UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended June 30, 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
--------------------------------------------------------------------------------
(Address of principal executive offices)
(636) 207-2700
--------------------------------------------------------------------------------
(Registrant's telephone number, including area code)
N/A
--------------------------------------------------------------------------------
(Former name, former address and former fiscal year, if changed since last
report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. [X] Yes [ ] No
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Sections 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court. [ ] Yes [ ] No
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
38,530 shares of Class A Common Stock at June 30, 2000
8,526 shares of Class C Common Stock at June 30, 2000
<PAGE>
JACKSON PRODUCTS, INC.
INDEX
PAGE
Part I. Financial Information:
Item 1. Consolidated Financial Statements as of June 30, 2000
and December 31,1999 and the three and six months ended
June 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
Results of Operations and Financial Condition 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>
June 30, December 31,
ASSETS 2000 1999
------ ------- -----------
<S> <C> <C>
Current assets:
Cash ................................................................. $ 436 $ 244
Accounts receivable, net of allowance for doubtful accounts of $1,080
and $1,140 in 2000 and 1999, respectively ......................... 39,409 25,593
Inventories .......................................................... 36,633 34,461
Deferred tax assets .................................................. 1,823 1,823
Prepaid expenses ..................................................... 739 869
--------- ---------
Total current assets ....................................... 79,040 62,990
Property, plant, and equipment, net ..................................... 43,005 44,521
Intangibles ............................................................. 74,470 82,816
Deferred financing costs ................................................ 5,406 6,061
Other noncurrent assets ................................................. -- 5
--------- ---------
$ 201,921 $ 196,393
========= =========
LIABILITIES AND STOCKHOLDERS' DEFICIT
-------------------------------------
Current liabilities:
Accounts payable ..................................................... $ 18,213 $ 12,875
Accrued and other liabilities ........................................ 7,147 6,837
Accrued interest ..................................................... 3,485 3,315
Accrued income taxes ................................................. 1,503 460
--------- ---------
Total current liabilities .................................. 30,348 23,487
Long-term debt .......................................................... 224,038 221,027
Other noncurrent liabilities ............................................ 3,067 3,067
Stockholders' deficit:
Class A Common Stock, $.01 par value; 100,000 shares authorized;
38,530 shares issued and outstanding at June 30, 2000 and
December 31, 1999 ................................................. -- --
Class C common stock, $.01 par value; 15,000 shares authorized;
8,526 shares issued and outstanding at June 30, 2000 and
December 31, 1999 ................................................. -- --
Additional paid-in capital ........................................... 2,952 2,952
Accumulated other comprehensive loss ................................. (975) (679)
Loans due on common stock ............................................ (329) (329)
Accumulated deficit .................................................. (57,180) (53,132)
--------- ---------
Total stockholders' deficit ................................ (55,532) (51,188)
--------- ---------
$ 201,921 $ 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 Six months ended
June 30, June 30,
2000 1999 2000 1999
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Net sales .......................................... $ 64,152 $ 59,473 $ 115,868 $ 103,113
Operating expenses:
Cost of sales ................................ 42,869 38,477 79,301 68,394
Selling, general and administrative .......... 9,322 8,733 18,605 16,768
Amortization of intangibles .................. 4,443 3,123 8,979 6,088
--------- --------- --------- ---------
Total operating expenses ........................... 56,634 50,333 106,885 91,250
Operating income ................................... 7,518 9,140 8,983 11,863
Other:
Interest expense, net ........................ (5,270) (4,753) (10,321) (9,157)
Amortization of deferred financing costs ..... (376) (376) (751) (751)
Other ........................................ (234) (189) (463) (395)
--------- --------- --------- ---------
Income (loss) before income tax expense ............ 1,638 3,822 (2,552) 1,560
Income tax expense ................................. 1,762 525 1,496 655
--------- --------- --------- ---------
Net (loss) income .................................. $ (124) $ 3,297 $ (4,048) $ 905
========= ========= ========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE>
JACKSON PRODUCTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOW
(Dollars in thousands)
(Unaudited)
<TABLE>
<CAPTION>
Six months ended June 30,
2000 1999
-------- --------
<S> <C> <C>
Cash flows from operating activities:
Net (loss) income ................................................... $ (4,048) $ 905
Adjustments to reconcile net income (loss) to net cash provided
by operating activities:
Depreciation ..................................................... 4,103 3,013
Amortization of deferred financing costs and intangibles ......... 9,730 6,839
Changes in operating assets and liabilities, net of effects of
acquisitions:
Accounts receivable .............................................. (13,816) (13,212)
Inventories ...................................................... (2,172) (805)
Accounts payable ................................................. 5,339 2,308
Accrued and other liabilities .................................... 473 629
Accrued interest ................................................. 170 206
Accrued income taxes ............................................. 1,043 --
Other, net ....................................................... (1,008) (1,552)
-------- --------
Net cash provided by (used in) operating activities ................. (186) (1,669)
Cash flows from investing activities:
Acquisition of business, including direct expenses .................. -- (38,593)
Capital expenditures ................................................ (2,633) (3,610)
-------- --------
Net cash used in investing activities ............................... (2,633) (42,203)
Cash flows from financing activities:
Proceeds from issuance of long-term obligations ..................... -- 43,771
Repurchase of common stock, net of loan payments .................... -- 14
Net borrowings of long-term debt .................................... 3,011 --
-------- --------
Net cash provided by financing activities ........................... 3,011 43,785
Net increase (decrease) in cash and cash equivalents ..................... 192 (87)
Cash and cash equivalents, beginning of period ........................... 244 327
-------- --------
Cash and cash equivalents, end of period ................................. $ 436 $ 240
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE>
JACKSON PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 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 six-month period ended June 30, 2000 are not necessarily indicative of
the results that may be expected for the year ended December 31, 2000.
(2) Inventory
Inventories at June 30, 2000 consist of the following (in thousands):
Raw materials............................... $15,080
Work-in-process............................. 6,236
Finished goods.............................. 15,317
------
$36,633
=======
(3) Acquisitions
Jackson Products, Inc. (the Company) acquired certain assets of OK Beads,
Inc. ("OK Beads) on January 25, 1999; 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 $113.7 million for the six
months ended June 30, 1999; the pro forma consolidated net loss would have
been $1.9 million for the six months ended June 30, 1999. The unaudited pro
forma consolidated statement of operations information of the Company for
the six months ended June 30, 1999 gives effect to: (i) the OK Beads
acquisition and the TMT-Pathway acquisition; and (ii) the refinancing, as
discussed in Note 4, as if each 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
acquisitions been consummated at the beginning of the respective fiscal
years.
(4) Financing Activities
Credit Agreement
During 1998 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 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 June
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 Agreement 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 Agreement) plus 0.75% for the Revolver and the Acquisition
Facility or (ii) the LIBOR Rate (as defined in the New 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 is adjusted based on the ratio of the Company's
Total Debt to EBITDA (as defined in the New Credit Agreement). The average
interest rate on outstanding borrowings was 9.2% at June 30, 2000. As of
June 30, 2000, there was $8.5 million outstanding on the revolving credit
facility and $1.5 million of letters of credit outstanding resulting in
availability of $20.0 million.
5
<PAGE>
JACKSON PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Senior Subordinated Notes
On April 16, 1998, the Company offered $115.0 million aggregate principal
amount of Senior Subordinated Notes (the "Notes") due April 15, 2005 (the
"Offering"). The Notes bear interest at the rate of 9 1/2% per annum,
payable semi-annually in arrears on April 15 and October 15 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 six months ended June 30, 2000 and 1999 is as follows:
<TABLE>
<CAPTION>
Three Months Ended Three Months Ended
June 30, 2000 June 30, 1999
------------------ ------------------
(In thousands)
PSP HSP Total PSP HSP Total
------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Sales .......................... $34,419 $36,607 $71,026 $37,049 $30,017 $67,066
Intercompany sales ............. 6,779 95 6,874 7,539 54 7,593
------- ------- ------- ------- ------- -------
Total net sales ................ 27,640 36,512 64,152 29,510 29,963 59,473
Operating income ............... 3,010 5,729 8,739 4,434 5,776 10,210
EBITDA ......................... 6,548 8,661 15,209 7,464 7,355 14,819
Six Months Ended Six Months Ended
June 30, 2000 June 30, 1999
------------------ ------------------
(In thousands)
PSP HSP Total PSP HSP Total
------- ------- ------- ------- ------- -------
Sales .......................... $69,190 $60,326 $129,516 $69,666 $46,920 $116,586
Intercompany sales ............. 13,499 149 13,648 13,389 84 13,473
------- ------- ------- ------- ------- -------
Total net sales ................ 55,691 60,177 115,868 56,277 46,836 103,113
Operating income ............... 5,381 6,107 11,488 6,115 7,778 13,893
EBITDA ......................... 12,620 11,862 24,482 12,459 10,479 22,938
As of June 30, 2000 As of December 31, 1999
------------------- -----------------------
PSP HSP Total PSP HSP Total
------- ------- ------- ------- ------- -------
Assets......................... $87,158 $105,613 $192,771 $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
June 30,
2000 1999
------ ------
Operating Income:
Total operating income for reportable segments $8,739 $10,210
Unallocated expenses......................... (1,221) (1,070)
------ ------
Total consolidated operating income.......... $7,518 $9,140
====== ======
EBITDA:
Total EBITDA for reportable segments......... $15,209 $14,819
Unallocated EBITDA........................... (1,194) (1,002)
------ ------
Total consolidated EBITDA.................... $14,015 $13,817
======= =======
EBITDA to Net Income:
Consolidated EBITDA.......................... $14,015 $13,817
Depreciation and amortization................ (6,873) (5,053)
Other........................................ (234) (189)
Interest, net................................ (5,270) (4,753)
------ ------
Income before income tax expense............. $1,638 $3,822
====== ======
Six months
ended
June 30,
2000 1999
------- -------
Operating Income:
Total operating income for reportable segments $11,488 $13,893
Unallocated expenses......................... (2,505) (2,030)
------- -------
Total consolidated operating income.......... $8,983 $11,863
====== =======
EBITDA:
Total EBITDA for reportable segments......... $24,482 $22,938
Unallocated EBITDA........................... (2,417) (1,974)
------- -------
Total consolidated EBITDA.................... $22,065 $20,964
======= =======
EBITDA to Net (Loss) Income:
Consolidated EBITDA.......................... $22,065 $20,964
Depreciation and amortization................ (13,833) (9,852)
Other........................................ (463) (395)
Interest, net................................ (10,321) (9,157)
------- -------
(Loss) income before income tax expense...... ($2,552) $1,560
======= ======
As of As of
June 30, December 31,
2000 1999
------- -------
Assets:
Total assets for reportable segments......... $192,771 $186,707
Unallocated assets........................... 9,150 9,686
-------- --------
Total consolidated assets.................... $201,921 $196,393
======== ========
7
<PAGE>
JACKSON PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(6) 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"). In late 1999, OSD was merged into the Company. Beginning
January 1, 2000, OSD's results of operations are included in the operating
results of Jackson Products, Inc. (the "Parent Company").
Financial information regarding the Guarantors as of June 30, 2000 and
December 31, 1999 and for the three and six months ended June 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)
(6) Condensed Consolidating Financial Information (con't)
CONDENSED CONSOLIDATING BALANCE SHEETS
June 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 .................................. $ -- $ -- $ 436 $ -- $ 436
Accounts receivable, net .............. 5,919 31,902 1,588 -- 39,409
Inventories ........................... 8,614 27,081 1,537 (599) 36,633
Deferred tax assets ................... 1,823 -- -- -- 1,823
Prepaid expenses ...................... 376 240 123 -- 739
--------- --------- --------- --------- --------
Total current assets ............ 16,732 59,223 3,684 (599) 79,040
Property, plant and equipment ............ 11,905 30,849 251 -- 43,005
Intangibles .............................. 15,020 57,212 2,238 -- 74,470
Note receivable from subsidiaries ........ 84,613 9,229 -- (93,842) --
Deferred financing costs ................. 5,406 -- -- -- 5,406
Investment in subsidiaries ............... 25,535 -- -- (25,535) --
Other noncurrent assets .................. -- -- -- -- --
--------- --------- --------- --------- ---------
$ 159,211 $ 156,513 $ 6,173 $(119,976) $ 201,921
========= ========= ========= ========= =========
LIABILITIES AND
STOCKHOLDERS' DEFICIT
Current liabilities:
Notes payable to parent ............... $ -- $ 90,265 $ 3,577 $ (93,842) $ --
Accounts payable ...................... 4,693 13,109 411 -- 18,213
Accrued and other liabilities ......... 3,015 3,836 296 -- 7,147
Accrued interest ...................... 3,485 -- -- -- 3,485
Accrued taxes ......................... 1,503 -- -- -- 1,503
--------- --------- --------- --------- ---------
Total current liabilities ....... 12,696 107,210 4,284 (93,842) 30,348
Long-term debt ............................ 224,038 -- -- -- 224,038
Other noncurrent liabilities .............. 3,067 -- -- -- 3,067
Due to parent ............................. (23,943) 18,496 5,447 -- --
Stockholders' deficit:
Common stock .......................... -- -- -- -- --
Additional paid-in capital ............ 2,951 34,500 -- (34,499) 2,952
Accumulated other comprehensive loss .. -- (307) (668) -- (975)
Loans due on common stock ............. (329) -- -- -- (329)
(Accumulated deficit) retained earnings (59,269) (3,386) (2,890) 8,365 (57,180)
--------- --------- --------- --------- ---------
Total stockholders' (deficit)
retained earnings............. (56,647) 30,807 (3,558) (26,134) (55,532)
--------- --------- --------- --------- ---------
$ 159,211 $ 156,513 $ 6,173 $(119,976) $ 201,921
========= ========= ========= ========= =========
</TABLE>
9
<PAGE>
JACKSON PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -(continued)
(6) Condensed Consolidating Financial Information (con't)
CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS
Three months ended June 30, 2000
(Dollars in Thousands)
<TABLE>
<CAPTION>
Non
Parent Guarantor Guarantor
Company Subsidiaries Subsidiary Eliminations Consolidated
-------- ------------ ---------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Net sales .................................... $ 18,532 $ 50,938 $ 1,556 $ (6,874) $ 64,152
Operating expenses:
Cost of sales .......................... 12,860 35,834 990 (6,815) 42,869
Selling, general and administrative .... 2,978 5,468 876 -- 9,322
Amortization of intangibles ............ 889 3,521 33 -- 4,443
-------- -------- -------- -------- --------
Total operating expenses ..................... 16,727 44,823 1,899 (6,815) 56,634
Operating income (loss) ...................... 1,805 6,115 (343) (59) 7,518
Other:
Interest expense, net .................. (5,270) -- -- -- (5,270)
Amortization of deferred financing costs (376) -- -- -- (376)
Other .................................. (234) -- -- -- (234)
-------- -------- -------- -------- --------
(Loss) income before income tax expense ..... (4,075) 6,115 (343) (59) 1,638
Income tax expense ........................... 1,666 96 -- -- 1,762
Equity in earnings (loss) of subsidiaries .... 5,676 -- -- (5,676) --
-------- -------- -------- -------- --------
Net (loss) income ............................ $ (65) $ 6,019 $ (343) $ (5,735) $ (124)
======== ======== ======== ======== ========
</TABLE>
10
<PAGE>
JACKSON PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -(continued)
(6) Condensed Consolidating Financial Information (con't)
CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS
Six months ended June 30, 2000
(Dollars in Thousands)
<TABLE>
<CAPTION>
Non
Parent Guarantor Guarantor
Company Subsidiaries Subsidiary Eliminations Consolidated
-------- ------------ ---------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Net sales .................................... $ 37,392 $ 88,728 $ 3,396 $(13,648) $115,868
Operating expenses:
Cost of sales .......................... 26,304 64,392 2,171 (13,566) 79,301
Selling, general and administrative .... 5,950 10,867 1,788 -- 18,605
Amortization of intangibles ............ 1,776 7,125 78 -- 8,979
-------- -------- -------- -------- --------
Total operating expenses ..................... 34,030 82,384 4,037 (13,566) 106,885
Operating income (loss) ...................... 3,362 6,344 (641) (82) 8,983
Other:
Interest expense, net .................. (7,079) (3,242) -- -- (10,321)
Amortization of deferred financing costs (751) -- -- -- (751)
Other .................................. 4,634 (5,090) (7) -- (463)
-------- -------- -------- -------- --------
Income (loss) before income tax expense ...... 166 (1,988) (648) (82) (2,552)
Income tax expense ........................... 1,303 193 -- -- 1,496
Equity in (loss) earnings of subsidiaries ... (2,829) -- -- 2,829 --
-------- -------- -------- -------- --------
Net (loss) income ............................ $ (3,966) $ (2,181) $ (648) $ 2,747 $ (4,048)
======== ======== ======== ======== ========
</TABLE>
11
<PAGE>
JACKSON PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -(continued)
(6) Condensed Consolidating Financial Information (con't)
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOW
Six months ended June 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 . $ 1,206 $(3,164) $ (975) $ 2,747 $ (186)
------- ------- ------- ------- -------
Cash flows from investing activities:
Acquisition of business, including direct expenses -- -- -- -- --
Capital expenditures ............................. (1,226) (1,376) (31) -- (2,633)
------- ------- ------- ------- -------
Net cash used in investing activities ............... (1,226) (1,376) (31) -- (2,633)
------- ------- ------- ------- -------
Cash flows from financing activities:
Net borrowings of long-term debt ................. 3,011 -- -- -- 3,011
------- ------- ------- ------- -------
Net cash provided by financing activities ........... 3,011 -- -- -- 3,011
------- ------- ------- ------- -------
Net increase (decrease) in cash and cash equivalents $ 2,991 $(4,540) $(1,006) $ 2,747 192
======= ======= ======= =======
Cash, beginning of period ........................... 244
-------
Cash, end of period ................................. $ 436
=======
</TABLE>
12
<PAGE>
JACKSON PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -(continued)
(6) 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
Prepaid expenses ...................... 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 ..... (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)
(6) Condensed Consolidating Financial Information (con't)
CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS
Three months ended June 30, 1999
(Dollars in Thousands)
<TABLE>
<CAPTION>
Non
Parent Guarantor Guarantor
Company Subsidiaries Subsidiary Eliminations Consolidated
-------- ------------ ---------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Net sales .................................... $ 16,138 $ 49,030 $ 1,898 $ (7,593) $ 59,473
Operating expenses:
Cost of sales .......................... 10,914 33,946 1,206 (7,589) 38,477
Selling, general and administrative .... 2,908 4,898 927 -- 8,733
Amortization of intangibles ............ 184 2,909 30 -- 3,123
-------- -------- -------- -------- --------
Total operating expenses ..................... 14,006 41,753 2,163 (7,589) 50,333
Operating income (loss) ...................... 2,132 7,277 (265) (4) 9,140
Other:
Interest expense, net .................. (3,614) (1,139) -- -- (4,753)
Amortization of deferred financing costs (376) -- -- -- (376)
Other .................................. 2,821 (3,010) -- -- (189)
-------- -------- -------- -------- --------
Income (loss) before income tax expense ...... 963 3,128 (265) (4) 3,822
Income tax expense ........................... 100 425 -- -- 525
Equity in earnings (loss) of subsidiaries .... 2,438 -- -- (2,438) --
-------- -------- -------- -------- --------
Net income (loss) ............................ $ 3,301 $ 2,703 $ (265) $ (2,442) $ 3,297
======== ======== ======== ======== ========
</TABLE>
14
<PAGE>
JACKSON PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -(continued)
(6) Condensed Consolidating Financial Information (con't)
CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS
Six months ended June 30, 1999
(Dollars in Thousands)
<TABLE>
<CAPTION>
Non
Parent Guarantor Guarantor
Company Subsidiaries Subsidiary Eliminations Consolidated
-------- ------------ ---------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Net sales ..................................... $ 28,679 $ 83,903 $ 4,004 $(13,473) $103,113
Operating expenses:
Cost of sales .......................... 19,925 59,320 2,531 (13,382) 68,394
Selling, general and administrative .... 5,504 9,343 1,921 -- 16,768
Amortization of intangibles ............ 459 5,541 88 -- 6,088
-------- -------- -------- -------- --------
Total operating expenses ...................... 25,888 74,204 4,540 (13,382) 91,250
Operating income (loss) ....................... 2,791 9,699 (536) (91) 11,863
Other:
Interest expense, net .................. (7,124) (2,033) -- -- (9,157)
Amortization of deferred financing costs (751) -- -- -- (751)
Other .................................. 5,696 (6,091) -- -- (395)
-------- -------- -------- -------- --------
Income (loss) before income tax expense ....... 612 1,575 (536) (91) 1,560
Income tax expense ............................ 170 485 -- -- 655
Equity in earnings (loss) of subsidiaries ..... 554 -- -- (554) --
-------- -------- -------- -------- --------
Net income (loss) ............................. $ 996 $ 1,090 $ (536) $ (645) $ 905
======== ======== ======== ======== ========
</TABLE>
15
<PAGE>
JACKSON PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -(continued)
(6) Condensed Consolidating Financial Information (con't)
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOW
Six months ended June 30, 1999
(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 (used in) provided by operating activities: $ (360) $ 606 $(1,361) $ (554) $(1,669)
------- ------- ------- ------- -------
Cash flows from investing activities:
Acquisition of business, including direct expenses -- (38,593) -- -- (38,593)
Capital expenditures ............................. (1,292) (2,218) (100) -- (3,610)
------- ------- ------- ------- -------
Net cash used in investing activities ............... (1,292) (40,811) (100) -- (42,203)
------- ------- ------- ------- -------
Cash flows from financing activities:
Proceeds from issuance of long-term obligations .. 43,771 -- -- -- 43,771
Repurchase of common stock, net of loan payments . 14 -- -- -- 14
------- ------- ------- ------- -------
Net cash provided by financing activities ........... 43,785 -- -- -- 43,785
------- ------- ------- ------- -------
Net increase (decrease) in cash and cash equivalents $42,133 $(40,205) $(1,461) $ (554) (87)
======= ======= ======= =======
Cash and cash equivalents, beginning of period ...... 327
-------
Cash and cash equivalents, end of period ............ $ 240
=======
</TABLE>
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 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 January 25, 1999, the Company acquired certain assets of OK Beads Inc. for
approximately $1.0 million. 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 and OK Beads have
been included in the financial statements of the Company as of these 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 thousands of safety products including welding helmets,
auto-darkening welding filter lenses, safety caps, hardhats, faceshields,
visors, safety goggles, spectacles and hearing protection products under its
well-known brand names: Jackson, Aden, EQC, Morsafe, American Allsafe Co., Team
Silencio, Huntsman and Lamba.
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 under its well-known
brand names: Flex-O-Lite, Blast-O-Lite, Morline, Dura-Line, Dura-Stripe,
Norline, TMT-Traffic Marking Technologies and Legend-Build.
Three Months Ended June 30, 2000 Compared
to Three Months Ended June 30, 1999
-----------------------------------------
Net sales- Net sales for the three months ended June 30, 2000 increased 7.9% to
$64.2 million from $59.5 million in 1999. PSP net sales decreased 7.1% in the
second quarter of 2000 over the same period in 1999, primarily due to the
continued devaluation of European currencies and the volume decline at the
Company's Crystaloid division. PSP net sales outside of these two business units
were relatively even. HSP net sales for the comparable three months increased
22.0% from $30.0 million to $36.6 million due to the TMT-Pathway Acquisition,
which provided $6.9 million of incremental net sales. On a pro forma basis, HSP
sales for the second quarter 2000 increased 4.2% over 1999.
Cost of sales- Cost of sales for the three months ended June 30, 2000 increased
11.4% to $42.9 million from $38.5 million for the same period in 1999, primarily
as a result of increased sales. Cost of sales as a percentage of sales increased
to 66.8% from 64.7%, due primarily to lower PSP margins. As a percentage of
sales, PSP cost of sales increased from 58.2% in 1999 to 61.6% in 2000 primarily
due to the volume decline at the Company's Crystaloid division. HSP cost of
sales increased 21.1% to $25.8 million from $21.3 million in 1999 due to
increased sales volume associated with the TMT-Pathway Acquisition. HSP cost of
sales as a percentage of sales were consistent with the prior year comparable
period with higher margins at TMT-Pathway offset by higher natural gas and
freight costs at the Company's Flex-O-Lite division.
17
<PAGE>
Selling, general & administrative expenses- Selling, general and administrative
expenses for the three months ended June 30, 2000 increased 6.9% to $9.3 million
from $8.7 million in 1999 primarily due to the TMT-Pathway Acquisition. Selling,
general & administrative expenses as a percentage of sales remained consistent
for the three-month comparable period.
EBITDA- EBITDA for the second quarter 2000 increased to $14.0 million from $13.8
million in the second quarter 1999. Impacts of the European currency devaluation
and the sales decline in the Company's Crystaloid division were offset by the
TMT-Pathway Acquisition.
Operating income- Operating income for the three months ended June 30, 2000
decreased to $7.5 million from $9.1 million in 1999 due to higher goodwill
amortization and operating expenses associated with the TMT-Pathway Acquisition.
Income tax expense- Income tax expense for the three months ended June 30, 2000
and 1999 was $1.8 million and $0.5 million, respectively. The increase in income
tax expense resulted from increased taxable income primarily due to permanent
differences associated with non-deductible goodwill.
Six Months Ended June 30 2000 Compared
to Six Months Ended June 30, 1999
--------------------------------------
Net sales- Net sales for the six months ended June 30, 2000 increased 12.4% to
$115.9 million from $103.1 million in 1999. PSP domestic sale increases were
offset by the continued foreign currency devaluation and the sales decline in
the Company's Crystaloid division. Overall PSP net sales remained level for the
six months ended June 30, 2000. HSP net sales for the comparable six months
increased 28.6% from $46.8 million in 1999 to $60.2 million in 2000 primarily
due to the TMT-Pathway Acquisition, which provided $12.7 million of incremental
net sales. On a pro forma basis, excluding European sales and the Company's
Crystaloid division, PSP net sales increased 4.4%, while HSP net sales increased
4.8%.
Cost of sales- Cost of sales for the six months ended June 30, 2000 increased
15.9% from $68.4 million in 1999 to $79.3 million primarily attributable to
increased sales volume. PSP cost of sales remained consistent for the six-month
comparable period, while HSP cost of sales increased 30.9% to $44.5 million in
2000 from $34.0 million in 1999 as a result of the TMT-Pathway Acquisition. HSP
cost of sales as a percentage of sales increased to 73.9% from 72.6% due to
increased natural gas and freight costs.
Selling, general & administrative expenses- Selling, general and administrative
expenses for the six months ended June 30, 2000 increased 10.7% to $18.6 million
from $16.8 million in 1999 primarily due to the TMT-Pathway Acquisition.
EBITDA- EBITDA for the six months ended June 30, 2000 increased 5.2% to $22.1
million from $21.0 million in 1999. PSP EBITDA, excluding European and
Crystaloid results, increased 11.4% in the first six months ended June 30, 2000
over the prior year. HSP EBITDA increased 13.2% in the first six months ended
June 30, 2000 over 1999, primarily attributable to the TMT-Pathway Acquisition
and its strong performance in the period under review. Consolidated EBITDA,
excluding the Company's Crystaloid division, increased 5.6% on a pro forma
basis.
Operating income- Operating income for the six months ended June 30, 2000
decreased to $8.9 million from $11.9 million in 1999. Higher sales were offset
by increased operating and amortization expenses associated with the TMT-Pathway
Acquisition.
Income tax expense- Income tax expense for the six months ended June 30, 2000
and 1999 was $1.5 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 used in operating activities for the six months ended June 30, 2000 and
1999 was $0.2 million and $1.7 million, respectively. The improvement over the
prior year stems from increased management of working capital. Changes in
working capital resulted in cash uses of $10.0 million and $12.4 million for the
six months ended June 30, 2000 and 1999, respectively.
Cash used in investing activities for the six months ended June 30, 2000 and
1999 was $2.6 million and $42.2 million, respectively. Net capital expenditures
for the six months ended June 30, 2000 and 1999 were $2.6 million and $3.6
million, respectively. The lower use of cash in the six months ended June 30,
2000 over the prior year comparable period is associated with the reduction in
acquisition activity and the timing of capital expenditures.
18
<PAGE>
Net cash provided by financing activities for the six months ended June 30, 2000
and 1999 was $3.0 million and $43.8 million, respectively. The decrease in the
six months ended June 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 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 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 June 30, 2000 there was $8.5 million outstanding on the revolving
credit facility and $1.5 million of letters of credit outstanding resulting in
availability of $20.0 million. The average interest rate on the New Credit
Facility outstanding borrowings was 9.2% at June 30, 2000.
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 six
months ended June 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: 08/09/00 By:/s/ Christopher T. Paule
/s/ Mark A. Kolmer
---------------------------
Christopher T. Paule
President and Chief
Operating Officer
Mark A. Kolmer
Vice President - Finance
