SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For fiscal year ended December 31, 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
Securities registered pursuant to Section 12(b) of the Act:
Name of Each Exchange
Title of Each Class on Which Registered
None N/A
Securities registered pursuant to Section 12(g) of the Act:
None
Indicated by checkmark 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 place and there is currently no public market
for such shares.
The number of shares outstanding of Registrant's Common
Stock as of March 30, 1999: 983,916.6667.
<PAGE>
TABLE OF CONTENTS
PAGE
Part I
Item 1. Business 3
Item 2. Properties 11
Item 3. Legal Proceedings 13
Item 4. Submission of Matters to a Vote of Security
Holders 13
Part II
Item 5. Market for the Registrant=s Common Equity and
Related Stockholder Matters 14
Item 6. Selected Financial Data 15
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations 16
Item 8. Financial Statements 23
Item 9. Changes In and Disagreements with Accountants on
Accounting and Financial Disclosure 50
Part III
Item 10. Directors and Executive Officers 51
Item 11. Executive Compensation 54
Item 12. Security Ownership of Certain Beneficial
Owners and Management 55
Item 13. Certain Relationships and Related Transactions 56
Part IV
Item 14. Exhibits, Financial Statement Schedules, and Reports
On Form 8-K 59
Signatures 60
<PAGE>
PART I
ITEM 1. BUSINESS
THE COMPANY
Jordan Telecommunication Products, Inc., incorporated in
Delaware on July 18, 1997 (collectively with its subsidiaries
is herein after referred to as the ACompany@), is a leading
worldwide designer, manufacturer and provider of products and
services to the rapidly growing telecommunications and data
communications industries.
Jordan Industries, the Company's management and the Jordan
Group formed the Company in connection with Jordan Industries'
recapitalization and to establish the Company as a stand-alone,
industry-focused company (see Note 1 to the Company's
consolidated financial statements). The Company and its
subsidiaries are included in Jordan Industries' consolidated
financial statements, and will continue to be part of the
Jordan Industries consolidated group for tax purposes until the
redemption of the Company's Junior Preferred Stock or until
such time as the Company can no longer be consolidated for
federal income tax purposes.
The Company's principal executive offices are located at
ArborLake Centre, Suite 550, 1751 Lake Cook Road, Deerfield,
Illinois 60015 and its telephone number is (847) 945-5591.
BUSINESS
Business Segment Information
The Company operates in three business segments:
infrastructure products, custom cable assemblies, and
electronic connectors and components. The percentages of the
Company's total net sales by segment in each of its last three
fiscal years were as follows:
1998 1997 1996
Infrasturcture Products 48% 54% 57%
Electronic Connectors and Components 14% 18% 30%
Custom Cable Assemblies 38% 28% 13%
Total 100% 100% 100%
For additional segment information see Note 17 of the
Notes to the Consolidated Financial Statements.
Infrastructure Products
The Infrastructure Products segment consists of four
operating units: Dura-Line Corporation and subsidiaries ("Dura-
Line"), Viewsonics, Inc. and subsidiary ("Viewsonics"),
Northern Technologies Holdings, Inc. and subsidiary
("Northern"), and Engineered Endeavors, Inc. ("EEI").
The businesses in this segment provide products and
services for the construction, expansion and maintenance of the
"outside plant" portion of the telecommunications
infrastructure. The products cover a broad range of
applications, including: cable conduit systems, cable
television transmission equipment, power conditioning systems,
and antenna support systems.
<PAGE>
Cable Conduit Systems
The Company, through Dura-Line, supplies specialized
telecommunications high-density polyethylene ("HDPE") conduit
systems, used to install and protect outside plant fiber optic
cables, CATV coaxial cables, and electrical cable systems.
These conduit systems protect network infrastructure cables
from environmental or accidental physical damage as well as
facilitate and reduce the cost of cable installation and
maintenance. Dura-Line manufactures a wide variety of cable
conduit products, including special fire-resistant and
expandable capacity conduit systems. The majority of the
Company's sales to the fiber optic and coaxial conduit market
are comprised of either patented or proprietary products. The
Company's patented SILICORE technology is a solid co-extruded
polymer lubricant lining that accounted for $90.8 million,
$93.1 million and $61.8 million in sales of cable conduit
products in 1998, 1997 and 1996, respectively. The low
coefficient of friction characteristics of SILCORE allows fiber
optic and other cables to be easily "pulled" or "blown" through
the conduit, thus saving customers significant time and money
during installation, repair and upgrade procedures.
Dura-Line markets its products internationally through a
direct sales force and independent sales representatives. Dura-
Line sells to local and regional telecommunications companies,
competitive access providers ("CAPs"), competitive local
exchange carriers ("CLECs"), the regional bell operating
companies ("ROBCs"), and cable television ("CATV") operators.
Dura-Line has cable conduit manufacturing operations in
the United States, Mexico, the United Kingdom, and China. Dura-
Line also has manufacturing joint ventures in the Czech
Republic (70%), Spain (100%), Israel (33.33%), India (50%, plus
one share) and Malaysia (60%).
Cable Television Transmission and Connection Equipment
Through Viewsonics, the Company designs, manufactures and
distributes high-quality CATV splitters, amplifiers and
patented electronic security components. These devices, used to
insure signal integrity, are attached to the cable "drop line"
at the home or business and connect the user's television or
other electronic equipment to the cable or satellite system.
Viewsonics also provides products for use in the "head end"
transmitters of Multi-Channel Multi-Point Distribution Systems
("MMDS"), a wireless alternative to cable television.
Viewsonics sells its products through a direct sales force
to many of the major CATV service providers and through
distributors who supply smaller CATV service providers.
Power Conditioning Systems
The Company, through Northern, supplies commercial power
conditioning and protection equipment for protecting sensitive
equipment against sudden or extreme increases in voltage or
variable electrical power. Such power "transients" can result
from lightning, ground faults and public utility switching and
can cause extensive damage to critical equipment. The majority
of Northern's sales are from power conditioning system products
used to protect equipment on individual towers and sites in
Personal Communication Systems ("PCS") and cellular phone
networks. Northern also provides products such as voltage
regulators, grounding devices, uninterruptible power supplies
and isolation transformers for use in a wide variety of
critical communications, medical, and industrial applications.
Northern's products employ patented applications of silicone
avalanche diode technology, which provides a very fast response
to voltage differentials.
<PAGE>
Nearly 42% of Northern's sales in 1998 are to PCS service
providers. Northern believes its customer base includes over
half of the major PCS providers from the first two Federal
Trade Commission ("FTC") auctions of PCS licenses. In 1995,
Northern signed a five-year contract to be the exclusive
supplier of power conditioning equipment to one of the largest
PCS providers in the United States.
Antenna Support Systems
On September 2, 1997, the Company purchased the assets of
EEI, a turnkey provider of antenna support systems for the
wireless communications industry. EEI designs complete
structures, manufactures monopole antenna mount platforms,
custom bell and clock towers, and accessories. EEI also
distributes ancillary products used in the construction of
cellular and PCS towers.
Electronic Connectors and Components
The Electronic Connectors and Components segment consists
of four operating units: AIM Electronics Corporation ("AIM"),
Cambridge Products Corporation ("Cambridge"), Johnson
Components, Inc. ("Johnson"), and Vitelec Electronics Ltd
("Vitelec"), which is located in the United Kingdom. Through
these businesses, the Company designs, manufactures and
provides worldwide, a broad range of electronic connectors,
including radio frequency ("RF") and coaxial connectors, plugs,
adapters, and electronic hardware, as well as electronic
network and security components. These products are used in
telecommunications, data communications, and other original
equipment manufacturing ("OEM") applications that require
miniaturization and high frequency ranges, such as wireless
telecommunications.
Electronic connectors are devices that allow an electronic
signal to pass from one device to another. They are used to
connect wires, cables, printed circuit boards, flat cable and
other electronic components to each other and to related
equipment. Connectors are found in virtually every electronic
product including computers, printers, modems, VCRs, radios,
medical instruments, cellular telephones and automobiles.
The Company sells its electronic connectors and components
to commercial and consumer electronic customers throughout the
world, directly and through a network of manufacturers'
representatives and distributors. The Company imports a portion
of its connectors and components through AIM and Vitelec and
produces high-quality RF and coaxial connectors, specializing
in miniature and sub-miniature RF connectors, through its
Johnson and Cambridge operations.
During 1998, the company reorganized the Electronic
Connectors and Components group. AIM, Cambridge, Vitelec and
Johnson now report into one management team. Production
facilities and vendors were consolidated to lower costs. Sales
and marketing teams were consolidated to leverage a broader
product basket. As a result of this reorganization, the
Cambridge facility in Connecticut was closed and relocated to
the facility in Waseca, MN.
<PAGE>
Custom Cable Assemblies
The Custom Cable Assemblies segment consists of four
operating units: Bond Holdings, Inc. ("Bond"), including K&S
Sheet Metal, which was purchased on January 20, 1998,
Diversified Wire & Cable, Inc. ("Diversified") which was sold
on July 9, 1998, LoDan West, Inc. ("LoDAN"), which was acquired
on May 30, 1997, and Telephone Services Holdings, Inc. ("TSI"),
which on October 31, 1997 acquired Telephone Services of
Florida, Inc. and on July 14, 1998 purchased Opto-Tech
Industries, Inc. Through these businesses, the Company
designs, engineers and manufacturers custom cable assemblies
for internetworking suppliers, OEMs and RBOCs for use primarily
in the data communications and telecommunications industries.
The Company also is a broad line provider and value-added
reseller of wire and cable and custom cable assemblies for
local area networks ("LANs") and other commercial networking
applications.
Cable assemblies are found in a broad range of electronic
equipment, including computers and related peripherals, network
bridges and routers, telephone switching equipment, central
offices and electrical controls. These products are assembled
from bulk, coaxial, fiber optic or other cables and discrete
wire and various electronic connectors that are attached to one
or more cable ends. The Company offers customers sophisticated
in-house product design and technical support capabilities,
including support teams that work closely with the customer
through all stages of product planning and production. The
Company believes that its close coordination with customers,
adherence to strict quality control standards and its
investment in production facilities and equipment help it
attract and retain its broad customer base.
The Company has developed long-term relationships with a
select group of OEMs in the data processing and
telecommunications industries to provide custom cable
assemblies. In addition, the Company is also a prime supplier
to RBOCs, CLECs and long distance carriers. The Company
believes there is a growing trend toward outsourcing, which is
fueled by a growing trend among high-technology companies to
outsource their cable assembly needs to contract manufacturers.
These companies are particularly seeking to consolidate their
supplier base, reduce inventories and improve inventory
management, reduce component cost, increase flexibility, and
improve component product quality and technical support.
The Company distributes more than 2,600 different types of
wire and cable, including cable for the electrical, electronic,
telecommunications and data communications applications. The
Company sells its wire and cable products to end-users,
installers and/or OEMs of data networking equipment, including
building contractors, industrial manufacturers and educational
institutions, among others.
Backlog
The Company's approximate backlog of unfilled orders at
the dates specified was as follows:
Backlog
(Dollars
in
December 31, 1998 thousands)
Infrastructure Products $10,198
Electronic Connectors and Components 2,854
Custom Cable Assemblies 16,093
$29,145
<PAGE>
Backlog
(Dollars
in
December 31, 1997 thousands)
Infrastructure Products $ 8,537
Electronic Connectors and Components 3,876
Custom Cable Assemblies 19,702
$32,115
The Company will ship substantially all of its 1998 year
end backlog during 1999.
Marketing and Support Services
The Company places a high priority on identifying and
responding to its customers' requirements on a timely basis.
The Company employs a sales and marketing strategy that
utilizes a highly trained direct sales force and approximately
2,800 distributors and independent manufacturing
representatives.
The Company emphasizes close coordination with its
customers in the design and development stages of its
customers' products to create demand for its products,
facilitate long-term customer relationships and allow the
Company to introduce new products that meet the specialized
needs of its customers. The Company also continues to increase
the scope of its domestic and international marketing
initiatives, training, sophisticated field testing support and
education of end-users.
The Company's sales representatives undergo continuous
training within their related product groupings to develop a
high degree of technical expertise. Sales personnel are
compensated through a combination of salary and incentive based
plans. The Company also markets its products through multi-
lingual direct mailings of brochures and catalogs and
advertising in trade journals.
In addition, the Company emphasizes superior customer
service as part of its overall marketing strategy. For
example, the Company is able to ship most of its electronic
connectors and components, and wire and cable products within
24 hours of an order being placed. The Company has also
combined the customer support and sales services functions for
certain of these products to reduce the time and effort a
customer must expend to place an order.
Manufacturing and International Operations
The Company currently operates 31 manufacturing and
distribution facilities in nine countries around the world.
The Company's products are manufactured and assembled at
Company owned or leased facilities in the United States, China,
the Czech Republic, Mexico and the United Kingdom, through
manufacturing joint ventures in Spain, India, Malaysia and
Israel, and at the facilities of contract manufacturers in
various countries including Korea, Japan, Singapore and Taiwan.
The Company derived approximately $59.5 million, $61.9 million
and $35.6 million; 19.2%, 24.1% and 26.8% of its total 1998,
1997 and 1996 net sales, respectively; from customers located
outside of the United States.
<PAGE>
The Company employs advanced manufacturing processes in
order to manufacture according to the highest quality
standards. The Company maintains this standard through
continuous improvements to its production processes and
upgrades to its manufacturing equipment. Over two-thirds of
the Company's facilities are certified by the International
Standards Organization ("ISO") according to its 9000 series of
quality standards, or are in the process of obtaining
certification.
The Company is subject to risks generally associated with
international operations, including price and exchange
controls, limitations on foreign ownership and other
restrictive actions. As a result, fluctuations in currency
exchange rates may affect the Company's financial condition and
results of operations.
Employees and Labor Relations
As of December 31, 1998 the Company employed an aggregate
of approximately 2,148 employees, including approximately 581
full-time salaried employees and approximately 1,567 full and
part-time hourly employees. Approximately 7% of the Company's
employees are covered by a collective bargaining agreement,
which expires in 2000. The Company believes that its relations
with its employees are good.
Competition
The Company faces substantial competition from a large
number of distributors, suppliers and manufacturers, some of
which are larger and have greater financial resources, broader
name recognition and lower costs than the Company.
The Company's manufacturing operations encounter
competition from both domestically manufactured products and
products manufactured outside the United States. Except for
the SILICORE polymer pipe products, certain of its CATV
components and its fiber optic connector technology, the
Company's products are generally not protected by viture of any
proprietary rights such as patents.
The cable conduit market is highly competitive. In the
United States, the Company faces competition from a wide range
of companies including national, international and regional
suppliers of cable conduit. In addition to other independent
manufacturers of cable conduit, the Company's competitors,
especially outside of the United States, include manufacturers
that produce pipe and tubing for other uses, such as gas and
water transportation. Competition within the industry is based
primarily on quality, price, production capacity, field
support, technical capabilities, service and reputation.
The Company's custom cable assemblies encounter
competition from independent manufacturers of cable assemblies,
connector manufacturers, and offshore manufacturers, several of
which are much larger and have greater financial resources than
the Company. Competition within the industry is based on
quality, production capacity, breadth of product line,
engineering support capability, price, local support
capability, systems support and financial strength.
The electronic connector industry is highly fragmented,
with more than 1,500 connector manufacturers competing
worldwide. The Company generally competes with several
different suppliers in the various categories in which it
<PAGE>
operates, including certain large national suppliers. The
Company competes in this market on the basis of quality,
reliability, reputation, customer service, delivery time and
price.
Raw Materials; Suppliers
The Company purchases a wide variety of raw materials for
manufacturing its products. These raw materials include:
plastic resins, such as HPDE, used in manufacturing cable
conduit and in molding connector bodies and inserts, brass used
in manufacturing RF connectors, copper alloys used for contacts
and precious metals, such as gold and palladium, used in
plating. All raw materials are generally readily available
throughout the world and most are purchased on the spot market
from a variety of suppliers. The Company is not dependent upon
any one source for any of the raw materials used in
manufacturing its products unless following a specific customer
request. The prices at which the Company purchases most of its
raw materials are based upon market prices at the time of
purchase. The Company does not enter into contractual
agreements with respect to most of the raw materials it uses.
However, the Company does have a contract with its brass
supplier that allows the Company to return to the supplier, as
scrap, up to 50% of the brass it purchases. As a result, the
Company only pays for the brass it actually uses. Many of the
raw materials used by the Company have historically been
subject to price fluctuations. In most cases, the Company is
able to pass on to its customers significant price fluctuations
in the market prices of the raw materials used in its products,
although product price increases typically lag behind the
actual increase in raw material prices.
The Company's SILICORE technology includes a patented,
solid co-extruded polymer lubricant lining that uses a silicone-
based lubricant which is marketed and sold under the SILICORE
trademark. The Company produces all of the silicone-based
lubricant used in the manufacture of its cable conduit
products.
The Company purchases the electronic connectors,
components and materials that it does not manufacture itself
from a large number of suppliers. The Company believes that
the electronic connectors and components and other materials it
requires could be purchased from several domestic and
international sources. Thus, the Company should be able to
obtain replacement sources of supply in the event of the loss
of any current supplier. Although customers often require that
materials produced by a particular supplier be used in
manufacturing their customized products, in the event of the
loss of any such supplier, the Company believes that customers
would be likely to qualify alternative suppliers or, if
necessary, redesign their products to accommodate materials
from replacement suppliers. However, no assurance can be given
that the loss of a key supplier would not have a material
adverse effect on the Company.
Intellectual Property
The Company relies on a combination of patent, copyright,
trademark and trade secret laws and contractual agreements to
protect its proprietary technology and know how. The Company
owns and uses trademarks and brandnames to identify itself as a
source of certain goods and services, including the DURA-LINE
and SILICORE trademarks, both of which are registered in the
United States and various foreign countries, and the VIEWSONICS
brandname, in which the Company has common law rights. The
Company's SILICORE technology includes a patented solid co-
extruded polymer lubricant lining that uses a silicone-based
lubricant which is marketed and sold under the SILICORE
trademark. There can be no assurance that the Company will be
<PAGE>
granted additional patents or that the Company's patents either
will be upheld as valid if ever challenged or will prevent the
development of competitive products. The Company's U.S.
patents expire between 2004 and 2010 and the U.S. patent with
respect to the SILICORE lubricant lining expires in 2007. The
Company has not sought wide spread foreign patents for most of
its technologies, including technologies which have been
patented in the United States, such as the SILICORE lubricant
lining, which may adversely affect the Company's ability to
protect its technologies and products in foreign countries.
The Company protects its confidential, proprietary information
as trade secrets.
Except for the SILICORE polymer pipe products, certain of
the Company's CATV components and its fiber optic connector
technology, the Company=s products are generally not protected
by virtue of any proprietary rights such as patents. There can
be no assurance that the steps taken by the Company to protect
its proprietary rights will be adequate to prevent
misappropriation of its technology and know-how or that the
Company=s competitors will not independently develop
technologies that are substantially equivalent to or superior
to the Company's technology. In addition, the laws of some
foreign countries do not protect the Company's proprietary
rights to the same extent as do the laws of the United States.
In the Company's opinion, the loss of any intellectual property
asset, other than the DURA-LINE or SILICORE trademarks, or the
patent or manufacturing trade secrets covering the solid co-
extruded polymer lubricant lining used in connection with the
SILICORE technology, would not have a material adverse effect
on the conduct of the Company's business.
The Company is also subject to the risk of adverse claims
and litigation alleging infringement of the proprietary rights
of others. From time to time, the Company has received notice
of infringement claims from other parties. Although the
Company does not believe it infringes the valid proprietary
rights of others, there can be no assurance against future
infringement claims by third parties with respect to the
Company's current or future products. The resolution of any
such infringement claims may require the Company to enter into
license arrangements or result in protracted and costly
litigation, regardless of the merits of such claims.
Environmental
The Company is subject to numerous U.S. and foreign
federal, state, provincial, and local laws and regulations
relating to the storage, handling, emission and discharge of
materials into the environment, including the U.S.
Comprehensive Environmental Response, Compensation and
Liability Act ("CERCLA"), the Clean Water Act, the Clean Air
Act, the Emergency Planning and Community Right-To-Know Act and
the Resource Conservation and Recovery Act. Under CERCLA and
analogous state laws, a current or previous owner or operator
of real property may be liable for the costs of removal or
remediation of hazardous or toxic substances on, under, or in
such property. Such laws frequently impose cleanup liability
regardless of whether the owner or operator knew of or was
responsible for the presence of such hazardous or toxic
substances and regardless of whether the release or disposal of
such substances was legal at the time it occurred. Regulations
of particular significance to the Company's ongoing operations
include those pertaining to handling and disposal of solid and
hazardous waste, discharge of process wastewater and stormwater
and release of hazardous chemicals. The Company believes it is
in substantial compliance with such laws and regulations.
The Company generally conducts a Phase I environmental
survey on each acquisition candidate prior to purchasing the
company to assess the potential for the presence of hazardous
or toxic substances that may lead to cleanup liability with
<PAGE>
respect to such properties. The Company does not currently
anticipate any material adverse effect on its results of
operations, financial condition or competitive position as a
result of compliance with federal, state, provincial, local or
foreign environmental laws or regulations. However, some risk
of environmental liability and other costs is inherent in the
nature of the Company's business, and there can be no assurance
that material environmental costs will not arise. Moreover, it
is possible that future developments such as the obligation to
investigate or clean up hazardous or toxic substances at the
Company's property for which indemnification is not available,
could lead to material costs of environmental compliance and
cleanup by the Company.
ITEM 2. PROPERTIES
Properties
The Company=s headquarters is located in an approximately
31,700 square foot office space in Deerfield, Illinois that is
provided by Jordan Industries pursuant to the Transition
Agreement (See Note 11 to the Consolidated Financial Statements
and Item 13. ACertain Relationships and Related Transactions@).
The principal properties of the Company, the location,
user/subsidiary, primary use, square feet and ownership status
thereof as of December 31, 1998, are set forth in the table
below:
United States/ User/ Square Owned/
Locations Subsidiary Primary Use Feet Leased
Anaheim, CA Bond Manufacturing/ 22,000 Sub-
Administration Leased
Huntington Beach, Bond Manufacturing/ 102,000 Leased
CA Administration
Newark, CA Bond/K&S Manufacturing/ 30,000 Leased
Sheet Metal Administration
San Carlos, CA LoDan Manufacturing 22,500 Leased
Administration
San Carlos, CA LoDan Manufacturing 9,000 Leased
San Carlos, CA LoDan Manufacturing 13,500 Leased
Shasta Lake City, TSI Manufacturing 6,000 Leased
CA Distribution
Boca Raton, FL Viewsonics Administration/ 18,300 Leased
Distribution
Research and
Development
Riverview, FL TSI Administration 75,000 Leased
Manufacturing/
Distribution
Sunrise, FL AIM Manufacturing/ 36,000 Leased
Administration/
Distribution
<PAGE>
Tampa, FL TSI Manufacturing/ 20,000 Leased
Distribution
Middlesboro, KY Dura-Line Manufacturing/ 80,000 Owned
Administration
Belle Chasse, LA Engineered Distribution 195,000 Leased
Endeavors
Waseca, MN Johnson Manufacturing 70,000 Sub-
Administration leased
Sparks, NV Dura-Line Manufacturing 35,000 Owned
Mentor, OH (1) Engineered Manufacturing/ 48,000 Leased
Endeavors Administration
Pryor, OK Dura-Line Manufacturing 34,000 Owned
Administration
Knoxville, TN Dura-Line Administration 10,000 Leased
Austin, TX Bond Manufacturing/ 13,000 Leased
Administration
Grand Prairie, TX TSI Manufacturi 15,000 Leased
Distribution
Liberty Lake, WA Northern Manufacturing/ 27,000 Leased
(2) Administration
International
Locations
Shanghai, China Dura-Line Manufacturing 52,000 Leased
Administration
Shanghai, China Dura-Line Sales 1,000 Leased
Office/
Administration
Shanghai, China Viewsonics Manufacturing 38,000 Leased
Administration
Zlin, Czech Dura-Line Manufacturing/ 40,000 Owned
Republic Administration
Paris, France Vitelec Sales 1,000 Leased
Office
Goa, India Dura-Line Manufacturing/ 48,000 Owned
Administration
New Delhi, India Dura-Line Administration/ 2,000 Leased
Sales Office
Tel Aviv, Israel Dura-Line Manufacturing/ 10,000 Leased
(3) Administration
Beranang, Malaysia Dura-Line Manufacturing/ 64,000 Leased
Administration
Mexico City, Dura-Line Sales 1,000 Leased
Mexico Office/
Administration
Queretaro, Mexico Dura-Line Manufacturing/ 146,000 Leased
Administration
<PAGE>
Ciudad Real, Spain Dura-Line Manufacturing 3,000 Leased
Bordon Hants, Vitelec Distribution/ 14,000 Owned
United Kingdom Administration/
Assembly
Grimsby, United Dura-Line Manufacturing/ 28,000 Owned
Kingdom Administration
(1) EEI rents its current facility from Timeless Enterprises,
Inc., a corporation owned by the former owners. The
Company believes that the terms are comparable to those
which would have been obtained by the Company had this
lease been entered into with an unaffiliated third party.
(2) Northern's Liberty Lake, Washington facility is leased
from a general partnership consisting of the former
owners. The Company believes that the terms are
comparable to those which would have been obtained by the
Company had this lease been entered into with an
unaffiliated third party.
(3) This facility is leased by the joint venture in which the
Company participates.
The Company also has sales representatives in field
offices in Florida, Illinois, Ohio, Oregon, Virginia and
internationally in Brazil, Bulgaria, Germany, Malaysia,
Romania, Russia and Slovakia.
The Company believes that its existing leased facilities
are adequate for the operations of the Company and its
subsidiaries. The Company does not believe that any single
leased facility is material to its operations and that, if
necessary, it could readily obtain a replacement facility.
ITEM 3. LEGAL PROCEEDINGS
Litigation
The Company is not a party to any pending legal proceeding
the resolution of which, the management of the Company
believes, would have a material adverse effect on the Company's
financial condition or results of operations, nor to any other
pending legal proceedings other than ordinary, routine
litigation incidental to its business.
ITEM 4. SUBMISSION OF MATTERS TO A
VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders
during the fiscal year ended December 31, 1998.
<PAGE>
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY
AND RELATED STOCKHOLDER MATTERS
There is no established public trading market for the
Company's Common Stock. At December 31, 1998, there were 22
holders of record of the Company's Common Stock.
The Company has not declared or paid any cash dividends on
its capital stock since its formation. The Company is not
required to pay cash dividends on its Senior Preferred Stock
until November 1, 2002. The Company intends to retain future
earnings, if any, for use in its business and does not
anticipate paying any cash dividends in the foreseeable future
on the Senior Preferred Stock or on the Common Stock. In
addition, the terms of the Indenture=s and Bank Credit
Agreement limit the amount of cash dividends the Company may
pay with respect to the Senior Preferred Stock, the Common
Stock and other equity securities.
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
The following table presents selected financial
information (dollars in thousands) derived from the Company=s
Consolidated Financial Statements.
For the Year Ended December 31,
1998 1997 1996 1995 1994
Operations Data: (1)
Net sales $310,028 $257,010 $132,999 $96,969 $64,690
Depreciation 6,771 5,451 4,071 2,621 1,807
Amortization 8,114 5,487 2,571 2,484 3,293
Stock appreciation
rights expense - 15,871 3,411 1,097 1,239
Management fees and other 4,706 4,874 3,307 1,869 1,641
Operating income 30,791 13,258 13,323 14,886 8,388
Other income (expense):
Interest expense (39,521) (25,749) (11,826) (6,555) (5,778)
Interest income 521 486 152 156 4
Other income expense (57) (5) (31) -- --
Income (loss) before
income taxes, minority
interest and
extraordinary item (14,725) (12,000) 1,618 8,487 2,614
Provision (benefit) for
income taxes 4,287 (1,676) 3,647 4,062 1,172
Income (loss) before
minority interest and
extraordinary item (19,012) (10,324) (2,029) 4,425 1,442
Minority interest (401) (543) (548) (419) (57)
Income (loss) before
extraordinary item (19,413) (10,867) (2,577) 4,006 1,385
Extraordinary item - (479) -- -- --
Net income (loss) $(19,413) $(11,346) $(2,577) $4,006 $1,385
Balance Sheet Data (at
period end): (1)
Cash and cash $ 8,040 $ 8,988 $ 6,385 $ 2,798 $ 862
equivalents
Total assets 331,298 334,514 179,646 62,748 49,445
Long-term debt (less
current portion) 376,142 358,830 147,186 52,009 46,368
Preferred stock 30,100 43,490 1,875 1,875 2,695
Shareholders' equity
(net capital
deficiency) $(135,265) $(130,059) $11,379) $(11,216) $(15,163)
Notes to the selected financial data are as follows:
(1) The Company has acquired a diverse group of operating
companies over the five-year period, which significantly
affects the comparability of the information shown above.
(See Note 1 to the Consolidated Financial Statements).
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
The Company has different performance and growth drivers
for each of its three business segments.
The Company's Infrastructure Products segment is tied
closely to the infrastructure build-outs of the countries in
which it has market positions including phone/internet
infrastructures, wireless networks and CATV infrastructures.
These build-outs are dependent on the overall health of the
local economy and continued use of telecommunications services.
The growth and performance of the Company's Custom Cable
Assemblies segment is dependent on the demand for its
customer's products and the continued use of datacommunications
networks. The Company feels it has aligned itself with fast
growing, telecommunications and datacommunications leaders.
The Electronic Connectors and Components segment is
focused largely on the RF portion of the connector market and
is dependent on the continued trend to electronic use of all
types of products.
Management believes that it has positioned itself
favorably in its markets and reasonably anticipates its growth
rates to equal or exceed those of the respective markets in
which it operates for at least the next 12 months. However,
there can be no assurances that such a growth rate will be
sustained in the future.
A substantial portion of the Company's growth during the
past three years is the result of the acquisitions during this
period. The Company acquired Johnson in January 1996,
Diversified in June 1996, Viewsonics in August 1996, Vitelec in
August 1996, Bond in September 1996, Northern in December 1996,
LoDan in May 1997, EEI in September 1997, TSI in October 1997,
K&S Sheet Metal in January 1998 and Opto-Tech in July 1998.
Each of these acquisitions has been accounted for under the
purchase method of accounting and is included in the Company=s
consolidated financial statements from their respective dates
of acquisition. As a result of these acquisitions, the
Company's consolidated results for 1998, 1997 and 1996 are not
directly comparable.
These acquisitions have had a significant impact on the
Company=s results of operations and financial position.
Results of operations have been affected by increases in
amortization of intangibles (including non-competition
agreements, which are typically amortized over a period of five
years, and goodwill), inventory costs, depreciation (resulting
from purchase accounting adjustments), interest expense, and
deferred financing and prepayment fees.
<PAGE>
The following table is a summary of net sales, operating income
and net loss for the years ended December 31, 1998, 1997 and
1996, respectively:
Year Ended December 31,
1998 1997 1996
Net sales
Infrastructure Products $149,462 $139,789 $75,179
Electronic Connectors and Components 43,011 45,041 40,275
Custom Cable Assemblies 117,555 72,180 17,545
Total net sales $310,028 $257,010 $132,999
Operating Income
Infrastructure Products $ 19,323 $ 18,914 $ 7,650
Electronic Connectors and Components 8,472 10,040 10,484
Custom Cable Assemblies 14,470 824 5,279
Unallocated amounts:
Stock appreciation rights expense - (15,871) (3,411)
Loss on foreign currency transactions (3,020) - -
Management fees (3,087) (2,964) (2,224)
Corporate Expenses (5,367) (2,140) -
Total Operating Income $30,791 $ 13,258 $ 13,323
Net loss ($19,413 ($11,346) ($2,577)
Consolidated Results of Operations
Net sales in 1998 increased $53.0 million, or 21%, to
$310.0 million from $257.0 million in 1997. The increase in
sales was due to the acquisitions of Telephone Services
Holdings, Inc. (TSI), LoDan West, Inc. (LoDan) and Engineered
Endeavors, Inc. (EEI), which were not owned for the full year
1997 and the acquisitions of K&S Sheet Metal and Opto-Tech
during 1998. Combined, these acquisitions accounted for
approximately 123% of the increase in net sales. The offsetting
decrease came from the sale of Diversified during the year and
a slow down of business at Bond Technologies.
Net sales in 1997 increased $124.0 million, or 93%, to
$257.0 million from $133.0 million in 1996. The increase in
sales was due to the acquisitions of Johnson Components,
Diversified, Viewsonics, Vitelec, Bond Technologies, Northern
Technologies, Inc. (Northern), LoDan, EEI and TSI, which were
not owned for the full year 1996. Combined, these acquisitions
accounted for approximately 80% of the increase in net sales.
The balance of the sales increase was attributed to higher
sales of cable conduit, particularly international sales, due
to the addition of new manufacturing facilities in Mexico and
China.
Operating income in 1998 increased $17.5 million, or 132%,
to $30.8 million to 1997. The increase was primarily due to a
$15.9 million Stock Appreciation Rights ("SAR") expense
incurred in April 1997, which relates to the Company's
acquisition of Dura-Line in 1985. Excluding the effects of SAR
expenses in 1997, operating income in 1998 rose $1.7 million,
or 5.7%, to $30.8 million from $29.1 million. This increase
(excluding the SAR expense) was due to the above acquisitions,
which added $12.4 million of operating income. Partially
offsetting this was an increase in corporate expenses and
overhead for the full year of 1998 as opposed to only 5 months
in 1997, business slow down at Bond Technologies and Engineered
Endeavors, and a foreign currency transaction loss of $3.0
million during 1998.
<PAGE>
Operating income in 1997 was flat compared to 1996 due to
the above mentioned $15.9 million Stock Appreciation rights
expense. Excluding the effects of SAR expense in 1997,
operating income in 1997 would have increased $12.4 million to
$29.1 million from $16.7 million in 1996. This increase in
operating income (excluding the SAR expense) was due to the
acquisitions described above, which added $14.6 million in
operating income. Partially offsetting this was an increase in
management fees due to the new acquisitions, and separately
recording corporate expenses in 1997.
Operating margins increased to 10% in 1998 from 5% in
1997. Excluding the SAR expenses, operating margins would have
been down 1.3% from 11.3% in 1997. This decrease is attributed
to the 1998 full year impact of the above mentioned management
fees, and the business slowdown at Bond Technologies and
Engineered Endeavors. Combined, these accounted for 3.9% of the
decrease. The offsetting increase in operating margins is due
to the full year impact of the TSI and LoDan acquisitions in
1997.
Operating margins in 1997 decreased to 5% in 1997 from 10%
in 1996. Excluding the SAR expenses, operating margins would
have declined to 11.3% in 1997 from 12.6% in 1996. This
decline is attributed to the increase in the above mentioned
management fees as well as the underabsorption of overhead
relating to new China and Mexico facilities, international
market development costs and lower operating margins at AIM.
Interest expense in 1998 increased $13.8 million to $39.5
million from $25.7 million in 1997 due to borrowings to finance
acquisitions and amortization of deferred financing fees and
debt discount resulting from the July 1997 debt offering.
Infrastructure Products
Net sales in 1998 increased $9.7 million to $149.5
million, or 6.9%, to from $139.8 million in 1997. The increase
was primarily due to the acquisition of EEI that was not owned
for the full year of 1997. This accounted for 100% of the
increase. Lower sales at Dura-Line=s US and Czech Republic
operations were offset by increases of the full year impact at
Dura-Line=s China location and new Spain facility. Increases
were also recorded at Northern and Viewsonics.
Net sales in 1997 increased $64.6 million, or 86%, to
$139.8 million from $75.2 million in 1996. The acquisitions of
Viewsonics, Northern and EEI accounted for approximately 61% of
the increase. The balance is accounted for by higher net sales
of cable conduit, particularly international sales, due to Dura-
Line's manufacturing facilities in China and Mexico.
Operating income in 1998 increased $0.4 million, or 2.1%,
to $19.3 million from $18.9 million in 1997. The increase is
due to stronger sales and margins at Viewsonics and the full
year impact of Dura-Line China partially offset by a business
slowdown at EEI.
Operating income in 1997 increased $11.2 million, or 145%,
to $18.9 million from $7.7 million in 1996. The acquisitions of
Northern and Viewsonics, which were not owned a full year in
1996, and EEI, which was acquired in September 1997, account
for the majority of the increase.
<PAGE>
Electronic Connectors and Components
Net sales in 1998 decreased $2.0 million, or 4.5% to $43.0
million from $45.0 million in 1997. Sales declines at
Cambridge and Johnson accounted for the decrease.
Net sales in 1997 increased $4.7 million, or 12%, to $45.0
million from $40.3 million in 1996. The majority of the
increase is due to the acquisition of Vitelec, which was not
owned for the full year in 1996 and higher net sales from
Johnson, which was acquired in January 1996. These increases
were partly offset by lower sales from AIM. Combined these
acquisitions accounted for approximately 123% of the increase
in net sales.
Operating income in 1998 decreased $1.6 million, or 15.6%
to $8.5 million from $10.0 million in 1997. Lower sales
accounted for $0.8 million of the decrease and expenses related
to the reorganization of Cambridge and AIM into Johnson
Components accounted for the remainder.
Operating income in 1997 decreased $0.5 million, or 5%, to
$10.0 million from $10.5 million in 1996. This decease was due
to additional operating income of $0.9 million from the
acquisitions of Johnson and Vitelec, which were not owned a
full year in 1996, offset by $1.4 million decrease in operating
income from AIM. Lower domestic sales and lower profits
negatively impacted AIM=s operating margins in 1997.
Custom Cable Assemblies
Net sales in 1998 increased $45.4 million, or 63%, to
$117.6 million from $72.2 million in 1997. The increase in
sales was due to the acquisitions of TSI and LoDan which were
not owned for the full year 1997 and the acquisitions of K & S
Sheet Metal and Opto-Tech during 1998. Combined these
acquisitions accounted for approximately 148% of the increase
in net sales. These increases were partially offset by the
sale of Diversified in 1998 and lower sales at Bond
Technologies.
Net sales in 1997 increased $54.7 million to $72.2 million
from $17.5 million in 1996 due to the acquisitions of
Diversified and Bond, which were not owned for the full year in
1996, and LoDan, EEI and TSI, which were acquired in 1997.
Operating income in 1998 increased $9.2 million, or 174%,
to $14.5 million from $5.3 million in 1997. The primary reason
for the increase is due to the above acquisitions which added
$12.8 million of operating income. These increases were
partially offset by the sale of Diversified in 1998 and lower
sales at Bond.
Operating income in 1997 increased $4.5 million to $5.3
million from $.8 million in 1996. The acquisition of Bond and
Diversified, which were not owned a full year in 1996, and
LoDan, EEI and TSI, which were acquired in 1997 account for the
increase.
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
<PAGE>
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 year ended December 31, 1998 was $15.8
million, compared to $1.3 million used in operating activities
during the same period in 1997. The increase was primarily the
result of improved working capital specifically in receivable
collection, inventory control, and payables.
Investing activities. Capital expenditures were $9.8
million for the year ended December 31, 1998 compared to $9.9
for the year ended December 1997. The expenditures primarily
relate to the new plant in Pryor, OK and a new production line
and office in the Czech Republic for Dura-Line.
Net cash used in investing activities primarily relates to
acquisitions and related costs partially offset by the proceeds
from the sale of a subsidiary.
Financing activities. The Company's annual cash
interest expense on the Senior Notes, which are due 2007, is
approximately $18.8 million. Interest on the Senior Notes is
payable semi-annually on February 1 and August 1 of each year.
Cash interest on the Discount Notes, which are due 2007, is
payable semi-annually beginning February 1, 2001. Dividends on
the Company's Senior Preferred Stock accrue quarterly each
February 1, May 1, August 1, and November 1. Dividends may be
paid, at the Company's option, in cash or additional shares of
Senior Preferred Stock until August 1, 2002. The Company's
credit agreement currently prohibits the Company from paying
cash dividends on the Senior Preferred Stock.
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. The Credit Agreement provides for
a revolving line of credit of $110.0 million through July 2002
and the agreement is secured by a first priority security
interest in substantially all of the Company's assets,
including a pledge of all of the stock of the Company's
subsidiaries. Payments of principal and interest on amounts
borrowed under the Credit Agreement are guaranteed by the
Company's subsidiaries. As of March 30, 1999, the Company has
approximately $15 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 12 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 A00" 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.
<PAGE>
State of Readiness. Based on recent assessments, the
Company determined that it will be required to modify or
replace 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
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.
Foreign Currency Impact
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,
<PAGE>
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 no notional amount of foreign currency
forward exchange contracts outstanding at December 31, 1998 or
December 31, 1997.
Seasonality and Inflation
The results of the Company's infrastructure products
business segment are adversely affected by winter in certain of
the geographic markets in which it operates. The effects of
seasonality have been mitigated by the substantial growth in
net sales from period to period due to the Company's
acquisitions.
The impact of inflation on the Company's operations has
not been significant to date. However, there can be no
assurance that a high rate of inflation in the future would not
have an adverse effect on the Company's operating results.
ITEM 7A. 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 December 31, 1998, the Company has $73 million in variable
rate debt outstanding. A one percentage point increase in
interest rates would increase the amount of annual interest
paid by approximately $0.7 million. The Company does not
believe that its market risk financial instruments on December
31, 1998 would have a material effect on future operations or
cash flows.
<PAGE>
ITEM 8. FINANCIAL STATEMENTS
PAGE NO.
Reports of Independent Auditors 24
Consolidated Balance Sheets as of
December 31, 1998 and 1997 27
Consolidated Statements of Operations
for the years ended December 31, 1998, 1997 and
1996 28
Consolidated Statements of Changes in
Shareholders= Equity (Net Capital Deficiency) for
the years ended December 31, 1998, 1997 and 1996 29
Consolidated Statements of Cash Flows for
the years ended December 31, 1998, 1997 and 1996 30
Notes to Consolidated Financial Statements 31
<PAGE>
Report of Independent Auditors
The Board of Directors and Shareholders
Jordan Telecommunication Products, Inc.
We have audited the accompanying consolidated balance sheets of
Jordan Telecommunication Products, Inc. as of December 31, 1998
and 1997, and the related consolidated statements of
operations, shareholders' equity (net capital deficiency), and
cash flows for each of the three years in the period ended
December 31, 1998. Our audits also included the financial
statement schedule listed in the index at Item 14(a). These
financial statements and schedule are the responsibility of the
Company's management. Our responsibility is to express an
opinion on these financial statements and schedule based on our
audits. We did not audit the financial statements of certain
subsidiaries whose statements reflect total assets constituting
7% and 15% as of December 31, 1998 and 1997, respectively, and
net sales constituting 9%, 21% and 13% for the years ended
December 31, 1998, 1997 and 1996, respectively, of the related
consolidated totals. Those statements were audited by other
auditors whose reports have been furnished to us, and our
opinion, insofar as it relates to data included for these
subsidiaries, is based solely on the reports of the other
auditors.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used
and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We
believe that our audits and the reports of other auditors
provide a reasonable basis for our opinion.
In our opinion, based on our audits and the reports of other
auditors, the financial statements referred to above present
fairly, in all material respects, the consolidated financial
position of Jordan Telecommunication Products, Inc. at December
31, 1998 and 1997, and the consolidated results of its
operations and its cash flows for each of the three years in
the period ended December 31, 1998, in conformity with
generally accepted accounting principles. Also, in our
opinion, the related financial statement schedule, when
considered in relation to the basic financial statements taken
as a whole, presents fairly in all material respects the
information set forth therein.
Ernst & Young LLP
Chicago, Illinois
March 4, 1999, except
for Note 20 as to which the date
is March 31, 1999
<PAGE>
Independent Auditors' Report
To the Board of Directors and Stockholders
Northern Technologies Holdings, Inc.
Deerfield, Illinois
We have audited the consolidated balance sheets of Northern
Technologies Holdings, Inc. as of December 31, 1998 and 1997,
and the related consolidated statements of income,
stockholder's equity, and cash flows for the years then ended.
These consolidated financial statements are the responsibility
of the Company's management. Our responsibility is to express
an opinion on these consolidated financial statements based on
our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether
the financial statement is free of material misstatement. An
audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used in
significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred
to above present fairly, in all material respects, the
financial position of Northern Technologies Holdings, Inc. as
of December 31, 1998 and 1997, and the results of its
operations and cash flows for the years then ended in
conformity with generally accepted accounting principles
Moss Adams LLP
Spokane, Washington
January 22, 1999
<PAGE>
Independent Auditors' Report
Board of Directors
Diversified Wire & Cable, Inc.
Troy, Michigan
We have audited the balance sheets of Diversified Wire & Cable,
Inc. as of December 31, 1997 and 1996 and the related
statements of operations, changes in stockholders' equity and
cash flows for the year ended December 31, 1997 and for the
period June 25, 1996 (Commencement of Operations) through
December 31, 1996, respectively (not separately presented
herein). These financial statements are the responsibility of
the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting
the amounts and disclosure in the financial statements. An
audit also includes assessing the accounting principles used
and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for our
opinion.
In our opinion the financial statements referred to above
present fairly, in all material respects, the financial
position of Diversified Wire & Cable, Inc. as of December 31,1
997 and 1996, and the results of its operations, the changes in
stockholders' equity and its cash flows for the year ended
December 31, 1997 and for the period June 25, 1996 through
December 31, 1996, respectively, in conformity with generally
accepted accounting principles.
Mellen, Smith & Pivoz, P.C.
Bingham Farms, Michigan
January 22, 1998
<PAGE>
JORDAN TELECOMMUNICATION PRODUCTS, INC.
CONSOLIDATED BALANCE SHEETS
(DOLLAR AMOUNTS IN THOUSANDS)
December 31,
1998 1997
ASSETS
Current Assets:
Cash and cash equivalents $8,040 $ 8,988
Accounts receivable, net of allowance
of $1,238 in 1998 and $867 in 1997 44,622 48,733
Inventories 38,859 41,815
Prepaid expenses and other current assets 3,428 2,956
Total Current Assets 94,949 102,492
Property, plant, and equipment, net 41,132 35,332
Goodwill, net 169,337 166,098
Deferred financing costs, net 8,782 9,781
Deferred income taxes 4,707 6,000
Other assets, net 12,391 14,811
Total Assets $331,298 $334,514
LIABILITIES AND SHAREHOLDERS' EQUITY
(NET CAPITAL DEFICIENCY)
Current Liabilities:
Accounts payable $ 19,269 $ 18,803
Accrued interest payable 8,546 8,236
Accrued expenses and other current 20,214 22,290
liabilities
Due to affiliated company 1,412 2,531
Short-term notes payable 737 641
Current portion of long-term debt 2,856 1,197
Total Current Liabilities 53,034 53,698
Line of credit 73,000 68,000
Other long-term debt 303,142 290,830
Other non-current liabilities 3,287 5,179
Minority interest 4,000 3,376
13.25% Senior Preferred Stock at
liquidation value; 29,493.9551 shares
and 25,889.3836 shares issued and
outstanding at December 31, 1998 and
1997, respectively 30,100 26,413
Junior Preferred Stock at liquidation
value; 2,000 shares issued and
outstanding at December 31, 1998 and
1997, respectively 0 17,077
Shareholders' Equity (Net Capital
Deficiency):
Common Stock ($0.01 par value);
1,000,000 shares authorized; 983,917 and
994,639 shares issued
and outstanding at December 31,
1998 and 1997, respectively 10 10
Additional paid-in capital 1,982 1,982
Treasury Stock (22) -0-
Notes receivable from shareholders (855) (877)
Accumulated other comprehensive income 329 (488)
Retained earnings (Accumulated
deficit) (136,709) (130,686)
Total Shareholders' Equity
(Net Capital Deficiency) (135,265) (130,059)
Total Liabilities and Shareholders'
Equity (Net Capital Deficiency) $331,298 $334,514
(Net Capital Deficiency)
See accompanying notes to consolidated financial statements.
<PAGE>
JORDAN TELECOMMUNICATION PRODUCTS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLAR AMOUNTS IN THOUSANDS)
Year Ended December 31,
1998 1997 1996
Net sales $310,028 $257,010 $132,999
Cost of sales, excluding
depreciation 194,415 163,926 82,870
Selling, general, and
administrative expenses 62,211 48,143 23,446
Depreciation 6,771 5,451 4,071
Amortization of goodwill and
other intangibles 8,114 5,487 2,571
Stock appreciation rights expense -0- 15,871 3,411
Loss on foreign currency
transactions 3,020 -0- -0-
Management fees and other 4,706 4,874 3,307
Operating income 30,791 13,258 13,323
Other (income) and expense:
Interest expense 39,521 25,749 11,826
Interest income (521) (486) (152)
Loss on sale of subsidiary 6,459 -0- -0-
Other 57 (5) 31
Total other expenses 45,516 25,258 11,705
Income (loss) before income
taxes, minority interest and
extraordinary item (14,725) (12,000) 1,618
Provision (benefit) for income
taxes 4,287 (1,676) 3,647
Loss before minority interest and
extraordinary item (19,012) (10,324) (2,029)
Minority interest 401 543 548
Loss before extraordinary item (19,413) (10,867) (2,577)
Extraordinary item -0- (479) -0-
Net loss $(19,413) $(11,346) $(2,577)
See accompanying notes to consolidated financial statements.
<PAGE>
JORDAN TELECOMMUNICATION PRODUCTS, INC.
Consolidated Statements of Changes in Shareholders' Equity (Net
Capital Deficiency)
Years ended December 31, 1998, 1997, and 1996
(DOLLAR AMOUNTS IN THOUSANDS)
<TABLE>
Notes Accumulated Retained
Additional Receivable Other Earnings
Paid-in Treasury From Comprehensive (Accumulated>
Shares Amount Capital Stock Shareholders Income Deficit) Total
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Equity of
Telecommunications
Companies at December
31, 1995 - $ - $ - $ - $ - $ (193) $(11,023) $(11,216)
Net loss - - - - - - (2,577) (2,577)
Other comprehensive
income, net of tax:
Foreign currency
translation
adjustments - - - - - 414 - 414
Comprehensive income - - - - - - - (2,163)
Issuance of subsidiary
common stock in
connection with its
acquisition by Jordan - - - - - - 2,000 2,000
Balance at December 31,
1996 - - - - - 221 (11,600) (11,379)
Net loss - - - - - - (11,346) (11,346)
Other comprehensive
income, net of tax:
Foreign currency
translation
adjustments - - - - - (709) - (709)
Comprehensive income - - - - - - - (12,055)
Initial capitalization of
the Company on
July 21, 1997 959,639 10 1,910 - (877) - - 1,043
Issuance of common
stock in connection
with the sale of Senior
Preferred Stock Units
on July 25, 1997 25,000 - 52 - - - - 52
Costs incurred in connection
with the sale of the
Senior Preferred Stock
Units - - - - - - (6,208) (6,208)
Issuance of common stock
on July 25, 1997 10,000 - 20 - - - - 20
Acquisition of the
Telecommunications
Companies from Jordan
on July 25, 1997 - - - - - - (102,990) (102,990)
Dividends accrued on
Junior Preferred
Stock - - - - - - 2,923 2,923
Dividends declared on
Senior Preferred
Stock - - - - - - (1,465) (1,465)
Balance at December 31,
1997 994,639 10 1,982 - (877) (488) (130,686) (130,059)
Net loss - - - - - - - -
Other comprehensive income,
net of tax:
Foreign currency translation
Adjustments - - - - - 817 - 817
Comprehensive income - - - - - - - (18,596)
Repurchase common stock
for Treasury (10,722) - - (22) 22 - - -
Dividends accrued on
Junior Preferred
Stock - - - - - - 17,077 17,077
Dividends declared on Senior
Preferred Stock - - - - - - (3,687) (3,687)
Balance at December 31,
1998 983,917 $ - $1,982 $(22) $ (855) $ 329 $(136,709) $(135,265)
</TABLE>
See accompanying notes to consolidated financial statements
<PAGE>
JORDAN TELECOMMUNICATION PRODUCTS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLAR AMOUNTS IN THOUSANDS)
Year Ended December 31,
1998 1997 1996
Cash flows from operating
activities:
Net loss $(19,413) $(11,346) $(2,577)
Adjustments to reconcile net loss
to net cash provided by (used in)
operating activities:
Depreciation and amortization 14,885 10,938 6,642
Deferred income taxes (579) (5,952) (1,188)
Minority interest 624 1,346 548
Amortization of deferred financing
fees 999 422 -0-
Loss on sale of subsidiary 6,459 -0- -0-
Non-cash interest on Senior Notes
and Senior Subordinated Notes 10,860 12,630 -0-
Changes in operating assets and
liabilities (net of effects from acquisitions):
Accounts receivable 1,572 (10,337) 1,103
Inventories (294) (4,717) 54
Prepaid expenses and other (443) (634) (943)
current assets
Non-current assets 573 (774) 287
Accounts payable, accrued
interest payable, and
Accrued expenses and other 1,156 (1,153) (4,607)
Non-current liabilities 481 1,652 3,285
Due to affiliated company (1,119) 6,594 3,668
Other -0- -0- 41
Net cash provided by (used in)
operating activities 15,761 (1,331) 6,313
Cash flows from investing
activities:
Capital expenditures, net (9,848) (9,864) (6,523)
Purchase of Telecommunications
Companies from affiliated company -0- (284,027) -0-
Acquisitions of subsidiaries (22,562) (110,153) -0-
Net proceeds from sale of
subsidiary 15,000 -0- -0-
Cash acquired in acquisitions of
subsidiaries 1,322 1,650 1,244
Additional purchase price
payments, SARA payments and other (8,537) -0- -0-
Acquisition of Dura-Line common
stock and other -0- (205) -0-
Net cash used in investing
activities (24,625) (402,599) (5,279)
Cash flows from financing
activities:
Proceeds from debt issuance -0- 273,546 -0-
Proceeds from issuance of -0- 45,000 -0-
Preferred Stock
Proceeds from issuance of Common -0- 1,063 -0-
Stock
Payment of financing costs -0- (16,093) -0-
Net borrowings from line of 5,000 68,000 -0-
credit
Borrowings under other long-term
debt and capital 4,016 8,515 857
Lease agreements
Repayment of other long-term debt (3,254) (2,713) (1,698)
& capital leases
Net borrowings from affiliated -0- 2,834 28,745
company
Other 402 300 250
Net cash provided by financing 6,164 406,363 2,243
activities
Effect of exchange rate changes on
cash 1,752 170 310
Net (decrease) increase in cash and (948) 2,603 3,587
cash equivalents
Cash and cash equivalents at
beginning of period 8,988 6,385 2,798
Cash and cash equivalents at end of
period $ 8,040 $ 8,988 $ 1,198
Cash paid during the period for:
Interest on third party borrowings $ 26,465 $ 1,847 $ 1,198
Interest on Notes Payable to
Affiliated Company $ -0- $ 10,241 $11,063
Income taxes $ 5,938 $ 2,963 $ 2,103
Non-cash investing activities:
Capital leases $ 2,470 $ 246 $ 686
Jordan acquisitions $ -0- $ -0- $92,334
See accompanying notes to consolidated financial statements.
<PAGE>
JORDAN TELECOMMUNICATION PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLAR AMOUNTS IN THOUSANDS)
Formation of the Company, and Acquisitions and Sales of
Subsidiaries
Jordan Telecommunication Products, Inc. (the "Company")
was formed on July 21, 1997 by its management, the stockholders
of Jordan Industries, Inc. ("Jordan"), and certain of their
affiliates in order to combine a group of companies that are
focused on the manufacture and distribution of products for use
in the rapidly growing telecommunications industry. In
connection with its initial capitalization, the Company issued
and sold 2,000 shares of Junior Preferred Stock to Jordan for
$20,000 and 959,639 shares of Common Stock to the Company's
management and certain stockholders of Jordan for approximately
$1,920 (Note 9).
Concurrent with the consummation of a debt and equity
offering on July 25, 1997 (Notes 8 and 9), JTP Industries,
Inc., a wholly-owned subsidiary of the Company, acquired the
Telecommunications Companies (comprised of Aim Electronics
Corporation (AIM), Bond Holdings, Inc. and Subsidiaries (Bond),
Cambridge Products Corporation (Cambridge), Diversified Wire &
Cable, Inc. (Diversified), Dura-Line Corporation & Subsidiaries
(Dura-Line), Johnson Components, Inc. (Johnson), Jordan
Telecommunications Products Group, Inc. and Subsidiaries
(JTPG), LoDan West, Inc. (LoDan), Northern Technologies
Holdings, Inc. and Subsidiary (Northern), and Viewsonics, Inc.
and Subsidiary (Viewsonics)) from Jordan for aggregate
consideration of $284,027, plus the assumption of $10,000 of
Telecommunications Companies' obligations at the date of the
acquisition. The acquisition was financed with a portion of
the net proceeds from the offering.
The Company and the Telecommunications Companies are under
the common control of Jordan. The consolidated financial
statements give retroactive effect to the acquisition of the
Telecommunications Companies, which was accounted for in a
manner similar to the pooling-of-interests method.
Accordingly, the net assets acquired from Jordan were recorded
at Jordan's book value and the results of operations of the
Company include the historical results of operations of the
Telecommunications Companies from their respective dates of
acquisition by Jordan. As a result of the acquisition, the
Company recorded a $102,990 charge to retained earnings in
1997. This amount represents the $284,027 of cash payments to
Jordan, less $181,037 in Telecommunication Companies'
liabilities owed to Jordan.
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 a subordinated seller note. The
sellers of K&S are also entitled to additional payments for
their stock, contingent upon future operating results, as
described in the purchase agreement (Note 12).
<PAGE>
On July 9, 1998, the Company sold its stock of
Diversified Wire and Cable for $15.0 million which resulted in
a loss of approximately $6.5 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.
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 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.
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
$36,199. The acquisition was financed with $21,500 of cash and
$20,000 of borrowings from the Company's line of credit.
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 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 and
$5,000 of subordinated seller notes and the assumption of a
$303 deferred purchase agreement. Certain sellers of TSI were
also entitled to additional payments for their stock,
contingent upon future operating results as defined in the
purchase agreement (Note 12).
On January 23, 1996 Jordan purchased the net assets of
Johnson. The purchase price of $16,121, including costs
incurred directly related to the transaction, was allocated to
working capital of $1,616, property, plant and equipment of
$4,660, and noncompete agreements of $1,050, and resulted in an
excess purchase price over net identifiable assets of $8,795.
The acquisition was financed with cash.
On June 25, 1996, Jordan purchased the stock of
Diversified. The purchase price of $17,044, including costs
incurred directly related to the transaction, was allocated to
working capital of $534, property, plant and equipment of $607,
noncompete agreements of $500, other assets of $27, capital
<PAGE>
leases of $194, and resulted in an excess purchase price over
net identifiable assets of $15,570. The acquisition was
financed with cash and $1,500 subordinated seller note.
Immediately after Diversified was purchased by Jordan,
Diversified sold 1,250 shares of its common stock to the former
owners and current members of Diversified management for $250.
On August 1, 1996, Jordan purchased the net assets of
Viewsonics. The purchase price of $15,000, including costs
incurred directly related to the transaction, was allocated to
working capital of $6,378, property, plant and equipment of
$446, and resulted in an excess purchase price over net
identifiable assets of $8,176. The acquisition was financed
with cash. The former owner of Viewsonics was also entitled to
additional payments for the net assets acquired by Jordan,
contingent upon operating results as defined in the purchase
agreement (Note 12).
On August 5, 1996, Jordan purchased the stock of Vitelec
through its wholly owned subsidiaries, JTPG and JTPGE. The
purchase price of $14,040, including costs incurred directly
related to the transaction, was allocated to working capital of
$962, property, plant and equipment of $1,054, and resulted in
an excess purchase price over net identifiable assets of
$12,024. The acquisition was financed with cash.
On September 20, 1996, Jordan purchased Bond Technologies
Group. The purchase price of $8,629, including costs incurred
directly related to the transaction, was allocated to working
capital of $2,099, property, plant and equipment of $902,
noncompete agreements of $800, other assets of $54, debt
assumed of $53, and resulted in an excess purchase price over
net identifiable assets of $4,827. The acquisition was financed
with cash.
On December 31, 1996, Jordan purchased 100% of the stock
of Northern Technologies, Inc., through its wholly owned
subsidiary, Northern. The purchase price of $21,500, including
costs incurred directly related to the transaction, was
allocated to working capital of $5,082, property, plant and
equipment of $887, noncompete agreements of $500, long-term
assets of $234, long-term liabilities of $188, and resulted in
an excess purchase price over net identifiable assets of
$14,985. The acquisition was financed with cash.
Unaudited annual pro forma information with respect to the
Company as if the 1998 acquisitions and divestiture had
occurred on January 1, 1998 and 1997, respectively, and as if
the 1997 acquisitions had occurred on January 1, 1997 and
January 1, 1996, respectively, are as follows:
(Unaudited)
Year Ended December 31,
1998 1997 1996
Net Sales $296,075 $302,425 $246,266
Income (loss) before income
taxes and minority interest (14,407) (7,764) 8,922
Net income (loss) (19,124) (5,100) 5,551
The accompanying consolidated financial statements include
the accounts of Aim, Bond, Cambridge, Diversified, Dura-Line,
EEI, Johnson, JTPG, LoDan, Northern, TSI, Viewsonics, K&S and
Opto-Tech. The Company has a 100% ownership interest in each
of its direct and indirect subsidiaries, except for Diversified
(87.5% owned), TSI and Opto-Tech (70% owned), certain
subsidiaries of Bond and K&S (51% - 80% owned), and certain
subsidiaries of Dura-Line (33.33-100% owned).
<PAGE>
See Note 17 on segment information for a description of
the Company's business segments.
2. Significant Accounting Policies
Principles of Consolidation
The Company consolidates all majority-owned subsidiaries
and limited partnerships where the Company is the general
partner with a controlling interest. Investments in 20% to 50%
owned affiliates are accounted for using the equity method.
All significant intercompany balances and transactions have
been eliminated in consolidation.
Use of Estimates
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the amounts reported
in the financial statements and accompanying notes. Actual
results could differ from those estimates.
Cash and Cash Equivalents
All highly liquid debt instruments purchased with an
initial maturity of three months or less are considered to be
cash equivalents.
Inventories
Inventories are stated at the lower of cost or market.
Inventories are primarily valued at either average or first in,
first out ("FIFO") cost.
Depreciation and Amortization
Property, Plant, and Equipment
Depreciation and amortization of property, plant, and equipment
is calculated using estimated useful lives, or over the lives
of the underlying leases, if less, using straight-line or
accelerated methods. The useful lives of plant and equipment
for the purpose of computing book depreciation are as follows:
Machinery and equipment 3-10 years
Buildings and improvements 7-35 years
Furniture and fixtures 5-10 years
Goodwill
Goodwill is being amortized on the straight-line basis
principally over 40 years. At December 31, 1998 and 1997,
goodwill is net of accumulated amortization of $10,187 and
$5,465, respectively.
Foreign Currency Translation
In accordance with Statement of Financial Accounting
Standards No. 52, "Foreign Currency Translation," assets and
liabilities of the Company"s foreign operations are translated
from foreign currencies into U.S. dollars at year-end rates
while income and expenses are translated at the weighted-
average exchange rates for the year. Gains or losses resulting
from the translations of foreign currency financial statements
are deferred and classified as a separate component of
<PAGE>
shareholders' equity. Gains or losses resulting from the
remeasurement of financial statements of foreign entities
located in highly inflationary economies have been included in
the determination of net income or loss in the current period.
The Company recognized a $1,493 charge in 1998 related to the
remeasurement of the financial statements of Dura-Line's
Mexican operations as of December 31, 1998.
Foreign Exchange Instruments
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.
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
counterparites 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 no notional amount of foreign currency
forward exchange contracts outstanding at December 31, 1998 or
December 31, 1997.
Income Taxes
Deferred tax assets and liabilities are determined based
on the difference between the financial statement and tax basis
of assets and liabilities using enacted tax rates in effect for
the year in which the differences are expected to reverse. A
valuation allowance is provided when it is more likely than not
that some portion of the deferred tax assets arising from
temporary differences and net operating losses will not be
realized.
The Company has not provided for income taxes on
undistributed earnings of foreign subsidiaries to the extent
that undistributed earnings are considered to be permanently
reinvested.
Revenue Recognition
Revenues are recognized when products are shipped to
customers.
Risk and Uncertainties
The Company operates in twelve countries. In each
country, the business is subject to varying degrees of risk and
uncertainty. The Company insures its business and assets in
each country against insurable risks in a manner that is deemed
appropriate in the circumstances. Because of the diversity in
its operations, the Company believes that the risk of loss from
noninsurable events in their businesses in any one country
would not have a material adverse effect on its operations as a
whole.
AIM, Viewsonics, LoDan and Bond are economically dependent
on a limited number of suppliers, some of which are located in
<PAGE>
Asia. If these suppliers become unable to meet materials
requirements, sales could be adversely affected. However,
management believes that sufficient inventory levels are
maintained, and alternative sources of supply would be
available, to prevent a materially adverse impact on the
Company's results of operations.
Dura-Line's domestic employees represent approximately 48%
of Dura-Line's total worldwide employment as of December 31,
1998. Approximately 34% of Dura-Line's domestic employees, or
approximately 16% of Dura-Line's total employees, are subject
to a collective bargaining agreement which expires in 2000.
Plastic resins are Dura-Line's principal raw materials.
The price of plastic resins is subject to worldwide market
forces of supply and demand. Prices can be volatile, and
fluctuations can influence Dura-Line's financial results.
Long-Lived assets
Statement of Financial Accounting Standards No. 121,
Accounting for the Impairment of Long-Lived Assets and Long-
Lived Assets to be Disposed Of, requires, among other things,
that companies consider whether indicators of impairment of
long-lived assets held for use are present, that if such
indicators are present the company determines whether the sum
of the estimated undiscounted future cash flows attributable to
such assets is less than their carrying amounts, and if so, the
Company recognizes an impairment loss based on the excess of
the carrying amount of the assets over their fair value.
Accordingly, the Company evaluated the ongoing value of
their property and equipment and other long-lived assets as of
December 31, 1998. From this evaluation, the Company
determined that there were no indicators of impairment, and as
such, no impairment loss has been recognized for the year ended
December 31, 1998.
Adoption of Statement 131
Effective January 1, 1997, the Company adopted the
Financial Accounting Standards Board=s Statement of Financial
Accounting Standards No. 131, Disclosures about Segments of an
Enterprise and Related Information. Statement 131 superseded
FASB Statement No. 14, Financial Reporting for Segments of a
Business Enterprise. Statement 131 established standards for
the way that public business enterprises report information
about operating segments in annual financial statements and
requires that those enterprises report selected information
about operating segments in interim financial reports.
Statement 131 also established standards for related
disclosures about products and services, geographic areas, and
major customers. The adoption of Statement 131 did not affect
results of operations or financial position, but did affect the
disclosure of segment information. See Note 17.
Adoption of Statement 130
Effective 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 shareholder's equity. Statement 130 requires
foreign currency translation adjustments, which prior to
adoption were reported separately in shareholder's equity, to
be included in other comprehensive income. Prior year
financial statements have been reclassified to conform to the
requirements of Statement 130.
<PAGE>
3. Inventories
Inventories consist of:
December 31
1998 1997
Raw Materials $20,405 $16,215
Work in process 2,386 2,769
Finished goods 16,068 22,831
$38,859 $41,815
Other Assets
Customer lists, noncompete agreements, trade names,
patents, trademarks, and supplier relations are amortized on
the straight-line basis over their estimated useful lives,
ranging from five to twenty years. At December 31, 1998 and
1997, these items are shown net of accumulated amortization of
$28,031 and $24,638, respectively.
Other assets consist of:
December 31
1998 1997
Customer lists $ 1,078 $ 1,278
Noncompete agreements 6,376 8,736
Trade names, patents and 1,374 1,828
trademarks
Supplier relations 947 1,038
Other 2,616 1,931
$12,391 $14,811
5. Property, Plant, and Equipment
Property, plant, and equipment, at cost, consists of:
December 31
1998 1997
Land $ 1,269 $ 1,223
Machinery and equipment 45,319 40,825
Buildings and improvements 12,695 10,073
Furniture and fixtures 8,409 3,871
67,692 55,992
Accumulated depreciation and
amortization (26,560) (20,660)
$ 41,132 $ 35,332
<PAGE>
6. Accrued Expenses and Other Current Liabilities
Accrued expenses and other current liabilities consist of:
December 31
1998 1997
Accrued vacation $ 735 $ 621
Accrued TSI purchase price holdback 0 2,000
Accrued income taxes 1,268 508
Accrued commissions 806 768
Accrued payroll and payroll taxes 1,710 1,591
Accrued stock appreciation rights 1,101 4,356
Accrued Additional Purchase Price
Payments and Bonus 6,699 1,388
Dura-Line Preferred Stock Redemption 0 1,875
Advanced deposits 3,739 3,717
Accrued other expenses
4,156 5,466
$20,214 $22,290
7. Line of Credit
On July 25, 1997, the Company entered into a revolving
credit agreement with certain parties thereto, and BankBoston,
N.A., as agent, under which the Company is able to borrow up to
approximately $110,000 in the form of a revolving credit
facility over a term of five years. Interest on borrowings is
at BankBoston's base rate plus an applicable margin or, at the
Company's option, the rate at which BankBoston's eurodollar
lending office is offered dollar deposits (Eurodollar Rate)
plus an applicable margin (7.84% and 8.06% at December 31,
1998, respectively). The credit agreement is secured by a
first priority security interest in substantially all of the
Company's assets, including a pledge of all of the stock of the
Company's subsidiaries. The Company has $73,000 of outstanding
borrowings and a $2,356 standby letter of credit under this
credit agreement at December 31, 1998. The Company has $34,644
of additional borrowings available under the revolving credit
agreement at December 31, 1998. Unused commitments are subject
to an availability fee equal to 0.5% per annum.
8. Other Long Term Debt
Other Long-term debt consists of:
December 31
1998 1997
Senior Notes (A) $188,724 $188,576
Senior Subordinated Notes (A) 100,077 89,365
Other notes payable (B) 12,327 10,682
Capital lease obligations (C) 4,870 3,404
$305,998 $292,027
Current portion (2,856) (1,197)
$303,142 $290,830
<PAGE>
(A) On July 25, 1997, the Company issued and sold $190,000
principal amount of 9.875% Senior Notes due August 1, 2007
("Senior Notes") and $120,000 principal amount at maturity
($85,034 initial accreted value) of 11.75% Senior Discount
Notes due August 1, 2007 ("Senior Discount Notes"). The
Senior Notes bear interest at a rate of 9.875% per annum,
payable semi-annually in cash in arrears on February 1 and
August 1 of each year. The Senior Discount Notes will
accrete at a rate of 11.75%, compounded semi-annually, to
par by August 1, 2000. Commencing August 1, 2000, the
Senior Discount Notes bear interest at a rate of 11.75%
per annum, payable semi-annually in cash in arrears on
February 1 and August 1 of each year, commencing on
February 1, 2001.
The Senior Notes are redeemable for 104.9375% of the
principal amount from August 1, 2002 to July 31, 2003,
102.4688% from August 1, 2003 to July 31, 2004, and 100%
on or after August 1, 2004, plus any accrued and unpaid
interest to the date of redemption.
The Senior Discount Notes are redeemable for 105.8750% of
the accreted value from August 1, 2002 to July 31, 2003,
102.9375% from August 1, 2003 to July 31, 2004, and 100%
on or after August 1, 2004, plus any accrued and unpaid
interest from August 1, 2000 to the redemption date, if
such redemption occurs after August 1, 2000.
The indentures governing the Senior Notes and the Senior
Discount Notes contain certain covenants which limit the
Company's ability to (i) incur additional indebtedness;
(ii) make restricted payments (including dividends); (iii)
enter into certain transactions with affiliates; (iv)
create certain liens; (v) sell certain assets; and (vi)
merge, consolidate or sell substantially all of the
Company's assets.
The fair value of the Senior Notes and Senior Discount
Notes was $190,000 and $92,400, respectively, at December
31, 1998. The fair values were calculated by multiplying
the face amount by the market prices of each security at
December 31, 1998.
The Company incurred approximately $16,093 of costs during
1997 related to the issuance and sale of the Senior Notes,
Senior Discount Notes, and the Senior Preferred Stock
Units (Note 9), $9,885 of which was allocated to deferred
financing fees and $6,208 of which was allocated to
stockholders' equity.
(B) Dura-Line has $3,077 of notes payable due in monthly
installments through 2003 and bearing interest at rates
ranging from 6.0% to 17.0%. The notes are secured by
equipment.
Opto-Tech has $1,250 of unsecured note payable to the
sellers. The notes bear interest at 8% per annum. $250
is due each year commencing in 1999 through final payment
in 2003.
K&S has $1,500 of unsecured notes payable to the sellers.
The notes bear interest at 8% per annum. One half of the
principal is due in 2004 with the remaining one-half due
in 2005.
LoDan has a $1,500 unsecured note payable to an officer of
LoDan. The note bears interest at 8% per annum and is due
in 1999.
<PAGE>
TSI has $5,000 of unsecured notes payable to the sellers,
one of which is an officer of TSI. The notes bear
interest at 8% per annum and are due in 2003.
(C) Interest rates on capital leases range from 7.0% to 10.0%
and mature in installments through 2003. Leases are
secured by the underlying assets.
Future minimum lease payments as of December 31, 1998
under capital leases consist of the following:
1999 $ 1,586
2000 2,037
2001 794
2002 678
2003 598
5,693
Amount representing (823)
interest
Present value of future minimum
lease payments $ 4,870
The present value of the future minimum lease payments
approximates the book value of property, plant, and
equipment under capital leases at December 31, 1998.
Aggregate maturities of other long-term debt at December 31,
1998 are as follows:
1999 $ 2,856
2000 3,864
2001 2,389
2002 3,499
2003 2,143
Thereafter 312,446
$327,197
Interest expense includes amortization of deferred
financing costs of $999, $422 and $0, for 1998, 1997, and 1996,
respectively.
9. Capital Stock
Common Stock
In connection with its initial capitalization on July 21,
1997, the Company issued and sold 959,639 shares of Common
Stock to its management and certain stockholders of Jordan for
approximately $1,920. On July 25, 1997, the Company issued and
sold 35,000 shares of Common Stock for approximately $72,
25,000 shares of which were issued and sold as part of the sale
of preferred stock units described below.
During 1998, the Company repurchased 10,722 shares of its
common stock at $2.00 per share from an executive who left the
Company.
Senior Preferred Stock
The Company has authorized for issuance 1,000,000 shares
of Preferred Stock, of which the Senior Preferred Stock
described below constitute a series.
<PAGE>
On July 25, 1997, the Company issued and sold twenty-five
thousand units, each consisting of (i) $1 aggregate liquidation
preference of 13.25% Senior Exchangeable Preferred Stock due
August 1, 2009 ("Senior Preferred Stock"), and (ii) one share
of Common Stock.
Holders of the Senior Preferred Stock are entitled to
receive dividends at a rate of 13.25% per annum of the
liquidation preference. All dividends are cumulative, whether
or not earned or declared, and are payable on February 1, May
1, August 1, and November 1 of each year. On or before August
1, 2002, the Company may, at its option, pay dividends in cash
or in additional shares of Senior Preferred Stock having an
aggregate liquidation preference equal to the amount of such
dividends. After August 1, 2002, dividends may be paid only in
cash. On November 1, 1997, the Company issued 889.3836 of
additional shares of Senior Preferred Stock, as payment of
dividends through that date. On February 1, 1998, May 1, 1998,
August 1, 1998, and November 1, 1998 the Company issued
864.6345, 864.3747, 922.3787, and 953.1836 shares,
respectively, of Senior Preferred Stock as payment of dividends
through those respective dates.
The fair value of the Senior Preferred Stock was $30,100
at December 31, 1998. The fair value was calculated by
multiplying the shares outstanding by the market price per
share at December 31, 1998.
The Senior Preferred Stock has no voting rights and is
mandatorily redeemable on August 1, 2009.
Junior Preferred Stock
In connection with its initial capitalization on July 21,
1997, the Company issued and sold 2,000 shares of Junior
Preferred Stock to Jordan for $20,000. Jordan, as the holder
of the Junior Preferred Stock, is entitled to vote on each
matter which the stockholders are entitled to vote, including
the election of directors, voting together with the Common
Stock as a single class. The holders of Junior Preferred Stock
are entitled to 9,500 votes for each share held and, therefore,
hold approximately 95% of the combined voting power of the
Common Stock and Junior Preferred Stock at December 31, 1998.
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 $17,077 was accrued on the Junior Preferred Stock
during the year ended December 31, 1998, which reduced the
liquidation value of the Junior Preferred Stock to $0.
The Junior Preferred Stock is mandatorily redeemable on
<PAGE>
August 1, 2002. Certain events, including the redemption of
the Junior Preferred Stock, could result in a change in control
of the Company. Management cannot determine the accounting
impact of a change in control resulting from the redemption of
the Junior Preferred Stock until the form of the transaction(s)
resulting in the redemption are known.
10. Income Taxes
Income (loss) before income taxes and minority interest
consists of the following:
Year Ended December 31,
1998 1997 1996
From U.S. operations $(23,037) $(13,809) $1,513
From foreign operations 8,312 1,330 (516)
Total income (loss) before income
taxes and minority interest $(14,725) $(12,479) $1,618
The provision (benefit) for income taxes consists of the
following:
Year Ended December 31
1998 1997 1996
Current:
Federal $1,049 $ -0- $2,374
Foreign 1,672 2,302 2,311
State and local 258 167 150
2,979 2,469 4,835
Deferred
Federal 1,840 (3,990) (1,100)
Foreign -0- -0- -0-
State and local (532) (155) (88)
1,308 (4,145) (1,188)
Total provision benefit
for income taxes $4,287 $(1,676) $3,647
<PAGE>
the following:
December 31
1998 1997
Deferred tax liabilities:
Tax over book depreciation and $ 2,966 $2,345
amortization
Equity investment in Dura-Line 121 114
(Israel) Ltd.
Other 107 9
3,194 2,468
Deferred tax assets:
Accrued stock appreciation 1,915 3,772
rights
U.S. net operating loss 18,521 7,137
carryforwards
Foreign net operating loss 3,230 2,132
carryforwards
Inventory reserves 400 393
Uniform capitalization of 423 240
inventory
Book over tax depreciation and 5,427 5,564
amortization
Accrued vacation 251 275
Accrued warranties 137 -0-
Accrued employee benefits 103 206
Foreign currency translation 594 594
adjustment
Deferred intercompany gain 87 -0-
Investment in partnership 282 -0-
Allowance for doubtful accounts 237 286
Other 322 136
31,929 20,735
Valuation allowance for deferred (24,028) (12,267)
tax assets
Net deferred tax assets $ 4,707 $ 6,000
The increase in the valuation allowance during 1998
and 1997 was $11,761 and $8,364, respectively.
The Company is included in the consolidated federal
income tax return of Jordan, but has computed its
provision for income taxes on a separate return basis in
accordance with Statement of Financial Accounting
Standards No. 109. A tax-sharing agreement exists between
the Company and Jordan under which the Company receives
benefit for net operating losses against taxable income of
profitable entities included in the consolidated tax
group. At December 31, 1998, the Company has U.S. net
operating loss carryforwards under the tax-sharing
agreement of $47,983. The U.S. net operating loss
carryforwards expire in various years from 2005 to 2012.
Total foreign net operating losses are $12,080, $787 of
which expire in 2003, $536 of which expire in 2005, $1,905
of which expire in 2006, $2,085 of which expire in 2007,
$2,879 of which expire in 2008, and $3,888 of which can be
carried forward indefinitely.
The provision (benefit) 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>
Year Ended December 31
1998 1997 1996
Computed statutory tax $(5,007) $(4,240) $ 550
provision (benefit)
Increase (decrease)
resulting from:
Nondeductible
depreciation and
Amortization 716 554 109
Higher effective
income taxes of
other countries 457 462 448
State and local taxes (992) 96 (534)
Foreign subsidiary
losses without a
Current-year tax benefit (1,361) 1,906 1,630
U.S. losses without
a current-year
tax benefit 9,835 524 527
Foreign tax holiday (760) (517) -0-
Single business tax 53 85 -0-
Adjustments to prior-
year tax liabilities -0- -0- 400
Adjust valuation
allowance 1,293 -0- -0-
Other, net 53 84 (113)
Provision (benefit)
for income taxes $4,287 $(1,676) $3,647
11. Related Party Transactions
Prior to the formation of the Company, the
Telecommunications Companies were subsidiaries of, and
therefore financed and managed by, Jordan. Jordan financed the
Company pursuant to intercompany advances and notes (the
"Intercompany Notes") which were used largely to finance the
acquisition of the Telecommunications Companies and their
businesses. The Telecommunications Companies paid Jordan
approximately $10.2 million and $11.1 million in interest under
the Intercompany Notes for the years ended December 31, 1997
and 1996, respectively. Concurrent with the consummation of
the July 1997 debt and equity offerings (the "Offerings"), the
Intercompany Notes were repaid by the Telecommunication
Companies.
Prior to the consummation of the Offerings, the
Telecommunications Companies, as subsidiaries of Jordan, were
charged by Jordan (i) annual consulting fees, payable
quarterly, equal to 3.0% of the Company's cash flow (which were
$1.7 million and $2.2 million for the years ended December 31,
1997 and 1996, respectively); (ii) investment banking and
sponsorship fees of up to 2.0% of the purchase price of
acquisitions or sales involving the Company or any of its
subsidiaries or their respective businesses or properties and
financial advisory fees of up to 1.0% of any debt, equity or
other financing, in each case, arranged with the assistance of
The Jordan Company (which were $0.7 million and $2.0 million
for the years ended December 31, 1997 and 1996, respectively);
and (iii) reimbursement for The Jordan Company's out-of-pocket
costs incurred and indemnities in connection with providing
such services. In connection with the acquisition of Northern
and LoDan the Company paid to The Jordan Company an investment
banking fee of $0.7 million following the consummation of the
Offerings. Concurrent with the consummation of the Offerings,
all management, consulting, investment banking, sponsorship,
financial advisory and similar arrangements between the Company
on the one hand and Jordan, TJC Management Corp. (an affiliate
of The Jordan Company) and The Jordan Company on the other were
<PAGE>
terminated. In their place the Company entered into five new
types of agreements and arrangements.
First, the Company and each of its subsidiaries (other
than certain of the Bond and Dura-Line subsidiaries) entered
into a new advisory agreement (the "New Subsidiary Advisory
Agreement") with Jordan, pursuant to which the Company and its
subsidiaries will pay to Jordan (i) investment banking and
sponsorship fees of up to 2.0% of the purchase price of
acquisitions, joint ventures, minority investments or sales
involving the Company and its subsidiaries or their respective
businesses or properties; (ii) financial advisory fees of up to
1.0% of any debt, equity or other financing or refinancing
involving the Company or such subsidiary, in each case,
arranged with the assistance of The Jordan Company or its
affiliates; and (iii) reimbursement for The Jordan Company=s or
Jordan=s out-of-pocket costs in connection with providing such
services. The New Subsidiary Advisory Agreement will expire in
December 2007, but is automatically renewed for successive one-
year terms, unless either party provides written notice of
termination 60 days prior to the scheduled renewal date. The
Company paid fees of approximately $0.8 million and $4.1
million in 1998 and 1997, respectively to Jordan pursuant to
the New Subsidiary Advisory Agreement.
Second, the Company and each of its subsidiaries (other
than certain of the Bond and Dura-Line subsidiaries) entered
into a management consulting agreement (the ANew Subsidiary
Consulting Agreement@), pursuant to which the Company and its
subsidiaries will pay to Jordan annual consulting fees of 1.0%
of the Company=s net sales for such services, payable
quarterly, and will reimburse Jordan for its out-of-pocket
costs related to its services. The New Subsidiary Consulting
Agreement will expire in December 2007, but is automatically
renewed for successive one-year terms, unless either party
provides written notice of termination 60 days prior to the
scheduled renewal date. Pursuant to the New Subsidiary
Consulting Agreement, Jordan (but not Jordan=s affiliates)
will be obligated to present all acquisition, business and
investment opportunities that relate to manufacturing,
assembly, distribution or marketing of products and services in
the telecommunications and data communications industries to
the Company, and Jordan will not be permitted to pursue such
opportunities or present them to third parties unless the
Company determines not to pursue such opportunities or consents
thereto. In accordance with this agreement, the Company paid
$3.1 million and $1.3 million to Jordan during the year ended
December 31, 1998 and 1997, respectively.
Third, the Company and each of its subsidiaries (other
than certain of the Bond and Dura-Line subsidiaries) and Jordan
entered into a services agreement (the AJI Properties Services
Agreement@) with JI Properties, Inc. (AJI Properties@), a
subsidiary of Jordan, pursuant to which JI Properties will
provide certain real estate and other assets, transportation
and related services to the Company. Pursuant to the JI
Properties Services Agreement, the Company will be charged for
its allocable portion of such services based upon its usage of
such services and its relative revenues, as compared to Jordan
and its other subsidiaries. In accordance with this agreement,
such charges were $1.7 million and $0.5 million for the year
ended December 31, 1998 and 1997, respectively. The JI
Properties Services Agreement will expire in December 2007, but
is automatically renewed for successive one-year terms, unless
either party provides written notice of termination 60 days
prior to the scheduled renewal date.
Fourth, Jordan refined the allocation of its overhead,
general and administrative charges and expenses among Jordan
and its subsidiaries, including the Company, in order to more
<PAGE>
closely match these overhead charges with the revenues and
usage of corporate overhead by Jordan and its subsidiaries.
Under this agreement, the Company=s allocable portion of
Jordan's corporate expenses was $2.3 million and $1.0 million
for the years ended December 31, 1998 and 1997, respectively.
Fifth, the Company and Jordan entered into the transition
agreement (the "Transition Agreement") pursuant to which Jordan
will provide office space and certain administrative and
accounting services to the Company to facilitate the transition
of the Company as a stand-alone company. The Company will
reimburse Jordan for services provided pursuant to the
Transition Agreement on an allocated cost basis. The
Transition Agreement will expire on December 31, 1999, but is
automatically renewed for successive one year periods (unless
either party provides prior written notice of non-renewal) and
may be terminated by the Company on 90 days' written notice.
12. Dura-Line Preferred Stock, Stock Appreciation Rights (SAR)
and Additional Purchase Price Agreements
In 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, 1999 $1,101
March 31, 2000 1,189
March 31, 2001 1,284
March 31, 2002 1,386
$4,960
As such, at December 31, 1998 the Company has recorded
$1,101 in accrued expenses and other current liabilities and
$3,859 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 acquisitions 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 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
the plan year ended July 31, 1997. $1,081 has been accrued at
December 31, 1998, for the final plan year ending July 31,
1998.
The Company has an agreement with the previous owners of
TSI to make an additional purchase price payment of up to a
maximum of $4.0 million, if certain earnings levels were met
during the year ended October 31, 1998. At December 31, 1998,
$3,742 has been accrued related to this agreement.
The Company has an agreement with the previous owners of
K&S to make an additional purchase price payment 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.
<PAGE>
13. Concentrations of Credit Risk
Financial instruments which potentially subject the
Company to concentration of credit risk consist principally of
cash and cash equivalents and accounts receivable. The Company
deposits cash and cash equivalents with high-quality financial
institutions, which are federally insured up to prescribed
limits.
The Company closely monitors the credit quality of its
customers and maintains allowances for potential credit losses
which, historically, have not been significant and have been
within the range of management's expectations. The Company
generally does not require collateral or other security on
trade receivables.
14. Financial Instruments
The Company's financial instruments include cash
equivalents, trade accounts receivable, accounts payable,
accrued expenses, the Senior Notes, the Senior Discount Notes,
and the line of credit. The fair values of all financial
instruments, except for the Senior Notes and Senior Discount
Notes (Note 8), were not materially different from their
carrying values at December 31, 1998 and 1997, respectively.
15. Operating Leases
Certain land, buildings, and equipment are leased under
noncancelable operating leases. Certain leases for facilities
contain renewal options, require additional payments for
maintenance charges, and are subject to periodic escalation
charges.
Total minimum rental commitments under noncancelable
operating leases at December 31, 1998 are:
1999 $ 4,268
2000 3,636
2001 3,164
2002 2,720
2003 2,016
Thereafter 9,500
$25,304
Northern rents its current facility from a partnership in
which an officer in Northern is a partner. The lease calls for
annual rental payments of approximately $170 through 2002, with
annual 5% increases effective each January.
EEI rents its current facility from a company that is
owned by EEI's President and Chief Executive Officer. The
lease calls for annual rental payments of approximately $301
through December 2004.
Total rental expense amounted to $3,833, $2,642 and $879
in 1998, 1997 and 1996, respectively.
16. Benefit Plan
Certain of the Company's subsidiaries participate in the
<PAGE>
Jordan Industries, Inc. 401(k) Savings Plan (401(k) Plan), a
defined-contribution benefit plan for salaried and hourly
employees. In order to participate in the 401(k) Plan,
employees must be at least 21 years old and have worked at
least 1,000 hours during the first 12 months of employment.
Each eligible employee may contribute from 1% to 15% of their
before-tax wages into the 401(k) Plan. The Company made
matching contributions of $413, $370 and $96 in 1998, 1997, and
1996, respectively.
17. Segment Data
Description of Segments
The Company operates in three business segments:
infrastructure products, custom cable assemblies and electronic
connectors and components.
The businesses in the infrastructure products segment
provide products and services for the construction, expansion
and maintenance of the Aoutside plant@ portion of the
telecommunications infrastructure. The products cover a broad
range of applications including fiber optic and coaxial cable
conduit, power conditioning systems, CATV components and
transmitters, and antenna support systems used by wire-line and
wireless telecommunications, CATV, cellular telephone and
Personal Communications Systems (PCS) providers.
Through the businesses in the electronic connectors and
components segment, the Company designs, manufactures and
distributes worldwide, a broad range of electronic connectors,
including radio frequency (RF) and coaxial connectors, plugs,
adapters, and electronic hardware, as well as electronic
network and security components. These products are used in
telecommunications, data communications, and other OEM
applications that require miniaturization and high frequency
ranges, such as wireless telecommunications.
Through the businesses in the custom cable assemblies
segment, the Company designs, engineers and manufacturers
custom cable assemblies for internetworking suppliers, OEMs and
RBOCs for use primarily in the data communications and
telecommunications industries. The Company also is a broad line
provider and value-added reseller of wire and cable and custom
cable assemblies for Local Area Networks (LANs) and other
commercial networking applications.
Measurement of Segment Profit or Loss and Segment Assets
The Company evaluates performance and allocates resources
based on operating income before management fees, stock
appreciation rights expense, and corporate expenses. The
accounting policies of the reportable segments are the same as
those described in Note 2, ASignificant Accounting Policies.@
Intrasegment sales exist between AIM and Cambridge and are
accounted for at prices comparable to unaffiliated customer
sales. These sales are eliminated in consolidation and are not
presented in segment disclosures. No single customer accounts
for 10% or more of consolidated net sales. Identifiable assets
are those used by each segment in its operations. Corporate
assets consist primarily of cash and deferred financing fees.
Factors Used to Identify the Enterprise's Reportable Segments
The Company's reportable segments are business units that
offer different products. The reportable segments are each
managed separately because they manufacture and distribute
distinct products with different production processes.
<PAGE>
Summary financial information by business segment is as
follows:
Year Ended December 31
1998 1997 1996
Net Sales
Infrastructure Products $149,462 $139,789 $ 75,179
Electronic Connectors and
Components 43,011 45,041 40,275
Custom Cable Assemblies 117,555 72,180 17,545
$310,028 $257,010 $132,999
Operating Income
Infrastructure Products $ 19,323 $ 18,914 $ 7,650
Electronic Connectors and
Components 8,472 10,040 10,484
Custom Cable Assemblies 14,470 5,279 824
Unallocated amounts:
Stock appreciation rights -0- (15,871) (3,411)
expense
Management fees (3,087) (2,964) (2,224)
Loss on foreign currency (3,020) -0- -0-
transactions
Corporate Expenses (5,367) (2,140) -0-
Total Operating Income 30,791 13,258 13,323
Interest expense (39,521) (25,749) (11,826)
Interest income 521 486 152
Loss on disposal of 6,459 -0- -0-
subsidiary
Other income (expense) (57) 5 (31)
Income (loss) before income
taxes, minority interest and $(14,725) $(12,000) $ 1,618
extraordinary item
Identifiable assets
Infrastructure Products $149,077 $151,165 $89,984
Electronic Connectors and
Components 50,314 52,118 54,872
Custom Cable Assemblies 114,520 112,701 34,790
Corporate Assets 17,387 18,530 -0-
$331,298 $334,514 $179,646
Summary financial information by geographic area is as follows:
1998 1997 1996
Net Sales
United States $250,540 $195,073 $97,369
Europe 38,224 38,794 34,152
South America 7,702 12,097 1,137
Asia 11,064 10,646 341
Other foreign countries 2,498 400 -0-
Total $310,028 $257,010 $132,999
Identifiable Assets
United States $ 22,253 $ 18,279 $ 15,028
Europe 9,680 8,497 6,985
South America 2,764 2,983 2,452
Asia 6,435 5,573 4,581
Total $ 41,132 $ 35,332 $ 29,046
Net sales are attributed to countries based on the
location of customers. In 1998, the Company sold products into
over thirty countries with no individual country, other than
the United States, representing more than 5% of the Company's
total sales.
Following is additional information about the reported
industry segments:
<PAGE>
Year Ended December 31
1998 1997 1996
Depreciation and amortization
Infrastructure Products $ 7,413 $ 6,230 $ 3,836
Electronic Connectors and Components 2,798 2,679 2,321
Custom Cable Assemblies 4,674 2,029 485
$14,885 $10,938 $ 6,642
Capital expenditures
Infrastructure Products $ 6,434 $ 7,767 $ 5,543
Electronic Connectors and Components 546 922 849
Custom Cable Assemblies 2,868 1,175 131
$ 9,848 $ 9,864 $ 6,523
18. Extraordinary Item
On January 1, 1997, the Company=s Dura-Line Reno, Nevada
production facility was flooded. Uninsured property damage and
lost production totaled $479.
19. Legal Proceedings
The Company is subject to legal proceedings and claims
which arise in the ordinary course of its business. The
Company believes that the final disposition of such matters
will not have a material adverse effect on the financial
position or results of operations of the Company.
20. Subsequent Event
On March 31, 1999, the Company, through a newly created
subsidiary, Integral Holdings, Inc. (AIntegral Holdings@), a
subisidiary of Dura-Line Corporation, purchased the assets of
Integral Corporation (AIntegral@). 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 $17,000, which does not include
related transaction costs, has not been allocated at this time.
The acquisition was financed with four-month promissory notes
for $9,937 and borrowings from the revolving credit agreement
of $7,063.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
None.
[This space is intentionally left blank]
<PAGE>
Part III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS
The following sets forth the names and ages of the
Company=s directors and executive officers and the
positions they hold as of March 31, 1999:
Name Age Position with Company
Executive Officers and
Directors
Thomas H. Quinn (2) 51 Chairman
Harold C. Bevis 39 President and Chief
Executive Officer,
Director
John LaVitola 44 Vice President and Chief
Financial Officer
William C. Ballard (1) 58 Director
Jonathan F. Boucher 42 Vice President and
Director
John W. Jordan,II (2) 51 Director
Michael A. Wadsworth (1) 55 Director
David W. Zalaznick 44 Director
(1)(2)(3)
John P. Shoffner 43 Director
Other Key Employees
Alan Kernes 55 President, Viewsonics
Steve Baker 49 President, Northern
Ernie Glass 61 President, Johnson
William McIlvene 40 President, Bond
Donald J. Sitter 59 President, LoDan West
Paresh Chari 47 Acting President and Chief
Executive Officer, Dura-
Line
Mack Deloney 61 President, EEI
Paul Melech 52 President, TSI
_______
Member of the Audit Committee.
Member of the Executive Committee.
Member of Banking, Finance and Investment Committee.
Set forth below is a brief description of the
business experience of each director and executive
officer of the Company.
Mr. Quinn has served as a Director of the Company
since July 1997. Since 1988, Mr. Quinn has been
President, Chief Operating Officer and a director of
Jordan Industries. From November 1985 to December 1987,
Mr. Quinn was Group Vice President and corporate officer
of Baxter International. From September 1970 to
November 1985, Mr. Quinn was employed by American
Hospital Supply Corporation, where he was a Group Vice
President and a corporate officer when it was acquired
by Baxter International. Mr. Quinn is also the Chairman
of the Board and Chief Executive Officer of American
Safety Razor Company and AmeriKing, Inc., Motors and
Gears, Inc., and Welcome Home, Inc., as well as other
privately held companies. In January 1997, Welcome
Home, Inc. filed a voluntary petition for bankruptcy.
Mr. Bevis has served as President and Chief
Executive Officer and a Director of the Company since
July 1998. From January 1995 through June 1998, Mr.
Bevis held several positions with General Cable
Corporation including Senior Vice President and General
Manager of Building Wire. From June 1991 through
<PAGE>
December 1994, Mr. Bevis held several positions with
General Electric including Business Manager B Integral
AC Motors and Packaged Drives. From May 1988 through
May 1991, Mr. Bevis was a Senior Consultant with Booz-
Allen and Hamilton.
Mr. LaVitola has served as Vice President and Chief
Financial Officer since October, 1998. From 1980
through September, 1998 Mr. LaVitola held several
increasingly responsible financial positions with
General Cable Corporation the most recent being Vice
President and Chief Financial Officer of their fiber
optic joint venture, General Photonics. From 1976
through 1980, Mr. LaVitola held several auditing
positions.
Mr. Ballard has served as a Director of the Company
since July 1997. Mr. Ballard has been of counsel to the
law firm of Greenbaum, Doll & McDonald in Louisville,
Kentucky since May 1992. From 1970 to April 1992, Mr.
Ballard held various positions with Humana, Inc., an
investor-owned hospital company, including most recently
as its Executive Vice President and as a member of its
Board of Directors. Mr. Ballard is a director of Atria
Communities, Inc., Health Care Reit, Health Care
Recoveries, Inc., American Safety Razor Company, LG&E
Energy Corp., Mid-America Bancorp, Vencor, Inc. and
United Healthcare Corp.
Mr. Boucher has served as a Vice President and a
Director of the Company since July 1997. Since 1983,
Mr. Boucher has been a partner of The Jordan Company, a
private merchant banking firm. Mr. Boucher is also a
director of Jordan Industries, Atria Communities, Inc.,
Health Care Reit, Health Care Recoveries, Inc., American
Safety Razor Company and Motors and Gears, Inc., as well
as other privately held companies. In January 1997,
Welcome Home, Inc., a company of which Mr. Boucher was a
director until December 1996, filed a voluntary petition
for bankruptcy.
Mr. Jordan has served as a Director of the Company
since July 1997. Mr. Jordan is a managing partner of
The Jordan Company, a private merchant banking firm
which he founded in 1982. Mr. Jordan is also a director
of Jordan Industries, Welcome Home, Inc., American
Safety Razor Company, AmeriKing, Inc., Carmike Cinemas,
Inc., Motors and Gears, Inc., Apparel Ventures, Inc.,
GFSI, Inc., GFSI Holdings, Inc., and Rockshox, Inc., as
well as other privately held companies. In January
1997, Welcome Home, Inc., filed a voluntary petition for
bankruptcy.
Mr. Wadsworth has served as a Director of the
Company since July 1997. Mr. Wadsworth has served as
Director of Athletics of the University of Notre Dame
since 1995 and a member of the International Advisory
Counsel to the University of Notre Dame since 1994.
From August 1989 to March 1995 Mr. Wadsworth served as
the Canadian Ambassador to Ireland. From 1984 to August
1989, Mr. Wadsworth served as Senior Vice President of
the U.S. operations of Crown Life Insurance Company and
a senior executive officer of its parent, Crown, Inc.
Mr. Zalaznick has served as a Director of the
Company since July 1997. Since 1982, Mr. Zalaznick has
been a managing partner of The Jordan Company, a private
merchant banking firm. Mr. Zalaznick is also a director
of Jordan Industries, Carmike Cinemas, Inc., AmeriKing,
Inc., American Safety Razor Company, Marisa Christina,
Inc., Apparel Ventures, Inc., Motors and Gears, Inc.,
GFSI, Inc., and GFSI Holdings, Inc., as well as other
privately held companies.
<PAGE>
Mr. Shoffner has served as a Director of the
Company since December 1997. Mr. Shoffner joined Dura-
Line in 1975 and held several operations positions
through 1985. He served as President of Dura-Line from
August 1985 to December 1996.
Mr. Kernes has held the position of President of
Viewsonics since August 1, 1998. From 1996 until
joining Viewsonics, Mr. Kernes was the Vice President of
Sales for TACAN Corporation. During his career, Mr.
Kernes has held a number of senior management positions
including the Vice President Sales at Philips, and Vice
President of Engineering for Jones Intercable.
Mr. Baker has served as President of Northern since
1986. Mr. Baker was one of the original founders of
Northern in 1985. He was initially responsible for
sales in the medical market, protecting sensitive
medical devices such as Magnetic Resonance Imaging and
CAT Scanning Equipment.
Mr. Glass has served as the President of Johnson
since January 1996. From 1987 to 1996 Mr. Glass held
various positions, including Vice President of
Operations, Vice President of Custom and Component
Products and Vice President of Finance and CFO with EF
Johnson Company who designs, manufactures and
distributes radio communication equipment. Prior to
1987 Mr. Glass was employed by General Electric Company
and held various management positions throughout North
and South America.
Mr. McIlvene has served as President and Chief
Executive Officer of Bond since he founded Bond in 1988.
Prior to that, he was a sales manager for Avnet
Incorporated, an electronics distributor.
Mr. Sitter has been President of LoDan, a company
he co-founded, since 1967. Prior to that, he was a
territory manager for Amphenol, a leader in the
connector business.
Mr. Chari has served as President and Chief
Operating Officer of Dura-Line International since May
1998. He held the position of Director of International
Business for Jordan Industries from 1996 to 1998. Mr.
Chari was with Ameritech from 1986 to 1995 where he held
various positions including Vice President of Sales and
Marketing.
Mr. Deloney has served as President of Engineered
Endeavors since August 1998. He joined the company as
Chief Operating Officer in November 1998 Prior to
joining EEI, he was with two of EEI=s major monopole
suppliers; as President of Power Structures, Inc., and
as Vice President, Operations of Thomas & Betts Steel
Structures Division.
Mr. Melech has served as President of TSI since
November 1997. From 1984 to 1997, Mr. Melech served as
Vice President of Operations for TSI. Prior to joining
TSI he held several senior management positions
including Vice President of Sales for KGS, a large
marine equipment distributor, and as Distributor Sales
Manager for Incom International, a global manufacturer
of controls and gears.
<PAGE>
ITEM 11. EXECUTIVE COMPENSATION
Directors' Compensation
Directors of the Company receive $20,000 per year
for serving as a director of the Company, plus $1,000
for each meeting of the Board of Directors or any
committee thereof attended in person or by telephone.
In addition, the Company reimburses directors for their
travel and other expenses incurred in connection with
attending meetings of the Board of Directors.
Executive Compensation
The following table sets forth a summary of certain
information regarding compensation paid or accrued by
the Company for services rendered to the Company for the
fiscal year ended December 31, 1998 to those persons who
were, at December 31, 1998: (i) the Company's Chief
Executive Officer; and (ii) the Company's four most
highly compensated executive officers other than the
Chief Executive Officer whose total salary and bonus
exceeded $100,000 during each period.
The Company anticipates adopting a plan under which
it would award stock options, restricted stock and/or
stock appreciation rights to certain officers and
directors. However, the terms of such a plan have not
yet been determined. The Company may issue a maximum of
5,000 shares of Common Stock pursuant to such a plan.
SUMMARY COMPENSATION TABLE
Other
Name and Principal Position Salary Bonus(1) Annual
Compensation (1)
Thomas H. Quinn (2) -0- -0- -0-
Chairman of the Board
Harold C. Bevis (2) -0- -0- -0-
President and Chief
Executive
Officer
John LaVitola (2) -0- -0- -0-
Chief Financial Officer
(1) For the periods indicated, no executive officer
named in the table
received any Other Annual Compensation in an amount
in excess of the lesser of either $50,000 or 10% of
the total of Annual Salary and Bonus reported for
him in the two preceding columns.
(2) Does not reflect compensation paid to Messrs. Quinn,
Bevis, and LaVitola by JII. See "Certain
Transactions-JII Services Agreement."
<PAGE>
ITEM 12. SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
The table below sets forth as of March 30, 1999,
certain information regarding beneficial ownership of
Common Stock held by (i) each director and each of the
Named Executives; (ii) all directors and executive
officers of the Company as a group; and (iii) each person
known by the Company to own beneficially more than 5% of
the Common Stock. Each individual or entity named has
sole investment and voting power with respect to shares
of Common Stock indicated as beneficially owned by them,
except where otherwise noted.
Amount of Beneficial
Ownership(1)
Number of
Shares Percentage
(rounded)
Executive Officers and Directors:
Thomas H. Quinn 89,804.6030 9.1
Harold C. Bevis 0 *
William C. Ballard 0 *
Jonathan F. Boucher 52,935.1436 5.4
John W. Jordan, II (2)(3)(4) 379,349.1691 38.6
Michael A. Wadsworth 0 *
David W. Zalaznick(3)(5) 183,073.2676 18.6
John P. Shoffner 0 *
All directors and executive officers
as a group (8 persons) 705,162.0832 71.7
Other Principal Stockholders:
Leucadia Investors, Inc. 95,566.3378 9.7
Jordan Industries, Inc. (6) 0 *
*Represents less than 1% of the outstanding shares of
Common Stock.
(1) Calculated pursuant to Rule 13d-3(d) under the
Exchange Act. Under Rule 13d-3(d),
shares not outstanding which are subject to options,
warrants, rights or conversion privileges exercisable
within 60 days are deemed outstanding for the purpose
of calculating the number and percentage owned by
such person, but not deemed outstanding for the
purpose of calculating the percentage owned by each
other person listed. As of March 30, 1999 the
Company had 983,916.6667 shares of Common Stock
issued and outstanding.
(2) Includes 8.9820 shares held personally and
379,340.1871 shares held by the John W.
Jordan II Revocable Trust. Does not include
2,777.5927 shares held by Daly Jordan O'Brien, the
sister of Mr. Jordan, 2,777.5927 shares held by
Elizabeth O'Brien Jordan, the sister of Mr. Jordan,
or 2,777.5927 shares held by George Cook Jordan, Jr.,
the brother of Mr. Jordan.
(3) Does not include 898.0451 shares held by The
Jordan/Zalaznick Capital Company
(AJZCC@) or 31,431.5758 shares held by JZ Equity
Partners PLC, a publicly traded U.K. investment trust
advised by an affiliate of The Jordan Company (which
is controlled by Messrs. Jordan and Zalaznick). Mr.
Jordan, Mr. Zalaznick and Luecadia, Inc. are the sole
partners of JZCC.
(4) Does not include 29,171.4943 shares held by The
Jordan Family Trust, of which John
W. Jordan II, George Cook Jordan, Jr., and G. Robert
Fisher are the Trustees.
(5) Does not include 737.8205 shares held by Bruce
Zalaznick, the brother of Mr.
Zalaznick.
(6) Jordan Industries owns all of the issued and
outstanding Junior Preferred Stock.
The Junior Preferred Stock entitles Jordan Industries
to 95% of the voting power as of March 30, 1999 the
principal address of Jordan Industries is ArborLake
Centre, Suite 550, 1751 Lake Cook Road, Deerfield, IL
60015.
<PAGE>
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Services Agreements. The Company and each of its
subsidiaries (other than certain of the Bond and Dura-
Line subsidiaries) are parties to an advisory agreement
(the ASubsidiary Advisory Agreement@) with Jordan
Industries, pursuant to which the Company and its
subsidiaries will pay to Jordan Industries (i) investment
banking and sponsorship fees of up to 2.0% of the
purchase price of acquisitions, joint ventures, minority
investments or sales involving the Company and its
subsidiaries or their respective businesses or
properties; (ii) financial advisory fees of up to 1.0% of
any debt, equity or other financing or refinancing
involving the Company or such subsidiary, in each case,
arranged with the assistance of The Jordan Company or its
affiliates; and (iii) reimbursement for The Jordan
Company's or Jordan Industries' out-of-pocket costs in
connection with providing such services. The Subsidiary
Advisory Agreement expires in December 2007, but is
automatically renewed for successive one-year terms,
unless either party provides written notice of
termination 60 days prior to the scheduled renewal date.
The Company paid fees of approximately $0.7 million in
1998 to Jordan Industries pursuant to the Subsidiary
Advisory Agreement. Mssrs. Jordan, Boucher and Zalaznick,
directors of the Company, are partners of The Jordan
Company.
The Company and each of its subsidiaries (other than
certain of the Bond and Dura-Line subsidiaries) are
parties to a management consulting agreement (the
"Subsidiary Consulting Agreement"), pursuant to which
they will pay to Jordan Industries annual consulting fees
of 1.0% of the Company's net sales for such services,
payable quarterly, and will reimburse Jordan Industries
for its out-of-pocket costs related to its services. The
Subsidiary Consulting Agreement expires in December 2007,
but is automatically renewed for successive one-year
terms, unless either party provides written notice of
termination 60 days prior to the scheduled renewal date.
Pursuant to the Subsidiary Consulting Agreement, Jordan
Industries (but not Jordan Industries= affiliates) will
be obligated to present all acquisition, business and
investment opportunities that relate to manufacturing,
assembly, distribution or marketing of products and
services in the telecommunications and data
communications industries to the Company, and Jordan
Industries will not be permitted to pursue such
opportunities or present them to third parties unless the
Company determines not to pursue such opportunities or
consents thereto. In accordance with this agreement, the
Company paid $3.1 million for the year ended December 31,
1998.
The Company and each of its subsidiaries (other than
certain of the Bond and Dura-Line subsidiaries) and
Jordan Industries are parties to a services agreement
(the "JI Properties Services Agreement") with JI
Properties, Inc. ("JI Properties"), a subsidiary of
Jordan Industries, pursuant to which JI Properties will
provide certain real estate and other assets,
transportation and related services to the Company.
Pursuant to the JI Properties Services Agreement, the
Company will be charged for its allocable portion of such
services based upon its usage of such services and its
relative revenues, as compared to Jordan Industries and
its other subsidiaries. In accordance with this
agreement, such charges were $1.7 million for the year
ended December 31, 1998. The JI Properties Services
Agreement will expire in December 2007, but is
<PAGE>
automatically renewed for successive one-year terms,
unless either party provides written notice of
termination 60 days prior to the scheduled renewal date.
Jordan Industries allocates its overhead, general
and administrative charges and expense among Jordan
Industries and its subsidiaries, including the Company,
based on the respective revenues and usage of corporate
overhead by Jordan Industries and its subsidiaries. Under
this agreement, the Company's allocable portion of
corporate expenses was $2.3 million for the year ended
December 31, 1998.
The Company and Jordan Industries are parties to a
transition agreement (the "Transition Agreement")
pursuant to which Jordan Industries will provide office
space and certain administrative and accounting services
to the Company to facilitate the transition of the
Company as a stand-alone company. The Company will
reimburse Jordan Industries for services provided
pursuant to the Transition Agreement on an allocated cost
basis. The Transition Agreement expired on December 31,
1998, but was automatically renewed for 1999 and is
automatically renewed for successive one year periods
(unless either party provides prior written notice of non-
renewal) and may be terminated by the Company on 90 days'
written notice.
Tax Sharing Agreement. The Company and each of its
subsidiaries are parties to a tax sharing agreement (the
ATax Sharing Agreement@) with Jordan Industries and each
of the other direct and indirect subsidiaries of Jordan
Industries that are consolidated with Jordan Industries
for Federal income tax purposes. Pursuant to the Tax
Sharing Agreement, each of the consolidated subsidiaries
of Jordan Industries pays to Jordan Industries, on an
annual basis, an amount determined by reference to the
separate return tax liability of the subsidiary as
defined in Treasury Regulation ' 1.1552-1(a)(2)(ii). The
Company and its subsidiaries paid an aggregate of $0
million to Jordan Industries pursuant to the Tax Sharing
Agreement in the year ended December 31, 1998. These
income tax payments reflected a Federal income tax rate
of approximately 34% of each subsidiary's pre-tax income.
Upon redemption of the Junior Preferred Stock or
other circumstances that cause the Company and its
subsidiaries to cease to be tax consolidated subsidiaries
of Jordan Industries, the Company and its subsidiaries
will be released from making any further payments under
the Tax Sharing Agreement. While the release will
discharge the Company and its subsidiaries from making
future income tax payments to Jordan Industries, the
Company and its subsidiaries will remain contingently
liable to Jordan Industries under the Tax Sharing
Agreement in respect of any increases in their separate
return tax liability for periods prior to the
consummation of the Offerings. The Company is not aware
of any such liabilities.
Directors of the Company, John W. Jordan II, David
W. Zalaznick and Thomas H. Quinn each have an ownership
interest of more than 10% of the common stock of Jordan
Industries.
Common Stock Consideration. In connection with the
purchase of Common Stock by certain officers and
directors of the Company, Thomas H. Quinn borrowed
$89,804.61, John W. Jordan borrowed $379,340.17 and David
W. Zalaznick borrowed $183,073.27 in order to pay for
such stock. Those loans remain outstanding in the form
of an 8% zero coupon note due July 2007.
Acquisition Consideration. In connection with
acquiring the Company=s subsidiaries, the sellers of the
subsidiaries, who usually include the subsidiary's
<PAGE>
management, often receive sellers= notes, stock or stock
appreciation rights and special bonus plans in respect of
those subsidiaries. The Company expects to continue
using such devices and incentives, when appropriate, in
making future acquisitions and providing incentives for
subsidiary management. The consideration paid the
sellers of the subsidiaries in each case was negotiated
at arms-length.
SAR Payments. In April 1997, the Company paid and
purchased stock appreciation rights and related interests
at Dura-Line, AIM and Cambridge. At Dura-Line, the
Company paid $9.4 million as part of a $15.4 million
agreement to purchase Dura-Line stock appreciation rights
from the president and chief financial officer of Dura-
Line, and redeemed, in March 1998, $1.9 million of Dura-
Line preferred stock held by the president and chief
financial officer of Dura-Line. At AIM and Cambridge,
the Company paid $3.1 million in 1997 and $3.4 million in
1998 as part of a $6.5 million agreement to purchase AIM
and Cambridge stock appreciation rights (based upon 20%
of AIM and Cambridge appreciation from 1989 to 1996) from
the estates of the former presidents of AIM and
Cambridge. Each of these payments and purchases in
respect of the stock appreciation rights was expensed for
financial reporting purposes.
Directors and Officers Indemnification. The Company
and each of its directors have entered into
indemnification agreements. The indemnification
agreements provide that the Company will indemnify the
directors against certain liabilities (including
settlements) and expenses actually and reasonably
incurred by them in connection with any threatened or
pending legal action, proceeding or investigation (other
than actions brought by or in the right of the Company)
to which any of them is, or is threatened to be, made a
party by reason of their status as a director, officer or
agent of the Company, or serving at the request of the
Company in any other capacity for or on behalf of the
Company; provided that (i) such director acted in good
faith and in a manner not opposed to the best interests
of the Company; (ii) with respect to any criminal
proceedings had no reasonable cause to believe his or her
conduct was unlawful; (iii) such director is not finally
adjudged to be liable for negligence or misconduct in the
performance of his or her duty to the Company, unless the
court rules in light of the circumstances the director is
nevertheless entitled to indemnification; and (iv) the
indemnification does not relate to any liability arising
under Section 16(b) of the Exchange Act, or the rules or
regulations promulgated thereunder. With respect to any
action brought by or in the right of the Company,
directors may also be indemnified to the extent not
prohibited by applicable laws or as determined by a court
of competent jurisdiction, against expenses actually and
reasonably incurred by them in connection with such
action if they acted in good faith and in a manner they
reasonably believed to be in or not opposed to the best
interest of the Company.
Future Arrangements. The Company has adopted a
policy to provide that future transactions between the
Company and its officers, directors and other affiliates
(including Jordan Industries) must (i) be approved by a
majority of the members of the Board of Directors and by
a majority of the disinterested members of the Board of
Directors; and (ii) be on terms no less favorable to the
Company than could be obtained from unaffiliated third
parties.
<PAGE>
Part IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULE
AND REPORTS ON FORM 8-K
Documents filed as part of this report:
Financial Statements
Reference is made to the Index to Consolidated
Financial Statements appearing at Item 8, which
Index is incorporated herein by reference.
Financial Statement Schedule
The following financial statement schedule for the
years ended December 31, 1998, 1997 and 1996 is
submitted herewith:
Item Page Number
Schedule II B Valuation
and qualifying amounts S-1
All other schedules for which provision is made in
the applicable accounting regulations of the Securities
and Exchange Commission are not required under the
related instructions, are not applicable and therefore
have been omitted, or the information has been included
in the consolidated financial statements.
Exhibits
An index to the exhibits required to be listed under
this Item 14(a)(3) follows the ASignatures@ section
hereof and is incorporated herein by reference.
Reports on Form 8-K
None.
<PAGE>
Signatures Page
Pursuant to the requirements of the Section 13 or 15(d)
of the Securities Exchange Act of 1934, the registration
has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.
JORDAN INDUSTRIES, INC.
By: /s/ Thomas H. Quinn
Thomas H. Quinn
Chairman of the Board of
Directors
Dated: March 31, 1999
Pursuant to the requirements of the Securities Exchange
Act of 1934, this report has been signed below by the
following persons on behalf of the registrant and in the
capacities and on the dates indicated.
By: /s/ Thomas H. Quinn
Thomas H. Quinn
Dated: March 31, 1999 Chairman of the Board of
Directors
By: /s/ William C. Ballard
William Ballard
Dated: March 31, 1999 Director
By: /s/ Jonathan F. Boucher
Jonathan F. Boucher
Dated: March 31, 1999 Director
By: /s/ John W. Jordan, II
John W. Jordan, II
Dated: March 31, 1999 Director
By: /s/ Michael A. Wadsworth
Michael A. Wadsworth
Dated: March 31, 1999 Director
<PAGE>
By: /s/ David W. Zalaznick
David W. Zalaznick
Dated: March 31, 1999 Director
By: /s/ John P. Shoffner
John P. Shoffner
Dated: March 31, 1999 Director
By: /s/ Harold C. Bevis
Harold C. Bevis
Dated: March 31, 1999 Chief Executive Officer
(this space intentionally left blank)
<PAGE>
EXHIBIT INDEX
Exhibit Description
Number
1 Purchase Agreement, dated July 21, 1997, by and
among Jordan Telecommunication Products, Inc.,
Jefferies & Company, Inc., Donaldson, Lufkin &
Jenrette Securities Corporation and Smith Barney
Inc. (Incorporated by reference to Exhibit 1 of the
registrants registration statements on Form S-4 (333-
34585) dated November 12, 1997 (AS-4@)
2 Agreement for purchase and sale of assets of Opto-
Tech Industries, Inc. by and among Thomas Denedios
and Lucy Denedios, Marcy Fowler, Jordan
Telecommunications Products, Inc. and Opto-Tech
Holdings, Inc. (Incorporated by reference to Exhibit
2. Of the registration statements on Form 8-K (333-
34585) dated July 14, 1998 ("8-K").
3.1 Certificate of Incorporation of Jordan
Telecommunication Products, Inc. (Incorporated by
reference to Exhibit 3.1 of the registrants
registration statements on Form S-4 (333-34585)
dated November 12, 1997 (AS-4@)
3.2 Bylaws of Jordan Telecommunication Products, Inc.
(Incorporated by reference to Exhibit 3.2 of the
registrants registration statements on Form S-4 (333-
34585) dated November 12, 1997 (AS-4@)
4.1 Series A and Series B 9 7/8% Senior Notes due 2007
Indenture, dated July 25, 1997, between Jordan
Telecommunication Products, Inc. And First Trust
National Association, as Trustee (Incorporated by
reference to Exhibit 4.1 of the registrants
registration statements on Form S-4 (333-34585)
dated November 12, 1997 (AS-4@)
4.2 Series A and Series B 11 :% Senior Discount Notes
due 2007 Indenture, dated July 25, 1997, between
Jordan Telecommunication Products, Inc. and First
Trust National Association, as Trustee
(Incorporated by reference to Exhibit 4.2 of the
registrants registration statements on Form S-4 (333-
34585) dated November 12, 1997 (AS-4@)
4.3 Series A and Series B 13 3% Subordinated Preferred
Stock Exchange Notes due 2009 Indenture, dated July
25, 1997, between Jordan Telecommunication Products,
Inc. and First Trust National Association, as
Trustee (Incorporated by reference to Exhibit 4.3 of
the registrants registration statements on Form S-4
(333-34585) dated November 12, 1997 (AS-4@)
4.4 Global Series A 9 7/8% Senior Note due 2007
(Incorporated by reference to Exhibit 4.4 of the
registrants registration statements on Form S-4 (333-
34585) dated November 12, 1997 (AS-4@)
4.5 Form of Global Series B 9 7/8% Senior Note due 2007
(included in Exhibit 4.1) (Incorporated by reference
to Exhibit 4.5 of the registrants registration
statements on Form S-4 (333-34585) dated November
12, 1997 (AS-4@)
4.6 Global Series A 11 :% Senior Discount Note due 2007
(Incorporated by reference to Exhibit 4.6 of the
registrants registration statements on Form S-4 (333-
34585) dated November 12, 1997 (AS-4@)
4.7 Form of Global 11 :% Series B Senior Discount Note
due 2007 (included in Exhibit 4.2) (Incorporated by
reference to Exhibit 4.7 of the registrants
registration statements on Form S-4 (333-34585)
dated November 12, 1997 (AS-4@)
<PAGE>
4.8 Global Series A 13 3% Senior Exchangeable Preferred
Stock due 2009 Certificate (Incorporated by
reference to Exhibit 4.8 of the registrants
registration statements on Form S-4 (333-34585)
dated November 12, 1997 (AS-4@)
4.9 Form of Global Series B 13 3% Senior Exchangeable
Preferred Stock due 2009 Certificate (Incorporated
by reference to Exhibit 4.9 of the registrants
registration statements on Form S-4 (333-34585)
dated November 12, 1997 (AS-4@)
4.10 Form of Global Series A and Series B 13 3%
Subordinated Preferred Stock Exchange Notes
(included in Exhibit 4.3) (Incorporated by reference
to Exhibit 4.10 of the registrants registration
statements on Form S-4 (333-34585) dated November
12, 1997 (AS-4@)
4.11 $190,000,000 9 7/8% Series A Senior Notes due 2007
Registration Rights Agreement, dated July 25, 1997,
by and among Jordan Telecommunication Products,
Inc., Jefferies & Company, Inc., Donaldson, Lufkin &
Jenrette Securities Corporation and Smith Barney,
Inc. (Incorporated by reference to Exhibit 4.11 of
the registrants registration statements on Form S-4
(333-34585) dated November 12, 1997 (AS-4@)
4.12 $120,000,000 11 :% Series A Senior Discount Notes
due 2007 Registration Rights Agreement, dated July
25, 1997, between Jordan Telecommunication Products,
Inc. and Jefferies & Company, Inc. (Incorporated by
reference to Exhibit 4.12 of the registrants
registration statements on Form S-4 (333-34585)
dated November 12, 1997 (AS-4@)
4.13 $25,000,000 13 3% Series A Senior Exchangeable
Preferred Stock due 2009 Registration Rights
Agreement, dated July 25, 1997, between Jordan
Telecommunication Products, Inc. and Jefferies &
Company, Inc. (Incorporated by reference to Exhibit
4.13 of the registrants registration statements on
Form S-4 (333-34585) dated November 12, 1997 (AS-4@)
4.14 Subscription Agreement, dated July 21, 1997, by and
among Jordan Telecommunication Products, Inc. and
the investors listed thereto (Incorporated by
reference to Exhibit 4.14 of the registrants
registration statements on Form S-4 (333-34585)
dated November 12, 1997 (AS-4@)
4.15 Management Subscription Agreement, dated July 21,
1997, between Jordan Telecommunication Products,
Inc. and Dominic Pileggi (Incorporated by reference
to Exhibit 4.15 of the registrants registration
statements on Form S-4 (333-34585) dated November
12, 1997 (AS-4@)
4.16 Stockholders Agreement, dated July 21, 1997, by and
among Jordan Telecommunication Products, Inc. and
the Stockholders listed thereto (Incorporated by
reference to Exhibit 4.16 of the registrants
registration statements on Form S-4 (333-34585)
dated November 12, 1997 (AS-4@)
10.1 Revolving Credit Agreement, dated July 25, 1997, by
and among JTP Industries, Inc., the lenders listed
thereto and BankBoston, N.A., as Agent
(Incorporated by reference to Exhibit 10.1 of the
registrants registration statements on Form S-4 (333-
34585) dated November 12, 1997 (AS-4@)
10.2 Tax Sharing Agreement, dated July 29, 1994 and
Additional Subsidiary Agreement dated July 25, 1997
by and among the signatories thereto (Incorporated
by reference to Exhibit 10.2 of the registrants
registration statements on Form S-4 (333-34585)
dated November 12, 1997 (AS-4@)
<PAGE>
10.3 Properties Services Agreement, dated July 25, 1997,
by and among JTP Properties, Inc., and Jordan
Industries, Inc., and the other signatories thereto
(Incorporated by reference to Exhibit 10.3 of the
registrants registration statements on Form S-4 (333-
34585) dated November 12, 1997 (AS-4@)
10.4 Transition Agreement, dated July 25, 1997, between
Jordan Telecommunication Products, Inc. and Jordan
Industries, Inc. (Incorporated by reference to
Exhibit 10.4 of the registrants registration
statements on Form S-4 (333-34585) dated November
12, 1997 (AS-4@)
10.5 New Subsidiary Advisory Agreement, dated July 25,
1997, by and among Jordan Telecommunication
Products, Inc. and Jordan Industries, Inc. and the
other signatories thereto (Incorporated by
reference to Exhibit 10.5 of the registrants
registration statements on Form S-4 (333-34585)
dated November 12, 1997 (AS-4@)
10.6 New Subsidiary Consulting Agreement, dated July 25,
1997, by and among Jordan Telecommunication
Products, Inc. and Jordan Industries, Inc. and the
other signatories thereto (Incorporated by
reference to Exhibit 10.6 of the registrants
registration statements on Form S-4 (333-34585)
dated November 12, 1997 (AS-4@)
10.7 Form of Indemnification Agreement, dated July 25,
1997, between Jordan Telecommunication Products,
Inc. and its directors (Incorporated by reference
to Exhibit 10.7 of the registrants registration
statements on Form S-4 (333-34585) dated November
12, 1997 (AS-4@)
10.8 Acquisition Agreement for Telephone Services of
Florida (ATSI@)
25.1 Statement of Eligibility of Trustee for 9 7/8%
Senior Notes due 2007, 11 :% Discount Notes due 2007
and 13 3% Subordinated Preferred Stock Exchange
Notes due 2009 (Incorporated by reference to Exhibit
25.1 of the registrants registration statements on
Form S-4 (333-34585) dated November 12, 1997 (AS-4@)
<PAGE>
Schedule II
JORDAN TELECOMMUNICATION PRODUCTS, INC.
VALUATION AND QUALIFYING ACCOUNTS
(Dollars in Thousands)
Additi Uncollec
Balanc ons tible
e at Charge Balances Balanc
Beginn d to Written e at
ing of Costs Off Net Othe end of
Period and of r Period
Expens Recoveri
es es
Year Ended December 31,
1996:
Allowance for doubtful
accounts 172 270 (95) 154 501
Valuation for deferred
tax assets 3,165 -0- -0- 738 3,903
Inventory reserves 25 248 (160) 184 297
Year Ended December 31,
1997:
Allowance for doubtful
accounts 501 539 (238) 65 867
Valuation for deferred
tax assets 3,903 -0- -0- 8,36 12,267
4
Inventory reserves 297 688 (270) -0- 715
Year Ended December 31,
1998
Allowance for doubtful
accounts 867 751 (414) 34 1,238
Valuation for deferred
tax assets 12,267 -0- -0- 11,7 24,028
61
Inventory reserves 715 908 (764) -0- 859
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<CASH> 8,040
<SECURITIES> 0
<RECEIVABLES> 45,860
<ALLOWANCES> (1,238)
<INVENTORY> 38,859
<CURRENT-ASSETS> 94,949
<PP&E> 67,692
<DEPRECIATION> (26,560)
<TOTAL-ASSETS> 331,298
<CURRENT-LIABILITIES> 53,034
<BONDS> 288,801
30,100
0
<COMMON> 10
<OTHER-SE> (135,265)
<TOTAL-LIABILITY-AND-EQUITY> 331,298
<SALES> 310,028
<TOTAL-REVENUES> 310,028
<CGS> 194,415
<TOTAL-COSTS> 279,237
<OTHER-EXPENSES> 45,516
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 39,521
<INCOME-PRETAX> (14,725)
<INCOME-TAX> 4,287
<INCOME-CONTINUING> (19,413)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (19,413)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
