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, 2000 or [ ] TRANSITION REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from................. to..............................
Commission File Number:........... 333-53987....................................
Jackson Products, Inc.
--------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 75-2470881
--------------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer ID No.)
incorporation or organization)
2997 Clarkson Road, Chesterfield, Missouri 63017
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(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, 2000
8,526 shares of Class C Common Stock at September 30, 2000
<PAGE>
JACKSON PRODUCTS, INC.
INDEX
PAGE
Part I. Financial Information:
Item 1. Consolidated Financial Statements as of September 30, 2000
and December 31, 1999 and the three and nine months ended
September 30, 2000 and 1999 (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 17
Item 3. Quantitative and Qualitative Disclosure about Market Risk 19
Part II. Other Information 19
Signature Page 19
<PAGE>
JACKSON PRODUCTS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
September 30, December 31,
ASSETS 2000 1999
------ --------- ---------
<S> <C> <C>
Current assets:
Cash ................................................................ $ 476 $ 244
Accounts receivable, net of allowance for doubtful accounts of $1,243
and $1,140 in 2000 and 1999, respectively ...................... 40,498 25,593
Inventories ......................................................... 37,622 34,461
Deferred tax assets ................................................. 1,823 1,823
Other ............................................................... 1,007 869
--------- ---------
Total current assets .................................. 81,426 62,990
Property, plant, and equipment, net ..................................... 42,869 44,521
Intangibles ............................................................. 70,098 82,816
Deferred financing costs ................................................ 5,078 6,061
Other noncurrent assets ................................................. -- 5
--------- ---------
$ 199,471 $ 196,393
========= =========
LIABILITIES AND STOCKHOLDERS' DEFICIT
-------------------------------------
Current liabilities:
Accounts payable .................................................... $ 18,526 $ 12,875
Accrued and other liabilities ....................................... 7,687 6,837
Accrued interest .................................................... 6,104 3,315
Accrued income taxes ................................................ 2,172 460
--------- ---------
Total current liabilities ............................. 34,489 23,487
Long-term debt .......................................................... 217,676 221,027
Other noncurrent liabilities ............................................ 3,067 3,067
Stockholders' deficit:
ClassA Common Stock, $.01 par value; 100,000 shares authorized;
38,530 shares issued and outstanding at September 30, 2000 and
December 31, 1999 .............................................. -- --
ClassC common stock, $.01 par value; 15,000 shares authorized;
8,526 shares issued and outstanding at September 30, 2000 and
December 31, 1999 .............................................. -- --
Additional paid-in capital .......................................... 2,952 2,952
Accumulated other comprehensive loss ................................ (1,331) (679)
Loans due on common stock ........................................... (329) (329)
Accumulated deficit ................................................. (57,053) (53,132)
--------- ---------
Total stockholders' deficit ........................... (55,761) (51,188)
--------- ---------
$ 199,471 $ 196,393
========= =========
</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,
2000 1999 2000 1999
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Net sales ................................................. $ 64,085 $ 65,124 $ 179,953 $ 168,237
Operating expenses:
Cost of sales .................................... 43,866 43,882 123,167 112,276
Selling, general and administrative .............. 9,088 9,281 27,693 26,049
Amortization of intangibles ...................... 4,327 4,451 13,306 10,539
--------- --------- --------- ---------
Total operating expenses .................................. 57,281 57,614 164,166 148,864
Operating income .......................................... 6,804 7,510 15,787 19,373
Other:
Interest expense, net ............................ (5,258) (5,165) (15,579) (14,322)
Amortization of deferred financing costs ......... (374) (375) (1,125) (1,126)
Other ............................................ (377) (221) (840) (616)
--------- --------- --------- ---------
Income (loss) before income tax expense ................... 795 1,749 (1,757) 3,309
Income tax expense ........................................ 668 62 2,164 717
--------- --------- --------- ---------
Net income (loss) ......................................... $ 127 $ 1,687 $ (3,921) $ 2,592
========= ========= ========= =========
</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,
2000 1999
-------- --------
<S> <C> <C>
Cash flows from operating activities:
Net (loss) income .......................................................... $ (3,921) $ 2,592
Adjustments to reconcile net (loss) income to net cash provided
by operating activities:
Depreciation ............................................................... 6,066 4,814
Amortization of deferred financing costs and intangibles ................... 14,431 11,750
Changes in operating assets and liabilities, net of effects of acquisitions:
Accounts receivable .................................................. (14,905) (14,059)
Inventories .......................................................... (3,161) (2,057)
Accounts payable ..................................................... 5,651 (1,745)
Accrued and other liabilities ........................................ 1,065 672
Accrued interest ..................................................... 2,789 2,995
Accrued income taxes ................................................. 1,712 325
Other, net ........................................................... (1,660) (1,893)
-------- --------
Net cash provided by operating activities ................................. 8,067 3,394
Cash flows from investing activities:
Acquisition of business, including direct expenses ................... -- (38,593)
Capital expenditures ................................................. (4,484) (5,040)
-------- --------
Net cash used in investing activities ...................................... (4,484) (43,633)
Cash flows from financing activities:
Proceeds from issuance of long-term obligations ...................... -- 39,491
Repurchase of common stock, net of loan payments ..................... -- 14
Net (repayments) borrowings of long-term debt ........................ (3,351) 715
-------- --------
Net cash (used in) provided by financing activities ........................ (3,351) 40,220
Net increase (decrease) in cash and cash equivalents ....................... 232 (19)
Cash and cash equivalents, beginning of period ............................. 244 327
-------- --------
Cash and cash equivalents, end of period ................................... $ 476 $ 308
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE>
JACKSON PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2000
(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 1999 balances have
been reclassified to conform to 2000 presentation. Operating results for
the nine-month period ended September 30, 2000 are not necessarily
indicative of the results that may be expected for the year ended December
31, 2000.
(2) Inventory
Inventories at September 30, 2000 consist of the following (in thousands):
Raw materials ........................... $15,596
Work-in-process ......................... 5,485
Finished goods .......................... 16,541
------
$37,622
(3) Acquisitions
Jackson Products, Inc. (the Company) acquired American Allsafe Company and
Silencio/Safety Direct, Inc. on April 22, 1998; Crystaloid Technologies,
Inc. on April 23, 1998; Kedman Company on July 22, 1998 (collectively, the
"Acquisitions"); and TMT-Pathway, L.L.C. ("TMT-Pathway") on May 17, 1999.
The results of operations of the acquired businesses have been included in
the consolidated financial statements since their respective acquisition
dates.
Pro forma consolidated net sales would have been $178.8 million for the
nine months ended September 30, 1999; the pro forma consolidated net loss
would have been $0.4 million for the nine months ended September 30, 1999.
The unaudited pro forma consolidated statement of operations information of
the Company for the nine months ended September 30, 1999 gives effect to
the TMT-Pathway acquisition, as if it had occurred on January 1, 1999.
These pro forma amounts represent unaudited data and in the opinion of
management of the Company, are not necessarily indicative of actual results
had the acquisition been consummated at the beginning of the respective
fiscal year.
(4) Financing Activities
Credit Agreement
During 1998 the Company entered into a credit agreement (the "New Credit
Facility") with Fleet National Bank and Firstar 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 TMT-Pathway acquisition. 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 maturity date for both the acquisition and the revolving
credit line facilities is April 30, 2004. 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, 2000. The commitment fee on the unused portion of the
Revolver and the Acquisition Facility is 1/2 % per annum, payable
quarterly.
Borrowings under the New Credit Facility bear interest, at the option of
the Company, at a rate per annum equal to (i) the Base Rate (as defined in
the New Credit Facility) plus 0.75% for the Revolver and the Acquisition
Facility or (ii) the LIBOR Rate (as defined in the New Credit Facility)
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 is adjusted based on the ratio of the Company's
Total Debt to EBITDA (as defined in the New Credit Facility). The average
interest rate on outstanding borrowings was
5
<PAGE>
JACKSON PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
9.0% at September 30, 2000. As of September 30, 2000, there was $4.6
million outstanding on the revolving credit facility and $1.5 million of
letters of credit outstanding resulting in availability of $23.9 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) Summary by Business Segment
The Company has two reportable segments, which include Personal Safety
Products segment ("PSP") and Highway Safety Products segment ("HSP").
Information related to the Company's operations by business segment for the
three and nine months ended September 30, 2000 and 1999 is listed below.
EBITDA represents net income plus interest, taxes, depreciation,
amortization and certain non-cash and or non-recurring 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 certain financial ratios are 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 senior subordinated
notes.
<TABLE>
<CAPTION>
Three Months Ended Three Months Ended
September 30, 2000 September 30, 1999
------------------ ------------------
(In thousands)
PSP HSP Total PSP HSP Total
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Sales ............................... $ 31,159 $ 39,174 $ 70,333 $ 33,923 $ 38,474 $ 72,397
Intercompany sales .................. 5,919 329 6,248 7,220 53 7,273
-------- -------- -------- -------- -------- --------
Total net sales ..................... 25,240 38,845 64,085 26,703 38,421 65,124
Operating income .................... 1,369 6,587 7,956 1,691 6,880 8,571
EBITDA .............................. 5,153 9,435 14,588 5,224 9,612 14,836
Nine Months Ended Nine Months Ended
September 30, 2000 September 30, 1999
------------------ ------------------
(In thousands)
PSP HSP Total PSP HSP Total
-------- -------- -------- -------- -------- --------
Sales ............................... $100,349 $ 99,500 $199,849 $103,589 $ 85,394 $188,983
Intercompany sales .................. 19,418 478 19,896 20,609 137 20,746
-------- -------- -------- -------- -------- --------
Total net sales ..................... 80,931 99,022 179,953 82,980 85,257 168,237
Operating income .................... 6,750 12,694 19,444 7,806 14,658 22,464
EBITDA .............................. 17,773 21,297 39,070 17,683 20,091 37,774
As of September 30, 2000 As of December 31, 1999
------------------------ -----------------------
PSP HSP Total PSP HSP Total
-------- -------- -------- -------- -------- --------
Assets........................... $ 87,960 $102,740 $190,700 $ 89,751 $96,956 $186,707
</TABLE>
6
<PAGE>
JACKSON PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Following are reconciliations of the segment information with the consolidated
totals per the financial statements (in thousands of dollars).
Three months ended
September 30,
2000 1999
------- -------
Operating Income:
Total operating income for reportable segments $ 7,956 $ 8,571
Unallocated expenses.......................... (1,152) (1,061)
------- -------
Total consolidated operating income........... $ 6,804 $ 7,510
EBITDA:
Total EBITDA for reportable segments.......... $14,588 $14,836
Unallocated EBITDA............................ (998) (1,074)
------- -------
Total consolidated EBITDA..................... $13,590 $13,762
EBITDA to Income Before Tax Expense:
Consolidated EBITDA........................... $13,590 $13,762
Depreciation and amortization................. (6,664) (6,627)
Other......................................... (873) (221)
Interest, net................................. (5,258) (5,165)
------- -------
Income before income tax expense.............. $ 795 $ 1,749
Nine months ended
September 30,
2000 1999
------- -------
Operating Income:
Total operating income for reportable segments $19,444 $22,464
Unallocated expenses.......................... (3,657) (3,091)
------- -------
Total consolidated operating income........... $15,787 $19,373
EBITDA:
Total EBITDA for reportable segments.......... $39,070 $37,774
Unallocated EBITDA............................ (3,415) (3,048)
------- -------
Total consolidated EBITDA..................... $35,655 $34,726
EBITDA to (Loss) Income Before Tax Expense:
Consolidated EBITDA........................... $35,655 $34,726
Depreciation and amortization................. (20,497) (16,479)
Other......................................... (1,336) (616)
Interest, net................................. (15,579) (14,322)
------- -------
(Loss) income before income tax expense....... ($1,757) $ 3,309
As of As of
September 30, December 31,
2000 1999
------- -------
Assets:
Total assets for reportable segments.......... $190,700 $186,707
Unallocated assets............................ 8,771 9,686
------- -------
Total consolidated assets..................... $199,471 $196,393
7
<PAGE>
JACKSON PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(6) Closure of Facility
On August 16, 2000, the Company announced the closing of its Salt Lake
City, Utah facility. Certain product lines will be moved to the Company's
manufacturing location in Belmont, Michigan. This strategic move
capitalizes on manufacturing synergies between the Salt Lake City and
Belmont facilities. The Company anticipates the move to be substantially
complete by the end of fiscal 2000.
Accordingly, the Company recorded a pre-tax charge of $496 thousand in the
third quarter ending September 30, 2000, to cover the expected cash and
non-cash costs of the closure. The charge includes employee termination
expenses, discontinuance of leases and closure costs. The land and
buildings in Salt Lake City will be sold as soon as possible after
operations cease.
(7) Condensed Consolidating Financial Information
The payment of principal, premium, interest and liquidated damages on the
Notes will be unconditionally guaranteed, jointly and severally, on a
senior subordinated basis by American Allsafe Company, a Delaware
corporation, Crystaloid Technologies, Inc., a Delaware corporation,
Flex-O-Lite, Inc., a Delaware corporation, Silencio/Safety Direct, a Nevada
Corporation and TMT-Pathway, L.L.C. as guarantors (collectively, the
"Guarantors").
Financial information regarding the Guarantors as of September 30, 2000 and
December 31, 1999 and for the three and nine months ended September 30,
2000 and 1999 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.
8
<PAGE>
JACKSON PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -(continued)
(7) Condensed Consolidating Financial Information (con't)
CONDENSED CONSOLIDATING BALANCE SHEETS
September 30, 2000
(Dollars in thousands)
<TABLE>
<CAPTION>
Non
Parent Guarantor Guarantor
Company Subsidiaries Subsidiary Eliminations Consolidated
------- ------------ ---------- ------------ ------------
<S> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash ................................................... $ -- $ -- $ 476 $ -- $ 476
Accounts receivable, net ............................... 6,040 33,223 1,235 -- 40,498
Inventories ............................................ 10,022 26,523 1,606 (529) 37,622
Deferred tax assets .................................... 1,823 -- -- -- 1,823
Other .................................................. 388 502 117 -- 1,007
--------- --------- --------- --------- ---------
Total current assets ............................. 18,273 60,248 3,434 (529) 81,426
Property, plant and equipment .......................... 12,221 30,431 217 -- 42,869
Intangibles ............................................ 14,085 53,775 2,238 -- 70,098
Note receivable from subsidiaries ...................... 84,613 9,229 -- (93,842) --
Deferred financing costs ............................... 5,078 -- -- -- 5,078
Investment in subsidiaries ............................. 26,447 -- -- (26,447) --
--------- --------- --------- --------- ---------
$ 160,717 $ 153,683 $ 5,889 $(120,818) $ 199,471
========= ========= ========= ========= =========
LIABILITIES AND
STOCKHOLDERS' DEFICIT
Current liabilities:
Notes payable to parent ................................ $ -- $ 90,265 $ 3,577 $ (93,842) $ --
Accounts payable ....................................... 3,560 14,508 458 -- 18,526
Accrued and other liabilities .......................... 2,928 4,503 256 -- 7,687
Accrued interest ....................................... 6,104 -- -- -- 6,104
Accrued taxes .......................................... 2,172 -- -- -- 2,172
--------- --------- --------- --------- ---------
Total current liabilities ........................ 14,764 109,276 4,291 (93,842) 34,489
Long-term debt ............................................ 217,676 -- -- -- 217,676
Other noncurrent liabilities .............................. 3,067 -- -- -- 3,067
Due to parent ............................................. (22,380) 12,482 5,890 4,008 --
Stockholders' deficit
Common stock ........................................... -- -- -- -- --
Additional paid-in capital ............................. 2,951 34,500 -- (34,499) 2,952
Accumulated other comprehensive loss ................... -- (351) (980) -- (1,331)
Loans due on common stock .............................. (329) -- -- -- (329)
(Accumulated deficit) retained earnings ................ (55,032) (2,224) (3,312) 3,515 (57,053)
--------- --------- --------- --------- ---------
Total stockholders' (deficit) retained earnings .. (52,410) 31,925 (4,292) (30,984) (55,761)
--------- --------- --------- --------- ---------
$ 160,717 $ 153,683 $ 5,889 $(120,818) $ 199,471
========= ========= ========= ========= =========
</TABLE>
9
<PAGE>
JACKSON PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -(continued)
(7) Condensed Consolidating Financial Information (con't)
CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS
Three months ended September 30, 2000
(Dollars in Thousands)
<TABLE>
<CAPTION>
Non
Parent Guarantor Guarantor
Company Subsidiaries Subsidiary Eliminations Consolidated
------- ------------ ---------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Net sales .................................... $ 15,224 $ 53,676 $ 1,433 $ (6,248) $ 64,085
Operating expenses:
Cost of sales .......................... 11,058 38,120 1,004 (6,316) 43,866
Selling, general and administrative .... 2,657 5,575 856 -- 9,088
Amortization of intangibles ............ 888 3,439 -- -- 4,327
-------- -------- -------- -------- --------
Total operating expenses ..................... 14,603 47,134 1,860 (6,316) 57,281
Operating income (loss) ...................... 621 6,542 (427) 68 6,804
Other:
Interest expense, net .................. (3,638) (1,620) -- -- (5,258)
Amortization of deferred financing costs (374) -- -- -- (374)
Other .................................. 3,492 (3,874) 5 -- (377)
-------- -------- -------- -------- --------
Income (loss) before income tax expense ...... 101 1,048 (422) 68 795
Income tax expense ........................... 782 (114) -- -- 668
Equity in earnings (loss) of subsidiaries .... 4,918 -- -- (4,918) --
-------- -------- -------- -------- --------
Net income (loss) ............................ $ 4,237 $ 1,162 $ (422) $ (4,850) $ 127
======== ======== ======== ======== ========
</TABLE>
10
<PAGE>
JACKSON PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -(continued)
(7) Condensed Consolidating Financial Information (con't)
CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS
Nine months ended September 30, 2000
(Dollars in Thousands)
<TABLE>
<CAPTION>
Non
Parent Guarantor Guarantor
Company Subsidiaries Subsidiary Eliminations Consolidated
------- ------------ ---------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Net sales .................................... $ 52,616 $142,404 $ 4,829 $(19,896) $179,953
Operating expenses:
Cost of sales .......................... 37,362 102,512 3,175 (19,882) 123,167
Selling, general and administrative .... 8,607 16,442 2,644 -- 27,693
Amortization of intangibles ............ 2,664 10,564 78 -- 13,306
-------- -------- -------- -------- --------
Total operating expenses ..................... 48,633 129,518 5,897 (19,882) 164,166
Operating income (loss) ...................... 3,983 12,886 (1,068) (14) 15,787
Other:
Interest expense, net .................. (10,717) (4,862) -- -- (15,579)
Amortization of deferred financing costs (1,125) -- -- -- (1,125)
Other .................................. 8,126 (8,964) (2) -- (840)
-------- -------- -------- -------- --------
Income (loss) before income tax expense ...... 267 (940) (1,070) (14) (1,757)
Income tax expense ........................... 2,085 79 -- -- 2,164
Equity in (loss) earnings of subsidiaries ... 2,089 -- -- (2,089) --
-------- -------- -------- -------- --------
Net loss ..................................... $ 271 $ (1,019) $ (1,070) $ (2,103) $ (3,921)
======== ======== ======== ======== ========
</TABLE>
11
<PAGE>
JACKSON PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -(continued)
(7) Condensed Consolidating Financial Information (con't)
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOW
Nine months ended September 30,
2000
(Dollars in thousands)
<TABLE>
<CAPTION>
Non
Parent Guarantor Guarantor
Company Subsidiaries Subsidiary Eliminations Consolidated
------- ------------ ---------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Cash flow from operating activities:
Net cash provided by (used in) operating activities $ 7,835 $ 3,470 $(1,664) $(1,574) $ 8,067
------- ------- ------- ------- -------
Cash flows from investing activities:
Acquisition of business, including direct expenses -- -- -- -- --
Capital expenditures ............................. (2,150) (2,298) (36) -- (4,484)
------- ------- ------- ------- -------
Net cash used in investing activities ............... (2,150) (2,298) (36) -- (4,484)
------- ------- ------- ------- -------
Cash flows from financing activities:
Net repayments of long-term debt ................. (3,351) -- -- -- (3,351)
------- ------- ------- ------- -------
Net cash used in financing activities ............... (3,351) -- -- -- (3,351)
------- ------- ------- ------- -------
Net increase (decrease) in cash and cash equivalents $ 2,334 $ 1,172 $(1,700) $(1,574) 232
======= ======= ======= =======
Cash, beginning of period ........................... 244
-------
Cash, end of period ................................. $ 476
=======
</TABLE>
12
<PAGE>
JACKSON PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -(continued)
(7) Condensed Consolidating Financial Information (con't)
CONDENSED CONSOLIDATING BALANCE SHEETS
December 31, 1999
(Dollars in thousands)
<TABLE>
<CAPTION>
Non
Parent Guarantor Guarantor
Company Subsidiaries Subsidiary Eliminations Consolidated
------- ------------ ---------- ------------ ------------
<S> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash ................................................ $ -- $ -- $ 244 $ -- $ 244
Accounts receivable, net ............................ 4,315 19,972 1,306 -- 25,593
Inventories ......................................... 6,208 27,120 1,650 (517) 34,461
Deferred tax assets ................................. 1,823 -- -- -- 1,823
Other ............................................... 222 543 104 -- 869
--------- --------- --------- --------- ---------
Total current assets .......................... 12,568 47,635 3,304 (517) 62,990
Property, plant and equipment ....................... 11,235 33,012 274 -- 44,521
Intangibles ......................................... 12,604 67,896 2,316 -- 82,816
Note receivable from subsidiaries ................... 84,613 9,229 -- (93,842) --
Deferred financing costs ............................ 6,061 -- -- -- 6,061
Investment in subsidiaries .......................... 20,025 -- -- (20,025) --
Other noncurrent assets ............................. -- 5 -- -- 5
--------- --------- --------- --------- ---------
$ 147,106 $ 157,777 $ 5,894 $(114,384) $ 196,393
========= ========= ========= ========= =========
LIABILITIES AND
STOCKHOLDERS' DEFICIT
Current liabilities:
Notes payable to parent ............................. $ -- $ 90,265 $ 3,577 $ (93,842) $ --
Accounts payable .................................... 2,482 10,078 315 -- 12,875
Accrued and other liabilities ....................... 2,811 3,583 443 -- 6,837
Accrued interest .................................... 3,315 -- -- -- 3,315
Accrued taxes ....................................... 460 -- -- -- 460
--------- --------- --------- --------- ---------
Total current liabilities ..................... 9,068 103,926 4,335 (93,842) 23,487
Long-term debt ......................................... 221,027 -- -- -- 221,027
Other noncurrent liabilities ........................... 3,067 -- -- -- 3,067
Due to parent .......................................... (36,062) 31,779 4,283 --
Stockholders' deficit
Common stock ........................................ -- 1 -- (1) --
Additional paid-in capital .......................... 2,951 34,499 -- (34,498) 2,952
Accumulated other comprehensive loss ................ -- (204) (475) -- (679)
Loans due on common stock ........................... (329) -- -- -- (329)
(Accumulated deficit) retained earnings ............. (52,616) (12,224) (2,249) 13,957 (53,132)
--------- --------- --------- --------- ---------
Total stockholders' (deficit) retained earnings (49,994) 22,072 (2,724) (20,542) (51,188)
--------- --------- --------- --------- ---------
$ 147,106 $ 157,777 $ 5,894 $(114,384) $ 196,393
========= ========= ========= ========= =========
</TABLE>
13
<PAGE>
JACKSON PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -(continued)
(7) Condensed Consolidating Financial Information (con't)
CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS
Three months ended September 30, 1999
(Dollars in Thousands)
<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 ............ 276 4,175 -- -- 4,451
-------- -------- -------- -------- --------
Total operating expenses ..................... 12,923 49,937 1,942 (7,188) 57,614
Operating income (loss) ...................... 760 7,123 (288) (85) 7,510
Other:
Interest expense, net .................. (3,463) (1,702) -- -- (5,165)
Amortization of deferred financing costs (375) -- -- -- (375)
Other .................................. 3,882 (4,103) -- -- (221)
-------- -------- -------- -------- --------
Income (loss) before income tax expense ...... 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>
14
<PAGE>
JACKSON PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -(continued)
(7) Condensed Consolidating Financial Information (con't)
CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS
Nine months ended September 30, 1999
(Dollars in Thousands)
<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 ........... 735 9,716 88 -- 10,539
-------- -------- -------- -------- --------
Total operating expenses ..................... 38,811 124,141 6,482 (20,570) 148,864
Operating income (loss) ...................... 3,551 16,822 (824) (176) 19,373
Other :
Interest expense, net ................. (10,587) (3,735) -- -- (14,322)
Amortization of deferred financing cost (1,126) -- -- -- (1,126)
Other ................................. 9,578 (10,194) -- -- (616)
-------- -------- -------- -------- --------
Income (loss) before income tax expense ...... 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>
15
<PAGE>
JACKSON PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -(continued)
(7) Condensed Consolidating Financial Information (con't)
CONDE NSED 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:
Acquisition of business, including direct expenses (38,593) -- -- (38,593)
Capital expenditures ............................. (1,570) (3,349) (121) -- (5,040)
------- ------- ------- ------- -------
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 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>
16
<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 and or non-recurring 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 certain financial ratios are
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 senior subordinated notes.
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. Operating results of the TMT-Pathway
Acquisition have been included in the financial statements of the Company as of
this dates.
The Company has two reportable segments, which include Personal Safety Products
segment ("PSP") and Highway Safety Products segment ("HSP"). The PSP segment
manufactures and sells safety products including welding helmets, auto-darkening
welding filter lenses, safety caps, hardhats, faceshields, visors, safety
goggles, spectacles and hearing protection products. The HSP segment sells
reflective glass beads, cones, channelizers, pavement tape, flags, vests,
roll-up signs, barricades, high-intensity lights, traffic coatings and
specialized coatings applications equipment.
Three Months Ended September 30, 2000 Compared
to Three Months Ended September 30, 1999
-----------------------------------------------
Net sales - Net sales for the three months ended September 30, 2000 decreased
slightly on a consolidated basis with the same period in 1999. PSP net sales
declined 5.6% to $25.2 million from $26.7 million in the third quarter of 2000
over the same period in 1999, primarily due to the continued devaluation of
European currencies, the sales decline in the Company's Crystaloid division and
the divestiture of the Company's Aden Ophthalmic Products ("AOP") prescription
frame business during the fourth quarter 1999. For the comparable three-month
period, net sales decreased $0.2 million each for Europe and Crystaloid and $0.4
million due to the divestiture of AOP. HSP net sales increased to $38.8 million
from $38.4 million over the same three-month period.
Cost of sales - Cost of sales for the three months ended September 30, 2000 were
consistent with the same period in 1999, as a result of level sales activity.
Cost of sales as a percentage of sales increased to 68.5% from 67.4%, due to
increased costs within the HSP segment. As a percentage of sales, HSP cost of
sales increased to 71.5% from 69.4% in 2000 due to higher natural gas and
freight costs.
Selling, general & administrative expenses - Selling, general and administrative
expenses for the three months ended September 30, 2000 decreased slightly to
$9.1 million from $9.3 million in 1999.
EBITDA - EBITDA for the third quarter 2000 remained level with the third quarter
1999. Impacts of the European devaluation as well as increased natural gas and
freight costs were offset by a 10% increase in EBITDA at TMT-Pathway.
Operating income - Operating income for the three months ended September 30,
2000 decreased 9.3% to $6.8 million from $7.5 million in 1999 due to declined
sales volume within the PSP segment and increased natural gas cost within the
HSP segment.
Income tax expense - Income tax expense for the three months ended September 30,
2000 and 1999 was $0.7 million and $0.1 million, respectively. The increase in
income tax expense resulted from increased taxable income primarily due to
permanent differences associated with non-deductible goodwill.
17
<PAGE>
Nine Months Ended September 30 2000 Compared
to Nine Months Ended September 30, 1999
---------------------------------------------
Net sales - Net sales for the nine months ended September 30, 2000 increased
7.1% to $180.0 million from $168.2 million in 1999. PSP welding sales increased
$1.1 million over 1999 offset by the continued foreign currency devaluation, the
sales decline in the Company's Crystaloid division and the divestiture of AOP.
HSP net sales for the comparable nine months increased $14.1 million to $99.5
million in 2000 from $85.4 million in 1999, of which $10.6 million is due to the
TMT-Pathway Acquisition. On a pro forma basis, excluding European sales and the
Company's Crystaloid division, PSP net sales increased 1.5%, while HSP net sales
increased 3.3%.
Cost of sales - Cost of sales for the nine months ended September 30, 2000
increased 9.7% to $123.2 million from $112.3 million in 1999 primarily
attributable to the increase in net sales. PSP cost of sales declined slightly
for the nine-month comparable period, while HSP cost of sales increased 19.3% to
$72.3 million in 2000 from $60.6 million in 1999 as a result of the TMT-Pathway
Acquisition. HSP cost of sales as a percentage of sales increased to 73.0% from
71.1% due to increased natural gas and freight costs.
Selling, general & administrative expenses - Selling, general and administrative
expenses for the nine months ended September 30, 2000 increased 6.5% to $27.7
million from $26.0 million in 1999 primarily due to the TMT-Pathway Acquisition.
On a pro forma basis, selling, general, and administrative expenses remained
consistent with the comparable nine-month period.
EBITDA - EBITDA for the nine months ended September 30, 2000 increased 2.9% to
$35.7 million from $34.7 million in 1999. PSP EBITDA, excluding European and
Crystaloid results, increased 7.5% in the first nine months ended September 30,
2000 over the prior year. HSP EBITDA increased 6.0% in the first nine months
ended September 30, 2000 over 1999, primarily attributable to the TMT-Pathway
Acquisition. Consolidated EBITDA, excluding the Company's Crystaloid division,
increased 2.5% on a pro forma basis.
Operating income - Operating income for the nine months ended September 30, 2000
decreased to $15.8 million from $19.4 million in 1999.
Income tax expense - Income tax expense for the nine months ended September 30,
2000 and 1999 was $2.2 million and $0.7 million, respectively. The increase in
income tax expense resulted from increased taxable income primarily due to
permanent differences associated with non-deductible goodwill.
Liquidity and Capital Resources
-------------------------------
Cash provided by operating activities for the nine months ended September 30,
2000 and 1999 was $8.1 million and $3.4 million, respectively. The improvement
over the prior year stems from increased management of working capital. Changes
in working capital resulted in cash uses of $8.5 million and $15.8 million for
the nine months ended September 30, 2000 and 1999, respectively.
Cash used in investing activities for the nine months ended September 30, 2000
and 1999 was $4.5 million and $43.6 million, respectively. Net capital
expenditures for the nine months ended September 30, 2000 and 1999 were $4.5
million and $5.0 million, respectively. The lower use of cash in the nine months
ended September 30, 2000 over the prior year comparable period is associated
with the reduction in acquisition activity and the timing of capital
expenditures.
Net cash (used) provided by financing activities for the nine months ended
September 30, 2000 and 1999 was ($3.4 million) and $40.2 million, respectively.
The decrease in the nine months ended September 30, 2000 over the prior year is
a result of the absence of incremental debt to fund acquisition activity.
Effective April 22, 1998, the Company entered into a credit agreement (the "New
Credit Facility") with Fleet National Bank and Firstar Bank National
Association, which provided 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. The maturity
date for both the acquisition and the revolving credit line facilities is April
30, 2004. At September 30, 2000 there was $4.6 million outstanding on the
revolving credit facility and $1.5 million of letters of credit outstanding
resulting in availability of $23.9 million. The average interest rate on the New
Credit Facility outstanding borrowings was 9.0% at September 30, 2000.
18
<PAGE>
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 2000.
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, 2000. For additional information, refer to Item 7 in
the Company's annual report on Form 10-K for the year ended December 31, 1999.
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
(a) Exhibits. The following exhibits are included with this
report:
Exhibit 27 - Financial Data Schedule
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
JACKSON PRODUCTS, INC.
(Registrant)
Date: 11/13/00 By:/s/ Christopher T. Paule
/s/ Mark A. Kolmer
---------------------------
Christopher T. Paule
President and Chief
Operating Officer
Mark A. Kolmer
Vice President - Finance
19
<PAGE>
