or secondary technologies, rearranging work schedules, and
substitution of suppliers, as appropriate. The Company has substantially
completed these efforts as of 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 have been expensed
as incurred, while the costs of new software have been capitalized and amortized
over the software's useful life. The amounts incurred have not had a material
effect on the Company's 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 nine
months ended September 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
-18-
<PAGE>
(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.
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: November 12, 1999 By:/s/ Christopher T. Paule
---------------------------
Christopher T. Paule
Vice President, Chief Financial
Officer and Chief Accounting Officer
-19-
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