UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended March 31, 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 March 31, 2000
8,256 shares of Class C Common Stock at March 31, 2000
<PAGE>
JACKSON PRODUCTS, INC.
INDEX
PAGE
Part I. Financial Information:
Item 1. Consolidated Financial Statements as of March 31,
2000 and December 31, 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 14
Item 3. Quantitative and Qualitative Disclosure about Market Risk 16
Part II.Other Information 16
Signature Page 16
1
<PAGE>
JACKSON PRODUCTS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
March 31, December 31,
ASSETS 2000 1999
------ --------- ---------
<S> <C> <C>
Current assets:
Cash ................................................................ $ 307 $ 244
Accounts receivable, net of allowance for doubtful accounts of $1,063
and $1,140 in 2000 and 1999, respectively ........................ 31,371 25,593
Inventories ......................................................... 36,179 34,461
Deferred tax assets ................................................. 2,408 1,823
Prepaid expenses .................................................... 901 869
--------- ---------
Total current assets .................................... 71,166 62,990
Property, plant, and equipment, net ..................................... 43,750 44,521
Intangibles ............................................................. 78,461 82,816
Deferred financing costs ................................................ 5,734 6,061
Other noncurrent assets ................................................. 5 5
--------- ---------
$ 199,116 $ 196,393
========= =========
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Accounts payable .............................................. $ 14,878 $ 12,875
Accrued and other liabilities ................................. 7,712 6,837
Accrued interest .............................................. 6,064 3,315
Accrued income taxes .......................................... 440 460
--------- ---------
Total current liabilities ......................... 29,094 23,487
Long-term debt .................................................... 222,251 221,027
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 March 31,
2000 and December 31, 1999 ................................... -- --
Class C common stock, $.01 par value; 15,000 shares authorized;
8,526 shares issued and outstanding at March 31, 2000 and
December 31, 1999 ............................................. -- --
Additional paid-in capital .................................... 2,952 2,952
Accumulated other comprehensive loss .......................... (863) (679)
Loans due on common stock ..................................... (329) (329)
Accumulated deficit ........................................... (57,056) (53,132)
--------- ---------
Total stockholders' deficit ....................... (55,296) (51,188)
--------- ---------
$ 199,116 $ 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)
Three Months Ended
March 31,
2000 1999
-------- --------
Net sales .................................... $ 51,716 $ 43,640
Operating expenses:
Cost of sales .......................... 36,432 29,917
Selling, general and administrative .... 9,283 8,035
Amortization of intangibles ............ 4,536 2,965
-------- --------
Total operating expenses ..................... 50,251 40,917
-------- --------
Operating income ............................. 1,465 2,723
Other:
Interest expense, net .................. (5,051) (4,404)
Amortization of deferred financing costs (375) (375)
Other .................................. (229) (206)
-------- --------
Loss before income tax (benefit) expense ..... (4,190) (2,262)
Income tax (benefit) expense ................. (266) 130
-------- --------
Net loss ..................................... $ (3,924) $ (2,392)
======== ========
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>
Three months ended March 31,
2000 1999
---------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net loss ......................................................... $(3,924) $(2,392)
Adjustments to reconcile net loss to net cash provided by
operating activities:
Depreciation .................................................. 2,049 1,459
Amortization of deferred financing costs, intangibles
and debt discount .......................................... 4,911 3,369
Changes in operating assets and liabilities, net of effects of
acquisitions:
Accounts receivable ........................................... (5,778) (7,345)
Inventories ................................................... (1,718) 806
Accounts payable .............................................. 2,003 (931)
Accrued and other liabilities ................................. 645 (50)
Accrued interest .............................................. 2,749 2,670
Accrued taxes ................................................. (20) --
Other, net .................................................... (796) (322)
------- -------
Net cash provided by (used in) operating activities .............. 121 (2,736)
Cash flows from investing activities:
Acquisition of business including transaction costs, net
of cash aquired ............................................... -- (1,278)
Capital expenditures ............................................. (1,282) (1,864)
------- -------
Net cash used in investing activities ............................ (1,282) (3,142)
Cash flows from financing activities:
Net borrowings of long-term debt ................................. 1,224 5,826
Repurchase of common stock, net of loan repayments ............... -- (3)
------- -------
Net cash provided by financing activities ........................ 1,224 5,823
Net increase (decrease) in cash ........................................ 63 (55)
Cash, beginning of period .............................................. 244 327
------- -------
Cash, end of period .................................................... $ 307 $ 272
======= =======
</TABLE>
See accompanying notes to consolidated financial statements
4
<PAGE>
JACKSON PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 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 three-month period ended March 31, 2000 are not necessarily indicative
of the results that may be expected for the year ended December 31, 2000.
(2) Inventory
Inventories at March 31, 2000 consist of the following (in thousands):
Raw materials.............................. $13,685
Work-in-process............................ 6,663
Finished goods............................. 15,831
------
$36,179
(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"); 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 $49.2 million for the
three months ended March 31, 1999; the pro forma consolidated net loss
would have been $4.5 million for the three months ended March 31, 1999. The
unaudited pro forma consolidated statement of operations information of the
Company for the three months ended March 31, 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 indicative of actual results had the
acquisitions been consummated at the beginning of the respective fiscal
years.
(4) Financing Activities
Credit Agreement
In connection with the Allsafe acquisition and the Crystaloid acquisition,
the Company entered into a credit agreement (the "New Credit Facility")
with BankBoston, N.A. and Mercantile Bank National Association, which
provided for a line of credit in the aggregate amount of $125.0 million.
This credit agreement was increased to $135.0 million during the second
quarter of 1999 in conjunction with the 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 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 March 31, 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 Credit Agreement bear interest, at the option of the
Company, at a rate per annum equal to (i) the Base Rate (as defined in the
Credit Agreement) plus 0.75% for the Revolver and the Acquisition Facility
or (ii) the LIBOR Rate (as defined in the Credit Agreement) plus 2.25% for
the Revolver and the Acquisition Facility. For each fiscal quarter
following September 30, 1998, the factor added to either the Base Rate or
the LIBOR Rate will be adjusted based on the ratio of the Company's Total
Debt to EBITDA (as defined in the Credit Agreement). The average interest
rate on outstanding borrowings was 8.4% at March 31, 2000. As of March 31,
2000, there was $6.3 million outstanding on the revolving credit facility
and $1.9 million of letters of credit outstanding resulting in availability
of $21.8 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 months ended March 31, 2000 and 1999 is as follows:
<TABLE>
<CAPTION>
Three Months Ended Three Months Ended
March 31, 2000 March 31, 1999
-------------- --------------
(In thousands)
PSP HSP Total PSP HSP Total
------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Sales .................................. $34,771 $23,719 $58,490 $32,617 $16,903 $49,520
Intercompany sales ..................... 6,720 54 6,774 5,850 30 5,880
------- ------- ------- ------- ------- -------
Total net sales ........................ 28,051 23,665 51,716 26,767 16,873 43,640
Operating income ....................... 2,371 378 2,749 1,681 2,002 3,683
EBIDTA ................................. 6,072 3,201 9,273 4,995 3,124 8,119
</TABLE>
<TABLE>
<CAPTION>
As of March 31, 2000 As of December 31, 1999
----------------------------- ----------------------------
PSP HSP Total PSP HSP Total
------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Assets ................................. 88,827 100,119 188,946 89,751 96,956 186,707
</TABLE>
Following are reconciliations of the segment information with the
consolidated totals per the financial statements (in thousands of dollars).
2000 1999
---- ----
Operating Income:
Total operating income for reportable segments $ 2,749 $ 3,683
Unallocated expenses......................... (1,284) (960)
-------- -------
Total consolidated operating income.......... $ 1,465 $ 2,723
======== ========
EBITDA:
Total EBITDA for reportable segments......... $ 9,273 $ 8,119
Unallocated EBITDA........................... (1,223) (972)
-------- -------
Total consolidated EBITDA.................... $ 8,050 $ 7,147
======== ========
EBITDA to Net Loss:
Consolidated EBITDA.......................... $ 8,050 $ 7,147
Depreciation and amortization................ (6,960) (4,799)
Other........................................ (229) (206)
Interest, net................................ (5,051) (4,404)
-------- -------
Loss before income tax (benefit) expense..... $ (4,190) $ (2,262)
======== ========
Assets:
Total assets for reportable segments......... $188,946 $186,707
Unallocated assets........................... 10,170 9,686
-------- -------
Total consolidated assets.................... $199,116 $196,393
======== ========
6
<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, OSD
Envizion, 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 March 31, 2000 and
December 31, 1999 and for the three months ended March 31, 2000 and 1999 is
presented below for the purpose of complying with the reporting
requirements of the Guarantors Subsidiaries. The financial information
regarding the Guarantors is being presented through condensed consolidating
financial statements since the guarantees are full and unconditional and
are joint and several. Guarantor financial statements have not been
presented because management does not believe that such financial
statements are material to investors.
7
<PAGE>
JACKSON PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -(continued)
(6) Condensed Consolidating Financial Information (con't)
CONDENSED CONSOLIDATING BALANCE SHEETS
March 31, 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 $ -- $ -- $ 307 $ -- $ 307
Accounts receivable, net 6,110 23,769 1,492 -- 31,371
Inventories 8,549 26,777 1,393 (540) 36,179
Deferred tax assets 2,408 -- -- -- 2,408
Prepaid expenses 508 270 123 -- 901
--------- --------- --------- --------- ---------
Total current assets 17,575 50,816 3,315 (540) 71,166
Property, plant and equipment 11,845 31,627 278 -- 43,750
Intangibles 15,956 60,234 2,271 -- 78,461
Note receivable 84,613 9,229 -- (93,842) --
Deferred financing costs 5,734 -- -- -- 5,734
Investment in subsidiaries 19,859 -- -- (19,859) --
Other noncurrent assets -- 5 -- -- 5
--------- --------- --------- --------- ---------
$ 155,582 $ 151,911 $ 5,864 $(114,241) $ 199,116
========= ========= ========= ========= =========
LIABILITIES AND
STOCKHOLDERS' DEFICIT
Current liabilities:
Notes payable to parent $ -- $ 90,265 $ 3,577 $ (93,842) $ --
Accounts payable 4,562 9,920 396 -- 14,878
Accrued and other liabilities 3,720 3,722 270 -- 7,712
Accrued interest 6,064 -- -- -- 6,064
Accrued taxes 440 -- -- -- 440
--------- --------- --------- --------- ---------
Total current liabilities 14,786 103,907 4,243 (93,842) 29,094
Long-term debt 222,251 -- -- -- 222,251
Other noncurrent liabilities 3,067 -- -- -- 3,067
Due to parent (27,940) 23,158 4,782 -- --
Stockholders' deficit:
Common stock --
Additional paid-in capital 2,951 34,500 -- (34,499) 2,952
Accumulated other comprehensive loss -- (249) (614) -- (863)
Loans due on common stock (329) -- -- -- (329)
Accumulated deficit (59,204) (9,405) (2,547) 14,100 (57,056)
--------- --------- --------- --------- ---------
Total stockholders' deficit (56,582) 24,846 (3,161) (20,399) (55,296)
--------- --------- --------- --------- ---------
$ 155,582 $ 151,911 $ 5,864 $(114,241) $ 199,116
========= ========= ========= ========= =========
</TABLE>
8
<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 March 31, 2000
(Dollars in thousands)
<TABLE>
<CAPTION>
Non
Parent Guarantor Guarantor
Company Subsidiaries Subsidiary Eliminations Consolidated
------- ------------ ---------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Net sales $ 18,860 $ 37,790 $ 1,840 $ (6,774) $ 51,716
Operating expenses:
Cost of sales 13,444 28,558 1,181 (6,751) 36,432
Selling, general and administrative 2,972 5,399 912 -- 9,283
Amortization of intangibles 887 3,604 45 -- 4,536
---------- ---------- ---------- ---------- ----------
Total Operating Expenses 17,303 37,561 2,138 (6,751) 50,251
---------- ---------- ---------- ---------- ----------
Operating income (loss) 1,557 229 (298) (23) 1,465
Other
Interest expense, net (5,051) -- -- -- (5,051)
Amortization of deferred financing costs (375) -- -- -- (375)
Other (229) -- -- -- (229)
---------- ---------- ---------- ---------- ----------
Income (loss) before income tax (benefit) expense (4,098) 229 (298) (23) (4,190)
Income (benefit) tax expense (363) 97 -- -- (266)
Equity in earnings (loss) of subsidiaries (166) -- -- 166 --
---------- ---------- ---------- ---------- ----------
Net income (loss) $ (3,901) $ 132 $ (298) $ 143 $ (3,924)
========== ========== ========== ========== ==========
</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 CASH FLOW
Three months ended March 31, 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: $ 1,014 $ (663) $ (396) $ 166 $ 121
---------- ---------- ---------- ---------- ----------
Cash flows from investing activities:
Acquisition of business including transaction costs,
net of cash acquired -- -- -- -- --
Capital expenditures (452) (790) (40) -- (1,282)
---------- ---------- ---------- ---------- ----------
Net cash used in investing activities (452) (790) (40) -- (1,282)
---------- ---------- ---------- ---------- ----------
Cash flows from financing activities:
Net borrowings of long-term debt 1,224 -- -- -- 1,224
---------- ---------- ---------- ---------- ----------
Net cash provided by financing activities 1,224 -- -- -- 1,224
---------- ---------- ---------- ---------- ----------
Net increase (decrease) in cash $ 1,786 $ (1,453) $ (436) $ 166 63
========== ========== ========== ==========
Cash, beginning of period 244
----------
Cash, end of period $ 307
==========
</TABLE>
10
<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 (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>
11
<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 March 31, 1999
(Dollars in thousands)
<TABLE>
<CAPTION>
Non
Parent Guarantor Guarantor
Company Subsidiaries Subsidiary Eliminations Consolidated
------- ------------ ---------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Net sales $ 12,541 $ 34,873 $ 2,106 $ (5,880) $ 43,640
Operating expenses:
Cost of sales 9,011 25,374 1,325 (5,793) 29,917
Selling, general and administrative 2,596 4,445 994 - 8,035
Amortization of intangibles 275 2,632 58 - 2,965
---------- ---------- ---------- ---------- ----------
Total Operating Expenses 11,882 32,451 2,377 (5,793) 40,917
---------- ---------- ---------- ---------- ----------
Operating income (loss) 659 2,422 (271) (87) 2,723
Other
Interest expense, net (3,510) (894) -- -- (4,404)
Amortization of deferred financing costs (375) -- -- -- (375)
Other 2,875 (3,081) -- -- (206)
---------- ---------- ---------- ---------- ----------
Loss before income tax expense (351) (1,553) (271) (87) (2,262)
Income tax expense 70 60 -- -- 130
Equity in earnings (loss) of subsidiaries (1,884) -- -- 1,884 --
---------- ---------- ---------- ---------- ----------
Net income (loss) $ (2,305) $ (1,613) $ (271) $ 1,797 $ (2,392)
========== ========== ========== ========== ==========
</TABLE>
12
<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
Three months ended March 31, 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 provided (used in) by operating activities: $ 156 $ (4,175) $ (601) $ 1,884 $ (2,736)
---------- ---------- ---------- ---------- ----------
Cash flows from investing activities:
Acquisition of business including transaction costs,
net of cash acquired -- (1,278) -- -- (1,278)
Capital expenditures (645) (1,137) (82) -- (1,864)
---------- ---------- ---------- ---------- ----------
Net cash used in investing activities (645) (2,415) (82) -- (3,142)
---------- ---------- ---------- ---------- ----------
Cash flows from financing activities:
Net borrowings of long-term debt 5,826 -- -- -- 5,826
Repurchase of common stock, net of loan repayments (3) -- -- -- (3)
---------- ---------- ---------- ---------- ----------
Net cash provided by financing activities 5,823 -- -- -- 5,823
---------- ---------- ---------- ---------- ----------
Net increase (decrease) in cash $ 5,334 $ (6,590) $ (683) $ 1,884 (55)
========== ========== ========== ==========
Cash, beginning of period 327
----------
Cash, end of period $ 272
==========
</TABLE>
13
<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 April 22, 1998 the Company, through its wholly-owned subsidiary, Jackson
Acquisition, Inc., acquired American Allsafe Company and Silencio/Safety Direct,
Inc. for $29.1 million, as adjusted, (the "Allsafe Acquisition"). On April 23,
1998 the Company, through its wholly-owned subsidiary, Crystaloid Technologies,
Inc., acquired Crystaloid Electronics, Inc., for $6.0 million (the "Crystaloid
Acquisition"). On July 22, 1998, American Allsafe Company acquired all of the
outstanding capital stock of Kedman Company (the "Kedman Acquisition") for $9.2
million. Operating results of the Allsafe Acquisition, the Crystaloid
Acquisition and the Kedman Acquisition (collectively, the "Acquisitions") have
been included in the financial statements of the Company as of these dates.
On January 25, 1999, 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").
Three Months Ended March 31, 2000 Compared
to Three Months Ended March 31, 1999
- ------------------------------------------
Net sales- Net sales for the three months ended March 31, 2000 increased 18.5%
to $51.7 million from $43.6 million in 1999. PSP net sales increased 4.8% in the
first quarter of 2000 over the same period in 1999. The increase was
attributable to improved demand within the welding safety market, partially
offset by the continued devaluation of foreign currencies on European sales. HSP
net sales for the comparable three months increased 40.3% from $16.9 million to
$23.7 million primarily due to the TMT-Pathway Acquisition, which provided $5.8
million in net sales. Had the TMT-Pathway Acquisition occurred on January 1,
1999, consolidated net sales for the first quarter of 2000 would have reflected
an increase of $2.6 million, or 5.2% over the prior year period.
Cost of sales- Cost of sales for the three months ended March 31, 2000 increased
21.8% to $36.4 million from $29.9 million for the same period in 1999, primarily
as a result of the increase in net sales. Cost of sales as a percentage of sales
increased to 70.4% from 68.6%, due primarily to lower HSP margins. PSP first
quarter cost of sales increased 3.2% in 2000 over first quarter 1999 on
increased sales, however as a percentage of sales decreased from 64.4% to 63.4%
due to higher overhead absorption. HSP cost of sales increased 47.0% in first
quarter 2000 to $18.6 million from $12.7 million in 1999 due to increased sales
associated with the TMT-Pathway Acquisition and higher natural gas prices. HSP
first quarter cost of sales as a percentage of sales increased to 78.8% from
75.2% in 1999.
Selling, general & administrative expenses- Selling, general and administrative
expenses for the three months ended March 31, 2000 increased 15.5% to $9.3
million from $8.0 million due primarily to the TMT-Pathway Acquisition. Selling,
general & administrative expenses as a percentage of sales decreased from 18.4%
to 17.9%.
14
<PAGE>
EBITDA- EBITDA for the first quarter 2000 increased $0.9 million, or 12.6%, over
the first quarter 1999, due to the TMT-Pathway Acquisition and strong
performance within the PSP segment. Had the TMT-Pathway Acquisition occurred on
January 1, 1999, EBITDA would have increased 8.0% from first quarter 1999. PSP
EBITDA for the three month comparable period increased 21.6%, while pro forma
HSP EBITDA decreased 6.6% on increased natural gas and freight costs.
Operating income- Operating income for the three months ended March 31, 2000
decreased to $1.5 million from $2.7 million in 1999 due to a greater mix of
lower HSP margins associated with the TMT-Pathway Acquisition. PSP operating
income increased $0.7 million in first quarter 2000 over the prior year period,
however HSP operating income decreased $1.6 million due to higher natural gas
prices and increased amortization expense associated with the TMT-Pathway
Acquisition.
Income tax benefit (expense)- Income tax benefit (expense) for the three months
ended March 31, 2000 and 1999 was $0.3 million and ($0.1 million), respectively.
The net first quarter 2000 benefit was due to the recognition of $0.6 million of
net operating loss carryforwards associated with the first quarter taxable loss.
Liquidity and Capital Resources
- -------------------------------
Cash provided by (used in) operating activities for the three months ended March
31, 2000 and 1999 was $0.1 million and ($2.7 million), respectively. The
improvement over the prior year stems from improved management of working
capital and in particular, receivables. Changes in working capital resulted in
cash uses of $2.9 million and $5.2 million for the three months ended March 31,
2000 and 1999, respectively.
Cash used in investing activities for the three months ended March 31, 2000 and
1999 was $1.3 million and $3.1 million, respectively. Capital expenditures for
the three months ended March 31, 2000 and 1999 were $1.3 million and $1.9
million, respectively. The lower use of cash in the first quarter 2000 is
associated with the reduction in acquisition activity and lower capital
expenditures.
Net cash provided by financing activities for the three months ended March 31,
2000 and 1999 was $1.2 million and $5.8 million, respectively. The decrease in
first quarter 2000 is a result of stronger operating cash flow and therefore
lower borrowing on the Company's revolving credit facility.
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 line facilities is April 30,
2004. At March 31, 2000 there was $6.3 million outstanding on the revolving
credit facility and $1.9 million of letters of credit outstanding resulting in
availability of $21.8 million. The average interest rate on the New Credit
Facility outstanding borrowings was 8.4% at March 31, 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.
15
<PAGE>
ITEM 3.
QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
There have been no material changes in the Company's market risk during the
three months ended March 31, 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: 05/12/00 By:/s/ Christopher T. Paule
---------------------------
Christopher T. Paule
President and Chief
Operating Officer
By:/s/ Mark A. Kolmer
---------------------
Mark A. Kolmer
Vice President - Finance
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