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, 1994 Commission File Number 33-24317
JORDAN INDUSTRIES, INC.
(Exact name of registrant as specified in charter)
Illinois 36-3598114
(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:
(708) 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 placed and there
is currently no public market for such shares.
The number of shares outstanding of Registrant's Common Stock as of
March 30, 1995: 93,501.0004.
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PART I
Item 1. BUSINESS
Jordan Industries, Inc. (the "Company") is a private holding company
which owns and manages a widely diversified group of operating companies. The
capital stock of the Company is held by its management and the partners,
principals, employees and affiliates of The Jordan Company (collectively, the
"Jordan Group"). The Company was formed in order to provide its subsidiaries
with long range planning, broader access to financial markets, and professional
and financial management, while permitting its subsidiaries' management broad
discretion in implementing their strategies and operating their day-to-day
businesses. The Company conducts its operations exclusively through its
subsidiaries.
The Company's business is divided into three segments. The Consumer
Products segment, which had 1994 net sales of approximately $213 million,
consists of Sate-Lite Manufacturing Company ("Sate-Lite"), Welcome Home, Inc.
("Welcome Home"), DACCO, Incorporated ("DACCO") and Riverside Book and Bible
House, Incorporated ("Riverside"). The Industrial Products and Equipment
segment, which had 1994 net sales of approximately $121 million, consists of
Parsons Precision Products, Inc. ("Parsons"), Dura-Line Corporation ("Dura-
Line"), The Imperial Electric Company ("Imperial") and its subsidiaries, The
Scott Motors Company ("Scott") and Gear Research, Inc. ("Gear"), Hudson Lock,
Inc. ("Hudson"), AIM Electronics Corporation ("AIM"), and Cambridge Products
Corporation ("Cambridge"). The Specialty Advertising and Calendars segment,
which had 1994 net sales of approximately $90 million, consists of JII/Sales
Promotion Associates, Inc. ("JII/SPAI"), Beemak Plastics, Inc. ("Beemak"),
Valmark Industries, Inc. ("Valmark") and Pamco Printed Tape and Label Co., Inc.
("Pamco"). All of the foregoing corporations are collectively referred to
herein as the "Subsidiaries," and individually as a "Subsidiary." See Note 13
to the consolidated financial statements included elsewhere in this Annual
Report with respect to business segment information for 1994, 1993 and 1992.
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The Company owned the following percentages of the common shares of the
subsidiaries as of March 31, 1995:
Subsidiary Percentage Ownership
Sate-Lite 95.5%
Welcome Home 58.7%
DACCO 100%
Riverside 100%
Parsons 85%
Dura-Line 100%
Imperial 100%
Scott 100% (1)
Gear 100% (1)
Hudson 100%
AIM 100%
Cambridge 100%
JII/SPAI 100%
Beemak 100%
Valmark 100%
Pamco 80%
(1) Scott and Gear are indirectly owned through Imperial, which holds 100%
of their respective common shares.
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CONSUMER PRODUCTS SEGMENT
Sate-Lite. Sate-Lite manufactures safety reflectors for bicycle and
commercial truck manufacturers, as well as plastic parts for bicycle
manufacturers and colorants for the thermoplastics industry. Sate-Lite was
founded in 1968 and acquired by the Jordan Group and Sate-Lite's management in
1985.
Bicycle reflectors and plastic bicycle parts accounted for approximately
51% of Sate-Lite's net sales in 1994. Sales of triangular flares and specialty
reflectors and lenses to commercial truck customers accounted for approximately
33% of 1994 net sales. The remainder of Sate-Lite's net sales were derived
primarily from the sale of colorants to the thermoplastics industry.
Sate-Lite's bicycle products are sold directly to a number of original
equipment manufacturers ("OEMs"). The two largest OEM customers for bicycle
products are the Huffy Corporation and Murray/Ohio Manufacturing Company, which
accounted for approximately 33% of Sate-Lite's fiscal 1994 net sales. The
triangular flares and other truck reflector products are also sold to a broad
range of OEM customers. Colorants are sold primarily to mid-western custom
molded plastic parts manufacturers. In 1994, Sate-Lite's ten largest customers
accounted for approximately 64% of net sales.
Sate-Lite's products are marketed on a nationwide basis by its
management. Sales to foreign customers are handled directly by management and
by independent trading companies on a commission basis. In 1994, Sate-Lite's
export net sales accounted for approximately 6% of its total net sales. Export
sales were principally to China and Canada.
The principal raw materials used in manufacturing Sate-Lite's products
are plastic resins, adhesives, metal fasteners and color pigments. Sate-Lite
obtains these materials from several independent suppliers.
The markets for bicycle parts and thermoplastic colorants are highly
competitive. Sate-Lite competes in these markets by offering innovative
products and by relying on its established reputation for producing high
quality plastic components and colorants. Sate-Lite's principal competitors
in the reflector market consist of foreign manufacturers. Sate-Lite competes
with regional companies in the colorants market.
Welcome Home. Welcome Home is a national, high-end specialty retailer
of decorative home furnishing accessories. Welcome Home was acquired by the
Company in 1991.
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Welcome Home's stores are located primarily in high-end designer outlet
malls. Their products include textiles, afghans, framed art, brass and silver,
picture frames, wood, seasonal and other merchandise targeted to gift-buying
and value-conscious consumers. Welcome Home sells its merchandise through 189
retail stores located throughout the United States and Canada.
Welcome Home's emphasis is on outlets located in malls where upscale
manufacturers such as Ralph Lauren, Liz Claiborne, Ann Klein, Harve Bernard,
Van Huesen, and others are located. Designer outlet malls are the fastest
growing segment of the roughly $100 billion specialty retail market.
There is no direct competition for Welcome Home on a national basis.
Comparable companies with similar product lines do not compete in the value-
retail segment of the market.
DACCO. DACCO is a producer of remanufactured torque converters, as well
as transmission sub-systems and other related products used by transmission
repair shops. DACCO was founded in 1965 and acquired by the Company in 1988.
Approximately 78% of DACCO's products are classified as "hard" products,
which primarily consist of torque converters and hydraulic pumps that have been
rebuilt or remanufactured by DACCO. The torque converter, which replaces a
clutch in an automatic transmission, transfers power from the engine to the
drive shaft. The hydraulic pump supplies oil to all the systems in the
transmission.
DACCO's primary supply of used torque converters is its customers. As
a part of each sale, DACCO recovers the used torque converter which is being
replaced with its remanufactured converter. DACCO also purchases used torque
converters from automobile salvage companies. Other hard parts, such as clutch
plates and fly wheels, are purchased from outside suppliers.
Approximately 22% of DACCO's products are classified as "soft" products,
such as sealing rings, bushings, washers, filter kits and rubber components.
Approximately 4,500 soft products are purchased from a number of vendors and
are re-sold in a broad variety of packages, configurations and kits.
DACCO's customers are automotive transmission parts distributors and
transmission repair shops and mechanics. DACCO has 52 independent sales
representatives who accounted for approximately 70% of DACCO's net sales in
1994. These sales representatives sell nationwide to independent warehouse
distributors and to transmission repair shops. DACCO also owns and operates
twenty-nine distribution centers which sell directly to transmission shops.
DACCO distribution centers average 3,000 - 5,000 square feet, cover a 50 to 100
mile selling radius and sell approximately 40% hard products and 60% soft
products. In 1994 no single customer accounted for more than 1% of DACCO's net
sales.
The domestic market for DACCO's hard products is fragmented and DACCO's
competitors primarily consist of a number of small regional and local
rebuilders. DACCO believes that it competes strongly against these rebuilders
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by offering a broader product line, quality products, and lower prices, all of
which are made possible by DACCO's size and economies of operation. However,
the market for soft products is highly competitive and several of the
competitors such as TranStar Industries and Lempco Industries, Inc. are larger
than DACCO. DACCO competes in the soft products market on the basis of its low
prices due to volume buying, its growing distribution network and its ability
to offer one-step procurement of a broad variety of both hard and soft
products.
Riverside. Riverside is a publisher of bibles and a distributor of
bibles, religious books and music recordings. Riverside was founded in 1943
and acquired by the Company in 1988.
Approximately 71% of Riverside's business consists of products published
by other companies. Riverside sells world-wide to more than 10,000 wholesaler,
religious and trade book store customers, utilizing an in-house telemarketing
system, two independent sales representative groups and printed sales media.
In addition, Riverside sells a small percentage of its products through direct
mail and to retail customers. No single customer accounted for more than 3%
of Riverside's 1994 net sales.
Riverside also provides bible indexing, warehousing, inventory and
shipping services for domestic book publishers and music producers. Riverside
competes with larger firms, including the Zondervan Corporation, The Thomas
Nelson Company and Spring Arbor Distributors, on the basis of price, product
line and customer service.
INDUSTRIAL PRODUCTS AND EQUIPMENT SEGMENT
Parsons. Parsons is a diversified supplier of hot formed titanium parts,
precision machined parts and fabricated components for the U.S. aerospace
industry. Parsons was founded in 1959 and acquired by the Jordan Group and
Parsons' management in 1984.
Approximately 46% of Parsons' 1994 net sales came from sales to The
Boeing Company ("Boeing"). Approximately 95% of Parsons' 1994 net sales were
derived from the sale of various parts and components to the aerospace
industry. Parsons employs precision machining, welding/fabrication and sheet
metal forming processes to manufacture its products at its facilities in
Parsons, Kansas. Parsons continues to invest in its titanium hot forming
operation, which permits Parsons to participate in the aerospace market for
precision titanium components.
Parsons uses metals, including stainless steel, aluminum and titanium to
fabricate its products. These materials are either supplied by Parsons'
customers or obtained from a number of outside sources.
Parsons' general manager, two independent sales representatives and an
in-house sales representative sell Parsons' products directly to a broad base
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of aerospace and military customers, relying on longstanding associations and
Parsons' reputation for high quality and service. The Company believes these
attributes enable Parsons to effectively compete with the many small tool and
machine companies that supply components to aerospace and military customers.
Dura-Line. Dura-Line is a manufacturer and supplier of "Innerduct" pipe
through which fiber optic cable is installed and housed. Dura-Line sells this
product to major telecommunications companies throughout the world. Dura-Line
also manufactures flexible polyethylene water and natural gas pipe. Dura-Line
was founded in 1971 and acquired by the Jordan Group and Dura-Line's management
in 1985.
In 1994, approximately 97% of Dura-Line's net sales came from Innerduct
and the cable television industry. Dura-Line sells to major
telecommunications companies, such as Bell South Services, GTE, and U.S. West
Communications, each of which accounted for approximately 10% of Dura-Line's
Innerduct net sales. Innerduct is marketed worldwide by Dura-Line's
management, 40 manufacturing representatives and five in-house sales
representatives. Dura-Line negotiates long-term contracts with major
telecommunications companies for its Innerduct product line. It competes for
these sales on the basis of technical innovation, price, quality and service.
In addition, approximately 3% of Dura-Line's 1994 net sales came from the
sale of polyethylene water and natural gas pipe to a variety of hardware
stores, contractors, plumbing supply firms and distributors. Dura-Line markets
its water and natural gas pipe products through 60 manufacturing
representatives in the Southern and Eastern U.S. The water and natural gas
pipe market is very competitive. Dura-Line competes on the basis of quality
and price with a number of regional and local firms.
Dura-Line's products are manufactured through the plastic extrusion
process. Dura-Line procures raw plastic for extrusion from a number of
independent suppliers. In March 1989, Dura-Line opened a new manufacturing
facility in the United Kingdom to manufacture products for sale to British
Telecom and other foreign customers. Approximately 31% of Dura-Line's net
sales are foreign sales. In late 1990, Dura-Line purchased a facility in Reno,
Nevada. This facility opened in early 1991 and has increased Dura-Line's
annual capacity by approximately 50%. Also, in 1993, Dura-Line entered into
joint venture agreements in the Czech Republic and Israel to service Eastern
Europe and the Middle East more effectively.
Imperial. Imperial manufactures elevator motors, floor care equipment
motors and automatic hose reel motors. Imperial was founded in 1889 and
acquired by the Jordan Group and Imperial's management in 1983.
Imperial designs, manufactures and distributes specialty electric motors
for industrial and commercial use. Its products, AC and DC motors, generators
and permanent magnet motors are sold principally in the U.S. and Canada and to
a limited extent in Europe and Australia. Approximately 36% of Imperial's 1994
net sales were derived from elevator motors, ranging from 5 to 100 horsepower,
<PAGE>
sold to major domestic elevator manufacturers. Approximately 62% of Imperial's
1994 net sales were derived from permanent magnet motors sold to domestic
manufacturers of floor care equipment. The remaining 2% of Imperial's 1994 net
sales came from sales of miscellaneous parts.
Otis Elevator Company, Westinghouse Corporation and other leading
elevator manufacturers have in recent years discontinued internal manufacturing
of motors and have turned to Imperial and other independent manufacturers. In
1994, Clark Industries, Inc. accounted for approximately 12% of Imperial's net
sales, and Imperial's top ten customers accounted for 52% of total net sales.
Imperial's products are marketed domestically by its management and 2
independent sales representatives and internationally by management.
Imperial manufactures specialty motors with steel, magnets, copper wire,
castings and other components supplied by a variety of firms. In the elevator
motor market, Imperial competes with several firms of varying size. The other
markets in which Imperial competes are also highly competitive. However, the
Company's management believes that Imperial is able to effectively compete with
these firms on the basis of product reliability, price and customer service.
Scott. Scott was founded in 1982 and acquired by Imperial in August
1988. Scott manufactures and sells floor care machine motors; silicone
controlled rectifier motors, which are variable speed motors used in conveyers,
machine tools, treadmills, mixers and metering pumps; and low voltage DC
motors.
Scott offers a number of standard motors designed for a variety of
applications. Scott also custom designs motors for special applications.
Scott manufactures many of the sub-assemblies, components and molds for its
products from raw materials, which gives it the ability to manufacture these
special application motors. Scott obtains these raw materials from a number
of independent sources.
Scott markets its products through an internal sales force of 3 and an
external sales force of representatives and distributors.
Gear. Gear manufactures precision gears and gear boxes for OEMs
requiring high precision commercial gears. Gear was founded in 1952 and
acquired by Imperial in November 1988. Gear manufactures precision gears for
both AC and DC electric motors in a variety of sizes. The gears are sold
primarily to the food, floor care machine and aerospace industries and to other
manufacturers of machines and hydraulic pumps. Gear's products are nationally
advertised in trade journals and are sold by 3 internal salesmen and 1
independent sales representative. Gear precision machines its products from
steel forgings and castings.
Gear competes primarily on the basis of quality. In addition, the
ability of Imperial, Scott and Gear to offer both electric motors and gear
boxes as a package, and to custom design these items for customers, may allow
all three subsidiaries to gain greater market penetration.
<PAGE>
Hudson. Hudson, which was founded in 1963 and acquired by the Company
in April 1989, is a fully integrated manufacturer of custom and specialty
medium security locks. Hudson produces cam, switch and latch locks for use in
office furniture, mail boxes, point-of-sale terminals and a variety of other
products.
Hudson manufactures customized lock housings and lock cores from
customized molds. Tooling is originally purchased by Hudson from outside
manufacturers, then cleaned and reworked on a regular basis at Hudson's own
repair and maintenance shop. Customized tooling is especially valuable to
Hudson because customers cannot easily switch lock suppliers without incurring
substantial costs associated with the design and manufacture of new molds.
Hudson sells mainly to OEMs such as IBM, AT&T and Herman Miller. In
addition, Hudson sells to postal services in Canada and the United States. The
top 10 customers represented about 39% of Hudson's net sales in 1994. Major
accounts and the New England region are handled directly by Hudson. The
remainder of North America is covered by a network of 3 manufacturers'
representatives. In addition to OEMs, Hudson sells to the locksmith trade
industry through a distributor.
The $150 million medium/low security lock industry is mature and highly
fragmented with a stable number of well-established competitors. Quality and
service are important selling points. Price is less important due to the
lock's small value relative to the customer's complete product. Foreign
competition is not strong as a result of the customized nature of the locks.
Major competitors are Chicago Lock, National Cabinet Lock, Fort Lock and ESP
Corporation.
AIM. AIM, which was founded in 1981 and acquired by the Company in May
1989, is an importer and manufacturer of electronic connectors, adapters,
switches, tools and other electronic hardware products for the commercial and
consumer electronics markets. Electronic connectors are AIM's main product,
representing more than 50% of AIM's 1994 net sales.
AIM's products are manufactured to its specifications overseas, primarily
in the Far East, and carry the "AIM" logo. Producers are under the supervision
of an AIM agent. The products are sold worldwide to electronics, electrical,
general line and industrial distributors. AIM has warehousing and order
processing systems that enable AIM to provide delivery on a 24-hour basis to
most customers.
AIM sells nationwide to approximately 2,000 distributors in the U.S. and
Central and South America. AIM uses a combination of 10 manufacturers'
representative organizations with a total of 24 salespeople and 8 factory
direct salesmen to service existing accounts and to locate new distributors.
The customer base is very broad, with the largest customer accounting for about
4% of sales. AIM also mails product catalogs and other marketing pieces to
current customers and potential new accounts.
<PAGE>
The $11.5 billion domestic connector and interconnect supply industry is
fragmented with the 12 largest companies controlling less than 25% of the
market. The two largest are AMP and Amphenol. AMP and Amphenol specialize
strictly in electronic device production. Small and mid-sized companies such
as AIM have captured significant market share during the past 10 years by
offering distributors better service on orders compared to the industry
leaders.
In 1994, AIM began to market manufactured cable and harness assemblies
made at its facility in Florida. The custom made assemblies are sold under the
"Prestige" trademark to a wide range of customers. Sales of cable and harness
assemblies are estimated to be approximately 4% of AIM's 1994 net sales.
Cambridge. Cambridge, which was founded in 1972 and acquired by the
Company in September 1989, is a domestic manufacturer of high-quality
electronic connectors, plugs, adapters, and other accessories. Cambridge is
primarily a designer and marketer of approximately 300 types of specialty radio
frequency (RF) coaxial electronic connectors for radio, mobile communications,
television and computer equipment. RF coaxial connectors are used to integrate
separate systems by connecting input-output power and signal transmission
sources. The systems in which RF connectors are used may be complex, but RF
connectors themselves serve a mechanical purpose which is technologically
straightforward. Cambridge is essentially an assembly operation. The primary
components of Cambridge's connector products are screw machine and diecast
parts which are purchased from approximately 20 suppliers. The production
process is highly automated, with direct labor accounting for only 6% of net
sales. Equipment consists of semi-automatic parts assembly and packaging
equipment which has been designed and manufactured by Cambridge.
Approximately 25% of Cambridge's connectors are manufactured according
to a design that allows users to affix the connector to the cable faster and
easier without the need for complicated tools and time-consuming soldering.
These connectors are marketed under the "FASTFIT" trademark.
Cambridge sells its products nationwide to 500 distributors, 200 OEMs,
and approximately 500 other various end-users. Cambridge uses a combination
of 7 manufacturers' representative organizations with a total of 12 salespeople
and 8 factory direct salesmen located throughout North America. The two
largest customers account for approximately 17% of net sales. Cambridge also
mails a large number of catalogs to current customers and potential new
accounts. Cambridge strongly emphasizes that it is an "American" producer of
high-quality electronic connectors.
Cambridge competes in the same market as AIM. Cambridge does not offer
the product selection of its large competitors; however, it competes
effectively by targeting distributors and manufacturers which require fast
service and prefer an American-made product.
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SPECIALTY ADVERTISING AND CALENDARS SEGMENT
JII/SPAI. The Company's former subsidiaries, The Thos. D. Murphy Co.
("Murphy"), which was founded in 1889, and Shaw-Barton, Inc. ("Shaw-Barton"),
which was founded in 1940, merged to form JII/SPAI in March 1989. JII/SPAI is
a producer and distributor of calendars for corporate buyers and is a
distributor of corporate recognition, promotion and specialty advertising
products.
Approximately 56% of JII/SPAI's 1994 net sales are derived from
distributing a broad variety of corporate recognition products, promotion and
specialty advertising products. These products include apparel, watches,
crystal, luggage, writing instruments, glassware, caps, cases, labels and other
items that are printed and identified with a particular corporate logo and/or
corporate advertising campaign. Approximately 33% of JII/SPAI's 1994 net sales
are derived from the sale of a broad variety of calendars, including hanging,
desktop, and pocket calendars that are used internally by corporate customers
and distributed by them to their clients and customers. High quality artistic
calendars are also distributed. JII/SPAI also manufactures and distributes
soft-cover school yearbooks for kindergarten through eighth grade.
JII/SPAI assembles and finishes calendars that are printed both in-house
as well as by a number of outside printers. Facilities for in-house
manufacturing include a composing room, a camera room, a calendar finishing
department, and a full press room. Print stock, binding material, packaging
and other materials are supplied by a number of independent companies.
Specialty advertising products are purchased from more than 975 suppliers.
Calendars and specialty advertising products are sold through a 1,350 person
sales force, most of whom are independent contractors.
Management believes that JII/SPAI has one of the largest domestic sales
forces in the industry. With this large sales force and a broad range of
calendars and corporate recognition products available, management believes
that JII/SPAI is a strong competitor in its market. This market is very
fragmented and most of the competition comes from smaller scale producers and
distributors.
Beemak. Beemak, which was founded in 1951 and acquired by the Company
in July 1989, is an integrated manufacturer of specialty "take-one" point-of-
purchase brochure, folder and application display holders. Beemak sells these
proprietary products to approximately 30,000 customers around the world. In
addition, Beemak produces a small amount of custom injection molded plastics
parts for outside customers on a contract manufacturing basis.
Beemak's products are both injection molded and custom fabricated.
Beemak has molds made by outside suppliers. The manufacturing process consists
primarily of the injection molding of polystyrene plastic and the fabrication
of plastic sheets. Beemak also provides silk screening of decals and logos
onto the final product.
Beemak has no sales force. All sales originate from Beemak's extensive
on-going advertising campaign and reputation. Beemak sells to distributors,
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major companies, and even competitors which resell the product under a
different name. Beemak has been very successful providing excellent service
on orders of all sizes, especially small orders. Beemak's average order size
was approximately $250 in 1994.
The display holder industry is very fragmented, consisting of a few other
known holder and display firms and regionally-based sheet fabrication shops.
Beemak has benefited from the growth in "direct" advertising budgets at major
companies. Significant advertising dollars are spent each year on direct mail
campaigns, point-of-purchase displays and other forms of non-media advertising.
Valmark. Valmark, which was founded in 1976 and purchased by the Company
in 1994, is a specialty printer and manufacturer of pressure sensitive label
products for the electronics OEM market. Valmark's products include adhesive
backed labels, graphic panel overlays, multi-color membrane switches, and radio
frequency interference (RFI) shielding devices. Approximately 61% of net sales
are derived from the sale of graphic panel overlays and membrane switches, 28%
from labels, and 11% from shielding devices.
The specialty screen products sold in the electronics industry continue
to operate relatively free of foreign competition due to the high level of
communication and short time frame usually required to produce orders.
Currently, the majority of Valmark's customer base of approximately 850 is
located in the Northern California area.
Valmark sells to four primary markets: personal computers, general
electronics, turn-key services, and medical instrumentation. The sales to the
personal computer industry has experienced the most growth over recent years
due to Valmark's RFI shield protection capabilities. Sales to Apple Computer
of RFI devices represented approximately 10% of net sales in 1994.
Valmark is able to provide the electronics OEM's with a broader range of
products than many of its competitors. Valmark's markets are very competitive
in terms of price and accordingly Valmark's advantage over its competitors is
derived from their diverse product line and excellent quality ratings.
Pamco. Pamco, which was founded in 1953 and purchased by the Company in
1994 is a manufacturer and distributor of a wide variety of printed tapes and
labels. Pamco offers a range of products from simple one and two-color labels,
such as basic bar codes and address labels to seven-color, varnish-finished
labels for products such as video games and food packaging. 100% of Pamco's
products are made to customers' specifications and 90% of all sales are
manufactured in-house. The remaining 10% of net sales are purchased printed
products and include business cards and stationary.
Pamco's products are marketed by a team of 11 sales representatives who
focus on procuring new accounts. Existing accounts are serviced by seven
customer service representatives. Pamco's customers represent several
different industries with the five largest accounting for approximately 18% of
net sales.
Pamco competes in a highly-fragmented industry. Pamco emphasizes its
impressive turnaround time of 24 hours and its ability to accommodate rush
orders that other printers can not handle. Due to these characteristics, Pamco
has posted significant growth over the past several years.
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BACKLOG
As of December 31, 1994, the Company had a backlog of approximately
$32 million, compared with $38 million as of December 31, 1993. The current
backlog is primarily due to Parsons' McDonnell Douglas Helicopter Co. and
Boeing contracts, Imperial's motor sales and Gear's gear box sales. Management
believes that the backlog may not be indicative of future sales. Approximately
$3 million of the current backlog will not be filled in the current year.
Approximately $1 million of the backlog was in work-in-process inventory on
December 31, 1994.
SEASONALITY
The Company's aggregate business has a certain degree of seasonality.
JII/SPAI's, Welcome Home's and Riverside's sales are somewhat stronger towards
year-end due to the nature of their products. Calendars have an annual cycle
while home furnishing accessories and bibles and religious books are popular
as holiday gifts.
RESEARCH AND DEVELOPMENT
As a general matter, the Company has businesses that do not require
substantial capital or research and development expenditures. However,
development efforts are targeted at certain of the Subsidiaries as market
opportunities are identified. None of these subsidiary development efforts
require substantial resources from the Company.
PATENTS, TRADEMARKS, COPYRIGHTS AND LICENSES
Sate-Lite has U.S. patents for certain elements of its triangular flares
and for securing reflectors on bicycle wheels. Dura-Line has a U.S. patent for
producing a form of Innerduct which is lubricated to permit easier installation
of fiber optic cable. The Company also owns and licenses other patents,
trademarks and copyrights. However, management believes that none of the
Subsidiaries' operations is dependent to any significant extent upon any single
or related group of patents, trademarks or copyrights.
EMPLOYEES
As of December 31, 1994, the Company and the Subsidiaries employed
approximately 3,900 people. Approximately 500 of these employees were members
of labor unions at Sate-Lite, Gear, Imperial, JII/SPAI and Dura-Line. None of
the collective bargaining agreements covering the Company's union employees are
currently under negotiation. These Subsidiaries have not experienced any work
stoppages in the past five years as a result of labor disruptions. The Company
believes that the Subsidiaries' relations with its employees are good.
ENVIRONMENTAL REGULATIONS
The Company is subject to certain federal, state and local environmental
laws and regulations. DACCO is a potentially responsible party ("PRP") at the
John P. Saad & Sons site in Nashville, Tennessee (the "Saad Site").
DACCO and a number of other PRPs have entered into a consent agreement with the
Environmental Protection Agency (the "EPA"), dated April 18, 1990 relating to
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the clean up of the Saad Site (the "Consent Agreement"). The PRPs for the Saad
Site are currently negotiating phase 3 of the removal action/clean-up with the
EPA. Pursuant to the Consent Agreement, DACCO's allocation of expenses
relating to the clean-up is currently 1.48 percent. Total expenses incurred
by the PRP group through January of 1995 are approximately $2.7 million. These
expenses include removal costs, engineering and attorneys fees, but do not
include administrative oversight costs incurred by the EPA. The PRP group is
currently seeking to limit the scope of future remediation which may arise due
to on-site impacts from off-site sources. Based upon DACCO's allocation of
expenses relating to the clean-up and the historical level of such expenses,
the Company believes that the liabilities relating to the Saad Site are not
material to DACCO or the Company.
Item 2. PROPERTIES.
The Company leases approximately 8,200 square feet of office space for
its headquarters in Deerfield, Illinois. The principal properties of each
Subsidiary of the Company, the location, the primary use, the capacity, and
ownership status thereof, are set forth in the table below:
Square Owned/
Company Location Use Feet Leased
AIM Sunrise, FL Manufacturing/Administration 28,000 Leased
Beemak Gardena, CA Manufacturing (2 buildings) 34,500 Leased
Cambridge Windsor, CT Manufacturing 7,000 Leased
DACCO Cookeville, TN Administration/Manufacturing 140,000 Owned
Huntland, TN Manufacturing 65,000 Owned
Rancho Cucamonga, CA Manufacturing 40,000 Owned
Dura-Line Middlesboro, KY Manufacturing/Administration 31,000 Owned
Grimsby, U.K. Manufacturing/Administration 30,000 Owned
Sparks, NV Manufacturing 20,000 Owned
Zlin, Czech Republic Manufacturing/Administration 10,000 Leased
Gear Grand Rapids, MI Manufacturing/Administration/
Storage 38,000 Owned
Hudson Hudson, MA Manufacturing/Administration 218,000 Owned
Grand Rapids, MI Storage 5,000 Leased
Imperial Akron, OH Manufacturing/Administration 53,000 Owned
Middleport, OH Manufacturing 85,000 Owned
Northampton, OH Manufacturing 60,000 Leased
JII/SPAI Red Oak, IA Manufacturing/Administration
(four buildings) 136,500 Owned
Coshocton, OH Manufacturing/Administration 240,000 Owned
Pamco Des Plaines, IL Manufacturing/Administration 24,500 Owned
Parsons Parsons, KS Manufacturing/Administration 97,500 Owned
Riverside Iowa Falls, IA Distribution/Administration 65,900 Owned
Sparks, NV Distribution 35,500 Leased
Sate-Lite Niles, IL Manufacturing/Administration 120,000 Leased
Scott Alamogordo, NM Manufacturing/Administration/
Storage 15,000 Leased
Valmark Fremont, CA Manufacturing/Administration 46,000 Leased
Welcome Home Wilmington, NC Administration/Storage 18,000 Leased
(two buildings)
<PAGE>
DACCO also owns or leases 29 distribution centers, which average 3,000
to 5,000 square feet in size. DACCO maintains four distribution centers in
Tennessee and California, three distribution centers in Florida, and two
distribution centers in Illinois, Arizona, Michigan, and Alabama. The
remaining distribution centers are located in Colorado, Indiana, Minnesota,
Missouri, Nebraska, Ohio, Oklahoma, South Carolina, and Texas.
Welcome Home also leases 189 retail stores, which range from 2,400 to
4,000 square feet in size. Welcome Home has stores in 38 states in the United
States, and one store in Canada.
AIM's Sunrise, Florida facility is leased from the president of AIM. The
Company believes that the terms of the lease are comparable to those which
would have been obtained by the Company had the lease been entered into with
an unaffiliated third party.
None of the Company's existing leases are scheduled to expire prior to
1996. The Company believes that its existing leased facilities are adequate
for the operations of the Company and its subsidiaries.
Item 3. LEGAL PROCEEDINGS
The Subsidiaries are parties to various legal actions arising in the
normal course of their business. The Company believes that the disposition of
such actions individually or in the aggregate will not have a material adverse
effect on the consolidated financial position of the Company.
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, 1994.
PART II
Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
(a) The only authorized, issued and outstanding class of capital stock of the
Company is Common Stock. There is no established public trading market
for the Company's Common Stock.
(b) At December 31, 1994, there were 17 record holders of the Company's
Common Stock.
(c) The Company has not declared any cash dividends on its Common Stock since
the Company's formation in May, 1988. The Indenture (the "Indenture"),
dated as of July 23, 1993, by and between the Company and First Bank
National Association, as Trustee, with respect to the 10 3/8% Senior
Notes and the 11 3/4% Senior Subordinated Discount Debentures contain
restrictions on the Company's ability to declare or pay dividends on its
capital stock. The Indenture prohibits the declaration or payment of any
dividends or the making of any distribution by the Company or any
Restricted Subsidiary (as defined in the Indenture) other than dividends
or distributions payable in stock of the Company or a Subsidiary and
other than dividends or distributions payable to the Company.
<PAGE>
Item 6. SELECTED FINANCIAL DATA
The following table presents selected operating, balance sheet and other
data of the Company and its subsidiaries as of and for the five years ended
December 31, 1994. The financial data of the Company and its subsidiaries as
of and for the years ended December 31, 1990 through 1994 were derived from the
consolidated financial statements of the Company and its subsidiaries.
Year Ended December 31,
(Dollars in thousands)
1994 1993 1992 1991 1990
OPERATING DATA:(1)<F1>
Net sales.................. $424,391 $358,611 $327,321 $295,140 $280,632
Cost of sales, excluding
depreciation.............. 262,730 221,518 202,215 184,808 177,892
Gross profit, excluding
depreciation.............. 161,661 137,093 125,106 110,332 102,740
Selling, general and
administrative expense.... 97,428 80,496 75,060 68,217 62,194
Operating income .......... 42,944 36,387 22,762 21,604 19,827
Interest expense........... 40,887 41,049 37,024 39,272 35,915
Interest income ........... (1,471) (1,845) (963) (1,881) (3,761)
Income (loss) before income
taxes, minority interest,
and extraordinary items... 27,689 (2,817) (13,299) (15,787) (12,327)
Income (loss) before extra-
ordinary items........... 23,741 (3,483) (14,412) (17,407) (10,386)
Net income (loss) (2)<F2> $ 23,741 $(29,675)$(14,412) $(17,407) $ (9,761)
BALANCE SHEET DATA (AT END OF PERIOD):
Cash and cash equivalents $ 56,386 $ 68,273 $ 8,886 $ 12,000 $ 25,804
Working capital........... 123,395 121,490 65,694 78,048 89,783
Total assets.............. 399,445 338,509 268,674 270,142 291,204
Long-term debt
less current portion)... 380,966 356,981 262,055 268,877 272,880
Shareholders' equity (net
capital deficiency)(3)<F3> $(66,867)$(90,669)$(60,873) $(47,976) $(30,546)
[FN]
<F1>(1) The Company has acquired a diversified group of operating companies
over the five year period which significantly affects the compar-
ability of the following information.
<F2>(2) Net loss in 1993 includes an extraordinary loss of $26.2 million
related to the Company's refinancing. Net income in 1994 includes
a gain from the sale of a partial interest in Welcome Home of $24,161.
<F3>(3) No cash dividends on the Company's Common Stock have been declared or
paid.
<PAGE>
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
OPERATIONS AND FINANCIAL CONDITION
HISTORICAL RESULTS OF OPERATIONS
Summarized below are the historical net sales, operating income and
operating margin (as defined below) for each of the Company's business segments
for the fiscal years ended December 31, 1994, 1993 and 1992. This discussion
should be read in conjunction with the historical consolidated financial
statements and the related notes thereto contained elsewhere in this Annual
Report.
Year ended December 31,
1994 1993 1992
(dollars in thousands)
NET SALES:
Consumer Products............. $212,731 $178,656 $149,124
Industrial Products and
Equipment.................... 121,601 112,138 110,648
Specialty Advertising and
Calendars.................... 90,059 67,817 67,549
Total .................... $424,391 $358,611 $327,321
OPERATING INCOME (1)(2):<F1><F2>
Consumer Products............. $ 24,967 $ 21,141 $ 14,757
Industrial Products and
Equipment.................... 24,400 21,163 18,077
Specialty Advertising and
Calendars ................... 7,151 2,843 3,712
Total ................... $ 56,518 $ 45,147 $ 36,546
OPERATING MARGIN (3):<F3>
Consumer Products............. 11.7% 11.8% 9.9%
Industrial Products and
Equipment 20.1% 18.9% 16.3%
Specialty Advertising and
Calendars................... 7.9% 4.2% 5.5%
Combined (1)................. 13.3% 12.6% 11.2%
[FN]
<F1>(1) Before corporate overhead of $13,574, $8,760 and $7,482 for the
years ended December 31, 1994, 1993 and 1992, respectively.
<F2>(2) Excludes write-off of $6,302 in notes receivable from one of the
Company's affiliates for the year ended December 31, 1992.
<F3>(3) Operating margin is operating income divided by net sales.
<PAGE>
Consumer Products. As of December 31, 1994, the Consumer Products
segment consisted of Sate-Lite, DACCO, Welcome Home and Riverside.
1994 Compared to 1993. Net sales increased $34.1 million or 19.1%.
Operating income increased $3.8 million or 18.1%. The increase in sales was
due to 31 additional stores and an 8.4% increase in same store sales, which
translated to an increase of $20.0 million in net sales at Welcome Home;
increased sales of hard parts and soft parts at DACCO of $3.8 million and $1.1
million, respectively; bibles and religious books, music and audio tapes, and
contract distribution sales at Riverside of $2.9 million, $1.3 million and $4.0
million, respectively; and warning triangles and colorants at Sate-Lite of $.5
million each. The operating margin remained constant compared with 1993.
1993 Compared to 1992. Net sales increased $29.5 million or 19.8%.
Operating income increased $6.4 million or 43.3%. The increase in sales was
due to 31 additional stores and a 6.3% increase in same store sales at Welcome
Home of $17.8 million, increased sales of rebuilt torque converters at DACCO
of $5.5 million, bibles and religious books at Riverside of $5.5 million, and
reflectors at Sate-Lite of $.7 million. The operating margin increased from
9.9% to 11.8% accordingly.
Industrial Products and Equipment. As of December 31, 1994, the
Industrial Products and Equipment segment consisted of Parsons, Dura-Line,
Imperial, Scott, Gear, Hudson, AIM and Cambridge.
1994 Compared to 1993. Net sales increased $9.5 million or 8.4%.
Operating income increased $3.2 million or 15.3%. Decreases in titanium hot
forming and fabrication at Parsons of $1.7 million and $1.3 million,
respectively, were offset by increases in sales of connectors at AIM and
Cambridge of $1.9 million and $.5 million, respectively, sales of motors at
Imperial, $2.5 million, job shop and gear box sales at Gear, $1.5 million, and
sales of Innerduct at Dura-Line, $6.0 million. The operating income was
positively impacted by the increase in sales and continuing cost cutting
measures, which helped increase the operating margin from 18.9% to 20.1%.
1993 Compared to 1992. Net sales increased $1.5 million or 1.3%.
Operating income increased $3.1 million or 17.1%. Increases in machining
services at Parsons of $1.8 million, sales of connectors at Cambridge of $1.1
million, and sales of permanent magnet motors at Imperial, $1.6 million, were
partially offset by a decrease in sales of elevator motors at Imperial, $2.9
million. The operating income was positively impacted by the increase in sales
and continuing cost cutting measures, which helped increase the operating
margin from 16.3% to 18.9%.
Specialty Advertising and Calendars. As of December 31, 1994, the
Specialty Advertising and Calendars segment consisted of JII/SPAI, Beemak,
Valmark and Pamco.
1994 Compared to 1993. Net sales increased $22.2 million or 32.8% and
operating income increased $4.3 million or 151.5%. The increase in net sales
and operating income, as compared to the prior year, is due to the acquisitions
of Valmark and Pamco in 1994. Without the Valmark and Pamco acquisitions, net
sales decreased $.8 million or 1.1% and operating income increased $1.3 million
or 45.5%. Decreases in ad-specialty and calendar sales at SPAI of $.8 million
were recorded in 1994. The operating income and margins were positively
affected by manufacturing efficiencies realized at SPAI.
1993 Compared to 1992. Net sales increased $.3 million or .4% and
operating income decreased $.9 million or 23.4%. Increases in ad-specialty
sales at SPAI of $1.0 million were offset by a decline in calendar sales at
SPAI of $.9 million and school annual sales of $.2 million. Calendar sales are
down due to the consolidations in the banking and insurance industries. Sales
of plastic display holders at Beemak increased $.4 million. The operating
income and margins were negatively affected by the decline in calendar and
school annual sales which have higher gross margins than ad-specialty sales.
Consolidated Operating Results. (see Consolidated Statements of
Operations).
1994 Compared to 1993. Net sales and operating income increased 18.3%
and 18.0%, respectively. The sales increase was due to the increased number
of stores and an 8.4% increase in same store sales at Welcome Home, increase
in torque converter sales at DACCO, bibles and religious books at Riverside,
and sales of Innerduct at Dura-Line. The operating income increase was due to
the increased sales levels, and manufacturing efficiencies realized in the
Industrial Products and Specialty Advertising segments.
A gain of $24.2 million was recorded in 1994 in connection with the sale
of Welcome Home common stock. A total of 2.9 million shares, out of the 8.5
million outstanding, were sold at an initial public offering price of $11.00
per share.
1993 Compared to 1992. Net sales and operating income increased 9.6% and
59.9%, respectively. The sales increase was due to the increased number of
stores and increased same store sales at Welcome Home, increased torque
converter sales at DACCO, and bibles and religious books at Riverside. The
operating income increase was due to the increased sales and the write-off of
the note receivable from affiliate in 1992. Management fees and other
increased $.5 million due to a pension asset write-off at Imperial.
Interest expense increased $4.0 million due to the refinancing which
increased the debt levels and the fact that a portion of the previously issued
subordinated notes were not tendered for repurchase until December 15, 1993.
Interest income increased $1.4 million due to higher cash balances which
resulted from the refinancing. Interest income from affiliate decreased $.5
million, as all cash received was applied to the principal balance.
The extraordinary loss of $26.2 million was due to the refinancing and
was comprised of a $7.2 million write-off of deferred financing fees, a $1.7
million write-off of the debt discount relating to the 1988 debt issuance, and
$17.3 million in premium and consent fees.
LIQUIDITY AND CAPITAL RESOURCES
The Company had approximately $123.4 million of working capital at the
end of 1994 compared to approximately $121.5 million at the end of 1993. The
increase in working capital from 1993 to 1994 was due to higher accounts
receivable and inventory balances partially offset by higher accounts payable
and accrued liabilities balances. The Company is, and expects to continue to
be, in compliance with the provisions of the Indenture.
<PAGE>
The Company has acquired businesses through leveraged buyouts, and as a
result has significant debt in relation to total capitalization. See
"Business." Most of this acquisition debt was initially financed through the
issuance of bonds which were subsequently refinanced in 1993. See Note 9 to
the Consolidated Financial Statements.
As the Securities are the obligations of the Company and are guaranteed
by all of the Subsidiaries, the Company's ability to service its debts is
dependent upon the results of each subsidiary's operations and cash flows. In
connection with each acquisition of a subsidiary, the Subsidiary entered into
intercompany notes, and intercompany management and tax sharing agreements,
which permit the subsidiaries, including the majority-owned subsidiaries,
substantial flexibility in moving funds from the subsidiaries to the Company.
Management expects continued growth in net sales and operating income in
1995. Capital spending levels in 1995 are anticipated to be consistent with
1994 levels and, along with working capital requirements, will be financed
internally out of operating cash flow. Operating margins and operating cash
flow are expected to be favorably impacted by ongoing cost reduction programs,
improved efficiencies and sales growth. Management believes that the Company's
cash on hand and anticipated funds from operations will be sufficient to cover
its working capital, capital expenditures, debt service requirements and other
fixed charges obligations for at least the next 12 months.
The Company's net cash provided by operating activities for the year
ended December 31, 1994 decreased $11.5 million versus the same period in 1993.
This decrease was due to the gain on sale of a partial interest in a subsidiary
of $24.2 million, the absence of an extraordinary loss in 1994 versus 1993 of
$26.2 million, a higher increase in accounts receivable of $5.5 million, a
higher increase in inventories of $9.2 million, a higher increase in non-
current assets of $2.1 million, and a lower inrease in accounts payable and
accrued liabilities of $8.4 million, offset by net income of $23.7 million in
1994 versus 1993's net loss of $29.7 million, higher depreciation and
amortization of $1.3 million, higher minority interest of $2.7 million, an
increase in non-cash interest of $5.7 million, and higher advance deposits of
$.7 million.
The net cash used in investing activities for the year ended December 31,
1994 increased $7.7 million versus the same period in 1993. The increase was
due to an increase in notes receivable from affiliates of $2.2 million and the
acquisition of Valmark and Pamco of $35.9 million, offset by a decrease in
capital expenditures of $1.5 million, a decrease in acquisitions of minority
interest and other, of $1.3 million, the gain on sale of a partial interest
in a subsidiary of $26.5 million, and the cash acquired in the Valmark and
Pamco purchases of $1.0 million.
The net cash used in financing activities decreased $52.0 million versus
the same period in 1993. The decrease was due to the net proceeds of the 1993
debt offering of $62.4 million and an increase in repayment of long-term debt
of $1.5 million offset by a decrease in deferred financing costs of $11.9
million.
<PAGE>
The Company's net cash provided by operating activities for the year
ended December 31, 1993 increased $17.4 million versus the same period in 1992.
This increase was due to the lower net loss before extraordinary items of $10.9
million, lower benefit from deferred taxes of $.8 million, higher accounts
payable and accrued expenses of $10.2 million, a lower increase in accounts
receivable of $3.4 million, and the increase in non-cash interest of $3.9
million offset by the effect of the note receivable write-off in 1992 of $6.3
million, lower depreciation and amortization of $1.3 million, offset by a
higher increase in inventories, $.8 million, a higher increase in prepaid
expenses and other current assets of $.9 million, a $.6 million decrease in
advance deposits, and the increase in non-current assets of $1.4 million.
Net cash used in investing activities for the year ended December 31,
1993 increased $7.1 million versus the same period in 1992. The increase was
due to an increase in capital expenditures of $6.7 million and an increase in
acquisition of minority interests and other of $1.8 million offset by lower
advances to affiliates of $1.3 million.
The cash flows from financing activities for the year ended December 31,
1993 increased $52.2 million versus the same period in 1992. The increase was
due to the debt issuance for $350.0 million offset by the repurchase of the
Senior Subordinated Notes of $203.3 million, the increase in paydown of the
Revolving Credit Facility of $64.2 million, the premium and consent fees
related to the refinancing of $17.3 million, and an increase in deferred
financing fees of $13.2 million.
The Company's only significant assets are the capital stock of its
subsidiaries.
ACCOUNTING FOR POST-RETIREMENT BENEFITS
In 1992, the Company adopted the method of accounting for post-retirement
benefits pursuant to the Statement of Financial Accounting Standard No. 106
"Accounting for Post-Retirement Benefits Other Than Pensions" (SFAS 106), which
requires that companies set up, as a liability, the post-retirement benefits
they expect to pay in the future. This change had no effect on reported net
income.
IMPACT OF INFLATION
General inflation has had only a minor effect on the operations of the
Company and its internal and external sources for liquidity and working
capital, as the Company has been able to increase prices to reflect cost
increases, and expects to be able to do so in the future.
ACCOUNTING FOR INCOME TAXES
In February 1992, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 109, "Accounting for Income
Taxes" (SFAS 109). The Company adopted the new method of accounting for income
taxes during the first quarter of 1993. The adoption of SFAS 109 did not have
a material impact on the Company's financial position.
<PAGE>
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Page No.
Reports of Independent Auditors .................. 22
Consolidated Balance Sheets as of December 31,
1994 and 1993................................. 24
Consolidated Statements of Operations for the
years ended December 31, 1994, 1993 and 1992.. 25
Consolidated Statements of Changes in
Shareholders' Equity (Net Capital Deficiency)
for the years ended December 31, 1994, 1993
and 1992...................................... 26
Consolidated Statements of Cash Flows for the
years ended December 31, 1994, 1993 and 1992.. 27
Notes to Consolidated Financial Statements........ 29
<PAGE>
Report of Independent Auditors
The Board of Directors and Shareholders
Jordan Industries, Inc.
We have audited the accompanying consolidated balance sheets of Jordan
Industries, Inc. as of December 31, 1994 and 1993, 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, 1994.
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 a certain subsidiary which statements reflect total
assets constituting 8% in 1994 and 7% in 1993, and net sales constituting 11%
in 1994, 1993, and 1992 of the related consolidated totals. Those statements
were audited by other auditors whose report has been furnished to us, and our
opinion, insofar as it relates to data included for these subsidiaries, is
based solely on the report 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 our audits and the report of other auditors
provide a reasonable basis for our opinion.
In our opinion, based on our audits and the report of other auditors, the
financial statements referred to above present fairly, in all material
respects, the consolidated financial position of Jordan Industries, Inc. at
December 31, 1994 and 1993, and the consolidated results of its operations and
its cash flows for each of the three years in the period ended December 31,
1994, 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, present fairly in
all material respects the information set forth therein.
/s/ Ernst & Young LLP
Chicago, Illinois
March 16, 1995
<PAGE>
INDEPENDENT AUDITOR'S REPORT
January 27, 1995
Board of Directors
Dura-Line Corporation and Subsidiaries
Middlesboro, Kentucky
We have audited the accompanying consolidated balance sheets of Dura-Line
Corporation and Subsidiaries as of December 31, 1994 and 1993 and the related
consolidated statements of income, retained earnings (deficit) and cash flows
for the years ended December 31, 1994, 1993 and 1992. 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 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 provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Dura-Line
Corporation and Subsidiaries as of December 31, 1994 and 1993, and the
consolidated results of its operations and its cash flows for the years ended
December 31, 1994, 1993 and 1992, in conformity with generally accepted
accounting principles.
/s/ Marr, Miller & Myers, PSC
Marr, Miller & Myers, PSC
Corbin, Kentucky
<PAGE>
JORDAN INDUSTRIES, INC.
CONSOLIDATED BALANCE SHEETS
(dollars in thousands)
December 31,
1994 1993
ASSETS
Current assets:
Cash and cash equivalents $ 56,386 $ 68,273
Accounts receivable, net of allowance
of $1,058 and $1,131 in 1994 and 1993,
respectively 57,589 47,786
Inventories 76,157 61,186
Prepaid expenses and other current assets 7,053 5,735
Total current assets 197,185 182,980
Property, plant and equipment, net 70,403 57,700
Note receivable from affiliate 7,941 5,535
Goodwill, net 88,345 57,102
Other assets 35,571 35,192
Total Assets $399,445 $338,509
LIABILITIES AND SHAREHOLDERS' EQUITY (NET CAPITAL DEFICIENCY)
Current liabilities:
Accounts payable $ 42,225 $ 31,806
Accrued liabilities 27,670 26,086
Advance deposits 1,999 1,696
Current portion of long-term debt 1,896 1,902
Total current liabilities 73,790 61,490
Long-term debt 380,966 356,981
Other noncurrent liabilities 2,048 3,649
Deferred income taxes 4,478 6,784
Minority interest 5,030 31
Redeemable preferred stock - 243
Shareholders' equity (net capital deficiency):
7% cumulative preferred stock at liquidation
value of $10,000 per share:
issued and outstanding - 187.5 shares 1,875 1,875
Common stock $.01 par value:
authorized - 100,000 shares
issued and outstanding - 93,501 shares 1 1
Additional paid-in capital 1,097 1,097
Retained earnings (accumulated deficit) (69,840) (93,642)
Total shareholders' equity (net capital
deficiency) (66,867) (90,669)
Total Liabilities and Shareholders' Equity
(Net Capital Deficiency) $399,445 $338,509
See accompanying notes.
<PAGE>
JORDAN INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(dollars in thousands)
Year ended December 31,
1994 1993 1992
Net sales $424,391 $358,611 $327,321
Cost of sales, excluding depreciation 262,730 221,518 202,215
Selling, general and administrative expense 97,428 80,496 75,060
Depreciation 10,568 9,059 9,327
Amortization of goodwill and other
intangibles 8,531 8,743 9,735
Management fees and other 2,190 2,408 1,920
Write-off of note receivable from
affiliate - - 6,302
Operating income 42,944 36,387 22,762
Other (income) and expenses:
Interest expense 40,887 41,049 37,024
Interest income (1,042) (1,845) (436)
Interest income from affiliate (429) - (527)
Gain on sale of a partial interest
in a subsidiary (24,161) - -
Total other expenses 15,255 39,204 36,061
Income (loss) before income taxes, minority
interest, and extraordinary items 27,689 (2,817) (13,299)
Provision for income taxes 1,332 707 1,188
Income (loss) before minority interest and
extraordinary items 26,357 (3,524) (14,487)
Minority interest 2,616 (41) (75)
Income (loss) before extraordinary items 23,741 (3,483) (14,412)
Extraordinary loss - (26,192) -
Net income (loss) $ 23,741 $(29,675)$(14,412)
See accompanying notes.
<PAGE>
<TABLE>
<CAPTION>
JORDAN INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(NET CAPITAL DEFICIENCY)
(dollars in thousands)
Total
Share-
7% Cumulative Retained holders'
Preferred Stock Common Stock Earnings Equity
Additional (Accumu- (Net Cap-
Number of Number of Paid-in lated ital Def-
Shares Amount Shares Amount Capital Deficit) iciency)
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1992 - $ - 91,467 $1 $879 $ (48,856) $(47,976)
Net loss - - - - - (14,412) (14,412)
Cumulative translation
adjustment - - - - - (574) (574)
Issuance of common stock - - 2,034 - 218 - 218
Issuance of preferred stock
in exchange for a subsid-
iary's common stock 187.5 1,875 - - - - 1,875
Dividends declared on
preferred stock of
subsidiary - - - - - (4) (4)
Balance at December 31, 1992 187.5 1,875 93,501 1 1,097 (63,846) (60,873)
Net loss - - - - - (29,675) (29,675)
Cumulative translation
adjustment - - - - - (59) (59)
Dividends declared on
preferred stock of
subsidiary - - - - - (62) (62)
Balance at December 31, 1993 187.5 1,875 93,501 1 1,097 (93,642) (90,669)
Net Income - - - - - 23,741 23,741
Cumulative translation
adjustment - - - - - 201 201
Dividends declared on
preferred stock of
subsidiary - - - - - (140) (140)
Balance at December 31, 1994 187.5 $1,875 93,501 $1 $1,097 $(69,840) $(66,867)
</TABLE>
See accompanying notes.
<PAGE>
JORDAN INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(dollars in thousands)
Year Ended December 31,
1994 1993 1992
Cash flows from operating activities:
Net income (loss) $23,741 $(29,675) $(14,412)
Adjustments to reconcile net income (loss)
to net cash provided by operating
activities:
Gain on sale of a partial interest
in a subsidiary (24,161) - -
Extraordinary loss - 26,192 -
Write-off of note receivable from
affiliate - - 6,302
Amortization of deferred financing
costs 1,405 1,363 1,702
Depreciation and amortization 19,099 17,802 19,062
Amortization of debt discount - 162 324
Provision for (benefit) from
deferred income taxes 9 (40) (846)
Minority interest 2,616 (41) (75)
Non-cash interest 9,544 3,868 -
Changes in operating assets and
liabilities:
Accounts receivable (6,362) (820) (4,239)
Inventories (13,394) (4,208) (3,384)
Prepaid expenses and other current
assets (1,317) (1,421) (525)
Increase in non-current assets (3,466) (1,386) -
Accounts payable and accrued liabil-
ities 9,247 17,660 7,457
Advance deposits 303 (393) 232
Other (82) (333) (310)
Net cash provided by operating activities 17,182 28,730 11,288
Cash flows from investing activities:
Capital expenditures (12,112) (13,640) (6,975)
Notes receivable from affiliates (2,254) (35) (1,332)
Acquisitions of subsidiaries (35,872) - -
Cash acquired in purchase of subsidiaries 953 - -
Net proceeds from sale of a partial interest
in a subsidiary 26,544 - -
Acquisitions of minority interests and other (2,143) (3,483) (1,724)
Net cash used in investing activities (24,884) (17,158) (10,031)
(Continued on following page.)
See accompanying notes.
<PAGE>
JORDAN INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(dollars in thousands)
(continued)
Year Ended December 31,
1994 1993 1992
Cash flows from financing activities:
Proceeds of debt issuance $ - $350,000 $ -
Purchase of Senior Subordinated Notes - (203,300) -
Payments under the Revolving Credit
Facility, net - (66,950) (2,750)
Premium and consent fee on purchase
of Senior Subordinated Notes - (17,347) -
Payment of financing costs (1,561) (13,457) (304)
Repayment of long-term debt (2,624) (1,131) (1,317)
Net cash provided by (used in) financing
activities (4,185) 47,815 (4,371)
Net increase (decrease) in cash and cash
equivalents (11,887) 59,387 (3,114)
Cash and cash equivalents at beginning
of year 68,273 8,886 12,000
Cash and cash equivalents at end of year $ 56,386 $ 68,273 $ 8,886
Supplemental disclosures of cash flow
information:
Cash paid during the year for:
Interest $ 29,839 $ 24,405 $34,996
Income taxes, net $ 2,213 $ 1,097 $ 1,900
Noncash investing activities:
Capital leases $ 7,422 $ 2,293 $ 1,526
Acquisition of minority interest $ - $ - $11,083
See accompanying notes.
<PAGE>
JORDAN INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands)
Note 1 - ORGANIZATION
Jordan Industries, Inc. (the Company), an Illinois corporation, was formed by
Chicago Group Holdings, Inc. on May 26, 1988 for the purpose of combining into
one corporation certain companies in which partners and affiliates of The
Jordan Company (the Jordan Group) acquired ownership interests through
leveraged buy-outs. Chicago Group Holdings, Inc. was formed on February 8,
1988 and had no operations. The Company was merged with Chicago Group
Holdings, Inc. on May 31, 1988 with the Company being the surviving company.
The Company's business is divided into three segments. The Consumer Products
segment consists of Sate-Lite Manufacturing Company ("Sate-Lite"), Welcome
Home, Inc. ("Welcome Home"), DACCO, Incorporated ("DACCO") and Riverside Book
and Bible House, Incorporated ("Riverside"). The Industrial Products and
Equipment segment consists of Parsons Precision Products, Inc. ("Parsons"),
Dura-Line Corporation ("Dura-Line"), The Imperial Electric Company ("Imperial")
and its subsidiaries, The Scott Motors Company ("Scott") and Gear Research,
Inc. ("Gear"), Hudson Lock, Inc. ("Hudson"), AIM Electronics Corporation
("AIM"), and Cambridge Products Corporation ("Cambridge"). The Specialty
Advertising and Calendars segment consists of JII/Sales Promotion Associates,
Inc. ("JII/SPAI"), Beemak Plastics, Inc. ("Beemak"), Valmark Industries, Inc.
("Valmark") and Pamco Printed Tape and Label Co., Inc. ("Pamco"). All of the
foregoing corporations are collectively referred to herein as the
"Subsidiaries," and individually as a "Subsidiary."
Note 2 - SIGNIFICANT ACCOUNTING POLICIES
Principles of consolidation
The consolidated financial statements include the accounts of the Company and
subsidiaries. All significant intercompany balances and transactions have been
eliminated.
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
life of the underlying leases, if less, using the straight-line method. The
double declining method is generally used for machinery and equipment in the
industrial products segment.
<PAGE>
JORDAN INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands)
The useful lives of plant and equipment for the purpose of computing book
depreciation are as follows:
Machinery and equipment 3-10 years
Buildings 7-35 years
Furniture & fixtures 5-10 years
Leaseholds Life of Lease
Goodwill - Goodwill is being amortized on the straight-line basis principally
over 40 years. Goodwill at December 31, 1994 and 1993 is net of accumulated
amortization of $12,416, and $10,083, respectively. The carrying value of
goodwill will be reviewed if the facts and circumstances suggest that it may
be impaired. If this review indicates that goodwill will not be recoverable,
as determined based on the undiscounted cash flows of the entity acquired over
the remaining amortization period, the Company's carrying value of the goodwill
will be reduced by the estimated shortfall of cash flows.
Other assets
Patents are amortized over the remainder of their legal lives, which
approximate their useful lives, on the straight-line basis. Deferred financing
costs amounting to $11,211 and $12,969 net of accumulated amortization of
$1,943 and $538 at December 31, 1994 and 1993, respectively, are amortized over
the terms of the loans or, if shorter, the period such loans are expected to
be outstanding. Non-compete covenants and customer lists amounting to $7,113
and $8,025, net of accumulated amortization of $40,690 and $37,238 at December
31, 1994 and 1993, respectively, are amortized on the straight-line basis over
their estimated useful lives, ranging from three to ten years. Organizational
costs are amortized over five years.
Income taxes
In February 1992, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (SFAS) No. 109, "Accounting for Income Taxes"
which requires recognition of deferred tax assets and liabilities for the
expected future tax consequences of events that have been included in the
financial statements or tax returns. The Company adopted the new method of
accounting for income taxes during the first quarter of 1993. The Company
previously used SFAS No. 96 to account for income taxes. The adoption of
Statement 109 did not have a material impact on the Company's financial
position.
Cash and cash equivalents
The Company considers all highly liquid debt instruments purchased with a
maturity of three months or less to be cash equivalents.
At December 31, 1994, the Company's cash balance included $1,600 which is being
held as collateral with respect to a capital lease. The cash balance is
required to remain intact throughout the term of the lease which expires on
November 17, 1998.
<PAGE>
JORDAN INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands)
Note 3 - INVENTORIES
Inventories consist of:
Dec. 31, Dec. 31,
1994 1993
Raw materials $16,695 $ 15,000
Work-in-process 6,193 5,868
Finished goods 53,269 40,318
$76,157 $ 61,186
Note 4 - PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment, at cost, consists of:
Dec. 31, Dec. 31,
1994 1993
Land $ 4,421 $ 3,655
Machinery and equipment 84,091 67,971
Buildings and improvements 26,340 23,331
Furniture and fixtures 17,642 13,681
$132,494 108,638
Accumulated depreciation and
amortization (62,091) (50,938)
$ 70,403 $ 57,700
Note 5 - NOTES RECEIVABLE FROM AFFILIATES
On March 22, 1991, the Company acquired the stock of Cape Craftsmen, Inc. ("old
Cape Craftsmen"), a company controlled by the Jordan Group, in exchange for
approximately $17.2 million of notes and accrued interest due from old Cape
Craftsmen. Also on March 22, the existing shareholders of old Cape Craftsmen
exchanged their shares in the existing company for shares in a newly-formed
company ("new Cape Craftsmen") which held the assets of the former Wholesale
Division of old Cape Craftsmen and a note payable to the Company. Because the
Company and old Cape Craftsmen had common ownership, the stock of old Cape
Craftsmen was recorded at the historical basis of the underlying assets.
Accordingly, the notes receivable at December 31, 1990 were reduced by the
amount in excess of the historical cost basis of assets and a $13.5 million
charge was recorded directly to the accumulated deficit in 1990. Old Cape
Craftsmen was renamed Welcome Home, Inc. on March 22, 1991.
At December 31, 1994, the Company had a note receivable of $7,941 from new Cape
Craftsmen. The note is secured by the net assets of new Cape Craftsmen which
had an unaudited book value, excluding the note payable to the Company, of
approximately $3.3 million at December 31, 1994.
Although this note is payable on demand, the Company does not anticipate the
repayment of principal in 1995 and, accordingly, has classified this note as
<PAGE>
JORDAN INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands)
long-term. The Company believes this entity will generate adequate operating
profits and cash flow to meet principal and interest payments.
In September 1989 the Company purchased the secured claims of Wintermute
Industries, Inc. (Wintermute), a company also controlled by the Jordan Group,
for $4,505. The Company also advanced Wintermute additional monies to meet
working capital requirements.
In 1992, the Company determined that the recoverability of its note receivable
and accrued interest from Wintermute was unlikely and therefore wrote-off the
note receivable of $5,641 and accrued interest receivable of $661.
Note 6 - ACCRUED LIABILITIES
Accrued liabilities consist of:
Dec. 31, Dec. 31,
1994 1993
Accrued vacation $ 1,435 $ 1,209
Accrued bonuses 382 612
Accrued income taxes 1,404 611
Accrued other taxes 2,176 1,672
Accrued commissions 1,182 781
Accrued interest payable 12,391 12,695
Accrued payroll and payroll taxes 1,957 1,633
Accrued royalties 232 201
Accrued stock appreciation rights
and preferred stock payments 2,876 3,886
Accrued other expenses 3,635 2,786
$27,670 $26,086
Note 7 - OPERATING LEASES
Certain subsidiaries lease land, buildings, and equipment under noncancellable
operating leases.
Total minimum rental commitments under noncancellable operating leases at
December 31, 1994 are:
1995 $ 9,384
1996 8,431
1997 7,706
1998 6,591
1999 4,858
Thereafter 10,488
$47,458
Rental expense amounted to $8,173, $6,536 and $5,026 for 1994, 1993 and 1992,
respectively. The 1994 increase relates primarily to the additional retail
stores opened by Welcome Home in 1994.
<PAGE>
JORDAN INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands)
Note 8 - BENEFIT PLANS
Certain subsidiaries of the Company have defined benefit pension plans. The
total expense for these plans amounted to $119 in 1994, $72 in 1993 and $176
in 1992. The subsidiaries make contributions to the plans equal to the amounts
determined by accepted actuarial methods for the defined benefit plans and on
a cents-per-hour basis for plans covering certain hourly employees.
Plan benefits are generally based on years of service and employee compensation
during the last years of employment.
The following table sets forth the status of the defined benefit plans of the
Company:
Year Ended
December 31,
1994 1993
Actuarial present value of benefit
obligations:
Vested $1,984 $2,204
Non-vested 16 80
Accumulated benefit obligation 2,000 2,284
Effect of future salary growth 451 485
Total projected benefit obligation 2,451 2,769
Assets relating to such benefits:
Market value of funded assets,
primarily invested in money
market and equity securities 2,081 2,405
Underfunded projected
benefit obligation (370) (364)
Net deferral (418) (467)
Pension liability recorded
as a long-term liability $ (788) $ (831)
<PAGE>
JORDAN INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands)
The weighted average discount rates used in determining the actuarial present
value of the projected benefit obligation range from 7.5%-8.00% in 1994 and 7%-
7.5% in 1993. The assumed long-term rates of return on plan assets range from
7.5%-8% in 1994 and 1993. The assumed rates of compensation increase range
from 3.8%-5.0% in 1994 and 2%-2.5% in 1993.
Effective January 1, 1993, an over-funded plan was terminated and one of the
under-funded plans was frozen. The termination of the overfunded plan resulted
in a $.5 million charge to earnings in 1993. Non-participating annuity
contracts have been purchased with the plan assets of the over-funded plan, and
various compensation plans have been instituted in place of the defined benefit
pension plans.
In January 1993 the Company established the Jordan Industries, Inc. 401(k)
Savings Plan ("the Plan"), a defined-contribution plan. The Plan covers
substantially all employees of the Company. Contributions to the Plan are
discretionary.
Note 9 - LONG-TERM DEBT
Long-term debt consists of:
Dec. 31, Dec. 31,
1994 1993
Notes payable (A) $ 1,571 $ 1,590
Subordinated promissory notes (B) 8,623 800
Capital lease obligations (C) 9,257 2,625
Senior Notes (D) 275,000 275,000
Senior Subordinated Discount Debentures (E) 88,411 78,868
382,862 358,883
Less current portion 1,896 1,902
$380,966 $356,981
Aggregate maturities of long-term debt at December 31, 1994 are as follows:
1995 $ 1,896
1996 1,904
1997 1,160
1998 1,122
1999 2,402
Thereafter 374,378
$382,862
<PAGE>
JORDAN INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands)
A Notes payable are due in monthly or quarterly installments and bear
interest at rates up to 11.5%. Certain assets of the subsidiaries
are pledged as collateral for the loans.
B Subordinated promissory notes payable are due to minority interest
shareholders and former shareholders of the subsidiaries in annual
installments through 2001, and bear interest at 8%-9%. Certain of
the loans are collateralized by equipment.
C Interest rates on capital leases range from 8.56% to 13.87% and
mature in installments through 1999.
The future minimum lease payments as of December 31, 1994 under
capital leases consist of the following:
1995 $ 2,352
1996 1,877
1997 1,629
1998 1,364
1999 4,726
Thereafter -
Total $11,948
Less amount representing interest 2,691
Present value of future minimum
lease payments $ 9,257
The present value of the future minimum lease payments approximates
the book value of property, plant and equipment under capital
leases at December 31, 1994.
D In July 1993, the Company issued $275,000 10 3/8% Senior Notes
("Senior Notes") due 2003. These notes bear interest at a rate
of 10 3/8% per annum, payable semi-annually in cash on February 1
and August 1 of each year. The payments began on February 1, 1994.
The Senior Notes are redeemable for 105.18750% of the principal
amount from August 1, 1998 to July 31, 1999, 102.59375% from August
1, 1999 to July 31, 2000, and 100% from August 1, 2000 and
thereafter plus any accrued and unpaid interest to the date of
redemption.
The fair value of the Senior Notes was $243,375 at December 31,
1994. The fair value was calculated using the Senior Notes'
December 31, 1994 market price multiplied by the face amount.
<PAGE>
JORDAN INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands)
E In July 1993 the Company issued $133,075,239 11 3/4% Senior
Subordinated Discount Debentures, ("Discount Debentures") due 2005.
The Discount Debentures were issued at a substantial discount from
this principal amount. The interest on the Discount Debentures
will be payable in cash semi-annually on February 1 and August 1
of each year beginning in 1999.
The Discount Debentures are redeemable for 105.87500% of the
accreted value from August 1, 1998 to July 31, 1999, 102.93750%
from August 1, 1999 to July 31, 2000 and 100% from August 1, 2000
and thereafter plus any accrued and unpaid interest from August 1,
1998 to the redemption date if such redemption occurs after August
1, 1998.
The fair value of the Discount Debentures was $67,868 at December
31, 1994. The fair value was calculated using the Discount
Debentures' December 31, 1994 market price multiplied by the face
amount.
The proceeds from the issuance of the above Notes were used to repurchase
previously issued Senior Subordinated Notes consisting of $102,300 principal
amount of 13-7/8% Series A Senior Subordinated Notes (Series A) due 1998, and
$105,000 principal amount of 13-5/8% Series B Senior subordinated Reset Notes
(Series B) due 1998. Due to the repurchase, the Company incurred a $26.2
million extraordinary loss which was comprised of a $7.2 million write-off of
deferred financing fees, a $1.7 million write-off of the debt discount relating
to the Series A and Series B debt issuance, and $17.3 million in premium and
consent fees.
The Indenture relating to the Notes and Discount Debentures restricts the
ability of the Company to incur additional indebtedness. The Indenture also
restricts: the payment of dividends, the repurchase of stock and the making
of certain other restricted payments; restrictions that can be imposed on
dividend payments to the Company by its subsidiaries; significant acquisitions;
and certain mergers or consolidations. The Indenture will also require the
Company to redeem the Notes and Discount Debentures upon a change of control
and to offer to purchase a specified percentage of the Notes and Discount
Debentures if it fails to maintain a minimum level of capital funds (as
defined).
The Company is, and expects to continue to be, in compliance with the
provisions of the Indenture.
Included in interest expense is $1,405, $1,363 and $1,702 of amortization of
debt issuance costs for the year ended December 31, 1994, 1993 and 1992,
respectively.
<PAGE>
JORDAN INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands)
Note 10 - INCOME TAXES
The provision (benefit) for income taxes consists of the following:
Year Ended December 31,
1994 1993 1992
Current:
Federal $ 356 $ - $ 1,115
State and local 967 747 919
1,323 747 2,034
Deferred 9 (40) (846)
Total $1,332 $ 707 $ 1,188
Deferred income taxes consist of: Dec. 31, Dec. 31,
1994 1993
DEFERRED TAX LIABILITIES:
Tax over book depreciation $ 7,447 $10,585
Basis in subsidiary 798 -
LIFO reserve 333 445
Other 186 51
Total deferred tax liabilities $ 8,764 $11,081
DEFERRED TAX ASSETS:
NOL carryforwards $20,400 $25,985
Accrued interest on discount debentures 4,560 1,315
Pension obligation 191 295
Vacation accrual 517 496
Uniform capitalization of inventory 610 863
Allowance for doubtful accounts 609 531
Capital lease obligations 355 241
Other 472 353
Total deferred tax assets 27,714 30,079
Valuation allowance for deferred
tax assets (23,428) (25,782)
Net deferred tax assets 4,286 4,297
Net deferred tax liabilities $ 4,478 $ 6,784
The decrease in the valuation allowance during 1994 and 1993 was $2,354 and
$10,180, respectively.
<PAGE>
JORDAN INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands)
The provision for income taxes differs from the amount of income tax benefit
computed by applying the United States federal income tax rate to loss before
income taxes, minority interest, and extraordinary items. A reconciliation of
the differences is as follows:
Year ended
December 31,
1994 1993 1992
Computed statutory tax provision (benefit) $9,414 $(958) $(2,378)
Increase (decrease) resulting from:
Net losses for which no benefit
was taken - 362 2,134
Amortization of goodwill 682 590 596
Use of separate company net operating
loss carryforward (1,329) - -
Tax basis in excess of book basis in
partial sale of a subsidiary (8,460) - -
State and local tax 1,010 720 965
Other items, net 15 (7) (129)
Provision for income taxes $1,332 $ 707 $ 1,188
As of December 31, 1994, the consolidated loss carryforwards are approximately
$56,000 and $43,000 for regular tax and alternative minimum tax purposes,
respectively, and expire in various years through 2009. A subsidiary of the
Company, which is not consolidated for tax purposes, has approximately $4,000
of net operating loss carryforwards that expire in various years through 2006.
Note 11 - RELATED PARTY TRANSACTIONS
The principals, partners, officers, employees and affiliates of The Jordan
Company (the "Jordan Group") own substantially all of the common stock of the
Company. The Jordan Group also owns substantially all of the common stock of
Cape Craftsmen, Inc.
On June 1, 1988, an agreement was executed, which was amended on January 3,
1989 and amended and restated on September 30, 1990, whereby the Company will
pay TJC Management Corporation ("TJC") a quarterly fee equal to .75% of the
Company's Cash Flow for the four full fiscal quarters next preceding the date
of payment of such quarterly fee. Under this agreement the Company accrued
fees to TJC of $1,962, $1,503 and $1,500 in 1994, 1993 and 1992, respectively.
<PAGE>
JORDAN INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands)
In addition, beginning June 1, 1988, The Jordan Company is to be paid an
investment banking fee of up to 2%, based on the aggregate consideration paid,
for its assistance in acquisitions undertaken by the Company or its
subsidiaries, and a financial consulting fee not to exceed 1% of the aggregate
debt and equity financing that is arranged by the Jordan Company, plus the
reimbursement of out-of-pocket and other expenses. The Company paid $3,500 in
1993 to The Jordan Company for their fee in relation to the Company's
refinancing. In 1994, the Company paid $1,803 to the Jordan Company for their
fees in relation to the Welcome Home public offering, the acquisitions of
Valmark and Pamco, and the signing of the Revolving Credit Facility.
In February 1988, the Company entered into an employment agreement with its
President and Chief Operating Officer which provides for annual compensation,
including base salary and bonus, of not less than $350. The agreement also
provides for severance payments in the event of termination for reasons other
than cause, voluntary termination, disability or death; disability payments,
under certain conditions, in the event of termination due to disability; and
a lump sum payment of $1,000 in the event of death. The Company maintains a
$5,000 "key man" life insurance policy on its president under which the Company
is the beneficiary.
An individual who is a shareholder, Director, General Counsel and Secretary for
the Company is also a partner in a law firm used by the Company. The firm was
paid $660, $331 and $318 in fees and expenses in 1994, 1993 and 1992,
respectively. The rates charged to the Company were at arms-length.
See Note 5 with respect to notes receivable from affiliates.
Note 12 - CAPITAL STOCK
Under the terms of a restricted common stock agreement with certain members of
management, the Company has the right, under certain circumstances, for a
specified period of time to reacquire shares from management at management's
original cost. Starting in 1993 or within 60 days of termination, the
Company's right to repurchase may be nullified if $1,800, in the aggregate, is
paid to the Company by management.
On January 20, 1989, the Company, in exchange for three thousand five hundred
dollars, sold warrants to acquire 3,500 shares of its common stock to Mezzanine
Capital & Income Trust 2001, PLC (MCIT), a publicly traded U.K. investment
trust, in which principal stockholders of the Company also hold capital and
income shares. These warrants were sold in conjunction with MCIT's purchase
of $7,000 of Senior Subordinated Notes. Each Warrant entitles the holder to
purchase one share of the Company's common stock at a price of $4.00 at any
time, subject to certain events, prior to January 20, 1999. These warrants
were valued at $700 based on an independent appraisal.
<PAGE>
JORDAN INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands)
On January 1, 1992 the Company issued 1,633.8386 shares of common stock for
$175. On December 31, 1992 the Company issued an additional 400 shares of
stock for $43.
Note 13 - BUSINESS SEGMENT INFORMATION
The Company's business operations are classified into three business segments:
Consumer Products, Industrial Products and Equipment, and Specialty Advertising
and Calendars.
Consumer Products includes the manufacturing and marketing of safety
reflectors, lamp components, bicycle reflector kits, colorants and emergency
warning triangles by Sate-Lite; the remanufacturing of transmission sub-systems
for the U.S. automotive aftermarket by DACCO; the publishing of bibles and the
distribution of bibles, religious books, and recorded music by Riverside; and
the specialty retailing of decorative home furnishing accessories by Welcome
Home.
Industrial Products and Equipment includes the manufacture and distribution of
silicon pre-lubricated plenum and other configurations of Innerduct, a
proprietary plastic pipe used in the installation of fiber optic cable, and
rigid polyethylene pipe used for transporting potable water by Dura-Line;
heavy fabricated ground handling equipment, precision machined parts, and
precision machined titanium hot formed parts used by the aerospace industry
by Parsons; electric motors for both industrial and commercial use by Imperial;
small electrical motors by Scott; precision gears and gear boxes by Gear;
specialty-type locks by Hudson; and electronic connectors and switches by AIM
and Cambridge.
Specialty Advertising and Calendars includes specialty advertising products,
calendars and corporate recognition and promotion products by JII/SPAI; point-
of-purchase advertising displays by Beemak; the specialty printing and
manufacturing of pressure sensitive labeling products by Valmark and the
manufacturing, printing, and distribution of pressure sensitive labels and
specialty printed products by Pamco.
There are no inter-segment sales. Foreign operations and export sales are not
significant. No single customer accounts for 10% or more of net sales.
Operating income by business segment is defined as net sales less operating
costs and expenses, excluding interest and corporate expenses.
Identifiable assets are those used by each segment in its operations.
Corporate assets consist primarily of cash and cash equivalents, equipment,
notes receivable from affiliates and deferred debt issuance costs.
<PAGE>
JORDAN INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands)
Year ended
December 31,
1994 1993 1992
Net sales:
Consumer Products $212,731 $178,656 $149,124
Industrial Products and Equipment 121,601 112,138 110,648
Specialty Advertising and Calendars 90,059 67,817 67,549
Total $424,391 $358,611 $327,321
Operating income:
Consumer Products $ 24,967 $ 21,141 $ 14,757
Industrial Products and Equipment 24,400 21,163 18,077
Specialty Advertising and Calendars 7,151 2,843 3,712
Total business segment operating
income $ 56,518 $ 45,147 $ 36,546
Corporate expenses (13,574) (8,760) (13,784)
Total consolidated operating
income $ 42,944 $ 36,387 $ 22,762
Depreciation and amortization
(including the amortization of
goodwill and intangibles):
Consumer Products $ 5,332 $ 6,024 $ 5,970
Industrial Products and Equipment 7,517 8,620 9,831
Specialty Advertising and Calendars 4,458 2,728 2,812
Total business segment
depreciation and amortization $ 17,307 $ 17,372 $ 18,613
Corporate 1,792 430 449
Total consolidated depreciation
and amortization $ 19,099 $ 17,802 $ 19,062
Capital expenditures:
Consumer Products $ 5,840 $ 4,283 $ 3,047
Industrial Products and Equipment 4,272 2,992 2,180
Specialty Advertising and Calendars 1,722 1,045 1,699
Corporate 278 5,320 49
Total $ 12,112 $ 13,640 $ 6,975
<PAGE>
JORDAN INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands)
Continued
Dec. 31, Dec. 31, Dec. 31,
1994 1993 1992
Identifiable assets:
Consumer Products $123,636 $107,323 $ 99,614
Industrial Products and Equipment 99,129 102,945 109,140
Specialty Advertising and Calendars 85,617 40,972 42,281
Total business segment assets $308,382 $251,240 $251,035
Corporate assets 91,063 87,269 17,639
Total consolidated assets $399,445 $338,509 $268,674
Note 14 - ACQUISITION OF MINORITY INTEREST
In March 1992, a subsidiary of the Company entered into an agreement with its
minority shareholders whereby the shareholders would exchange their common
stock, which amounted to a 24% interest, for 7% cumulative preferred stock.
One-half of the preferred shares are redeemable in eight quarterly
installments, including the accrued but unpaid dividends, beginning on or after
April 1, 1993. These shares have a redemption value of $1,875 of which $938
is recorded as an accrued liability, and $234 has been recorded as redeemable
preferred stock.
An additional $1,875 is not redeemable and pays a cumulative dividend of 7% per
year. This amount is included in the shareholders' equity section of the
balance sheet.
The shareholders entered into covenants not to compete for $2,679 which will
be paid over the next five years. Of this amount, $123 and $325 was paid in
1994 and 1993.
The shareholders were granted stock appreciation rights as part of the non-
compete agreements with $5,952 to be paid over the next three years. Of this
amount, $1,660 and $2,235 was paid in 1994 and 1993. At December 31, 1994,
$2,056 is included in accrued liabilities.
The total consideration for minority interest which was accounted for as a
purchase was $12,381.
<PAGE>
JORDAN INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands)
Additionally, the former shareholders were granted stock appreciation rights
exercisable in full or in part on the occurrence of the disposition by merger
or otherwise, in one or more transactions of (a) more than 50% of the voting
power and/or value of the capital stock of the subsidiary or (b) all or
substantially all the business or assets of the subsidiary. The value of the
stock appreciation rights is based on the ultimate sales price of the stock or
assets of the subsidiary, and is essentially 15% of the ultimate sales price,
less $15,625, of the stock or assets sold. No liability has been recorded
relative to these rights.
As a result of this transaction, the subsidiary was included in the Company's
consolidated federal tax return beginning in 1992.
Note 15 - ACQUISITIONS OF SUBSIDIARIES
On January 4, 1994, the Company, through its newly-formed wholly-owned
subsidiary, J2, Inc., bought substantially all of the net assets of Valmark
Industries, Inc. ("Valmark"), a manufacturer of membrane switches, graphic
panel overlays, labels, and bar codes.
The purchase price of $18,139, including costs incurred directly related to the
transaction, was allocated to working capital of $2,105, property, plant and
equipment of $1,358, non-compete agreements of $1,500, other assets of $58, and
the assumption of a long-term capital lease obligation of $4 and resulted in
an excess purchase price over net identifiable assets of $13,122. The
acquisition was financed with the issuance of a $4,000 Subordinated Note to a
former shareholder and the remaining portion with cash.
On May 20, 1994, the Company, through its wholly-owned subsidiary, J2, Inc.,
bought all of the common stock of Pamco Printed Tape and Label Co., Inc.
("Pamco"), a manufacturer of printed labels.
The purchase price of $25,733, including costs incurred directly related to the
transaction, was allocated to working capital of $2,237, property, plant and
equipment of $2,690, non-compete agreements of $1,000, and the assumption of
a mortgage note of $731 and resulted in an excess purchase price over net
identifiable assets of $20,537. The acquisition was financed with the issuance
of a $4,000 Subordinated Note to a minority shareholder and the remaining
portion with cash.
Unaudited pro forma information with respect to the Company as if the 1994
acquisitions had occurred on January 1, 1993 is as follows:
Year Ended December 31,
1994 1993
(unaudited)
(dollars in millions)
Net sales $432.1 $389.5
Net income (loss) before
extraordinary items 24.3 (1.7)
Net income (loss) 24.3 (27.9)
<PAGE>
JORDAN INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands)
Note 16 - REVOLVING CREDIT FACILITY
On June 29, 1994, the Company entered into a $50,000 five year revolving credit
facility with the First National Bank of Boston. The facility will be used for
working capital and acquisitions over the term of the loan. The facility
charges an interest of prime plus 1/2% or Libor plus 2%. There was no
outstanding balance on the revolving credit facility at December 31, 1994.
The Company is required to meet certain consolidated financial covenants. This
credit facility is secured by the Company's shares of the Subsidiaries' capital
stock and substantially all of the assets of the company. The Company is, and
expects to continue to be, in compliance with the provisions of the Revolving
Credit Facility.
Note 17 - WELCOME HOME PUBLIC OFFERING
During 1994, Welcome Home, Inc. ("Welcome Home") sold 2.9 million shares, 2.5
million on September 29, and .4 million on October 13, of the total 8.5 million
shares outstanding, at an initial offering price of $11.00 per share. As a
result, the Company recorded a gain in the amount of $24.2 million reflecting
the difference between the net proceeds received and its proportionate share
of its book basis in Welcome Home. Certain costs incurred because of the
transaction were also applied against the gain. The proceeds were used by the
Company to repay certain bank indebtedness.
Note 18 - CONCENTRATION 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 places cash and cash equivalents with high quality
financial institutions, and is restricted by the Revolving Credit Facility as
to its investment instruments. Concentration of credit risk relating to
accounts receivable is limited due to the large number of customers from many
different industries and locations. The Company believes that its allowance
for doubtful accounts is adequate to cover potential credit risk.
<PAGE>
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE
Not applicable.
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
The names, ages and principal occupations during the past five years
of each director or executive officer of the Company are as set forth below:
Name Age Principal Occupations
John W. Jordan II 47 Chairman of the Board of Directors and
Chief Executive Officer since 1988. Mr.
Jordan is also managing partner of The
Jordan Company. Mr. Jordan is a Director
of Leucadia National Corporation
("Leucadia"), Carmike Cinemas, Inc.
("Carmike"), Jones Plumbing Systems, Inc.
("Jones"), American Safety Razor Company
("ASR"), NEWFLO Corporation ("NEWFLO"),
and Welcome Home, Inc. ("Welcome Home") .
Mr. Jordan is also an Officer and a
Director of Cape Craftsmen, Inc. ("Cape
Craftsmen").
Thomas H. Quinn 47 Director, President and Chief Operating
Officer since 1988. From November 1985 to
December 1987, Mr. Quinn was Group Vice
President and a corporate officer of
Baxter International ("Baxter"). From
September 1970 to November 1985, Mr. Quinn
was employed by American Hospital Supply
Corporation ("American Hospital"), where
he was a Group Vice President and a
corporate officer when American Hospital
was acquired by Baxter. Mr. Quinn is also
a Director of Cape Craftsmen, ASR and
Welcome Home.
Joseph S. Steinberg 51 Director since 1988. President and a
Director of Leucadia, where he has been
employed since 1979. He is also a Trustee
of New York University.
David W. Zalaznick 40 Director since 1988. Mr. Zalaznick is a
partner of The Jordan Company. Mr.
Zalaznick is a Director of Jones, Cape
Craftsmen, ASR, NEWFLO, Carmike, and
Marisa Christina Incorporated.
<PAGE>
Name Age Principal Occupations
Jonathan F. Boucher 38 Director and Vice President since 1988.
Since June 1983, Mr. Boucher has also been
a principal of The Jordan Company. Mr.
Boucher is a Director of Jones, ASR,
NEWFLO, and Welcome Home. Mr. Boucher is
also an Officer of Cape Craftsmen.
G. Robert Fisher 55 Director, General Counsel and Secretary
since 1988. Since 1968, Mr. Fisher has
been a member of the law firm of Smith,
Gill, Fisher & Butts, P.C., a firm that
represents the Company in various legal
matters. See Item 13 -- "Legal Counsel".
Mr. Fisher is also an Officer of Cape
Craftsmen.
James A. McNair 39 Director and Senior Vice President,
Business Development, since 1994. Mr.
McNair joined the Company in 1988 as Vice
President, Business Development.
Each of the directors and executive officers of the Company will serve until
the next annual meeting of the shareholders or until their death, resignation
or removal, whichever is earlier. Directors are elected annually and executive
officers hold office for such terms as may be determined by the Board of
Directors.
The Presidents of the Subsidiaries are significant employees of the Company.
<PAGE>
Item 11. EXECUTIVE COMPENSATION
The following table shows the cash compensation paid by the Company, for
the three years ended December 31, 1994, for services in all capacities to each
of the executive officers of the Company.
<TABLE>
<CAPTION>
Summary Compensation Table
Annual Compensation Long-Term Compensation
Other Annual Restricted Phantom
Name and Principal Position Year Salary Bonus Compensation Stock Stock
<S> <C> <C> <C> <C> <C> <C>
Thomas H. Quinn, 1994 $500,000 $979,137 $201,480 (1)<F1> - -
President and Chief 1993 500,000 675,000 525,000 (2)<F2> - -
Operating Officer 1992 350,000 588,000 - 1,000 shares -
James A. McNair, 1994 $200,000 $285,000 - - -
Sr. Vice President, Business 1993 175,000 150,000 - - -
Development 1992 175,000 110,000 - - 80,000 Units
<F1>(1) In connection with the acquisitions completed in 1994, and the signing of the credit
facility, this amount has been capitalized in the Company's financial statements.
<F2>(2) The amount relates to payments made in connection with the Company's refinancing on
July 23, 1993.
</TABLE>
Employment Agreement. Thomas H. Quinn has an employment agreement with
the Company which provides for Mr. Quinn's employment as President and Chief
Operating Officer of the Company. The employment agreement can be terminated
at any time by the Company. His base salary is $500,000 per annum, and he is
provided with a guaranteed bonus of $100,000 per annum, which amounts are
inclusive of any compensation, fees, salary, bonuses or other payments to Mr.
Quinn by any of the Subsidiaries or affiliates of the Company or affiliates of
The Jordan Company. Under the employment agreement, if Mr. Quinn's employment
is terminated for reasons other than voluntary termination, cause, disability
or death, he will be paid a severance payment equal to the greater of $350,000
or the sum of his most recent base annual salary plus $100,000. If employment
is terminated for reasons of cause or voluntary termination, no severance
payment is made. The Company maintains a $5.0 million "key man" life insurance
policy on Mr. Quinn under which the Company is the beneficiary.
Restricted Stock Agreements. The Company is a party to restricted stock
agreements, dated as of February 25, 1988 with each of Thomas H. Quinn,
Jonathan F. Boucher and John R. Lowden (a member of the Jordan Group), pursuant
to which they were issued shares of Common Stock which, for purposes of such
restricted stock agreements, were classified as "Group 1 Shares" or "Group 2
Shares". Messrs. Quinn, Boucher and Lowden were issued 4,500, 1,870.7676 and
629.2324 Group 1 Shares, respectively, and 4,000, 1,000 and 1,000 Group 2
Shares, respectively at $4.00 per share. The Group 1 Shares are not subject
to repurchase. The Group 2 Shares are subject to repurchase, in the event that
Messrs. Quinn, Boucher or Lowden ceases to be employed (as a partner, officer
or employee) by the Company, The Jordan Company, Jordan/Zalaznick Capital
Company ("JZCC"), or any reconstitution thereof conducting similar business
activities in which they are a partner, officer or employee. If such person
ceases to be so employed after January 1, 1993 and prior to January 1, 2003,
the Group 2 Shares can also be repurchased at cost, unless such person releases
and terminates such repurchase option by making a payment of $300.00 per share
<PAGE>
to the Company. Certain adjustments to the foregoing occur in the event of the
death of any of the partners of The Jordan Company or JZCC, the death or
disability of such person, or the sale of the Company. On January 1, 1992, the
Company issued Messrs. Quinn, Boucher and Max, 600, 533.8386 and 500 shares,
respectively, at $107.00 per share, pursuant to similar Restricted Stock
Agreements, dated as of January 1, 1992, under which such shares were
effectively treated as "Group 1" shares. On December 31, 1993, the Company
issued an additional 400 shares to Mr. Quinn for $107.00 per share pursuant to
similar Restricted Stock Agreements, dated as of December 31, 1992, under which
such shares were effectively treated as "Group 1" shares. The purchase price
per share was based upon an independent appraiser's valuation of the shares of
Common Stock at the time of their issuance. These shares were issued by the
Company to provide a long-term incentive to the recipients to advance the
Company's business and financial interest. In each case, the proceeds from the
sale of the shares of Restricted Stock were used by the Company for general
corporate purposes.
Director's Compensation. The Company compensates its directors. Such
compensation is paid quarterly, at the rate of $140,000 per year for all of the
directors. The Indenture permits director fees of up to $250,000 per year.
In addition, the Company reimburses directors for their travel and other
expenses incurred in connection with attending Board meetings (and committees
thereof) and otherwise performing their duties as directors of the Company.
Phantom Stock Plan. The Board of Directors of the Company (the "Board
of Directors") has adopted a Phantom Share Plan (the "Plan") which is
administered by the Compensation Committee of the Board of Directors which
determines awards to be made under the Plan to the Company's management and
highly compensated employees. Awards under the Plan vest ratably over a five-
year period beginning at the end of the employee's sixth year of employment
with the Company with an employee being fully vested at the end of 10 years of
employment with the Company. An employee also becomes fully vested upon the
sale of substantially all of the Company's capital stock or assets to any
person or group of persons other than to John W. Jordan II or any entity in
which he owns, directly or indirectly, 10% or more of the beneficial interest,
but not including a sale pursuant to a registered public offering (a "Change
of Control"). After (i) an employee becomes fully vested or (ii) an employee's
employment relationship with the Company is terminated (other than for cause)
(the "Settlement Date"), the Company will pay to such employee in five equal
installments beginning 90 days after the Settlement Date and on each of the
next four anniversaries of the Settlement Date an aggregate amount equal to the
product of the number of units awarded to such employee in which the employee
has become vested and the Unit Value (as defined herein) plus interest. Unit
Value is defined as 2.5% of (i) the average Stockholder Value (as defined in
the Plan) for the last three fiscal years ending on or before such date (or the
fair market value of the Common Stock in the event of a Change of Control),
divided by (ii) 1,000,000 (subject to adjustment to reflect changes in the
Company's capitalization). The Plan consists of 1,000,000 units, of which
180,000 have been granted. The Company believes that the Plan provides the
Company with a means of attracting, retaining and motivating executive
personnel by offering them performance-related incentives which coincide with
the interest of the stockholders. Although the Company has not historically
experienced any material difficulties in attracting, retaining or motivating
its executive personnel, there can be no assurances that the Company will not
experience any such difficulties in the future.
<PAGE>
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
At March 30, 1995 there were 93,501.0004 issued and outstanding shares
of Common Stock. The following table furnishes information, as of March 30,
1995, as to the beneficial ownership of the Common Stock by (i) each person
known by the Company to beneficially own more than five percent of the
outstanding shares of Common Stock, (ii) each director of the Company, and
(iii) all officers and directors of the Company as a group.
Name & Address of Amount Percent
Beneficial Owner of Beneficial Ownership of Class
John W. Jordan II (1)(4)(5) 44,362.3324 47.4%
The Jordan Company,
9 West 57th Street, 40th Floor
New York, New York 10019
David W. Zalaznick (2)(3)(4) 17,423.5763 18.6%
The Jordan Company,
9 West 57th Street, 40th Floor
New York, New York 10019
Leucadia Investors, Inc. (4) 9,969.9999 10.7%
315 Park Avenue South,
New York, New York 10010
Thomas H. Quinn (6) 8,500.0000 9.1%
Jordan Industries, Inc.,
ArborLake Centre,
1751 Lake Cook Road,
Deerfield, Illinois 60015
Jonathan F. Boucher (7) 5,533.8386 5.9%
The Jordan Company,
9 West 57th Street, 40th Floor
New York, New York 10019
G. Robert Fisher (5) (9) 624.3496 .7%
Smith, Gill, Fisher & Butts,
One Kansas City Place,
1200 Main Street,
Kansas City, Missouri 64105
All Directors and Officers 86,414.0968 92.4%
as a group (5 persons) (4)(8)
<PAGE>
(1) Includes 1 share held personally and 44,361.3324 shares held by John W.
Jordan II Revocable Trust which includes 2,541.4237 shares that are
subject to an agreement dated as of October 27, 1988, between Mr. Jordan
and Mr. Zalaznick described in Note (3) below. Does not include 309.2933
shares held by Daly Jordan O'Brien, the sister of Mr. Jordan, 309.2933
shares held by Elizabeth O'Brien Jordan, the mother of Mr. Jordan, and
309.2933 shares held by George Cook Jordan, Jr., the brother of Mr.
Jordan.
(2) Does not include 82.1697 shares held by Bruce Zalaznick, the brother of
Mr. Zalaznick.
(3) Excludes 2,541.4237 shares that are held by John W. Jordan II Revocable
Trust, but which may be purchased by Mr. Zalaznick, and must be purchased
by Mr. Zalaznick, under certain circumstances, pursuant to an agreement,
dated as of October 27, 1988, between Mr. Jordan and Mr. Zalaznick.
(4) Does not include 100 shares held by JZCC. Mr. Jordan, Mr. Zalaznick and
Leucadia, Inc. are the sole partners of JZCC.
(5) Does not include 3,248.3332 shares held by The Jordan Family Trust, of
which John W. Jordan II, George Cook Jordan, Jr. and G. Robert Fisher are
the trustees.
(6) All of Mr. Quinn's shares are subject to the terms of a Restricted Stock
Agreement between Mr. Quinn and the Company. See Item 11 -- "Restricted
Stock Agreements".
(7) Includes 2,870.7676 shares which are the subject of a Restricted Stock
Agreement between Mr. Boucher and the Company. See Item 11 --
"Restricted Stock Agreements".
(8) Includes 9,969.9999 shares held by Leucadia Investors, Inc., of which
Joseph S. Steinberg is President and a director.
(9) Includes 624.3496 shares held by G. Robert Fisher, Trustee of the G.
Robert Fisher Irrevocable Gift Trust, U.T.I., dated December 26, 1990.
<PAGE>
Stockholder Agreements. Each holder of outstanding shares of Common
Stock of the Company is a party to a Stockholder Agreement, dated as of June
1, 1988 (the "Stockholder Agreement"), by and among the Company and such
stockholders. The Stockholder Agreement subjects the transfer of shares of
Common Stock by such stockholders to a right of first refusal in favor of the
Company and "co-sale" rights in favor of the other stockholders, subject to
certain restrictions. Under certain circumstances, stockholders holding 60%
or more of the outstanding shares of Common Stock, on a fully diluted basis,
have certain rights to require the other stockholders to sell their shares of
Common Stock.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Management Consulting Agreement. On June 1, 1988, the Company and The
Jordan Company entered into a Management Consulting Agreement which was amended
on January 3, 1989 and amended and restated on September 30, 1990 (the
"Consulting Agreement"). Under the Consulting Agreement, TJC renders to the
Company certain consulting services regarding the Company and its subsidiaries,
their financial and business affairs and their relationships with their lenders
and stockholders and the operation and expansion of their businesses. Such
services include Mr. Jordan's services as chief executive officer of the
Company, strategic planning, and advice and analysis regarding financing,
potential acquisitions and current operations. For such services, the Company
pays TJC a quarterly fee equal to three quarters of one percent of the
Company's Cash Flow for the four full fiscal quarters next preceding the date
of payment of such quarterly fee. Under the Consulting Agreement, such
quarterly fee could not in any event exceed $500,000 in the aggregate for the
quarters in 1990, and $1.5 million in the aggregate for the quarters in 1991
and 1992; plus (i) an investment banking and sponsorship fee of up to 2% of the
aggregate consideration paid by the Company in connection with an acquisition
by the Company of other businesses, and (ii) an investment banking and
financial consulting fee not to exceed 1% of the aggregate debt and/or equity
financing, in each case, that is arranged by TJC or The Jordan Company, plus
the reimbursement of out-of-pocket and other expenses. The Company paid The
Jordan Company $3,500,000 in 1993 as an investment banking fee relating to the
Company's refinancing. For the year ended December 31, 1994, the Company
accrued a total of $1,961,700 in quarterly fees and $1,803,200 in investment
banking fees to TJC pursuant to the Consulting Agreement. TJC has advised the
Company that it intends to continue making acquisitions for its own account.
There are no commitments or understandings as to how acquisition opportunities
would be allocated between the Company and The Jordan Company. The Consulting
Agreement expires on June 1, 1998, unless extended or terminated earlier.
Messrs. Jordan, Zalaznick and Boucher, directors and officers of the Company,
are partners of The Jordan Company. Messrs. Jordan and Zalaznick also serve
as directors of TJC. The Company believes that the terms of the Consulting
Agreement are comparable to those which could have been obtained from an
unaffiliated third party.
<PAGE>
Employment Agreement. On February 25, 1988, the Company entered into an
employment agreement with Thomas H. Quinn, pursuant to which Mr. Quinn became
the President and Chief Operating Officer of the Company, effective January 1,
1988. See "Management -- Employment Agreement." The Company believes that the
terms of the employment agreement are comparable to those that could have been
obtained from an unaffiliated third party.
Restricted Stock Agreements. On February 25, 1988, the Company entered
into restricted stock agreements with each of Jonathan F. Boucher, John R.
Lowden and Mr. Quinn, which subject sales of shares of Common Stock of the
Company owned by each of the stockholders to the Company's right to repurchase
such shares under certain conditions and which also restrict the transfer of
any shares of Common Stock of the Company other than pursuant to an option by
the Company to repurchase such shares. The Company entered into substantially
similar additional restricted stock agreements with Messrs. Quinn and Boucher
and Mr. Adam Max, a principal of The Jordan Company, on January 1 1992, and
with Mr. Quinn on December 31, 1992. See "Management -- Restricted Stock
Agreements." The Company believes that the terms of the restricted stock
agreements are comparable to those that could have been obtained from an
unaffiliated third party.
Common Stock. On January 1, 1992, the Company issued Messrs. Quinn,
Boucher and Max, 600, 533.8386, and 500 shares of Common Stock, respectively,
for total consideration of $174,820.73. On December 31, 1992, the Company
issued an additional 400 shares to Mr. Quinn for $42,800.00. The consideration
received by the Company for the Common Stock amounted to $107.00 per share,
determined to be the then fair market value of the Common Stock for the shares
of Common Stock issued during 1992 as determined by an independent appraiser's
valuation of the shares of Common Stock at the time of issuance. The proceeds
from the sale of Common Stock were used by the Company for general corporate
purposes.
Legal Counsel. Mr. G. Robert Fisher, a Director of, and the General
Counsel and Secretary to, the Company, is also a partner of Smith, Gill, Fisher
& Butts, a Professional Corporation, Kansas City, Missouri. Mr. Fisher and his
law firm have represented the Company and The Jordan Company in the past, and
expect to continue representing them in the future. In 1994, Smith, Gill,
Fisher & Butts was paid approximately $660 in fees and expenses by the Company.
The rates charged to the Company were determined at arms-length.
MCIT Warrants. In January of 1989, the Company has privately placed,
warrants to acquire 3,500 shares of its Common Stock, at an exercise price of
$4.00 per share, to Mezzanine Capital & Income Trust 2001, PLC, a publicly-
traded U.K. investment trust ("MCIT"), for a total of $14,000 in connection
with the purchase by MCIT of $7,000,000 of the Old Notes. The estimated per
share value of the Common Stock on the date of issuance of the warrants was
$200.00 as determined by an independent appraiser. The warrants are
transferrable subject to certain restrictions on transfer relating to the
availability of an exemption of such transaction from registration under the
Securities Act. MCIT sold the Old Notes in October, 1991, but still holds the
warrants. John W. Jordan II, David W. Zalaznick and Leucadia Investors, Inc.
<PAGE>
hold in the aggregate approximately 22% of the MCIT capital shares, and
approximately 11% of the aggregate MCIT capital and income shares. MCIT is
advised by Jordan Zalaznick Advisors, Inc., a corporation owned by John W.
Jordan II and David W. Zalaznick.
Wintermute Industries, Inc. Note Receivable. In September of 1989, in
connection with the acquisition of Cape Craftsmen, Inc., the Company purchased
from Manufacturers Hanover Trust Company a note receivable in the aggregate
principal amount of $4.5 million of Wintermute Industries, Inc. ("Wintermute").
Eighty percent of the stock of Wintermute is held by Jordan/Zalaznick Capital
Company, a partnership which is an affiliate of the Company. The indebtedness
represented by the note was incurred to fund the acquisition of Wintermute by
JZCC. From September of 1989 to December of 1992 the Company advanced
Wintermute an additional $1.1 million for working capital purposes. Between
September of 1989 and December of 1992, $0.7 million of interest accrued on the
note. Wintermute made no payments of interest or principal on the note or in
respect of amounts advanced for working capital purposes. In December of 1992,
the Company wrote off the entire $5.6 million of principal and $0.7 million of
interest owing under the note and in respect of amounts advanced for working
capital. See Note 5 to the Consolidated Financial Statements.
<PAGE>
PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) Documents filed as part of this report:
(1) Financial Statements
Reference is made to the Index to Consolidated Financial Statements
appearing at Item 8, which Index is incorporated herein by reference.
(2) Financial Statement Schedules
The following financial statement schedules for the years ended December
31, 1993, 1992 and 1991 are submitted herewith:
Item Page Number
Schedule II - Valuation and qualifying accounts 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.
(3) Exhibits
An index to the exhibits required to be listed under this Item 14(a)(3)
follows the "Signatures" section hereof and is incorporated herein by
reference.
(b) Reports on Form 8-K
None.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
JORDAN INDUSTRIES, INC.
By /s/ John W. Jordan II
John W. Jordan II
Dated: March 30, 1995 Chief Executive Officer
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/ John W. Jordan II
John W. Jordan II
Chairman of the Board of Directors
Dated: March 30, 1995 and Chief Executive Officer
By /s/ Thomas H. Quinn
Thomas H. Quinn
Director, President and Chief
Dated: March 30, 1995 Operating Officer
By /s/ Jonathan F. Boucher
Jonathan F. Boucher
Director and Vice President
Dated: March 30, 1995 (Principal Financial Officer)
<PAGE>
By /s/ G. Robert Fisher
G. Robert Fisher
Director, General Counsel and
Dated: March 30, 1995 Secretary
By /s/ David W.Zalaznick
David W. Zalaznick
Dated: March 30, 1995 Director
By /s/ Joseph S. Steinberg
Joseph S. Steinberg
Dated: March 30, 1995 Director
By /s/ James A. McNair
James A. McNair
Dated: March 30, 1995 Director, Senior Vice President,
Business Development
By /s/ Thomas C. Spielberger
Thomas C. Spielberger
Dated: March 30, 1995 Vice President, Controller and
Principal Accounting Officer
<PAGE>
Schedule II
JORDAN INDUSTRIES, INC.
VALUATION AND QUALIFYING ACCOUNTS
(dollars in thousands)
Uncollect-
ible
Additions balances
Balance at charged to written off Balance at
beginning of costs and net of end of
period expenses recoveries Other period
December 31, 1992:
Allowance for
doubtful accounts $1,107 $974 $(855) $ 0 $1,226
December 31, 1993:
Allowance for
doubtful accounts 1,226 612 (707) 0 1,131
Valuation allowances
for deferred tax
assets (35,962) (10,180) - - (25,782)
December 31, 1994:
Allowance for doubt-
ful accounts 1,131 580 (790) 137 1,058
Valuation allowance
for deferred tax
assets (25,782) (2,354) - - (23,428)
S-1
<PAGE>
EXHIBIT INDEX
2(a)4 -- Agreement and Plan of Merger between the Thos. D. Murphy
Company and Shaw-Barton, Inc.
3(a)1 -- Articles of Incorporation of the Registrants.
3(b)1 -- By-Laws of the Registrant.
4(a)3 -- Indenture, dated as of December 15, 1989, between the
Registrant and First Bank National Association, Trustee,
relating to the Registrant's Notes.
10(a)1,2 -- Intercompany Notes, dated June 1, 1988, by and among the
Registrant and the Subsidiaries.
10(b)1,2 -- Intercompany Management Agreement, dated June 1, 1988,
by and among the Registrant and the Subsidiaries.
10(c)1,2 -- Intercompany Tax Sharing Agreement, dated June 1, 1988,
by and among the Registrant and the Subsidiaries.
10(d)1 -- Management Consulting Agreement, dated as of June 1,
1988, between the Registrant and The Jordan Company.
10(e)3 -- First Amendment to Management Consulting Agreement,
dated as of January 3, 1989, between the Registrant and
The Jordan Company.
10(f)7 -- Amended and Restated Management Consulting Agreement,
dated September 30, 1990, between the Company and The
Jordan Company.
10(g)1 -- Stockholders Agreement, dated as of June 1, 1988, by and
among the Registrant's holders of Common Stock.
10(h)1 -- Employment Agreement, dated as of February 25, 1988,
between the Registrant and Thomas H. Quinn.
10(i)1 -- Restricted Stock Agreement, dated February 25, 1988,
between the Registrant and Jonathan F. Boucher.
10(j)1 -- Restricted Stock Agreement, dated February 25, 1988,
between the Registrant and John R. Lowden.
10(k)1 -- Restricted Stock Agreement, dated February 25, 1988,
between the Registrant and Thomas H. Quinn.
10(l)1 -- Stock Purchase Agreement, dated June 1, 1988, between
Leucadia Investors, Inc. and John W. Jordan, II.
10(m)1 -- Zero Coupon Note, dated June 1, 1988, issued by John W.
Jordan, II to Leucadia Investors, Inc.
10(n)1 -- Pledge, Security and Assignment Agreement, dated June 1,
1988 by John W. Jordan, II.
<PAGE>
10(o)5 -- Revolving Credit and Term Loan Agreement, dated August
18, 1989, between the Company and The First National
Bank of Boston.
10(p)7 -- Second Amendment to Revolving Credit Agreement, dated
September 1, 1990 between the Company and The First
National Bank of Boston.
10(q)5 -- Supplemental Indenture No. 2, dated as of August 18,
1989, between the Company and the First Bank National
Association, as Trustee.
10(r)8 -- Supplemental Indenture No. 3, dated as of December 15,
1990, between the Company and the First Bank National
Association, as Trustee.
10(s)5 -- Guaranty, dated as of August 18, 1989, from DACCO,
Incorporated in favor of First Bank National
Association, as Trustee. The Company has also entered
into similar guarantees with other Restricted
subsidiaries and will furnish the above guarantees upon
request.
10(t)9 -- Amended and Restated Revolving Credit Agreement dated
December 10, 1991 between the Company and The First
National Bank of Boston.
22 -- Subsidiaries of the Registrant.
28(6) -- Phantom Share Plan.
1 Incorporated by reference to the Company's Registration Statement on Form
S-1 (No. 33-24317).
2 The Company has entered into Intercompany Notes, Intercompany Management
Agreements and Intercompany Tax Sharing Agreements with Riverside, AIM,
Cambridge, Beemak, Hudson, Scott and Gear which are identical in all
material respects with the notes and agreement incorporated by reference
in this Report. Copies of such additional notes and agreements have
therefore not been included as exhibits to this filing, in accordance
with Instruction 2 to Item 601 of Regulation S-K.
3 Incorporated by reference to the Company's 1988 Form 10-K.
4 Incorporated by reference to the Company's 1989 First Quarter Form 10-Q.
5 Incorporated by reference to the Company's Second Quarter Report on Form
10-Q Amendment No. 1, filed September 19, 1989.
6 Incorporated by reference to the Company's 1989 Form 10-K.
7 Incorporated by reference to the Company's 1990 Third Quarter Form 10-Q.
8 Incorporated by reference to the Company's 1990 Form 10-K.
9 Incorporated by reference to the Company's Form 8-K filed December 16,
1991.
<PAGE>
Exhibit 22 - Subsidiaries of the Registrant as of March 30, 1995.
% Owned by the Company
JII/Sales Promotion Associates, Inc. 100%
The Imperial Electric Company 100%
The Scott Motors Company 100%
Gear Research, Inc. 100%
I.E. Company, Inc. 100%
Parsons Precision Products, Inc. 85%
Sate-Lite Manufacturing Company 95.5%
Dura-Line Corporation 100%
Dura-Line Limited (United Kingdom) 100%
Dura-Line C.T. s.r.o. 70%
Dura-Line (Israel) Ltd. 33.33%
DACCO, Incorporated 100%
Detroit Transmission Products Co. 100%
Borg Manufacturing 100%
Transmission Parts Warehouse, Inc. 100%
ABC Transmission Parts Warehouse, Inc. 100%
Nashville Transmission Parts, Inc. 100%
DACCO/Detroit of Florida, Inc. 100%
DACCO/Detroit of Minnesota, Inc. 100%
DACCO/Detroit of Colorado, Inc. 100%
DACCO/Detroit of Indiana, Inc. 100%
DACCO/Detroit of Missouri, Inc. 100%
DACCO/Detroit of North Carolina, Inc. 100%
DACCO/Detroit of Memphis, Inc. 100%
DACCO/Detroit of Nebraska, Inc. 100%
DACCO/Detroit of Alabama, Inc. 100%
DACCO/Detroit of New Jersey, Inc. 100%
DACCO/Detroit of Michigan, Inc. 100%
DACCO/Detroit of Arizona, Inc. 100%
Riverside Book and Bible House, Incorporated 100%
World Bible Publishers, Inc. 100%
Clifton Book Company, Inc. 100%
JI Aviation, Inc. 100%
AIM Electronics Corporation 100%
AIM Electronic Components Limited
(United Kingdom) 99%
Hudson Lock, Inc. 100%
Beemak Plastics, Inc. 100%
Cambridge Products Corporation 100%
Welcome Home, Inc. 58.7%
Home Again Stores Inc./Les Magisines
Home Again Inc. (Canada) 58.7%
Valmark Industries, Inc. 100%
Pamco Printed Tape and Label Co., Inc. 80%
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Condensed Consolidated Balance Sheet and the Condensed Consolidated Statement of
Operations, and is qualified in its entirety by reference to such financial
statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-END> DEC-31-1994
<CASH> 56,386
<SECURITIES> 0
<RECEIVABLES> 58,647
<ALLOWANCES> 1,058
<INVENTORY> 76,157
<CURRENT-ASSETS> 197,185
<PP&E> 132,494
<DEPRECIATION> 62,091
<TOTAL-ASSETS> 399,445
<CURRENT-LIABILITIES> 73,790
<BONDS> 382,862
<COMMON> 1
0
1,875
<OTHER-SE> (68,743)
<TOTAL-LIABILITY-AND-EQUITY> 399,445
<SALES> 424,391
<TOTAL-REVENUES> 424,391
<CGS> 262,730
<TOTAL-COSTS> 381,447
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 40,887
<INCOME-PRETAX> 27,689
<INCOME-TAX> (1,332)
<INCOME-CONTINUING> 26,357
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 23,741
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
