SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
_________________________________
QUARTERLY REPORT PURSUANT TO SECTION 12 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For quarter ended September 30, 1998 Commission File Number: 333-34585
JORDAN TELECOMMUNICATION PRODUCTS, INC.
(Exact name of registrant as specified in charter)
Delaware 36-4173125
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
ArborLake Centre, Suite 550 60015
1751 Lake Cook Road (Zip Code)
Deerfield, Illinois
(Address of Principal Executive Offices)
Registrant's telephone number, including area code:
(847) 945-5591
Former name, former address and former fiscal year, if changed since last
report: Not applicable.
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 twelve (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 ninety (90) days.
Yes X No
The aggregate market value of voting stock held by non-affiliates of the
Registrant is not determinable as such shares were privately placed and there
is currently no public market for such shares.
The number of shares outstanding of Registrant's Common Stock as of
November 13, 1998: 994,638.889
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JORDAN TELECOMMUNICATION PRODUCTS, INC.
INDEX
PART I. FINANCIAL INFORMATION PAGE NO.
Item 1. Financial Statements (Unaudited) 4
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 13
Item 3. Quantitative and Qualitative Disclosures About
Market Risk 18
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 19
Item 2. Changes in Securities 19
Item 3. Defaults upon Senior Securities 19
Item 4. Submission of Matters to a Vote of Securities
Holders 19
Item 5. Other Information 19
Item 6. Exhibits and Reports on Form 8-k 19
Signatures 20
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS (Unaudited)
PAGE NO.
Condensed Consolidated Balance Sheets at September 30, 1998,
and December 31, 1997 4
Condensed Consolidated Statements of Operations for the third
quarter and nine months ended September 30, 1998 and 1997 5
Condensed Consolidated Statements of Cash Flows for the nine
months ended September 30, 1998 and 1997 6
Notes to Condensed Consolidated Financial Statements 7
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JORDAN TELECOMMUNICATION PRODUCTS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(ALL DOLLAR AMOUNTS IN THOUSANDS)
September 30, December 31,
1998 1997
(Unaudited)
ASSETS
Current Assets:
Cash and cash equivalents $ 7,730 $ 8,988
Restricted Cash 1,000 --
Accounts receivable, net 46,475 48,733
Inventories 42,962 41,815
Prepaid expenses and other current assets 2,949 2,956
Total Current Assets 101,116 102,492
Property, plant, and equipment, net 37,437 35,332
Goodwill, net 169,589 166,098
Deferred financing costs, net 9,037 9,781
Deferred income taxes 6,000 6,000
Other assets, net 13,623 14,811
Total Assets $336,802 $334,514
LIABILITIES AND SHAREHOLDERS' EQUITY (NET CAPITAL DEFICIENCY)
Current Liabilities:
Accounts payable $ 20,668 $ 18,803
Accrued interest payable 3,911 8,236
Accrued expenses and other current liabilities 18,972 22,290
Due to affiliated company 1,313 2,531
Short-term notes payable 187 641
Current portion of long-term debt 2,527 1,197
Total Current Liabilities 47,578 53,698
Line of credit 80,700 68,000
Other long-term debt 298,919 290,830
Other non-current liabilities 5,108 5,179
Minority interest 4,385 3,376
13.25% Senior Preferred Stock at liquidation
value; 28,540.7715 shares and 25,889.3836 shares issued
and outstanding at September 30, 1998 and December 31, 1997,
respectively 29,176 26,413
Junior Preferred Stock at liquidation value;
2,000 shares issued and outstanding at September
30, 1998 and December 31, 1997 3,559 17,077
Shareholders' Equity (Net Capital Deficiency):
Common Stock ($0.01 par value); 1,000,000 shares
authorized; 994,639 shares issued and outstanding
at September 30, 1998 and December 31, 1997,
respectively 10 10
Additional paid-in capital 1,982 1,982
Notes receivable from shareholders (877) (877)
Accumulated other comprehensive income (loss) 711 (488)
Retained earnings (Accumulated deficit) (134,449) (130,686)
Total Shareholders' Equity (Net
Capital Deficiency) (132,623) (130,059)
Total Liabilities and Shareholders' Equity
(Net Capital Deficiency) $336,802 $334,514
See accompanying notes to condensed consolidated financial statements.
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JORDAN TELECOMMUNICATION PRODUCTS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(ALL DOLLAR AMOUNTS IN THOUSANDS)
Nine Months Ended
Third Quarter September 30,
1998 1997 1998 1997
Net Sales $78,231 $68,741 $232,441 $174,944
Cost of sales, excluding depreciation 48,310 43,323 147,092 110,103
Selling, general, and administrative
expenses 16,054 12,368 44,707 32,421
Depreciation 1,830 1,357 5,262 3,818
Amortization of goodwill and other 1,857 1,200 5,779 3,514
Stock appreciation rights expense -- -- -- 15,821
Management fees and other 1,580 2,617 5,879 2,798
Operating income 8,600 7,876 23,722 6,469
Other (income) and expense:
Interest expense 10,153 7,396 29,738 16,661
Interest income (119) (209) (459) (296)
Loss on disposal of subsidiary 368 -- 5,368 --
Other (36) (47) (82) (66)
Total other expenses 10,366 7,140 34,565 16,299
Income (Loss) before income taxes, minority
Interest and extraordinary item (1,766) 736 (10,843) (9,830)
Provision (benefit) for income taxes 1,123 843 2,893 (2,188)
Loss before minority interest and
Extraordinary item (2,889) (107) (13,736) (7,642)
Minority interest 382 139 492 935
Loss before extraordinary item (3,271) (246) (14,228) (8,577)
Extraordinary item -- -- -- (466)
Net Loss $(3,271) $ (246) $(14,228) $(9,043)
See accompanying notes to condensed consolidated financial statements.
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JORDAN TELECOMMUNICATION PRODUCTS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(ALL DOLLAR AMOUNTS IN THOUSANDS)
Nine Months Ended
September 30,
1998 1997
Cash flows from operating activities:
Net loss $(14,228) $(9,043)
Adjustments to reconcile net loss to net
cash (used in) provided by operating activities:
Depreciation and amortization 11,041 7,332
Deferred income taxes (1,079) (4,598)
Minority interest 1,009 1,445
Amortization of deferred financing fees 772 --
Loss on disposal of subsidiary 5,368 --
Non-cash interest on Senior Notes and Senior
Subordinated Notes 8,046 5,546
Changes in operating assets and liabilities
(Net of effects from acquisitions and disposals):
Accounts receivable (281) (7,511)
Inventories (4,270) (6,460)
Prepaid expenses and other current assets (8) 657
Non-current assets (915) (1,481)
Accounts payable, accrued interest payable,
and accrued expenses and other 348 3,770
Non-current liabilities 948 357
Due to affiliated company (1,218) 4,719
Other (95) 345
Net cash provided by (used in) operating
activities 5,438 (4,922)
Cash flows from investing activities:
Capital expenditures (6,723) (7,030)
Purchase of Telecommunications Companies from
affiliated company -- (284,000)
Net proceeds from sale of subsidiary 13,500 --
Acquisitions of subsidiaries (21,900) (58,373)
Cash acquired in acquisitions of subsidiaries 1,322 1,047
Additional purchase price payments, SARA payments
and other (9,984) --
Net cash used in investing activities (23,785) (348,356)
Cash flows from financing activities:
Proceeds from debt issuance -- 273,545
Proceeds from issuance of Preferred Stock -- 45,000
Proceed from issuance of Common Stock -- 1,063
Payment of financing costs -- (14,825)
Net borrowings from line of credit 12,700 18,500
Net borrowings under other long-term debt and
capital lease agreements 3,853 3,279
Repayment of long-term debt and capital leases (1,507) (1,608)
Net advances from affiliated company -- 28,745
Net cash provided by financing activities 15,046 353,699
Effect of exchange rate changes on cash 2,043 92
Net increase (decrease) in cash and cash equivalents (1,258) 513
Cash and cash equivalents at beginning of period 8,988 6,385
Cash and cash equivalents at end of period $ 7,730 $ 6,898
See accompanying notes to condensed consolidated financial statements.
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JORDAN TELECOMMUNICATION PRODUCTS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(ALL DOLLAR AMOUNTS IN THOUSANDS)
A. ORGANIZATION
The unaudited condensed consolidated financial statements, which reflect
all adjustments that management believes necessary to present fairly the
results of interim operations and are of a normal recurring nature, should be
read in conjunction with the Company's consolidated financial statements for
the year ended December 31, 1997, included in the Company's annual report on
Form 10-K. The Company conducts its operations exclusively through its
subsidiaries. Results of operations for the interim periods are not
necessarily indicative of annual results of operations.
B. INVENTORIES
Inventories are summarized as follows:
September 30, December 31,
1998 1997
Raw Materials $17,084 $16,215
Work in process 2,636 2,769
Finished goods 23,242 22,831
$42,962 $41,815
C. ACQUISITIONS OF SUBSIDIARIES
On July 14, 1998, the Company, through its 70% owned subsidiary, TSI,
purchased the net assets of Opto-Tech Industries, Inc. ("Opto-Tech").
Opto-Tech assembles and sells radio frequency interference products,
attenuators and message waiting indicators to Regional Bell Operating
Companies, independent phone operators and distributors of telecommunications
products. The purchase price of $6,400, was financed with $5,150 of
borrowings from the Company's revolving credit agreement and $1,250 of
subordinated seller notes.
On January 20, 1998, the Company through a newly created subsidiary K&S
Sheet Metal Holdings (K&S Holdings), a subsidiary of 80% owned Bond
Technologies, purchased the stock of K&S Sheet Metal (K&S). K&S is a
manufacturer of precision metal enclosures for electronic original equipment
manufacturers.
The purchase price of $15,500, including estimated costs incurred
directly related to the transaction, has been preliminarily allocated to
working capital of $2,666, property, plant and equipment of $1,002,
non-compete agreements of $1,545 and other assets of $91 resulting in an
excess purchase price over net identifiable assets of $10,196. The
acquisition was financed with $14,000 of borrowings from the Company's
revolving credit agreement and $1,500 of a subordinated seller note.
On October 31, 1997, the Company, through its newly formed 70% owned
subsidiary Telephone Services Holdings, Inc. (TSI), purchased the stock of
Telephone Services, Inc. The purchase price of $53,303, including costs
incurred directly related to the transaction, has been allocated to working
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capital of $3,864, property, plant and equipment of $1,528, non-compete
agreement of $2,000, and noncurrent assets of $107, resulting in an excess
purchase price over net identifiable assets of $45,804. The acquisition was
financed with $48,000 of borrowings from the Company's revolving credit
agreement, $5,000 of subordinated seller notes and the assumption of a $303
deferred purchase agreement.
Certain sellers of TSI are entitled to additional payments for their
stock, contingent upon operating results as defined in the purchase
agreement. The maximum contingent consideration to be paid is $4,000.
On September 2, 1997, the Company purchased the assets of Engineered
Endeavors, Inc. (EEI). The purchase price of $41,500, including costs
incurred directly related to the transaction, has been allocated to working
capital of $2,068, property, plant, and equipment of $799, noncompetition
agreement of $2,500, noncurrent assets of $14, and resulted in an excess
purchase price over net identifiable assets of $36,119. The acquisition was
financed with $21,500 of cash and $20,000 of borrowings from the Company's
line of credit.
On May 30, 1997, Jordan purchased the assets of LoDan West, Inc.
(LoDan). The purchase price of $17,000, including costs incurred directly
related to the transaction, was allocated to working capital of $5,066,
property, plant and equipment of $783, noncompetition agreement of $250,
noncurrent assets of $41, and resulted in an excess purchase price over net
identifiable assets of $10,860. LoDan was one of the Telecommunications
Companies that was subsequently acquired by the Company on July 25, 1997.
Unaudited proforma information with respect to the Company as if the 1998
and 1997 acquisitions had occurred on January 1, 1997 is as follows:
(Unaudited)
Nine Months Ended September 30,
1998 1997
Net Sales $218,488 $221,423
Income (loss) before income taxes
and minority interest (9,035) (7,031)
Net Income (loss) (12,391) (5,423)
D. COMPREHENSIVE INCOME
As of January 1, 1998, the Company adopted the Financial Accounting
Standards Board's Statement of Financial Accounting Standards No. 130,
"Reporting Comprehensive Income". Statement 130 establishes new rules for the
reporting and display of comprehensive income and its components; however, the
adoption of this Statement had no impact on the Company's net income or
shareholders' equity. Statement 130 requires foreign currency translation
adjustments, which prior to adoption were reported separately in shareholders'
equity, to be included in other comprehensive income. Prior year financial
statements have been reclassified to conform to the requirements of Statement
130.
During the nine months ended September 30, 1998 and 1997, total
comprehensive income (loss) was ($15,427) and ($7,749), respectively. During
the quarter ended September 30, 1998 and 1997, total comprehensive income
(loss) was ($4,066) and ($526), respectively.
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E. BUSINESS SEGMENT INFORMATION
See Part 1 "Financial Information" - Item 2 "Management's Discussion and
Analysis of Financial Condition and Results of Operations" for the Company's
business segment disclosures. There have been no changes from the Company's
December 31, 1997 consolidated financial statements in the basis of
segmentation or in the basis of measurement of segment profit or loss.
F. INCOME TAXES
Income (Loss) before income taxes and minority interest consists of the
following:
Nine Months Ended September 30,
1998 1997
From U.S. operations $(11,707) $(10,464)
From foreign operations 864 634
Total loss before income taxes and
minority interest $(10,843) $ (9,830)
Deferred income taxes consist of the following:
September 30, December 31,
1998 1997
Deferred tax liabilities:
Tax over book depreciation and amortization $ 2,829 $ 2,345
Equity investment in Dura-Line (Israel) Ltd. 114 114
Other 81 9
3,024 2,468
Deferred tax assets:
Accrued stock appreciation rights 3,000 3,772
U.S. net operating loss carryforwards 11,222 7,137
Foreign net operating loss carryforwards 2,948 3,582
Inventory reserves 393 393
Uniform capitalization of inventory 240 240
Book over tax depreciation and amortization 5,887 5,564
Accrued vacation 294 275
Accrued employee benefits 219 206
Foreign currency translation adjustment 594 594
Other 311 422
25,108 22,185
Valuation allowance for deferred tax assets (16,084) (13,717)
Net deferred tax assets $ 6,000 $ 6,000
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The provision for income taxes differs from the amount of income tax
provision computed by applying the United States federal income tax rate to
income before income taxes and minority interest. A reconciliation of the
differences is as follows:
September 30,
1998
Computed statutory tax benefit $(3,687)
Increase (decrease) resulting from:
Nondeductible depreciation and amortization 902
Higher effective income taxes of other countries 112
State and local taxes 190
Foreign subsidiary losses without a current-year
tax benefit 1,057
U.S. losses without a current-year tax benefit 4,085
Other, net 234
Provision for income taxes $ 2,893
G. EXTRAORDINARY ITEM
On January 1, 1997, the Company's Reno, Nevada production facility was
flooded. Uninsured property damage and lost production was estimated to be
$466 at September 30, 1997.
H. CAPITAL STOCK
On February 1, 1998, May 1, 1998, and August 1, 1998, the Company issued
864.6345, 864.3747, and 922.3787 shares, respectively, of Senior Preferred
Stock as payment of dividends.
The Junior Preferred Stock has a liquidation value, in the aggregate,
equal to the sum of (i) $20,000; plus (ii)(A) for the period from the date of
issuance to August 1, 2002, plus or minus 95% of the cumulative net income
(loss) of the Company for such period and (B) for the period subsequent to
August 1, 2002, the amount of any preferred dividends thereon not paid on any
dividend payment date, whether or not declared, which shall be added to the
liquidation value at such dividend payment date. Commencing on the earlier of
August 1, 2002 or the Early Redemption Date, as defined, holders of the Junior
Preferred Stock will be entitled to receive dividends at 10% per annum of the
liquidation value per share. All dividends are cumulative, whether or not
earned or declared, and are payable quarterly in arrears on March 31, June 30,
September 30, and December 31 of each year following the date dividends
commence accruing. Through December 31, 1997, $2,923 of dividends were
accrued on the Junior Preferred Stock, representing 95% of the Company's net
loss from July 21, 1997 to December 31, 1997, which reduced the liquidation
value of the Junior Preferred Stock to $17,077. An additional $13,518 of
dividends were accrued on the Junior Preferred Stock during the nine months
ended September 30, 1998, which reduced the liquidation value of the Junior
Preferred Stock to $3,559.
I. FOREIGN EXCHANGE INSTRUMENTS AND RISK MANAGEMENT
The Company enters into foreign currency forward exchange contracts to
hedge transactions and firm commitments that are denominated in foreign
currencies (principally the Czech Koruna) and not to engage in currency
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speculation. The Company primarily utilizes forward exchange contracts with a
duration of one year or less. Gains or losses on hedges of transaction
exposures are included in income in the period in which exchange rates
change. Gains and losses on contracts which hedge specific foreign currency
denominated commitments, primarily royalty payments from the Company's Czech
operations, are deferred and recognized in the basis of the transactions
underlying the commitments.
Forward exchange contracts generally require the Company to exchange U.S.
dollars for foreign currencies at maturity, at rates that are agreed to at
inception of the contracts. If the counterparties to the exchange contracts
(primarily highly-rated financial institutions) do not fulfill their
obligations to deliver the contracted currencies, the Company could be at risk
for any currency related fluctuation.
The Company has $2,255 notional amount of foreign currency forward
exchange contracts outstanding at September 30, 1998 (none at December 31,
1997).
J. STOCK APPRECIATION RIGHTS
On April 10, 1997, the Company paid the former shareholders of Dura-Line
pursuant to an agreement ("The Redemption Agreement"), as if the subsidiary
was sold for $110,000. The former shareholders received $9,438 in cash and a
deferred payment of $5,980 over five years including interest. The Redemption
Agreement also requires that $1,875 of remaining preferred stock be redeemed
one year from the date of the agreement. The Company recorded a charge of
$15,418 related to this agreement during the second quarter of 1997. The
Company paid $1.0 million on the deferred payment amount during the first
quarter of 1998 and paid the $1,875 preferred stock redemption amount during
the first quarter of 1998.
As additional consideration for signing the Redemption Agreement, the
Company agreed to pay the former shareholders non-compete payments totaling
$352 and a special bonus of approximately $454, determined based on a
percentage of the subsidiary's gross profit during fiscal 1997.
In connection with the Company's acquisitions of AIM and Cambridge in
1989, the seller of these companies was granted stock appreciation rights.
The formula used to value these rights was calculated by determining 20% of a
multiple of average cash flow of these companies for the two years preceding
the date when these rights were exercised, less the indebtedness of these
companies. The seller passed away during the third quarter of 1996 and the
seller's estate exercised these rights. The total amount owed under these
rights is approximately $6,260. AIM had fully accrued for these rights as of
December 31, 1996. In 1997, the Company entered into an agreement to purchase
and redeem the Estate's and Decedent's interest in the SAR for $3,111 in cash
and a deferred payment, including interest at 9% per annum. The Company paid
$3,391 to AIM on May 4, 1998, which was the remaining liability.
K. ADDITIONAL PURCHASE PRICE AGREEMENTS
The Company has a contingent purchase price agreement relating to its
acquisition of Viewsonics in 1996. The plan is based on Viewsonics achieving
certain earnings before interest and taxes and can pay a minimum of $0 and a
maximum of $2,000 for the year ended July 31, 1997 and $3,000 for the year
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ending July 31, 1998. As of December 31, 1997, the Company had accrued $1,388
for the plan year ended July 31, 1997 which was paid during the first quarter
of 1998. $1,000 has been accrued for the plan year ending July 31, 1998 and is
payable during the first quarter of 1999.
In addition, the Company has an agreement to make an additional purchase
price payment of up to $4,000 to the former owners of TSI if certain earnings
projections are met as of October 31, 1998. At September 30, 1998, $3,666 has
been accrued and is payable on or before March 1, 1999.
L. SALE OF SUBSIDIARY
On July 9, 1998, the Company sold its stock of Diversified Wire and Cable
for $16.0 million which resulted in a loss of approximately $5.4 million.
The proceeds from the sale were used to pay $1,500 in subordinated seller
notes to the original owners of Diversified, $13,500 to pay down the Company's
revolving credit facility, and $1.0 million which is placed in escrow until
January 9, 1999, pending certain events subsequent to the sale.
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
(ALL DOLLAR AMOUNTS IN THOUSANDS)
RESULTS OF OPERATIONS
Summary financial information by business segment included in the
financial statements of the Company is as follows:
Nine Months Ended
Third Quarter September 30,
1998 1997 1998 1997
Net Sales:
Infrastructure Products and Equipment $40,498 $35,945 $106,806 $93,616
Electronic Connectors and Components 10,479 11,188 32,611 33,317
Custom Cable Assemblies and Specialty
Wire & Cable 27,254 21,608 93,024 48,011
$78,231 $68,741 $232,441 $174,944
Operating Income:
Infrastructure Products and Equipment 5,199 4,676 12,176 (2,555)
Electronic Connectors and Components 1,714 1,919 6,116 5,895
Custom Cable Assemblies and Specialty
Wire & Cable 4,332 1,861 11,913 3,709
Unallocated amounts:
Management fees (779) - (2,325) --
Corporate expenses (1,866) (580) (4,158) (580)
Total Operating Income 8,600 7,876 23,722 6,469
Interest expense (10,153) (7,396) (29,738) (16,661)
Interest Income 119 209 459 296
Loss on disposal of subsidiary (368) -- (5,368) --
Other income (expense) 36 47 82 66
Income (loss) before income taxes,
minority interest
and extraordinary tem $ (1,766) $ 736 $(10,843) $(9,830)
Consolidated Results of Operations
Net sales for the three months ended September 30, 1998, increased $9.5
million or 13.8%, to $78.2 million from $68.7 million for the same period in
1997. The increase in sales was due primarily to the acquisitions of TSI,
Opto-Tech, and K&S, which were purchased after September 30, 1997, and the
acquisition of EEI, which was purchased in September 1997. Combined, these
acquisitions accounted for a sales increase of $20.3 million. Additionally,
sales of power conditioning systems increased but were offset by the sale of
Diversified Wire and Cable, Inc., and lower sales of certain custom cable
assemblies and certain electronic components.
Operating income for the three months ended September 30, 1998 increased
$0.7 million over the same period in 1997. This increase was due to the
acquisitions described above, which added $3.5 million in operating income,
but was offset by reduced income due to lower sales of certain cable
assemblies and certain electronic components and the Company's corporate
expenses.
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Net sales for the nine months ended September 30, 1998, increased $57.5
million or 32.9%, to $232.4 million from $174.9 million for the same period in
1997. The increase in sales was due primarily to the acquisitions of TSI,
EEI, K&S and Opto-Tech. Combined, these acquisitions accounted for a sales
increase of $57.1 million. Additionally, sales of power conditioning systems
and CATV products increased, but were offset by the sale of Diversified Wire
and Cable, Inc., and lower sales of fiber optic conduit systems and certain
custom cable assemblies.
Operating income for the nine months ended September 30, 1998, increased
$17.2 million over the same period in 1997. The same period in 1997 included
a SAR payout of $15.4 million to former shareholders of the Dura-Line
subsidiary. Excluding this charge, operating income increased $1.8 million or
8.2%, to $23.7 million from $21.9 million for the same period in 1997. This
increase in operating income was due to the acquisitions described above,
which added $9.2 million in operating income. The increase from these
acquisitions was offset by lower operating income due to lower sales of
certain cable assemblies and electronic components, higher amortization costs
relating to the new acquisitions, and the Company's corporate expenses.
Interest expense for the three months ended September 30, 1998, increased
$2.8 million, or 37.8%, to $10.2 million from $7.4 million for the same period
in 1997. The increase is due to interest costs from financing the acquisition
of Opto-Tech, EEI, TSI, and K&S. These increases were offset by a decrease in
interest expense payable to the parent company, due to the company's
recapitalization with third party debt.
Interest expense for the nine months ended September 30, 1998, increased
$13.0 million or 77.8%, to $29.7 million from $16.7 million for the same
period in 1997. The increase is due to interest costs from financing the
acquisition of Opto-Tech, EEI, TSI, and K&S. These increases were offset by a
decrease in interest expense payable to the parent company, resulting from the
aforementioned recapitalization with third party debt.
For information concerning the provision for income taxes see Note F of
the Notes to the Condensed Consolidated Financial Statements.
Infrastructure Products and Equipment Segment
Net sales for the three months ended September 30, 1998, increased $4.6
million, or 12.8%, to $40.5 million from $35.9 million for the same period in
1997. The acquisition of EEI and higher sales of power conditioning systems
accounted for the increase.
Operating income for the three months ended September 30, 1998 increased
$0.5 million over the same period in 1997. Increased income from the EEI
acquisition was offset by lower income due to the costs of hiring new
executives at the CATV business. As planned, the original founders retired
and were replaced.
Net sales for the nine months ended September 30, 1998, increased $13.2
million or 14.1%, to $106.8 million from $93.6 million for the same period in
1997. The increase in sales was due to the EEI acquisition and higher power
conditioning systems and CATV product sales were offset by lower fiber optic
conduit sales.
<PAGE>
Operating income for the nine months ended September 30, 1998, increased
$14.8 million over the same period in 1997. The same period in 1997 included
a SAR payout of $15.4 million to former shareholders of the Dura-Line
subsidiary. Excluding this charge, operating income for the nine months ended
September 30, 1998 decreased $0.6 million or 4.7%, to $12.2 million from $12.8
million in the same period in 1997. Increased income from the EEI
acquisition, increased sales of power conditioning systems was offset by lower
income due to lower sales of cable conduit.
Electronic Connectors and Components Segment
Net sales for the three months ended September 30, 1998, decreased $0.7
million or 6.3%, to $10.5 million from $11.2 million for the same period in
1997. This decrease was due to a general softness in the global connector
market which led to reduced sales.
Operating income for the three months ended September 30, 1998, decreased
$0.2 million or 10.5%, to $1.7 million from $1.9 million for the same period
in 1997. This decrease is attributed to the aforementioned lower sales,
however, gross margins were slightly better than the same period in 1997.
Net sales for the nine months ended September 30, 1998, decreased $0.7
million or 2.1% to $32.6 million from $33.3 million for the same period in
1997. This decrease was due to the aformentioned market softness which led to
lower sales.
Operating income for the nine months ended September 30, 1998, increased
$0.2 million or 3.4% to $6.1 million from $5.9 million for the same period in
1997. This increase is attributed to improved gross margins compared to the
same period in 1997.
Custom Cable Assemblies and Specialty Wire and Cable Segment
Net sales for the three months ended September 30, 1998, increased $5.7
million, or 26.3%, to $27.3 million from $21.6 million for the same period in
1997. The acquisitions of TSI, K&S, and Opto-Tech, which were purchased
after September, 1997, accounted for $16.1 million, but was offset by sales
of $8.7 million due to the sale of Diversified and a sales decrease at Bond
for the quarter.
Operating income for the three months ended September 30, 1998, increased
$2.4 million, or 126.3%, to $4.3 million from $1.9 million for the same period
in 1997. The acquisitions of TSI, K&S and Opto-Tech accounted for $3.5
million offset by a decrease in operating income at Bond for the quarter and
the sale of Diversified.
Net sales for the nine months ended September 30, 1998, increased $45.0
million or 93.8%, to $93.0 million from $48.0 million for the same period in
1997. The acquisitions of TSI, K&S and Opto-Tech, accounted for $44.5 million
and an increase in sales at LoDan of $13.6 million. This increase was offset
by sales of $8.2 million due to the sale of Diversified and a decrease in Bond
sales for the same period in 1997.
<PAGE>
Operating income for the nine months ended September 30, 1998, increased
$8.2 million, or 221.6%, to $11.9 million from $3.7 million for the same
period in 1997. Operating income was increased by the aforementioned
acquisitions by $8.8 million, but was slightly offset by lower income at Bond
and the sale of Diversified.
LIQUIDITY AND CAPITAL RESOURCES
In general, the Company requires liquidity for working capital, capital
expenditures, interest, taxes, debt repayment and its acquisition strategy.
Of primary importance are the Company's working capital requirements, which
increase whenever the Company experiences strong incremental demand or
geographical expansion. The Company expects to satisfy its liquidity
requirements through a combination of funds generated from operating
activities and the funds available under its revolving line of credit
agreement.
Operating activities. Net cash provided by operating activities for the
nine months ended September 30, 1998 was $5.4 million, compared to $4.9
million used in activities during the same period in 1997. The increase in
cash was due to a concentrated effort by each company to reduce receivable and
inventory balances.
On July 14, 1998, the Company acquired the net assets of Opto-Tech
Industries, Inc. for $6.4 million. The purchase was financed with $5.15
million of borrowings from the Company's revolving credit agreement and $1.25
of subordinated sellers notes.
On July 9, 1998, the Company sold its stock of Diversified Wire and Cable
for $16.0 million which resulted in a loss of approximately $5.4 million.
The proceeds from the sale were used to pay $1,500 in subordinated seller
notes to the original owners of Diversified, $13,500 to pay down the Company's
revolving credit facility, and $1.0 million which is placed in escrow until
January 9, 1999, pending certain events subsequent to the sale.
On January 20, 1998, the Company acquired the stock of K&S Sheet Metal,
Inc. for $15.5 million, including estimated costs of the transaction. The
purchase was financed with $14.0 million of borrowings from the Company's
revolving credit agreement and $1.5 million from a subordinated seller note.
During the period, the Company made $2.2 million in additional purchase
price payments relating to its acquisition of TSI in October 1997. The
Company also paid $1.4 million under its additional purchase price agreement
for Viewsonics, $1.9 million for the preferred stock of Dura-Line, and $1.0
million of deferred SAR payments owed to the previous owners to Dura-Line. In
addition, the Company paid $3.4 million deferred SAR payment relating to AIM.
Financing activities. During the period, the Company increased its
borrowings under its revolving credit agreement by $12.7 million to fund its
acquisitions and meet its additional purchase price, SAR and other acquisition
related payments. The Company financed subordinated seller notes related to
the K&S and Opto-Tech acquisitions of $1.5 million and $1.25 million
respectively. The Company also financed $0.3 million of equipment relating to
Johnson Components through a short-term note, $0.3 of capital expenditures
<PAGE>
relating to its cable conduit facility in India under its term loan agreement
with Oriental Bank of Commerce, and $0.6 million of capital expenditures
relating to its cable conduit facility in the Czech Republic under its
short-term credit agreement with Czech ABN Amro. The Company is party to a
Credit Agreement under which the Company is able to borrow up to approximately
$110.0 million to fund acquisitions and provide working capital and for other
general corporate purposes. As of November 13, 1998, the Company has
approximately $30.0 million of available funds under this Agreement.
The Company expects its principal sources of liquidity to be from its
operating activities and funding from the revolving line of credit agreement.
The Company further expects that these sources will enable it to meet its
long-term cash requirements for working capital, capital expenditures,
interest, taxes, debt repayment, and future acquisitions for at least the next
twelve months.
YEAR 2000 DISCLOSURE
Introduction. The Year 2000 issue is the result of computer programs
being written using two digits rather than four to define the applicable
year. Any of the Company's computer programs or hardware that have
date-sensitive software or embedded chips may recognize a date using "00" as
the year 1900 rather than the year 2000. This could result in a system
failure or miscalculations causing disruptions of operations, including, among
other things, a temporary inability to process transactions, send invoices, or
engage in similar normal business activities.
State of Readiness. Based on recent assessments, the Company determined
that it will be required to modify or replace significant portions of its
software and certain hardware so that those systems will properly utilize
dates beyond December 31, 1999. The Company presently believes that with
modifications or replacements of existing software and certain hardware, the
Year 2000 issue can be mitigated. However, if such modifications and
replacements are not made, or are not completed timely, the Year 2000 issue
could have a material impact on the operations of the Company.
The Company's plan to resolve the Year 2000 issue involves the following
four phases: assessment, remediation, testing and implementation. The Company
is in the process of assessing all systems that could be significantly
affected by the Year 2000 issue. Preliminary results of this assessment
indicated that some of the Company's significant information technology
systems could be affected, particularly the general ledger, billing, and
inventory systems. The preliminary assessment also indicated that software
and hardware (embedded chips) used in production and manufacturing systems
(hereafter also referred to as operating equipment) may also be at risk. In
addition, based on a review of its product lines, the Company has determined
that most of the products it has sold and will continue to sell do not require
remediation to be Year 2000 issue compliant. Accordingly, the Company does
not believe that the Year 2000 issue presents a material exposure as it
relates to the Company's products. In addition, the Company is in the process
of gathering information about the Year 2000 compliance status of its
significant suppliers and continues to monitor their compliance.
For its information technology exposures, to date the Company has
completed a majority of the remediation phase and expects to complete software
reprogramming and replacement no later than June 30, 1999. Once software is
reprogrammed or replaced for a system, the Company begins testing and
<PAGE>
implementation. The testing and implementation phases for all significant
systems are expected to be completed by September 30, 1999. The four phases
of the Company's Year 2000 program in relation to operating equipment is
on-going and expected to be completed by December 31, 1999.
Risks. Management of the Company believes it has an effective program in
place to resolve the Year 2000 issue in a timely manner. As noted above, the
Company has not yet completed all necessary phases of the Year 2000 program.
In the event that the Company does not complete any additional phases, the
Company could be materially adversely affected. In addition, disruptions in
the economy generally resulting from the Year 2000 issue could also materially
adversely affect the Company. The amount of potential liability and lost
revenue cannot be reasonably estimated at this time.
Contingency Plans. The Company's contingency plans, in the event it does
not complete all phases of the Year 2000 program, are incomplete at this time.
ITEM 3. QUANTITATIVE AND QUALITATIVE
DISCLOSURES ABOUT MARKET RISK
Not applicable.
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
None
Item 2. Changes in Securities
None
Item 3. Defaults upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Securities Holders
None
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
1) 27. EDGAR Financial Data Schedule
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
JORDAN TELECOMMUNICATION PRODUCTS, INC.
by: /s/ John LaVitola
Chief Financial Officer
November 13, 1998
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