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, 1999 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 12, 1999: 993,916.6667
<PAGE>
JORDAN TELECOMMUNICATION PRODUCTS, INC.
INDEX
PART I. FINANCIAL INFORMATION PAGE NO.
Item 1. Financial Statements 3
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 13
Item 3. Quantitative and Qualitative Disclosures About
Market Risk 17
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 18
Item 2. Changes in Securities 18
Item 3. Defaults upon Senior Securities 18
Item 4. Submission of Matters to a Vote of Securities
Holders 18
Item 5. Other Information 18
Item 6. Exhibits and Reports on Form 8-k 18
Signatures 19
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
PAGE NO.
Condensed Consolidated Balance Sheets at September 30, 1999
(unaudited) and December 31, 1998 4
Condensed Consolidated Statements of Operations for the third
quarter and nine months ended September 30, 1999 and 1998 (unaudited) 5
Condensed Consolidated Statements of Cash Flows for the nine
months ended September 30, 1999 and 1998 (unaudited) 6
Notes to Condensed Consolidated Financial Statements (unaudited) 7
<PAGE>
JORDAN TELECOMMUNICATION PRODUCTS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(ALL DOLLAR AMOUNTS IN THOUSANDS)
September 30, December 31,
1999 1998
(Unaudited)
ASSETS
Current Assets:
Cash and cash equivalents $ 8,409 $ 8,040
Accounts receivable, net 64,622 44,622
Inventories 54,252 38,859
Prepaid expenses and other current assets 5,274 3,428
Total Current Assets 132,557 94,949
Property, plant, and equipment, net 50,249 41,132
Goodwill, net 166,611 169,337
Deferred financing costs, net 8,014 8,782
Deferred income taxes 3,350 4,707
Other assets, net 16,668 12,391
Total Assets $377,449 $331,298
LIABILITIES AND SHAREHOLDERS' EQUITY (NET CAPITAL DEFICIENCY)
Current Liabilities:
Accounts payable $ 31,082 $ 19,269
Accrued interest payable 4,903 8,546
Accrued expenses and other current
liabilities 17,882 20,214
Due to affiliated company 2,299 1,412
Short-term notes payable 3,140 737
Current portion of other long-term debt 3,096 2,856
Total Current Liabilities 62,402 53,034
Line of credit 105,000 73,000
Other long-term debt 311,069 303,142
Other non-current liabilities 2,797 3,287
Minority interest 6,012 4,000
13.25% Senior Preferred Stock at liquidation
value; 32,514.495 shares and 29,493.9551 shares issued
and outstanding at September 30, 1999 and December 31,
1998, respectively 33,185 30,100
Junior Preferred Stock at liquidation value;
2,000 shares issued and outstanding at September
30, 1999 and December 31, 1998 0 0
Shareholders' Equity (Net Capital Deficiency):
Common Stock ($0.01 par value); 1,000,000 shares
authorized; 993,917 shares issued and
outstanding at September 30, 1999 and December 31, 1998,
respectively 10 10
Additional paid-in capital 1,982 1,982
Treasury Stock (2) (22)
Notes receivable from shareholders (865) (855)
Accumulated other comprehensive income (loss) (121) 329
Retained earnings (Accumulated deficit) (144,020) (136,709)
Total Shareholders' Equity (Net
Capital Deficiency) (143,016) (135,265)
Total Liabilities and Shareholders' Equity
(Net Capital Deficiency) $ 377,449 $331,298
See accompanying notes to condensed consolidated financial statements.
<PAGE>
JORDAN TELECOMMUNICATION PRODUCTS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(ALL DOLLAR AMOUNTS IN THOUSANDS)
Three Months Ended Nine Months Ended
September 30, September 30,
1999 1998 1999 1998
Net Sales $115,940 $78,231 $303,900 $232,441
Cost of Sales, excluding
depreciation 75,259 48,310 194,631 147,092
Selling, general and
administrative expenses 19,355 16,054 54,509 44,707
Depreciation 2,423 1,830 6,812 5,262
Amortization of goodwill and other 2,245 1,857 6,420 5,779
Management fees and other 2,458 1,580 5,394 5,879
Operating Income 14,200 8,600 36,134 23,722
Other (income)/expense:
Interest expense 11,121 10,153 31,230 29,738
Interest income (72) (119) (175) (459)
Loss on sale of subsidiary (128) 368 65 5,368
Other (346) (36) 258 (82)
Total other expenses 10,575 10,366 31,378 34,565
Income (loss) before income taxes and
minority interest 3,625 (1,766) 4,756 (10,843)
Provision for income taxes 3,504 1,123 6,726 2,893
Income (Loss) before minority
interest 121 (2,889) (1,970) (13,736)
Minority interest 1,064 382 2,256 492
Net loss $ (943) $(3,271) $ (4,226) $(14,228)
See accompanying notes to condensed consolidated financial statements.
<PAGE>
JORDAN TELECOMMUNICATION PRODUCTS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(ALL DOLLAR AMOUNTS IN THOUSANDS)
Nine Months Ended
September 30,
1999 1998
Cash flows from operating activities:
Net loss $(4,226) $(14,228)
Adjustments to reconcile net loss to net
cash provided by operating activities:
Depreciation and amortization 13,232 11,041
Deferred income taxes 1,357 (1,079)
Minority interest 2,012 1,009
Amortization of deferred financing fees 765 772
Loss on sale of subsidiary 65 5,368
Non-cash interest on Senior Notes and Senior
Subordinated Notes 8,991 8,046
Changes in operating assets and liabilities
(Net of effects from acquisitions):
Accounts receivable (14,037) (281)
Inventories (4,336) (4,270)
Prepaid expenses and other current assets (1,840) (8)
Non-current assets (2,053) (915)
Accounts payable, accrued interest payable,
and accrued expenses and other 2,464 348
Non-current liabilities (473) 948
Due to affiliated company 887 (1,218)
Other (234) (95)
Net cash provided by operating activities 2,574 5,438
Cash flows from investing activities:
Capital expenditures (7,494) (6,723)
Net proceeds from sale of subsidiary - 13,500
Acquisitions of subsidiaries (20,296) (21,900)
Cash acquired in acquisitions of subsidiaries 616 1,322
Additional purchase price payments, SARA payments
and other (5,584) (9,984)
Net cash used in investing activities (32,758) (23,785)
Cash flows from financing activities:
Net borrowings from line of credit 32,000 12,700
Borrowings under other long-term debt 3,257 3,853
Repayment of other long-term debt (4,200) (1,507)
Net cash provided by financing activities 31,057 15,046
Effect of exchange rate changes on cash (504) 2,043
Net increase in cash and cash equivalents 369 (1,258)
Cash and cash equivalents at beginning of period 8,040 8,988
Cash and cash equivalents at end of period $ 8,409 $ 7,730
See accompanying notes to condensed consolidated financial statements.
<PAGE>
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, 1998, 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,
1999 1998
Raw Materials $30,232 $20,405
Work in process 4,217 2,386
Finished goods 19,803 16,068
$54,252 $38,859
C.ACQUISITIONS & DIVESTITURES OF SUBSIDIARIES
On February 18, 1999, the Company, through Northern Technologies
Holdings, Inc., purchased the net assets of High Mountain Communications, Inc.
("HMC"). HMC provides cellular and PCS site maintenance services. The
purchase price of $537, which includes estimated transaction costs, has been
preliminarily allocated to working capital of $8, property, plant and
equipment of $127, and non-current assets of $25, resulting in an excess
purchase price over identifiable assets of $377.
On March 31, 1999, the Company, through a newly created subsidiary
Integral Holdings, Inc. ("Integral Holdings"), a subsidiary of Dura-Line
Corporation, purchased the assets of Integral Corporation ("Integral").
Integral is a manufacturer of high-density polyethylene conduit for the
installation and protection of cables used in the electrical,
telecommunications, and cable TV industries. Integral has locations in
Dallas, Texas; England; and Malaysia. The purchase price of $20,296, which
includes estimated related transaction costs, has been preliminarily allocated
to working capital of $7,992, property, plant and equipment of $8,174,
non-current assets of $5,073 ($4,100 in non-compete agreements)and non-current
liabilities of $943. The acquisition was financed with four-month promissory
notes for $10,653, which have already been paid, and borrowings from the revolvi
ng credit agreement.
On July 9, 1998, the Company sold its stock of Diversified Wire and Cable
for $15,000 million which resulted in a loss of approximately $6,331 million.
The proceeds from the sale were used to pay $1,500 in subordinated seller
notes to the original owners of Diversified, and $13,500 to pay down the
Company's revolving credit facility.
<PAGE>
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 $6,632 including costs incurred directly
related to the transaction, has been allocated to working capital of $261,
property plant and equipment of $42, non-current assets of $100, resulting in
an excess purchase price over net identifiable assets of $6,229. The
acquisition was financed with $5,382 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 $15,930, including costs incurred
directly related to the transaction, has been 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 $10,626. The acquisition was financed with $14,430 of
borrowings from the Company's revolving credit agreement and $1,500 of
subordinated seller notes.
Unaudited proforma information with respect to the Company as if the 1999
and 1998 acquisitions and divestitures had occurred on January 1, 1999 and
1998 is as follows:
(Unaudited)
Nine Months Ended September 30,
1999 1998
Net Sales $311,687 $255,802
Income (loss) before income taxes
and minority interest 7,622 (5,973)
Net income (loss) (4,735) (12,174)
D.COMPREHENSIVE INCOME
Total comprehensive income/(loss) for the three and nine months ended
September 30, 1999 and 1998 is as follows:
Three Months Ended Nine Months Ended
September 30, September 30,
1999 1998 1999 1998
Net Income $(943) $(3,271) $(4,226) $(14,228)
Foreign currency
translation adjustment 685 795 (450) 1,199
Comprehensive income/(loss) $(258) $(2,476) $(4,676) $(13,029)
<PAGE>
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, 1998 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, September 30,
1999 1998
From U.S. operations $ 2,035 $(11,707)
From foreign operations 2,721 864
Income (loss) before income taxes and
minority interest $ 4,756 $(10,843)
Deferred income taxes consists of the following:
September 30, December 31,
1999 1998
Deferred tax liabilities:
Tax over book depreciation and amortization $ 3,017 $ 2,966
Equity investment in Dura-Line (Israel) Ltd. 121 121
Other 52 107
3,190 3,194
Deferred tax assets:
Accrued stock appreciation rights 1,915 1,915
U.S. net operating loss carryforwards 19,116 18,521
Foreign net operating loss carryforwards 2,512 3,230
Inventory reserves 400 400
Uniform capitalization of inventory 311 423
Book over tax depreciation and amortization 4,994 5,427
Accrued vacation 251 251
Accrued warranties 137 137
Accrued employee benefits 103 103
Investment in partnership 282 282
Allowance for doubtful accounts 237 237
Foreign currency translation adjustment 62 594
Deferred intercompany gain 87 87
Other 161 322
30,568 31,929
Valuation allowance for deferred tax assets (24,028) (24,028)
Net deferred tax assets $ 3,350 $ 4,707
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:
<PAGE>
Nine Months Ended
September 30, September 30,
1999 1998
Computed statutory tax provision (benefit) $1,617 $(3,687)
Increase (decrease) resulting from:
Nondeductible depreciation and amortization 784 902
Higher effective income taxes of other countries 99 112
State and local taxes 490 190
Foreign subsidiary losses without a current-year
tax benefit 563 1,057
U.S. losses without a current-year tax benefit 1,755 4,085
Additional valuation allowance for prior year
deferred tax asset 1,357 --
Other, net 61 234
Provision for income taxes $6,726 $ 2,893
G.CAPITAL STOCK
In April 1999, the Company sold 10,000 shares of its common stock to an
executive of the Company for $2 per share.
On February 1, 1999, the Company issued 985.0173 shares of Senior
Preferred Stock as payment of dividends through that date. On May 1, 1999,
the Company issued 984.7213 shares of Senior Preferred Stock as payment of
dividends through that date. On August 1, 1999, the Company issued 1050.8012
shares of Senior Preferred Stock as payment of dividends through that date.
On November 1, 1999, the Company issued 1,085.8951 shares of Senior Preferred
Stock as payment of dividends through that date.
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 (July 25, 1997) 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. As of December 31, 1998, the
liquidation value was reduced to zero.
H.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
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.
<PAGE>
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 $0 and $2,255 notional amount of foreign currency forward
exchange contracts outstanding at September 30, 1999 and 1998, respectively.
I.STOCK APPRECIATION RIGHTS (SAR) AND ADDITIONAL PURCHASE PRICE AGREEMENTS
In April 1997, Dura-Line entered into an agreement to purchase the former
owners' interest in a SAR for $15,417, consisting of $9,438 in cash and
deferred payments payable in annual installments with remaining payments due
as follows:
March 31, 2000 1,189
March 31, 2001 1,284
March 31, 2002 1,386
$3,859
As such, at September 30, 1999 the Company has recorded $1,189 in accrued
expenses and other current liabilities and $2,670 in other non-current
liabilities. Dura-Line also purchased the former owners' 7% cumulative
preferred stock on March 9, 1998 at a price of $1,875.
In connection with the acquisition of AIM and Cambridge in 1989, the
sellers of these companies were granted stock appreciation rights. 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 of
$3,391 (including interest at 9% per annum), which was paid on May 2, 1998.
The Company is party to a stock appreciation rights agreement with the
sellers of Engineered Endeavors. The agreement calls for payments to be made
to the participants upon exercise of the stock appreciation rights, such
exercise being a one-time election during the calendar years 2003 through and
including 2008. The amount payable to the participants is based upon a
specific formula, the basis of which is the average EBIT (as defined) for the
two calendar years preceding the exercise date. A different formula applies
if Engineered Endeavors is sold before December 31, 2008. When exercised, the
stock appreciation rights are payable one-fourth on or before September 30th
of the year of exercise, and the remaining three-fourths payable in three
equal annual installments.
The Company had a Contingent Purchase Price Payment Plan relating to its
acquisition of Viewsonics in 1996. The plan was based on Viewsonics achieving
certain earnings before interest and taxes during the years ended July 31,
1997 and 1998, respectively. On January 2, 1998, the Company paid $1,388 for th
e plan year ended July 31, 1997. On September 30, 1999 the Company had accrued
$1,325 for the final plan year ended July 31, 1998. On October 1, 1999 the
Company made the final payment of $1,325.
The Company had agreements with the previous owners of TSI to make
additional purchase price payments and bonus payments, if certain earnings
levels were met during the year ended October 31, 1998. At December 31, 1998,
approximately $5,600 was accrued related to these agreements, which was paid
in March 1999.
<PAGE>
The Company has an agreement with the previous owners of K&S to make
additional purchase price payments if certain earnings levels are met for the
plan years ended December 31, 1998 through December 31, 2004. There is no
accrual recorded at December 31, 1998 or September 30, 1999 related to this
agreement.
<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,
1999 1998 1999 1998
Net Sales
Infrastructure Products $ 71,537 $40,498 $177,140 $106,806
Electronic Connectors and
Components 11,307 10,479 31,913 32,611
Custom Cable Assemblies 33,096 27,254 94,847 93,024
$115,940 $78,231 $303,900 $232,441
Operating Income
Infrastructure Products 8,973 5,199 20,285 12,176
Electronic Connectors and
Components 1,250 1,714 5,074 6,116
Custom Cable Assemblies 7,027 4,332 18,843 11,913
Unallocated amounts:
Management fees (1,163) (779) (2,985) (2,325)
Corporate expenses (1,887) (1,866) (5,083) (4,158)
Total Operating Income 14,200 8,600 36,134 23,722
Interest expense (11,121) (10,153) (31,230) (29,738)
Interest Income 72 119 175 459
Loss on sale of subsidiary 128 (368) (65) (5,368)
Other 346 36 (258) 82
Income (loss) before income taxes and
minority interest $ 3,625 $(1,766) $ 4,756 $(10,843)
CONSOLIDATED OPERATING RESULTS
Net sales for the third quarter and nine months ended September 30, 1999
increased $37.7 million, or 48.2%, and $71.5 million, or 30.7%, respectively,
over the same periods in 1998. The increase is primarily due to strong demand
for Innerduct at Dura-Line, the acquisition of Integral on March 31, 1999,
increased demand for data networking cables at LoDan, and higher demand for
central office data cables at TSI. TSI has also realized higher sales due to
the introduction of its new fiber optic cable assemblies product. Diversified
Wire and Cable, which was sold in July 1998, accounted for $16.1 million of
net sales in the nine months ended September 30, 1998.
Operating income for the third quarter and nine months ended September
30, 1999 increased $5.6 million, or 65.1%, and $12.4 million, or 52.3%,
respectively, over the same periods in 1998. The increase is primarily due to
the higher sales at Dura-Line, LoDan, and TSI, as mentioned above, as well as
the completion of the reorganization of the Company's Electronic Connectors
and Components business unit during the third quarter of 1999. The Company's
operating income margin has increased from 10.2% for the nine months ended
September 30, 1998 to 11.9% for the nine months ended September 30, 1999 due
to higher sales and greater absorption of fixed overhead. Partially
offsetting these improvements were increased start-up costs at both Dura-Line
and Engineered Endeavors, who have invested operating expenses in the start-up
of their operations in Brazil during the nine months ended September 30, 1999.
<PAGE>
INFRASTRUCTURE PRODUCTS
Net sales for the third quarter and nine months ended September 30, 1999
increased $31.0 million, or 76.6%, and $70.3 million, or 65.9%, respectively,
over the same periods in 1998. Net sales increased primarily due to the
strong demand for Innerduct at Dura-Line and Dura-Line's acquisition of
Integral on March 31, 1999. Dura-Line's net sales increased $28.9 million in
the third quarter of 1999 over the same period in 1998 and have increased
$74.2 million for the nine month period ended September 30, 1999 over the same
period in 1998.
Operating income for the third quarter and nine months ended September
30, 1999 increased $3.8 million, or 72.6%, and $8.1 million, or 66.6%,
respectively over the same periods in 1998. Operating income increased
primarily due to increased sales at Dura-Line as mentioned above, as well as
the absorption of fixed costs at a higher sales level. Partially offsetting
these improvements were start-up costs at both Dura-Line and EEI, who have
invested operating expenses in the start-up of their operations in Brazil
during the nine months ended September 30, 1999. The operating income margin
has increased from 11.4% for the nine months ended September 30, 1998 to
11.5% for the nine months ended September 30, 1999 due to the reasons mentioned
above.
CUSTOM CABLE ASSEMBLIES
Net sales for the third quarter of 1999 and the nine months ended
September 30, 1999, increased $5.8 million, or 21.4%, and $1.8 million, or
2.0% respectively, over the same periods in 1998. Net sales increased
primarily due to sales increases at TSI, $5.3 million in the third quarter and
$15.3 million in the nine month period, and LoDan, $1.1 million in the third
quarter and $5.3 million in the nine month period. The higher sales at LoDan
are due primarily to increased demand for data networking cables while TSI's
increase is due to both increased demand for central office data cables and
its new fiber optic cable assemblies product. Diversified Wire and Cable,
which was sold in July 1998, accounted for $16.1 million of net sales in the
nine months ended September 30, 1998.
Operating income for the third quarter and nine months ended September
30, 1999 increased $2.7 million, or 62.2%, and $6.9 million, or 58.2%,
respectively over the same periods in 1998. These increases are due primarily
to TSI, whose operating income increased $3.5 million in the third quarter of
1999 and $8.8 million for the nine month period ended September 30, 1999, over
the same periods in 1998, due to the increases in net sales discussed above.
Operating income margin has increased from 12.8% for the nine month period
ended September 30, 1998 to 19.9% for the nine month period ended September
30, 1999. This margin increase is due to increased sales and the absorption
of fixed costs at a higher sales level.
ELECTRONIC CONNECTORS AND COMPONENTS
Net sales for the third quarter and nine months ended September 30, 1999
increased $0.8 million, or 7.9%, and decreased $0.7 million, or 2.1%,
respectively over the same periods in 1998. Net sales in the third quarter
increased primarily due to the increased demand for radio frequency
connectors. Net sales for the first nine months of 1999 were negatively
impacted as the Company focused on the consolidation of the connector business
<PAGE>
which was completed in the third quarter of 1999. However, the
reorganization is now complete and the Connector Group is well positioned to
continue to increase sales and margins.
Operating income for the third quarter and nine months ended September
30, 1999 decreased $0.5 million, or 27.1%, and $1.0 million, or 17.0%,
respectively, with the same periods in 1998. The decrease in the third
quarter and nine months is due to the business unit reorganization mentioned
above.
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, 1999 was $2.6 million, compared to $5.4
million provided by operating activities during the same period in 1998.
Increased receivables and inventories (primarily related to the acquisition of
Integral) and higher other non-current assets, partially offset by improved
operating results and increased accounts payable and accruals, accounted for
the majority of the decrease.
Investing activities. Net cash used in investing activities for the nine
months ended September 30, 1999 was $32.8 million compared to $23.8 million
during the same period in 1998. The increase is primarily due to $13.5
million of proceeds from the sale of Diversified Wire and Cable in July 1998,
which was reflected as cash provided by investing activities for the nine
months ended September 30, 1998 with no corresponding amount in 1999.
Financing activities. Net cash provided by financing activities for the
nine months ended September 30, 1999, was $31.1 million, compared to $15.0
million during the same period in 1998. The Company increased borrowings
under its revolving credit agreement in order to fund the Integral
acquisition, additional purchase price, SAR, and other acquisition related
payments and for general corporate purposes. The Company is party to a Credit
Agreement under which the Company is able to borrow up to approximately $120.0
million to fund acquisitions and provide working capital and for other general
corporate purposes. As of October 31, 1999, the Company has approximately
$12.6 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 cash
requirements for working capital, capital expenditures, interest, taxes, debt
repayment, and future acquisitions for at least the next twelve months.
Year 2000
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
<PAGE>
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 certain portions of its software
and 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
has assessed all systems that could be significantly affected by the Year
2000. Results of this assessment indicated that some of the Company's
significant information technology systems could be affected. The 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 has gathered information about the Year 2000 compliance status of its
significant suppliers and continues to monitor their compliance. Non
compliant vendors have been replaced.
For its information technology exposures, to date the Company has
completed the remediation phase and made the necessary software modifications
and replacements. The testing and implementation phases for all significant
systems and the four phases of the Company's Year 2000 program in relation to
operating equipment have also been completed.
Cost. The Company will utilize both internal and external resources to
reprogram or replace, test and implement the software and operating equipment
for Year 2000 modifications. The total cost of the Year 2000 project is
estimated at $1.0 million and is being funded through operating cash flows and
capital leases. To date, the Company has incurred approximately $0.8 million
related to all phases of the Year 2000 project. The majority of these costs
have been capitalized as they relate to new software and equipment.
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 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 is in the process of developing a
contingency plan in the event it does not complete all phases of the Year 2000
program.
<PAGE>
ITEM 3. QUANTITATIVE AND QUALITATIVE
DISCLOSURES ABOUT MARKET RISK
The Company does not engage in hedging or other market structure
derivative trading activities. Additionally, the Company's debt obligations
are primarily fixed-rate in nature and, as such, are not sensitive to changes
in interest rates. At September 30, 1999, the Company has $105 million in
variable rate debt outstanding. A one percentage point increase in interest
rates would increase the amount of annual interest paid by approximately $1.1
million. The Company does not believe that its market risk financial
instruments on September 30, 1999 would have a material effect on future
operations or cash flows.
<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
John LaVitola
Chief Financial Officer
November 12, 1999
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