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, 1995 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:
(847) 945-5591
Securities registered pursuant to Section 12(b) of the Act:
Name of Each Exchange
Title of Each Class on Which Registered
None N/A
Securities registered pursuant to Section 12(g) of the Act:
None
Indicated by checkmark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding twelve (12) months (or for such shorter period that
the registrant was required to file such reports) and (2) has been subject to
such filing requirements for the past ninety (90) days.
Yes X No
The aggregate market value of voting stock held by non-affiliates of the
Registrant is not determinable as such shares were privately placed and there
is currently no public market for such shares.
The number of shares outstanding of Registrant's Common Stock as of
March 29, 1996: 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 five groups. The Specialty
Printing and Labeling group ("SPL"), which had 1995 net sales of approximately
$96.5 million, consists of Sales Promotion Associates, Inc. ("SPAI"), Pamco
Printed Tape and Label Company, Inc. ("Pamco"), and Valmark Industries, Inc.
("Valmark"). The Motors and Gears group, which had 1995 net sales of
approximately $54.2 million, consists of The Imperial Electric Company
("Imperial") and its subsidiaries, The Scott Motors Company ("Scott"), and
Gear Research, Inc. ("Gear"), and Merkle-Korff Industries, Inc. ("Merkle-Korff")
The connectors group, which had 1995 net sales of approximately
$22.7 million, consists of AIM Electronics Corporation ("AIM"), and Cambridge
Products Corporation ("Cambridge"). Welcome Home, Inc. ("Welcome Home"), had
1995 net sales of $93.2 million. The Consumer and Industrial Products group,
which had 1995 net sales of $240.7 million, include DACCO, Incorporated
("DACCO"), Sate-Lite Manufacturing Company ("Sate-Lite"), Riverside Book and
Bible Corporation ("Riverside"), Dura-Line Corporation ("Dura-Line"), Parsons
Precision Products, Inc. ("Parsons"), Hudson Lock, Inc. ("Hudson"), and Beemak
Plastics, Inc. ("Beemak"). All of the foregoing corporations are collectively
referred to herein as the "Subsidiaries," and individually as a "Subsidiary."
Certain of the subsidiaries are designated as "Restricted Subsidiaries".
These subsidiaries are DACCO, Sate-Lite, Riverside, Welcome Home, Dura-Line,
Parsons, Imperial, Scott, Gear, Hudson, AIM, Cambridge and Beemak. See Note
14 to the consolidated financial statements included elsewhere in this Annual
Report with respect to business segment information for 1995, 1994 and 1993.
The Company owned the following percentages of the common shares of the
subsidiaries as of March 29, 1996:
Subsidiary Percentage Ownership
Sate-Lite 95.5%
Welcome Home 66.0%
DACCO 100%
Riverside 100%
Parsons 85%
Dura-Line 100%
Imperial 100%
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Scott 100% (1)
Gear 100% (1)
Hudson 100%
AIM 100%
Cambridge 100%
Beemak 100%
M&G Holdings 87.6% (2)
SPL 83.3% (3)
(1) Scott and Gear are indirectly owned through Imperial, which holds 100%
of their respective common shares.
(2) Merkle-Korff is indirectly owned through M&G Holdings, which indirectly
holds 100% of the common shares of Merkle-Korff.
(3) SPAI, Valmark, and Pamco are indirectly owned through SPL, which holds
100% of the common shares of SPAI and Valmark, and 80% of the common
shares of Pamco.
Specialty Printing and Labeling Group
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. One-hundred
percent of JII/SPAI's assets were sold at arms length into SPL in August of
1995 and the Company was renamed Sales Promotion Associates, Inc. ("SPAI").
SPAI is a producer and distributor of calendars for corporate buyers and is
a distributor of corporate recognition, promotion and specialty advertising
products.
Approximately 55% of SPAI's 1995 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 SPAI's 1995 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. SPAI also manufactures and distributes soft-
cover school yearbooks for kindergarten through eighth grade.
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 1,250 person
sales force, most of whom are independent contractors.
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Management believes that 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 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.
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 53%
of net sales are derived from the sale of graphic panel overlays and membrane
switches, 22% from labels, and 25% 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 21% of net sales in 1995.
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 12 sales representatives who
focus on procuring new accounts. Existing accounts are serviced by nine
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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Motors and Gears Group
Merkle-Korff - Merkle-Korff is a custom manufacturer of AC and DC motors
and gear motors. Merkle-Korff's products are used in a wide range of products
including refrigerators, freezers, dishwashers, vending machines, business
machines, pumps and compressors. Approximately 61% of Merkle-Korff's 1995
sales were derived from the home appliance and vending machine market.
Merkle-
Korff's prominent customers include General Electric Company, Whirlpool
Corporation and Dixie-Narco, Inc. The Company's top 10 customers represent
approximately 60% of total sales.
Merkle-Korff was founded in 1911 and was purchased, along with its
wholly-owned subsidiaries, Elmco Industries, Inc. and Mercury Industries,
Inc., by the Company in 1995.
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 32% of Imperial's
1995 net sales were derived from elevator motors, ranging from 5 to 100
horsepower,
sold to major domestic elevator manufacturers. Approximately 66% of
Imperial's 1995 net sales were derived from permanent magnet motors sold to
domestic manufacturers of floor care equipment. The remaining 2% of Imperial's
1995 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 1995, Clark Industries, Inc. accounted for approximately
12% of Imperial's net sales, and Imperial's top ten customers accounted for
55% of total net sales.
Imperial's products are marketed domestically by its management and two
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
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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.
Connectors Group
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 45% of AIM's 1995 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 11 manufacturers'
representative organizations with a total of 27 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 3% of sales. AIM also mails product catalogs and other marketing pieces
to current customers and potential new accounts.
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.
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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 12% of AIM's 1995 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 200 other various end-users. Cambridge uses a combination
of 6 manufacturers' representative organizations with a total of 14
salespeople and 8 factory direct salesmen located throughout North America.
The two largest customers account for approximately 16% 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.
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.
Welcome Home's stores are located primarily in high-end designer outlet
malls. Their products include textiles, afghans, framed art, picture frames,
wood, seasonal and other merchandise targeted to gift-buying and value-conscious
consumers. Welcome Home sells its merchandise through 215 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.
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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.
Consumer and Industrial Products Group
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 11,000 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 51 independent sales
representatives who accounted for approximately 70% of DACCO's net sales in
1995. These sales representatives sell nationwide to independent warehouse
distributors and to transmission repair shops. DACCO also owns and operates
thirty-one 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 42% hard products and 58% soft
products. In 1995 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
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 Aftermarket Technology Corporation
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.
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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
42% of Sate-Lite's net sales in 1995. Sales of triangular flares and
specialty reflectors and lenses to commercial truck customers accounted for
approximately 39% of 1995 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 20% of Sate-Lite's fiscal 1995 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 1995, Sate-Lite's ten largest
customers accounted for approximately 59% 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 1995, Sate-Lite's
export net sales accounted for approximately 9% 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.
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 5% of Riverside's 1995 net sales.
Riverside also provides Bible indexing, warehousing, inventory and
shipping services for domestic book publishers and music producers. Riverside
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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.
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 1995, approximately 98% 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 less than 10% of Dura-Line's Innerduct net sales.
Innerduct is marketed worldwide by Dura-Line's management, 40 manufacturing
representatives and ten 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 2% of Dura-Line's 1995 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 40% 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.
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 40% of Parsons' 1995 net sales came from sales to The
Boeing Company. Approximately 95% of Parsons' 1995 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.
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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 sells its products directly to a broad base of aerospace and
military customers, relying on longstanding associations and Parsons'
reputation for high quality and service.
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 1995. 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.
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,
major companies, and even competitors which resell the product under a
different name. Beemak has been very successful providing excellent service
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on orders of all sizes, especially small orders. Beemak's average order size
was approximately $300 in 1995.
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.
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Backlog
As of December 31, 1995, the Company had a backlog of approximately
$53 million, compared with $32 million as of December 31, 1994. The current
backlog is primarily due to Imperial's motor sales, Merkle-Korff's motor
sales, and Parsons' McDonnell Douglas Helicopter Co. and Boeing contracts.
Management believes that the backlog may not be indicative of future sales.
Seasonality
The Company's aggregate business has a certain degree of seasonality.
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, 1995, the Company and the Subsidiaries employed
approximately 5,150 people. Approximately 840 of these employees were members
of labor unions at Sate-Lite, Gear, Imperial, SPAI, Merkle-Korff, 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").
<PAGE>
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 the clean-up of the Saad Site (the "Consent Agreement"). All work
was completed under this consent agreement. DACCO's interim allocation of
expenses relating to the clean up is currently 1.48 percent. Total expenses
incurred by the PRP group through January of 1996 are approximately $3.6
million. These expenses include removal costs, engineering and attorney fees,
but do not include administrative oversight costs incurred by the EPA or the
State of Tennessee ("the State"). The EPA and the State have incurred
administrative oversight costs through January 1996 of approximately $275,000
and $50,000 respectively.
Additional work under the Consent Agreement proceeded under a Unilateral
Administrative Order for Removal Response Activities dated July 28, 1995.
This work has been completed. It is not likely that the EPA will make any
further removal requirements. Based upon DACCO's allocation of expenses
relating to the clean up, 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 18,950 square feet of office space for
its headquarters in 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
Merkle-Korff.. Des Plaines, IL Manufacturing/Administration 35,000 Leased
Des Plaines, IL Manufacturing/Administration 30,000 Leased
Richland Center, WI Manufacturing/
Administration 45,000 Leased
Pamco......... Des Plaines, IL Manufacturing/Administration 24,500 Owned
Parsons....... Parsons, KS Manufacturing/Administration 97,500 Owned
<PAGE>
Riverside..... Iowa Falls, IA Distribution/Administration 65,900 Leased
Sparks, NV Distribution 35,500 Leased
Sate-Lite..... Niles, IL Manufacturing/Administration 120,000 Leased
Scott......... Alamogordo, NM Manufacturing/Administration/ 15,000 Leased
Storage
SPAI.......... Red Oak, IA Manufacturing/Administration
(four buildings) 136,500 Owned
Coshocton, OH Manufacturing/Administration 240,000 Owned
Valmark....... Fremont, CA Manufacturing/Administration 46,000 Leased
Fremont, CA Manufacturing/Administration 15,000 Leased
Welcome Home.. Wilmington, NC Administration/Storage 18,000 Leased
(two buildings)
DACCO also owns or leases thirty-one distribution centers, which average
3,000 to 5,000 square feet in size. DACCO maintains four distribution centers
in Florida, California, and Tennessee, two distribution centers in Illinois,
Arizona, Michigan, and Alabama, and the remaining distribution centers are
located in Colorado, Indiana, Minnesota, Missouri, Nebraska, New Jersey, West
Virginia, Ohio, Oklahoma, South Carolina, and Texas.
Welcome Home also leases 215 retail stores, which range from 2,400 to
4,600 square feet in size. Welcome Home has stores in 41 states in the United
States.
AIM's Sunrise, Florida facility is leased from the President of AIM, and
Merkle-Korff's facilities are leased from the President of Merkle-Korff. The
Company believes that the terms of these leases are comparable to those which
would have been obtained by the Company had these leases been entered into
with an unaffiliated third party.
None of the Company's significant existing leases are scheduled to
expire prior to 1997. 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, 1995.
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.
<PAGE>
(b) At December 31, 1995, 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, 1995. The financial data of the Company and its subsidiaries as
of and for the years ended December 31, 1991 through 1995 were derived from
the consolidated financial statements of the Company and its subsidiaries.
Year Ended December 31,
(Dollars in thousands)
1995 1994 1993 1992 1991
Operating data:(1)
Net sales.................. $507,311 $424,391 $358,611 $327,321 $295,140
Cost of sales, excluding
depreciation.............. 320,653 262,730 221,518 202,215 184,808
Gross profit, excluding
depreciation.............. 186,658 161,661 137,093 125,106 110,332
Selling, general and
administrative expense.... 121,371 97,428 80,496 75,060 68,217
Operating income .......... 32,360 42,944 36,387 22,762 21,604
Interest expense........... 46,974 40,887 41,049 37,024 39,272
Interest income ........... (2,841) (1,471) (1,845) (963) (1,881)
Income (loss) before income
taxes, minority interest,
and extraordinary items... (11,773) 27,689 (2,817) (13,299) (15,787)
Income (loss) before extra-
ordinary items........... (7,470) 23,741 (3,483) (14,412) (17,407)
Net income (loss) (2) $ (7,470)$ 23,741 $(29,675)$(14,412) $(17,407)
Balance sheet data (at end of period):
Cash and cash equivalents $ 41,253 $ 56,386 $ 68,273 $ 8,886 $ 12,000
Working capital........... 99,675 123,395 121,490 65,694 78,048
Total assets.............. 532,384 398,474 338,509 268,674 270,142
Long-term debt
(less current portion)... 497,977 380,966 356,981 262,055 268,877
Shareholders' equity (net
capital deficiency)(3)... $(74,479)$(66,867)$(90,669)$(60,873) $(47,976)
(1) The Company has acquired a diversified group of operating companies over
the five year period which significantly affects the comparability of
the information shown above.
(2) Net loss in 1993 includes an extraordinary loss of $26,192 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. Net loss in 1995
includes $6,929 of restructuring and non-recurring charges related to
Welcome Home.
(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 groups
for the fiscal years ended December 31, 1995, 1994 and 1993. This discussion
should be read in conjunction with the historical consolidated financial
statements and the related notes thereto contained elsewhere in this Annual
Report.
In 1995, The Company's business segments were realigned into five
distinct groups. Prior period results were also realigned into these new
groups in order to provide accurate comparisons between periods.
Year ended December 31,
1995 1994 1993
(dollars in thousands)
Net Sales:
Specialty Printing & Labeling.. $ 96,514 $ 82,828 $ 60,640
Motors and Gears............... 54,218 36,854 32,241
Connectors..................... 22,744 21,325 18,880
Welcome Home................... 93,166 81,654 61,633
Consumer and Industrial Products 240,669 201,730 185,217
Total ..................... $507,311 $424,391 $358,611
Operating Income (1):
Specialty Printing & Labeling.. $ 8,067 $ 5,522 $ 1,343
Motors and Gears............... 12,236 9,484 7,300
Connectors.. .................. 5,478 5,444 3,168
Welcome Home................... (10,066) 7,076 6,581
Consumer and Industrial Products 34,283 28,992 26,755
Total .................... $ 49,998 $ 56,518 $ 45,147
Operating Margin (2):
Specialty Printing & Labeling.. 8.4% 6.7% 2.2%
Motors and Gears............... 22.6% 25.7% 22.6%
Connectors..................... 24.1% 25.5% 16.8%
Welcome Home................... (10.8)% 8.7% 10.7%
Consumer and Industrial Products 14.2 % 14.4% 14.4%
Combined (1)................... 9.9 % 13.3% 12.6%
(1) Before corporate overhead of $17,638, $13,574 and $8,760 for the years
ended December 31, 1995, 1994 and 1993, respectively.
(2) Operating margin is operating income divided by net sales.
<PAGE>
Specialty Printing & Labeling. As of December 31, 1995, the Specialty
Printing and Labeling group consisted of SPAI, Valmark and Pamco.
1995 Compared to 1994. Net sales increased $13.7 million or 16.5%.
Operating income increased $2.5 million or 46.1%. The increase in sales was
due to increased sales of all product lines at Valmark, $8.0 million, and
twelve months of sales at Pamco (Pamco was acquired in May of 1994), $6.7
million, partially offset by a decrease in ad-specialty sales at SPAI, $1.0
million. Operating margin increased to 8.4% from 6.7% due primarily to
increased sales.
1994 Compared to 1993. Net sales increased $22.2 million or 36.6%.
Operating income increased $4.2 million or 311.2%. The increase in sales was
due to the acquisitions of Valmark and Pamco in January and May of 1994
respectively, which added $23.0 million in sales and $3.0 million in operating
income. The operating margin increased to 6.7% from 2.2% due to higher
margins at Valmark and Pamco than SPAI.
Motors and Gears. As of December 31, 1995, the Motors and Gears group
consisted of Imperial, Scott, Gear and Merkle-Korff.
1995 Compared to 1994. Net sales increased $17.4 million or 47.1%.
Operating income increased $2.8 million or 29.0%. The increase in sales was
partially due to the acquisition of Merkle-Korff in September 1995 which added
$14.1 million to the segment's net sales. In addition, sales of permanent
magnet motors at Imperial increased $3.2 million. Operating margin decreased
to 22.6% from 25.7% due to increased material costs at Imperial, and the
amortization of goodwill at Merkle-Korff.
1994 Compared to 1993. Net sales increased $4.6 million or 14.3%.
Operating income increased $2.2 million or 29.9%. Increased sales were due
to higher permanent magnet motor sales at Imperial, $2.5 million, job shop and
gear box sales at Gear, $1.5 million, and motors at Scott, $.6 million.
Operating margin increased to 25.7% from 22.6% due to continuing cost cutting
measures.
Connectors. As of December 31, 1995, the Connectors group consisted of
AIM and Cambridge.
1995 Compared to 1994. Net sales increased $1.4 million or 6.7%.
Operating income remained unchanged from 1994. The sales increase was due to
increased connector sales at AIM, $1.5 million. Operating margin decreased
to 24.1% from 25.5% due to slightly lower margin export sales at AIM.
1994 Compared to 1993. Net sales increased $2.4 million or 13.0%.
Operating income increased $2.3 million or 71.8%. The sales increase was due
to increased sales of electronic connectors at AIM and Cambridge, $1.9
million, and $.5 million, respectively. Operating income increased due to
various cost cutting measures which also helped increase the operating margin
to 25.5% from 16.8%.
Welcome Home.
1995 Compared to 1994. Net sales increased $11.5 million or 14.1%.
Operating income decreased $17.1 million when 1995 is compared to 1994. The
<PAGE>
increase in net sales was due to 26 net additional stores in 1995. The
decrease in operating income was due to the restructuring and other non-
recurring charges of $6.9 million, an 8.1% decrease in same store sales,
increased markdowns leading to a lower gross profit and higher corporate
expenses. The above items also negatively impacted operating margin which
dropped to -10.8% from 8.7%.
1994 Compared to 1993. Net sales increased $20.0 million, or 32.5%.
Operating income increased $.5 million or 7.5%. The increase in sales was due
to 31 net additional stores and an 8.4% increase in same store sales.
Operating margin decreased to 8.7% from 10.7%.
Consumer and Industrial Products. As of December 31, 1995, the Consumer
and Industrial Products group consisted of DACCO, Sate-Lite, Riverside, Dura-
Line, Parsons, Hudson and Beemak.
1995 Compared to 1994. Net sales increased $38.9 million or 19.3%.
Operating income increased $5.3 million or 18.2%. The sales increase was due
to higher sales of rebuilt converters and other parts at DACCO, $1.0 million,
and $1.6 million, respectively; foreign bicycle sales at Sate-Lite, $.2
million; books, audio tapes and music, and contract distribution at Riverside,
$.1 million, $.4 million, and $2.4 million, respectively; titanium and
fabricated parts at Parsons, $1.8 million, and $.2 million, respectively;
Innerduct sales at Dura-Line, $31.2 million; and POGs and fabricated products
at Beemak, $2.0 million and $.5 million, respectively. These increases were
partially offset by a decrease in domestic bicycle sales at Sate-Lite, $3.1
million. Operating margin was relatively unchanged at 14.2% versus 14.4%.
1994 Compared to 1993. Net sales increased $16.5 million or 8.9%.
Operating income increased $2.2 million or 8.4%. The increase was due to
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; warning triangles and colorants at Sate-Lite, $.5
million; and Innerduct at Dura-Line, $6.0 million. These increases were
partially offset by decreases in titanium hot formed and fabricated parts at
Parsons, $1.7 million and $1.3 million, respectively. Operating margin was
relatively unchanged at 14.4% versus 14.5%.
Consolidated Operating Results. (see Consolidated Statements of
Operations).
1995 Compared to 1994. Net sales increased 19.5% and operating income
decreased 24.6%. The sales increase was primarily due to the increased number
of stores at Welcome Home, increased sales of Innerduct at Dura-Line,
shielding devices, labels and membrane switches at Valmark, and the
acquisition of Merkle-Korff in September 1995. The operating income decrease
was partially due to the restructuring and other non-recurring charges at
Welcome Home. Management fees and other increased $2.1 million due to higher
management fees and the write-down of the Dize note receivable.
<PAGE>
Interest expense increased $6.1 million due to higher outstanding debt
balances from additional capital leases and new third party debt held at
Welcome Home, Merkle-Korff and SPL.
Interest income increased $1.8 million due to higher average cash
balances.
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.
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.
Liquidity and Capital Resources
The Company had approximately $99.7 million of working capital at the
end of 1995 compared to approximately $123.4 million at the end of 1994. The
decrease in working capital from 1994 to 1995 was due to lower cash balances,
higher notes payable balance, higher accounts payable, and higher current
portion of long-term debt, partially offset by higher accounts receivable and
inventory balances.
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 10 to
the Consolidated Financial Statements.
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 1996. Capital spending levels in 1996 are anticipated to be consistent
with 1995 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, 1995 decreased $1.0 million versus the same period in 1994.
Cash provided by operating activities decreased due to the absence of a gain
on the sale of a partial interest in a subsidiary in 1995, $24.2 million, an
increase in restructuring charges, $5.9 million, an increase in other non-
recurring charges, $1.0 million, an increase in depreciation and
<PAGE>
amortization, $2.6 million, an increase in non-cash interest, $1.2 million,
a lower increase in inventory, $8.0 million, a lower increase in prepaids and
other current assets, $1.1 million, a lower increase in non-current assets,
$1.4 million, and an increase in non-current liabilities, $.7 million. The
sources of operating cash were offset by a net loss of $7.5 million in 1995
compared to net income of $23.7 million in 1994, lower minority interest $4.5
million, a higher increase in accounts receivable, $1.7 million, an increase
in the benefit from deferred income taxes, $4.2 million, and a lower increase
in accounts payable, accrued liabilities and advanced deposits, $5.5 million.
The net cash used in investing activities for the year ended December
31, 1995 increased $112.4 million versus the same period in 1994. This
increase was due to higher capital expenditures, $3.2 million, higher notes
receivable from affiliates, $11.2 million, higher acquisition of subsidiaries
due to the Merkle-Korff transaction in 1995 versus the Valmark and Pamco
transactions in 1994, $66.3 million, the absence of the proceeds from sale of
a partial interest in a subsidiary in 1995, $26.5 million, lower cash acquired
in the purchase of subsidiaries, $.3 million, higher acquisition of minority
interests, $4.0 million, and the investment in Fannie May Holdings, $1.7
million, partially offset by proceeds from an asset sale, $.7 million.
The net cash provided by financing activities for the year ended
December 31, 1995 increased $110.1 million versus the same period in 1994.
The increase was due to the SPL Holdings debt issuance, $33.0 million, the M-K
Holdings debt issuance, $72.5 million, proceeds from lines of credit, $7.2
million, and other borrowing, $1.5 million, partially offset by higher
financing costs, $.8 million, and higher long-term debt payments, $3.4
million.
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, an increase in the benefit from deferred tax
assets, $1.0 million, 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 $1.1 million, and a lower increase 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 is, and expects to continue to be, in compliance with the
provisions of the Indentures relating to the Company's Senior Notes and Senior
Subordinated Discount Debentures.
None of the subsidiaries require significant amounts of capital spending
to sustain their current operations or to achieve projected growth.
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.
<PAGE>
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Page No.
Reports of Independent Auditors .................. 25
Consolidated Balance Sheets as of December 31,
1995 and 1994................................. 27
Consolidated Statements of Operations for the
years ended December 31, 1995, 1994 and 1993.. 28
Consolidated Statements of Changes in
Shareholders' Equity (Net Capital Deficiency)
for the years ended December 31, 1995, 1994
and 1993...................................... 29
Consolidated Statements of Cash Flows for the
years ended December 31, 1995, 1994 and 1993.. 30
Notes to Consolidated Financial Statements........ 32
<PAGE>
JORDAN INDUSTRIES, INC.
CONSOLIDATED BALANCE SHEETS
(dollars in thousands)
December 31,
1995 1994
ASSETS
Current assets:
Cash and cash equivalents $ 41,253 $ 56,386
Accounts receivable, net of allowance
of $1,306 and $1,058 in 1995 and 1994,
respectively 72,324 57,589
Inventories 84,259 76,157
Prepaid expenses and other current assets 7,566 7,053
Total current assets 205,402 197,185
Property, plant and equipment, net 91,422 70,403
Investments in and advances to affiliates 23,087 7,941
Goodwill, net 180,315 88,345
Other assets 32,158 34,600
Total Assets $532,384 $398,474
LIABILITIES AND SHAREHOLDERS' EQUITY (NET CAPITAL DEFICIENCY)
Current liabilities:
Notes payable - lines of credit $ 16,239 $ -
Accounts payable 49,086 42,225
Accrued liabilities 26,867 27,670
Advance deposits 1,830 1,999
Current portion of long-term debt 11,705 1,896
Total current liabilities 105,727 73,790
Long-term debt 497,977 380,966
Other noncurrent liabilities 2,402 2,048
Deferred income taxes - 3,507
Minority interest 757 5,030
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) (77,452) (69,840)
Total shareholders' equity (net capital
deficiency) (74,479) (66,867)
Total Liabilities and Shareholders' Equity
(Net Capital Deficiency) $532,384 $398,474
See accompanying notes.
<PAGE>
JORDAN INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(dollars in thousands)
Year ended December 31,
1995 1994 1993
Net sales $507,311 $424,391 $358,611
Cost of sales, excluding depreciation 320,653 262,730 221,518
Selling, general and administrative expense 121,371 97,428 80,496
Depreciation 12,891 10,568 9,059
Amortization of goodwill and other
intangibles 8,793 8,531 8,743
Management fees and other 4,314 2,190 2,408
Restructuring charges 5,913 - -
Other non-recurring charges 1,016 - -
Operating income 32,360 42,944 36,387
Other (income) and expenses:
Interest expense 46,974 40,887 41,049
Interest income (2,841) (1,042) (1,845)
Interest income from affiliate - (429) -
Gain on sale of a partial interest
in a subsidiary - (24,161) -
Total other expenses 44,133 15,255 39,204
(Loss) income before income taxes, minority
interest, and extraordinary items (11,773) 27,689 (2,817)
(Benefit) provision for income taxes (2,446) 1,332 707
(Loss) income before minority interest and
extraordinary items (9,327) 26,357 (3,524)
Minority interest (1,857) 2,616 (41)
(Loss) income before extraordinary items (7,470) 23,741 (3,483)
Extraordinary loss - - (26,192)
Net (loss) income $(7,470) $ 23,741 $(29,675)
See accompanying notes.
<PAGE>
<TABLE>
JORDAN INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(NET CAPITAL DEFICIENCY)
(dollars in thousands)
Total
<CAPTION> 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, 1993 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)
Net loss - - - - - (7,470) (7,470)
Cumulative translation
adjustment - - - - - (97) (97)
Dividends declared on
preferred stock of
subsidiary - - - - - (45) (45)
Balance at December 31, 1995 187.5 $1,875 93,501 $1 $1,097 $(77,452) $(74,479)
See accompanying notes.
</TABLE>
<PAGE>
JORDAN INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(dollars in thousands)
Year Ended December 31,
1995 1994 1993
Cash flows from operating activities:
Net (loss) income $( 7,470) $23,741 $(29,675)
Adjustments to reconcile net (loss) income
to net cash provided by operating
activities:
Gain on sale of a partial interest
in a subsidiary - (24,161) -
Extraordinary loss - - 26,192
Restructuring charges 5,913 - -
Other non-recurring charges 1,016 - -
Amortization of deferred financing
costs 1,743 1,405 1,363
Depreciation and amortization 21,684 19,099 17,802
Amortization of debt discount - - 162
(Benefit from) provision for
deferred income taxes (4,247) (962) (40)
Minority interest (1,857) 2,616 (41)
Non-cash interest 10,694 9,544 3,868
Changes in operating assets and
liabilities (net of acquisitions):
Accounts receivable (8,084) (6,362) (820)
Inventories (5,430) (13,394) (4,208)
Prepaid expenses and other current
assets (170) (1,317) (1,421)
Non-current assets (2,020) (2,495) (1,386)
Accounts payable, accrued liabilities,
and other current liabilities 3,856 9,247 17,660
Advance deposits 169 303 (393)
Non-current liabilities 679 - -
Other (266) (82) (333)
Net cash provided by operating activities 16,210 17,182 28,730
Cash flows from investing activities:
Capital expenditures (15,276) (12,112) (13,640)
Notes receivable from affiliates (13,424) (2,254) (35)
Acquisitions of subsidiaries (102,125) (35,872) -
Cash acquired in purchase of subsidiaries 696 953 -
Net proceeds from sale of a partial interest
in a subsidiary - 26,544 -
Acquisitions of minority interests and other (6,117) (2,143) (3,483)
Investment in Fannie May Holdings (1,722) - -
Proceeds from asset sale 732 - -
Net cash (used in) investing activities (137,236) (24,884) (17,158)
(Continued on following page.)
See accompanying notes.
<PAGE>
JORDAN INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(dollars in thousands)
(continued)
Year Ended December 31,
1995 1994 1993
Cash flows from financing activities:
Proceeds of debt issuance - SPL Holdings,
Inc. $ 33,000 $ - $350,000
Proceeds of debt issuance - MK Holdings,
Inc. 72,500 - -
Payments under the revolving credit
facilities, net - -
(66,950)
Purchase of Senior Subordinated Notes - - (203,300)
Proceeds from lines of credit, net 7,213 - -
Premium and consent fee on purchase
of Senior Subordinated Notes - - (17,347)
Payment of financing costs (2,322) (1,561) (13,457)
Repayment of long-term debt (6,020) (2,624) (1,131)
Other borrowing 1,522 - -
Net cash provided by (used in) financing
activities 105,893 (4,185) 47,815
Net (decrease) increase in cash and cash
equivalents (15,133) (11,887) 59,387
Cash and cash equivalents at beginning
of year 56,386 68,273 8,886
Cash and cash equivalents at end of year $ 41,253 $ 56,386 $ 68,273
Supplemental disclosures of cash flow
information:
Cash paid during the year for:
Interest $ 33,360 $ 29,839 $ 24,405
Income taxes, net $ 1,801 $ 2,213 $ 1,097
Noncash investing activities:
Capital leases $ 19,151 $ 7,422 $ 2,293
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 five groups. The Specialty Printing
and Labeling group consists of Sales Promotion Associates, Inc. ("SPAI"),
Valmark Industries, Inc. ("Valmark"), and Pamco Printed Tape and Label Co.,
Inc. ("Pamco"). The Motors and Gears group consists of The Imperial Electric
Company ("Imperial") and its subsidiaries, The Scott Motors Company ("Scott")
and Gear Research, Inc. ("Gear"), and Merkle-Korff Industries, Inc. ("Merkle-
Korff"). The Connectors group consists of AIM Electronics Corporation ("AIM")
and Cambridge Products Corporation ("Cambridge"). Welcome Home, Inc.
("Welcome Home") is managed on a stand-alone basis and the remaining
businesses comprise the Company's Consumer and Industrial Products group.
This group consists of DACCO, Incorporated ("DACCO"), Sate-Lite Manufacturing
Company ("Sate-Lite"), Riverside Book and Bible House, Inc. ("Riverside"),
Dura-Line Corporation ("Dura-Line"), Parsons Precision Products, Inc.
("Parsons"), Hudson Lock, Inc. ("Hudson"), and Beemak Plastics, Inc.
("Beemak"). 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.
<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, 1995 and 1994 is net of accumulated
amortization of $15,845, and $12,416, 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 $9,703 and $11,211 net of accumulated
amortization of $3,686 and $1,943 at December 31, 1995 and 1994, 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 $5,705 and $7,113, net of accumulated amortization of
$42,648 and $40,690 at December 31, 1995 and 1994, 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.
Adoption of FAS 121
In March 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 121 ("FAS 121"), "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of".
FAS 121 requires, among other things, that the Company consider whether
indicators of impairment of long-lived assets held for use are present, that
if such indicators are present the Company determine whether the sum of the
estimated undiscounted future cash flows attributable to such assets is less
than their carrying amount, and if so, that the Company recognize an
impairment loss based on the excess of the carrying amount of the assets over
their fair value.
The Company adopted the provisions of FAS 121 in the fourth quarter of 1995.
Accordingly, the Company evaluated the ongoing value of its property and
equipment at that time. It was determined Welcome Home had certain leasehold
improvements and furniture and fixtures located in unprofitable stores
with a carrying value of $1,016 that were impaired and that given the nature
of such items, their estimated fair value was insignificant. Accordingly,
Welcome Home recorded an impairment loss on such assets in the fourth quarter
of 1995 of $1,016, which is included in "other non-recurring charges" in the
1995 Statement of Operations.
<PAGE>
JORDAN INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands)
Income taxes
The Company provides for deferred income taxes as temporary differences arise
in recording income and expenses between financial reporting and tax
reporting.
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, 1995, the Company's cash balance included $1,600 which is
being held as collateral with respect to a capital lease. A certain cash
balance is required to remain intact throughout the term of the lease which
expires on November 17, 1998. An additional $3,000 is being held as
collateral with regard to the Company's investment in Fannie May.
Use of estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the amounts reported in the financial statements and accompanying
notes. Actual results could differ from those estimates.
Reclassification
Certain amounts in the 1994 financial statements have been reclassified to
conform with 1995 presentation.
Realignment of segment reporting
In 1995, the Company's business segments were realigned into five distinct
groups. The Company believes that this new reporting format will better
facilitate financial management due to the grouping of similar companies.
Prior period results were also reclassified into these new groups in order to
provide accurate comparisons between periods.
Note 3 - Restructuring charges
In the fourth quarter of 1995, Welcome Home adopted a restructuring plan. The
major elements of the plan include a change in Welcome Home's merchandising
strategy and the liquidation of merchandise which is not consistent with that
strategy, closing unprofitable stores, and strengthening the Company's
executive management team and information systems as necessary to successfully
implement the above strategies. Accordingly, Welcome Home recorded the
following restructuring charges.
(i) Welcome Home recorded a charge of $2,379 against its inventory to
reflect the reduction in the value of items owned as of December
31, 1995 which management determined did not fit with Welcome
<PAGE>
JORDAN INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands)
Home's strategy and, accordingly, will be liquidated at reduced
prices in 1996.
(ii) Welcome Home recorded a charge of $2,816 against its recorded
investment in its information systems as of December 31, 1995.
Management determined that these systems will not support its
merchandising and other strategies and, therefore, intends to
replace these systems in 1996.
(iii) Welcome Home recorded a charge of $526 to reflect the cost of
planned store closings in 1996, representing primarily its
recorded investment in the related furniture, fixtures and
leasehold improvements.
(iv) Welcome Home recorded a charge and accrued liability of $192
related to payments due to a former executive in accordance with
its employment and severance agreement with that individual.
Note 4 - Inventories
Inventories consist of:
Dec. 31, Dec. 31,
1995 1994
Raw materials $ 24,251 $16,695
Work-in-process 5,968 6,193
Finished goods 54,040 53,269
$ 84,259 $76,157
Note 5 - Property, plant and equipment
Property, plant and equipment, at cost, consists of:
Dec. 31, Dec. 31,
1995 1994
Land $ 4,365 $ 4,421
Machinery and equipment 105,188 84,091
Buildings and improvements 33,844 26,340
Furniture and fixtures 18,995 17,642
162,392 132,494
Accumulated depreciation and
amortization (70,970) (62,091)
$ 91,422 $ 70,403
Note 6 - Notes receivable from affiliates and investment in affiliate
At December 31, 1995, the Company had notes receivable from Cape Craftsmen,
Inc., a company that is controlled by the partners, principals, employees and
<PAGE>
JORDAN INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands)
affiliates of The Jordan Company, of $6,865. This is a reduction from the
$7,941 balance at December 31, 1994.
Although this note is payable on demand, the Company does not anticipate the
repayment of principal in 1996 and, accordingly, has classified this note as
long-term. The Company believes this entity will generate adequate operating
profits and cash flow to meet principal and interest payments.
On May 15, 1995, the Company purchased from a third party $7,500 aggregate
principal amount of Subordinated Notes and 75.6133 shares of Junior Class A
PIK Preferred Stock of Fannie May Holdings, Inc. ("Fannie May") for $9,071.
The Company also acquired 151.28 shares of Common Stock of Fannie May
(representing 15.1% of the outstanding Common Stock of Fannie May on a fully
diluted basis) for $151. These shares of Fannie May Common Stock were
purchased from the John W. Jordan II Revocable Trust. On June 28, 1995, the
Company purchased from The First National Bank of Chicago $7,000 aggregate
principal amount of participation in term loans of Archibald Candy
Corporation, a wholly-owned subsidiary of Fannie May, for $7,000, and agreed
to purchase up to an additional $3,000 aggregate principal amount of such
participation, depending upon the financial performance of Fannie May. The
additional $3,000 obligation is secured by a pledge from the Company with a
$3,000 certificate of deposit purchased by the Company.
Fannie May's Chief Executive Officer is Mr. Quinn, and its stockholders
include Mr. Jordan, Mr. Quinn, Mr. Zalaznick, and Mr. Boucher, who are
directors and stockholders of the Company, as well as other partners,
principals and associates of The Jordan Company, who are also stockholders of
the Company. Fannie May, which is also known as "Fannie May Candies", is a
manufacturer and marketer of kitchen-fresh, high-end boxed chocolates through
its 375 company-owned retail stores and through specialty sales channels.
Note 7 - Accrued liabilities
Accrued liabilities consist of:
Dec. 31, Dec. 31,
1995 1994
Accrued vacation $ 1,516 $ 1,435
Accrued bonuses 896 382
Accrued income taxes 1,874 1,404
Accrued other taxes 1,777 2,176
Accrued commissions 1,025 1,182
Accrued interest payable 13,152 12,391
Accrued payroll and payroll taxes 2,621 1,957
Accrued royalties 759 232
Accrued stock appreciation rights
and preferred stock payments - 2,876
Accrued other expenses 3,247 3,635
$26,867 $27,670
<PAGE>
JORDAN INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands)
Note 8 - Operating leases
Certain subsidiaries lease land, buildings, and equipment under noncancellable
operating leases.
Total minimum rental commitments under noncancellable operating leases at
December 31, 1995 are:
1996 $12,610
1997 12,274
1998 10,873
1999 9,209
2000 6,900
Thereafter 10,687
$62,553
Rental expense amounted to $11,378, $8,173 and $6,536 for 1995, 1994 and 1993,
respectively. The 1995 increase relates primarily to the additional retail
stores opened by Welcome Home in 1995 and rent expense recorded by Merkle-
Korff on its three facilities.
Note 9 - Benefit plans
Certain subsidiaries of the Company have defined benefit pension plans. The
total expense for these plans amounted to $117 and $119 in 1995 and 1994,
respectively. 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.
<PAGE>
JORDAN INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands)
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,
1995 1994
Actuarial present value of benefit
obligations:
Vested $2,351 $1,984
Non-vested 18 16
Accumulated benefit obligation 2,369 2,000
Effect of future salary growth 570 451
Total projected benefit obligation 2,939 2,451
Assets relating to such benefits:
Market value of funded assets,
primarily invested in money
market and equity securities 2,392 2,081
Underfunded projected
benefit obligation (547) (370)
Net deferral (163) (418)
Pension liability recorded
as a long-term liability $ (710) $ (788)
The weighted average discount rates used in determining the actuarial present
value of the projected benefit obligation range from 6%-7.25% in 1995 and
7.5%-8.0% in 1994. The assumed long-term rates of return on plan assets range
from 7.5%-7.75% in 1995 and 1994. The assumed rates of compensation increase
range from 3.8%-5.0% in 1995 and 1994.
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 $500 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 and totaled $152 in 1995 and $149 in 1994.
<PAGE>
JORDAN INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands)
Note 10 - Debt
Long-term debt consists of:
Dec. 31, Dec. 31,
1995 1994
Notes payable (A) $ 1,907 $ 1,571
Subordinated promissory notes (B) 13,000 8,623
Capital lease obligations (C) 26,295 9,257
Bank Term Loans (D) 94,375 -
Senior Notes (E) 275,000 275,000
Senior Subordinated Discount Debentures (F) 99,105 88,411
509,682 382,862
Less current portion 11,705 1,896
$497,977 $380,966
Aggregate maturities of long-term debt at December 31, 1995 are as follows:
1996 $ 11,705
1997 13,208
1998 19,113
1999 17,769
2000 27,157
Thereafter 420,730
$509,682
A Notes payable are due in monthly or quarterly installments and
bear interest at rates up to 9%. 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 2002, and bear interest at 8%-9%. The loans
are unsecured.
C Interest rates on capital leases range from 8.3% to 14.5% and
mature in installments through 2000.
<PAGE>
JORDAN INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands)
The future minimum lease payments as of December 31, 1995 under
capital leases consist of the following:
1996 $ 5,640
1997 4,987
1998 9,079
1999 3,312
2000 11,113
Thereafter 0
Total 34,131
Less amount representing interest 7,836
Present value of future minimum
lease payments $26,295
The present value of the future minimum lease payments
approximates the book value of property, plant and equipment under
capital leases at December 31, 1995.
D Bank Term Loans consist of certain indebtedness at Merkle-Korff
("Merkle-Korff Senior Notes"), and SPL ("SPL Senior Notes").
The acquisition of Merkle-Korff in September of 1995 was partially
financed by the issuance of $70,000 of term loans funded by
Banker's Trust Company. The funding is comprised of two loans,
Term Loan A ("Term A"), and Term Loan B ("Term B"). Term A
represents $43,000 of the borrowing and will bear interest at a
rate of Prime + 1.5% or LIBOR +2.75%. Term A will be repaid in
installments through 2001. Term B constitutes the remaining
$27,000 of the aggregate loan amount and bears interest at a rate
of Prime + 2.0% or LIBOR + 3.25%. Term B will be paid in
installments through 2003. Interest on both loans is payable
quarterly. At December 31, 1995, the outstanding balance of Term
A was $42,500 and the applicable interest rate was 8.625%. At
that
date, the outstanding balance on Term B was $26,875 with an
applicable interest rate of 9.125%. The Merkle-Korff Senior Notes
are secured by the stock and assets of Merkle-Korff and its
divisions.
In August 1995, SPL borrowed $25,000 under a Term Loan agreement
with The First National Bank of Boston with a maturity date of
December 31, 2001. This debt bears interest at a rate of LIBOR
plus 2.75% and is paid on a quarterly basis. At December 31,
1995, the entire $25,000 was outstanding. The SPL Senior Notes
are secured by all of the assets of SPL. The applicable interest
rate at December 31, 1995, was 8.4375%.
<PAGE>
JORDAN INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands)
E In July of 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 $233,750 at December 31,
1995. The fair value was calculated using the Senior Notes'
December 31, 1995 market price multiplied by the face amount. The
Senior Notes are not secured by the assets of the Company.
F In July 1993 the Company issued $133,075 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 $77,184 at December
31, 1995. The fair value was calculated using the Discount
Debentures' December 31, 1995 market price multiplied by the face
amount. The Discount Debentures are not secured by the assets of
the Company.
The proceeds from the issuance of the above Senior Notes and the Discount
Debentures 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 $26,192 extraordinary loss which was
comprised of a $7,233 write-off of deferred financing fees, a $1,634 write-off
of the debt discount relating to the Series A and Series B debt issuance, and
$17,325 in premium and consent fees.
The Indenture relating to the Senior 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
<PAGE>
JORDAN INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands)
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 Senior Notes and Discount Debentures upon
a change of control and to offer to purchase a specified percentage of the
Senior Notes and Discount Debentures if it fails to maintain a minimum level
of capital funds (as defined).
At December 31, 1995, the Company had borrowings outstanding on lines of
credit totaling $16,239. The borrowings were at Welcome Home, $5,213, Dura-
Line, $526, Merkle-Korff, $500, and SPL Holdings, $10,000.
In May of 1995, Welcome Home entered into a Loan and Security Agreement with
Shawmut Capital Corporation. The credit facility under this agreement
provides for borrowings of up to 65% of Welcome Home's Eligible Inventory,
with a maximum borrowing of $20,000. At December 31, 1995, Welcome Home had
outstanding borrowings of $5,213, which carried a weighted average interest
rate of 8.1%. The facility is secured by substantially all of Welcome Home's
assets.
Dura-Line has available a line of credit from ABN AMRO Bank N.V. of Prague,
Czech Republic in the amount of $1,000. The line of credit matures and is due
on April 15, 1996, if not renewed. At December 31, 1995, Dura-Line had
outstanding borrowings of $526 which carried an interest rate of 1.25% above
PRIBOR (Prague Inter-Bank Offered Rate). The applicable rate at December 31,
1995 was 12.5%. The facility is secured by the assets of Dura-Line's majority
owned subsidiary, Dura-Line CT s.r.o., which is located in the Czech Republic.
The facility is also guaranteed with a standby letter of credit.
Merkle-Korff has available a $12,000 Revolving Credit Facility with Banker's
Trust Company. The facility has a term of six years from the date of
inception and will expire on September 22, 2001. The interest rate on
borrowing is calculated at Prime + 1.5% or LIBOR + 2.75%. The aggregate
outstanding at December 31, 1995 was $500 and the applicable rate was 10.0%.
The facility is secured by the stock and assets of Merkle-Korff and its
divisions.
In August 1995, SPL borrowed $8,000 under a Revolving Credit Facility (the
"Revolver") with The First National Bank of Boston. The facility has a
borrowing limit of $20,000. It subsequently borrowed an additional $2,000
under this line of credit. The aggregate outstanding at December 31, 1995,
was $10,000. This facility bears interest at a rate of LIBOR plus 2.75%
payable on a 30, 60, or 90 day basis. The facility is secured by all of the
assets of SPL. The applicable interest rate at December 31, 1995, was 8.4375%.
The Company is, and expects to continue to be, in compliance with the
provisions of the Indenture.
Included in interest expense is $1,743, $1,405 and $1,363 of amortization of
debt issuance costs for the year ended December 31, 1995, 1994 and 1993,
respectively.
<PAGE>
JORDAN INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands)
Note 11 - Income taxes
The (benefit) provision for income taxes consists of the following:
Year Ended December 31,
1995 1994 1993
Current:
Federal $ 400 $ 356 $ -
State and local 1,401 967 747
1,801 1,323 747
Deferred (4,247) 9 (40)
Total $(2,446) $1,332 $ 707
Deferred income taxes consist of: Dec. 31, Dec. 31,
1995 1994
Deferred tax liabilities:
Tax over book depreciation $ 7,368 $ 7,447
Basis in subsidiary 798 798
LIFO reserve 257 333
Other 392 186
Total deferred tax liabilities 8,815 8,764
Deferred tax assets:
NOL carryforwards 20,060 21,371
Accrued interest on discount debentures 8,187 4,560
Pension obligation 211 191
Vacation accrual 613 517
Uniform capitalization of inventory 580 610
Allowance for doubtful accounts 721 609
Capital lease obligations 456 355
Other 193 472
Total deferred tax assets 31,021 28,685
Valuation allowance for deferred
tax assets (21,466) (23,428)
Net deferred tax assets 9,555 5,257
Net deferred tax (assets) liabilities $ (740) $ 3,507
The decrease in the valuation allowance during 1995 and 1994 was $1,962 and
$2,354, respectively.
<PAGE>
JORDAN INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands)
The provision (benefit) for income taxes differs from the amount of income tax
benefit computed by applying the United States federal income tax rate to
(loss) income before income taxes, minority interest, and extraordinary items.
A reconciliation of the differences is as follows:
Year ended
December 31,
1995 1994 1993
Computed statutory tax provision (benefit) $(4,003) $9,414 $ (958)
Increase (decrease) resulting from:
Net losses for which no benefit
was taken - - 362
Foreign subsidiary losses 680 - -
Amortization of goodwill 756 682 590
Disallowed meals and entertainment 425 - -
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 1,401 1,010 720
Alternative minimum tax 400 - -
Decrease in valuation allowance (1,962) - -
Other items, net (143) 15 (7)
Provision (benefit) for income taxes $(2,446) $1,332 $ 707
As of December 31, 1995, the consolidated loss carryforwards are approximately
$44,000 and $31,000 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 $8,300
of net operating loss carryforwards that expire in various years through 2010.
A valuation reserve of $3,000 has been recorded against the related $5,200
asset.
Note 12 - 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 and restated on
June 29, 1994, 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 $2,691, $1,962 and
$1,503 in 1995, 1994 and 1993, 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 1995,
the Company paid $2,055 to The Jordan Company for their fees related to the
Merkle-Korff acquisition, and Welcome Home paid The Jordan Company $200
related to their New Bank 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.
Welcome Home purchases inventories from Cape Craftsmen, Inc. Such purchases
amounted to approximately $10,677, $8,966, and $3,500, for the years ended
December 31, 1995, 1994 and 1993, respectively.
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 $376, $660 and $331 in fees and expenses in 1995, 1994 and 1993,
respectively. The rates charged to the Company were at arms-length.
Also see Notes 6, 16 and 17.
Note 13 - Capital stock
Under the terms of a restricted common stock agreement with certain
shareholders and members of management, the Company has the right, under
certain circumstances, for a specified period of time to reacquire shares from
certain shareholders and management at their 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
<PAGE>
JORDAN INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands)
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 (dollars)
at any time, subject to certain events, prior to January 20, 1999. These
warrants were valued at $700 based on an independent appraisal.
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 14 - Business segment information
The Company's business operations are classified into five business segments:
Specialty Printing and Labeling, Motors and Gears, Connectors, Welcome Home,
and Consumer and Industrial Products.
Motors and Gears includes the manufacture of electric motors for both
industrial and commercial use by Imperial; small electrical motors by Scott;
precision gears and gear boxes by Gear; and AC and DC gears and gear motors
for both industrial and commercial use by Merkle-Korff.
Connectors includes the manufacture of electronic connectors and switches by
AIM and Cambridge.
Welcome Home includes the specialty retailing of decorative home furnishing
accessories by 215 Welcome Home stores.
Consumer and Industrial Products includes the remanufacturing of transmission
sub-systems for the U.S. automotive aftermarket by DACCO; manufacture and
marketing of safety reflectors, lamp components, bicycle reflector kits,
colorants and emergency warning triangles by Sate-Lite, the publishing of
Bibles and the distribution of Bibles, religious books, and recorded music by
Riverside; 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; precision machined titanium hot
formed parts used by the aerospace industry by Parsons; specialty-type locks
by Hudson; and point-of-purchase advertising displays by Beemak.
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,
1995 1994 1993
Net sales:
Specialty Printing & Labeling $ 96,514 $ 82,828 $ 60,640
Motors and Gears 54,218 36,854 32,241
Connectors 22,744 21,325 18,880
Welcome Home 93,166 81,654 61,633
Consumer and Industrial Products 240,669 201,730 185,217
Total $507,311 $424,391 $358,611
Operating income:
Specialty Printing & Labeling $ 8,067 $ 5,522 $ 1,343
Motors and Gears 12,236 9,484 7,300
Connectors 5,478 5,444 3,168
Welcome Home (10,066) 7,076 6,581
Consumer and Industrial Products 34,283 28,992 26,755
Total business segment operating
income 49,998 56,518 45,147
Corporate expenses (17,638) (13,574) (8,760)
Total consolidated operating
income $ 32,360 $ 42,944 $ 36,387
Depreciation and amortization
(including the amortization of
goodwill and intangibles):
Specialty Printing & Labeling $ 3,776 $ 3,252 $ 1,569
Motors and Gears 2,262 1,070 1,600
Connectors 1,339 2,255 3,058
Welcome Home 2,121 1,324 940
Consumer and Industrial Products 10,014 9,406 10,205
Total business segment
depreciation and amortization 19,512 17,307 17,372
Corporate 2,172 1,792 430
Total consolidated depreciation
and amortization $ 21,684 $ 19,099 $ 17,802
Capital expenditures:
Specialty Printing & Labeling $ 1,106 $ 1,401 $ 554
Motors and Gears 870 219 299
Connectors 200 93 110
Welcome Home 5,022 3,434 2,896
Consumer and Industrial Products 7,825 6,687 4,461
Corporate 253 278 5,320
Total $ 15,276 $ 12,112 $ 13,640
<PAGE>
JORDAN INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands)
Continued
Dec. 31, Dec. 31, Dec. 31,
1995 1994 1993
Identifiable assets:
Specialty Printing & Labeling $ 89,090 $ 76,997 $ 32,361
Motors and Gears 142,289 27,988 27,859
Connectors 17,730 18,916 21,141
Welcome Home 32,176 32,232 24,415
Consumer and Industrial Products 157,982 151,278 145,464
Total business segment assets 439,267 307,411 251,240
Corporate assets 93,117 91,063 87,269
Total consolidated assets $532,384 $398,474 $338,509
Note 15 - 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 five years beginning in 1992. Of this amount, $528 and $123 was
paid in 1995 and 1994.
The shareholders were granted stock appreciation rights as part of the non-
compete agreements with $5,952 to be paid over three years. Of this amount,
$2,056 and $1,660 was paid in 1995 and 1994, with the amounts paid in 1995
representing final payments.
The total consideration for minority interest which was accounted for as a
purchase was $12,381.
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.
<PAGE>
JORDAN INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands)
Note 16 - Welcome Home Bank Credit Facility
On May 30, 1995, Welcome Home, Inc. ("Welcome Home") entered into a Loan and
Security Agreement with Shawmut Capital Corporation (the "New Bank Credit
Facility"). The New Bank Credit Facility provides for borrowings of up to 65%
of Welcome Home's Eligible Inventory, with a maximum borrowing of $20,000.
At December 31, 1995, Welcome Home has borrowed a total of $5,213 under the
New Bank Credit Facility. The weighted average interest rate on such
borrowings at December 31, 1995 was 8.1%. At December 31, 1995, Welcome Home
was in violation of the minimum net worth covenant with respect to this
facility, however, the lender waived this violation.
Simultaneously with the closing of the New Bank Credit Facility, Welcome Home
amended and restated the Intercompany Credit Agreement (the "Subordinated
Credit Agreement") with Jordan Industries. Under the Subordinated Credit
Agreement, Welcome Home can borrow up to $10,000 for the purpose of financing
the repurchase of its common stock pursuant to its stock repurchase program
and for any other purpose approved by Jordan Industries.
Immediately prior to the closing of the Subordinated Credit Agreement, Welcome
Home repaid to Jordan Industries principal and accrued interest due under the
Intercompany Credit Agreement totaling $12,270. The remaining principal due
under the Intercompany Credit Agreement, $2,500, was rolled over to the
Subordinated Credit Agreement.
Note 17 - Acquisitions of subsidiaries
On September 22, 1995, the Company, through its newly-formed subsidiary, M-K
Holdings, Inc., acquired all of the common stock of Merkle-Korff Industries,
Inc., Mercury Industries, Inc. and Elmco Industries, Inc. ("Merkle-Korff"),
a manufacturer of fractional horsepower motors and gear motors. The motors
are currently used in vending machines, ice makers in refrigerators, washing
machines and treadmills. M-K Holdings, Inc., Merkle-Korff, and their
subsidiaries, were designated as non-restricted subsidiaries for purposes of
the Company's Indentures relating to its Senior Notes and Senior Subordinated
Discount Debentures.
The purchase price of $107,406, including costs incurred directly related to
the transaction, was preliminarily allocated to working capital of $8,201,
property, plant and equipment of $3,652, non-compete agreements of $500, and
resulted in an excess purchase price over net identifiable assets of $95,053.
The acquisition was financed with cash of $29,625 from the Company, $281 of
cash from affiliates, a $5,000 subordinated note issued by M-K Holdings, Inc.,
and a $72,500 drawdown of a newly established credit facility.
<PAGE>
JORDAN INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands)
M-K Holdings, Inc. is 87.6% owned by the Company and 12.4% owned by affiliates
of the Company, including partners and affiliates of The Jordan Company,
including Mr. Jordan, Mr. Quinn, Mr. Zalaznick, and Mr. Boucher.
On March 8, 1996, Merkle-Korff acquired the net assets of Barber-Colman Motors
Division, a division of Barber-Colman Company, which was wholly owned by
Siebe, plc. This division consisted of Colman OEM and Colman Motor Products,
wholly owned subsidiaries of Barber-Colman Company, and the motors division
of Barber-Colman Company, collectively Barber-Colman Motors ("BCM"), and is
a vertically integrated manufacturer of sub-fractional horsepower AC and DC
motors and gear motors, with applications in such products as vending
machines, copiers, printers, ATM machines, currency changers, X-ray machines,
peristaltic pumps, HVAC actuators and other products.
The purchase price of $21,700, including costs incurred directly related to
the transaction, was allocated to working capital of $4,388, property, plant
and equipment of $6,591, non-compete agreements of $1,000, and resulted in an
excess purchase price over net identifiable assets of $9,721. The acquisition
was financed with $21,700 of new and existing credit facilities.
On January 23, 1996, the Company purchased the net assets of Johnson
Components, Inc. ("Johnson"), a manufacturer of RF coaxial connectors and
electronic hardware.
The purchase price of $16,500, including costs incurred directly related to
the transaction, was allocated to working capital of $1,634, property, plant
and equipment of $3,336, and non-compete agreements of $1,050, and resulted
in an excess purchase price over net identifiable assets of $10,480. The
acquisition was financed with cash.
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.
<PAGE>
JORDAN INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands)
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 the 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 1995 and
1996 acquisitions had occurred on January 1, 1995 and 1994 is as follows:
Year Ended December 31,
1995 1994
(unaudited)
(dollars in millions)
Net sales $589.3 $521.1
Net income (loss) before
extraordinary items (3.2) 27.0
Net income (loss) $ (3.2) $ 27.0
Note 18 - SPL Holdings, Inc.
On August 30, 1995, the Company sold on an arms length basis, the net assets
of Sales Promotion Associates, Inc. ("SPAI"), formerly a wholly-owned
subsidiary of the Company, and a specialty printer and distributor of
calendars, advertising specialty products and soft cover year books to SPL
Holdings, Inc. ("SPL", formerly known as J2, Inc.) a majority owned subsidiary
of the Company. SPL and its subsidiaries were designated as non-restricted
subsidiaries for purposes of the Company's Indentures relating to its Senior
Notes and Senior Subordinated Discount Debentures.
SPL was formed to combine a group of companies engaged in the design,
manufacture and marketing of specialty printing and label products. SPL is
comprised of Valmark Industries, Inc. ("Valmark"), Pamco Printed Tape and
Label Co., Inc. ("Pamco") and SPAI.
Concurrent with the sale of the net assets of SPAI, SPL was recapitalized with
(i) an equity investment of $22,300 by the Company and $160 from certain
affiliated investors, (ii) subordinated debt of $11,000, and (iii) a new
$45,000 senior secured bank financing comprised of a $20,000 Revolver and a
$25,000 Term Loan. At December 31, 1995, the entire amount of the Term Loan,
or $25,000, and $10,000 of the Revolver, was outstanding.
Following the sale of the net assets and recapitalization transactions, SPL
is 83.3% owned by the Company and 16.7% owned by certain affiliates of the
Company, including partners and affiliates of The Jordan Company, including
Mr. Jordan, Mr. Quinn, Mr. Zalaznick, and Mr. Boucher.
<PAGE>
JORDAN INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands)
Note 19 - 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 its revolving credit facilities
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 48 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"), American Safety Razor
Company ("ASR"), NEWFLO Corporation
("NEWFLO"), and Welcome Home, Inc.
("Welcome Home") .
Thomas H. Quinn 48 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 ASR and
Welcome Home.
Joseph S. Steinberg 52 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 41 Director since 1988. Mr. Zalaznick is a
managing partner of The Jordan Company.
Mr. Zalaznick is a Director of ASR,
NEWFLO, Carmike, and Marisa Christina
Incorporated.
<PAGE>
Name Age Principal Occupations
Jonathan F. Boucher 39 Director and Vice President since 1988.
Since June 1983, Mr. Boucher has also
been a partner of The Jordan Company.
Mr. Boucher is a Director of ASR,
NEWFLO, and Welcome Home.
G. Robert Fisher 56 Director, General Counsel and Secretary
since 1988. Since June 1995, Mr. Fisher
has been a member of the law firm of
Bryan Cave LLP, a firm that represents
the Company in various legal matters.
For the prior 27 years, Mr. Fisher was a
member of the law firm of Smith, Gill,
Fisher & Butts, P.C., which combined with
Bryan Cave LLP in June 1995. See Item 13
-- "Legal Counsel".
James A. McNair 40 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, 1995, for services in all capacities to
each of the executive officers of the Company.
<TABLE>
Summary Compensation Table
<CAPTION>
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, 1995 500,000 1,557,650 - - -
President and Chief 1994 500,000 979,137 201,480 (1) - -
Operating Officer 1993 500,000 675,000 525,000 (2) - -
James A. McNair, 1995 200,000 400,000 - - -
Sr. Vice President, Business 1994 200,000 285,000 - - -
Development 1993 175,000 150,000 - - -
(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.
(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 to the Company. Certain adjustments to
<PAGE>
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, 1992, 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 29, 1996 there were 93,501.0004 issued and outstanding shares
of Common Stock. The following table furnishes information, as of March 29,
1996, 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 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%
Bryan Cave, LLP
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 and restated on June 29, 1994 (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 years ended December 31, 1995 and 1994, the
Company accrued a total of $2,691,000, and $1,961,700 respectively, in
quarterly fees and $2,055,000 and $1,803,200 respectively, 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 Bryan Cave, a
Limited Liability Partnership (formerly known as Smith, Gill, Fisher & Butts),
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 1995, Bryan Cave LLP was paid
approximately $376 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 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 5.6% of the MCIT capital shares, and
approximately 2.8% of the aggregate MCIT capital and income shares. MCIT is
advised by Jordan/Zalaznick Advisers, Inc., a corporation owned by John W.
Jordan II and David W. Zalaznick.
<PAGE>
PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULE 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 Schedule
The following financial statement schedule for the years ended December
31, 1995, 1994 and 1993 is 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 29, 1996 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 29, 1996 and Chief Executive Officer
By /s/ Thomas H. Quinn
Thomas H. Quinn
Director, President and Chief
Dated: March 29, 1996 Operating Officer
By /s/ Jonathan F. Boucher
Jonathan F. Boucher
Director and Vice President
Dated: March 29, 1996 (Principal Financial Officer)
<PAGE>
By /s/ G. Robert Fisher
G. Robert Fisher
Director, General Counsel and
Dated: March 29, 1996 Secretary
By /s/ David W.Zalaznick
David W. Zalaznick
Dated: March 29, 1996 Director
By /s/ Joseph S. Steinberg
Joseph S. Steinberg
Dated: March 29, 1996 Director
By /s/ James A. McNair
James A. McNair
Dated: March 29, 1996 Director, Senior Vice President,
Business Development
By /s/ Thomas C. Spielberger
Thomas C. Spielberger
Dated: March 29, 1996 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, 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)
December 31, 1995:
Allowance for doubt-
ful accounts 1,058 884 (636) - 1,306
Valuation allowance
for deferred tax
assets (23,428) (1,962) - - (21,466)
S-1
<PAGE>
Sequential
EXHIBIT INDEX Page No.
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.
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.
<PAGE>
10(t)9 -- Amended and Restated Revolving Credit Agreement dated
December 10, 1991 between the Company and The First
National Bank of Boston.
10(u)(10) -- Revolving Credit Agreement dated as of June 29,
1994 among JII, Inc., a wholly-owned subsidiary
of the Company, and The First National Bank of
Boston and certain other Banks.
22 -- Subsidiaries of the Registrant.
286 -- Phantom Share Plan.
9911 -- Other Exhibits
(a) Audited balance sheets of Barber-Colman Company - Barber-Colman
Motors Division (the Division) as of December 31,
1995 and March 31, 1995 and 1994, and the related statements
of divisional operations and cash flows for the nine month
period ended December 31, 1995 and year ended March 31,
1995.
(b) Audited balance sheet of E.F. Johnson Company - Components
Division as of November 26, 1995 and December 31, 1994 and
1993, and the related statements of divisional contribution
and of cash flows for the eleven month period ended November
26, 1995 and the year ended December 31, 1994.
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.
10 Incorporated by reference to the Company's 1994 Second Quarter Form 10-Q.
11 Incorporated by reference to the Company's 1995 Form 10-K.
<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-31-1995
<PERIOD-END> DEC-31-1995
<CASH> 41,253
<SECURITIES> 0
<RECEIVABLES> 73,630
<ALLOWANCES> 1,306
<INVENTORY> 84,259
<CURRENT-ASSETS> 205,402
<PP&E> 162,392
<DEPRECIATION> 70,970
<TOTAL-ASSETS> 532,384
<CURRENT-LIABILITIES> 105,727
<BONDS> 468,480
0
1,875
<COMMON> 1
<OTHER-SE> (76,355)
<TOTAL-LIABILITY-AND-EQUITY> 532,384
<SALES> 507,311
<TOTAL-REVENUES> 507,311
<CGS> 320,653
<TOTAL-COSTS> 474,951
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 46,974
<INCOME-PRETAX> (11,773)
<INCOME-TAX> 2,446
<INCOME-CONTINUING> (9,327)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (7,470)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
E.F. JOHNSON COMPANY - COMPONENTS DIVISION
(A Division of E.F. Johnson Company)
FINANCIAL STATEMENTS
<PAGE>
Report of Independent Accountants
To: The Board of Directors
and Shareholders of
E.F. Johnson Company
We have audited the accompanying balance sheets of E.F. Johnson Company -
Components Division (the Division) as of November 26, 1995 and December 31,
1994 and 1993, and the related statements of divisional contribution and of
cash flows for the eleven month period ended November 26, 1995 and the year
ended December 31, 1994. 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.
The accompanying financial statements were prepared for the purpose of
setting forth the net assets, divisional income and cash flows of the
Division and have been prepared on the basis described in Note 1 to the
financial statements. The financial statements do not give a full
presentation of the results of the Division principally because allocations
of corporate costs benefitting the Division and interest expense and income
taxes have not been included therein. As such, the financial statements are
not intended to be a complete presentation of the Division's results of
operations. In addition, the Division is a member of a group of affiliated
companies and, as disclosed in the financial statements, has extensive
transactions and relationships with other members of the group. Because of
these relationships, it is possible that the terms of transactions between
the group are not the same as those that would result from transactions among
wholly unrelated parties.
<PAGE>
Page 2
In our opinion, the financial statements audited by us present fairly, in all
material respects, the financial position of E.F. Johnson Company - Components
Division at November 26, 1995 and December 31, 1994 and 1993, and the results
of its operations and its cash flows for the eleven months ended November 26,
1995 and the year ended December 31, 1994 in conformity with generally accepted
accounting principles on the basis described in Note 1 to the financial
statements.
This report is intended solely for the information and use of the Boards of
Directors and management of E. F. Johnson Company and Jordan Industries, Inc.
and should not be used for any other purpose.
/s/ Price Waterhouse LLP
Minneapolis, Minnesota
December 29, 1995
<PAGE>
E.F. JOHNSON COMPANY - COMPONENTS DIVISION
(A Division of E.F. Johnson Company)
BALANCE SHEETS
(In thousands)
December 31, November 26,
1993 1994 1995
ASSETS
Current assets:
Accounts receivable $ 1,069 $ 1,554 $ 1,579
Inventory 2,644 2,297 2,191
Total current assets 3,713 3,851 3,770
Machinery and equipment, net 4,009 3,591 3,264
Total assets $ 7,722 $ 7,442 $ 7,034
LIABILITIES AND DIVISION EQUITY
Current liabilities:
Accounts payable $ 318 $ 673 $ 844
Accrued compensation and benefits 496 411 647
Accrued commissions payable 55 72 68
Other liabilities 149 118 174
Advances from Parent 4,041 - -
Total current liabilities 5,059 1,274 1,733
Commitments (Note 5)
Division equity 2,663 6,168 5,301
Total liabilities and
Division equity $ 7,722 $ 7,442 $ 7,034
See accompanying notes to financial statements.
<PAGE>
E.F. JOHNSON COMPANY - COMPONENTS DIVISION
(A Division of E.F. Johnson Company)
STATEMENTS OF DIVISIONAL CONTRIBUTION
(In thousands)
Eleven
Year Ended Months Ended
December 31, November 26,
1994 1995
Net sales:
Third party customers $ 13,801 $ 14,001
To Parent 2,367 2,158
16,168 16,159
Cost of sales:
Third party customers 8,844 8,641
To Parent 1,539 1,403
10,383 10,044
Gross margin 5,785 6,115
Operating expenses:
Selling and marketing 1,666 1,750
Engineering 498 483
Total operating expenses 2,164 2,233
Divisional contribution (Note 1) $ 3,621 $ 3,882
See accompanying notes to financial statements.
<PAGE>
E.F. JOHNSON COMPANY - COMPONENTS DIVISION
(A Division of E.F. Johnson Company
STATEMENT OF CASH FLOWS
(In thousands)
Eleven
Year Ended Months Ended
December 31, November 26,
1994 1995
Cash flows from operating activities:
Divisional contribution $ 3,621 $ 3,882
Adjustments to reconcile divisional
contribution to net cash provided
(used) by operating activities:
Depreciation and amortization 910 958
Loss on sale of property 2 -
Changes in components of working capital:
Increase in receivables (485) (25)
Decrease in inventories 347 106
Increase in accounts payable 355 171
Increase (decrease) in accrued liabilities (99) 288
Net cash provided by operating activities 4,651 5,380
Cash flows from investing activities:
Capital expenditures (507) (656)
Proceeds from sale of property 13 25
Net cash used by investing activities (494) (631)
Cash flows from financing activities
Decrease in advances from Parent (4,041) -
Distributions to Parent (116) (4,749)
Net cash used by financing activities (4,157) (4,749)
Increase (decrease) in cash - -
Cash - beginning of year - -
Cash - end of year $ - $ -
See accompanying notes to financial statements.
<PAGE>
E.F. JOHNSON COMPANY - COMPONENTS DIVISION
(A Division of E.F. Johnson Company)
NOTES TO FINANCIAL STATEMENTS
(In thousands)
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Description of Business
E.F. Johnson Company - Components Division (the Division) is a division of
E.F. Johnson Company (the Parent). The Division manufactures RF connectors,
cable assemblies, electronic circuit hardware, spacers and test plugs and
jacks, as well as, components designed to specific customer requirements.
Basis of Presentation
These financial statements present the assets and liabilities of the Division
and measurement of the results of the Division on a direct contribution basis
without consideration of administrative functions performed by the Parent and
certain other costs and expenses. For internal management purposes, the Parent
maintains separate divisional profit and loss accounts for the Division which
allows the Parent to measure the Division's direct contribution to profit.
Identification of assets and liabilities is accomplished through reporting
capabilities in the Parent's general ledger as substantially all major assets
and liabilities are coded by nature of activity.
Costs related to functions performed by the Parent and certain other costs which
are attributable to the Division are not fully allocated to the Division in
these financial statements. Costs related to these functions performed by the
Parent include legal, property and casualty insurance, human resources,
financial reporting, general accounting and other administrative services.
In addition, no allocation of interest expense or income taxes is made by the
Parent. Exhibits I and II identify non-allocated and allocated costs and the
basis upon which certain costs are allocated to the Division.
The Division is part of a consolidated group and as such has extensive dealings
with related entities. Because of these relationships, terms of transactions
were determined between related parties and may, therefore, differ from terms
which would have occurred between wholly unrelated parties and may also differ
from the costs which would have been incurred had the Division operated as a
completely autonomous entity.
For purposes of presentation of these financial statements, sales to the Parent
have been attributed a gross margin or 35% which approximates margins on sales
to other third party customers. Historically, sales to the Parent were
reflected at cost. The presentation of sales to the Parent with margin at 35%
is deemed by management to better reflect the operations as if the Division
had operated as an entity autonomous from the Parent.
<PAGE>
Inventories
Inventories are stated at the lower of cost or market, cost being determined by
the first-in, first-out (FIFO) method.
Machinery and Equipment
Machinery and equipment are stated at cost less accumulated depreciation.
Depreciation is provided using the straight-line method over estimated useful
lives which range from three to seven years.
Revenue Recognition
Revenue is recognized upon shipment of products. Rebates are granted to certain
distributors based on contractual formulas which consider the annual sales
volume to the distributors of Division product. Estimates of such rebates are
recorded as a reduction of sales at the time the product is shipped by the
Division.
Retirement Benefits
The Parent has a defined contribution qualified retirement savings and profit
sharing plan which covers all of its employees. The Company's profit sharing
contributions are discretionary. No profit sharing contributions were authorized
for 1995 and 1994. The Division's contributions to the retirement savings
plan during 1995 and 1994 were $48 and $45, respectively.
NOTE 2 - INVENTORY
Inventories consist of the following:
December 31, November 26,
1993 1994 1995
Finished goods $ 892 $ 954 $ 901
Work in process 1,152 849 847
Raw materials 600 494 443
Total inventories $2,644 $2,297 $2,191
<PAGE>
NOTE 3 - MACHINERY AND EQUIPMENT
December 31, November 26,
1993 1994 1995
Machinery and equipment $4,899 $5,297 $5,828
Furniture and fixtures 263 362 326
Construction in process 11 - 115
5,173 5,659 6,269
Less: Accumulated deprecia-
tion (1,164) (2,068) (3,005)
Total machinery and equip-
ment, net $4,009 $3,591 $3,264
NOTE 4 - DIVISION EQUITY
Division equity consists of the following:
Balance at December 31, 1993 $ 2,663
Divisional contribution 3,621
Distributions to Parent, net (116)
Balance at December 31, 1994
Divisional contribution 3,882
Distributions to Parent, net (4,749)
Balance at November 26, 1995 $ 5,301
Distributions to Parent represent the change in net assets of the Division,
less divisional contribution during each respective period.
At December 31, 1993, the advances from Parent balance of $4,041 represented
the net funding amount provided by the Division's Parent through such date.
This balance was repaid to the Parent during 1994.
<PAGE>
NOTE 5 - COMMITMENTS
At November 26, 1995, substantially all assets of the Division are pledged as
collateral under the Parent's revolving credit facility and bank term debt
agreement. As of November 26, 1995, $15,504 and $6,767 was outstanding on the
Parent's revolving credit facility and term debt agreement, respectively.
The Company is currently in the process of obtaining a release of the Division's
assets as collateral under the bank agreements in light of the proposed sale of
the Division's assets.
Financial Statements
Barber-Colman Motors Division
(A Division of Barber-Colman Company, a
wholly owned subsidiary of Siebe, plc.)
Nine months ended December 31, 1995
and year ended March 31, 1995
with Report of Independent Auditors
<PAGE>
Barber-Colman Motors Division
(A Division of Barber-Colman Company, a
wholly owned subsidiary of Siebe, plc.)
Financial Statements
Nine months ended December 31, 1995 and
year ended March 31, 1995
Contents
Report of Independent Auditors . . . . . . . . . . . . . . . . . . . 1
Financial Statements
Balance Sheets . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Statements of Divisional Operations. . . . . . . . . . . . . . . . . 3
Statements of Cash Flows . . . . . . . . . . . . . . . . . . . . . . 4
Notes to Financial Statements. . . . . . . . . . . . . . . . . . . . 5
<PAGE>
Report of Independent Auditors
The Board of Directors
Barber-Colman Company
We have audited the accompanying balance sheets of Barber-Colman Company -
Barber-Colman Motors Division (the Division) as of December 31, 1995 and
March 31, 1995 and 1994, and the related statements of divisional operations
and cash flows for the nine month period ended December 31, 1995 and year
ended March 31, 1995. These financial statements are the responsibility of
the Division'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.
Barber-Colman Company Barber-Colman Motors Division is a part of Barber-Colman
Company, a wholly owned subsidiary of Siebe, plc., and has no separate legal
status or existence. Transactions with Barber-Colman Company and other
affiliates are described in Note 1.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Barber-Colman Company
Barber-Colman Motors Division at December 31, 1995 and March 31, 1995 and
1994, and the results of its operations and its cash flows for the nine
months ended December 31, 1995 and year ended March 31, 1995, in conformity
with generally accepted accounting principles.
As discussed in Note 1 to the financial statements, the Division changed its
method of accounting for advertising costs on April 1, 1995 to conform with
Statement of Position 93-7, "Reporting on Advertising Costs."
January 19, 1996
<PAGE>
Barber-Colman Motors Division
(A Division of Barber-Colman Company, a
wholly owned subsidiary of Siebe, plc.)
Balance Sheets
December 31 March 31
1995 1995 1994
Assets
Current assets:
Cash $ 6,000 $ 6,000 $ 6,000
Accounts receivable from
third parties, less
allowance of $33,000 1,586,000 3,129,000 2,836,000
Accounts receivable from
related entities 428,000 507,000 293,000
Inventories 2,726,000 2,908,000 2,341,000
Prepaid expenses and other
current assets 599,000 837,000 872,000
Deferred income taxes 128,000 78,000 142,000
Total current assets 5,473,000 7,465,000 6,490,000
Property, equipment, and
leasehold improvements-Net 6,989,000 7,265,000 8,748,000
Goodwill, less accumulated
amortization of $687,000
at December 31, 1995;
$626,000 at March 31, 1995;
and $544,000 at March 31, 1994 2,591,000 2,652,000 2,734,000
$15,053,000 $17,382,000 $17,972,000
Liabilities and division equity
Current liabilities:
Accounts payable to third parties $ 591,000 $ 2,501,000 $ 2,140,000
Accounts payable to related
entities 119,000 362,000 383,000
Accrued expenses and other
current liabilities 551,000 650,000 710,000
Total current liabilities 1,261,000 3,513,000 3,233,000
Deferred income taxes 1,971,000 2,042,000 2,696,000
Commitments (Note 8)
Division equity 11,821,000 11,827,000 12,043,000
$15,053,000 $17,382,000 $17,972,000
See accompanying notes.
<PAGE>
Barber-Colman Motors Division
(A Division of Barber-Colman Company, a
wholly owned subsidiary of Siebe, plc.)
Statements of Divisional Operations
Nine months Year
ended ended
December 31, March 31,
1995 1995
Net sales
Third parties $14,890,000 $21,362,000
Related entities 1,452,000 2,090,000
16,342,000 23,452,000
Cost of sales
Third parties 11,105,000 15,296,000
Related entities 1,083,000 1,497,000
12,188,000 16,793,000
Gross profit 4,154,000 6,659,000
Selling, general, and administrative expenses
Allocated by Parent 886,000 981,000
Other 2,935,000 3,953,000
3,821,000 4,934,000
Operating income 333,000 1,725,000
Other expense 18,000 11,000
Allocated interest expense 321,000 425,000
(Loss) income before income taxes and cumulative
effect of change in accounting for advertising
costs (6,000) 1,289,000
Provision for income taxes 130,000 671,000
(Loss) income before cumulative effect of change
in accounting for advertising costs (136,000) 618,000
Cumulative effect of change in accounting for
advertising costs (Note 1) 122,000 -
Divisional (loss) income $ (258,000) $ 618,000
See accompanying notes.
<PAGE>
Barber-Colman Motors Division
(A Division of Barber-Colman Company, a
wholly owned subsidiary of Siebe, plc.)
Statements of Cash Flows
Nine months Year
ended ended
December 31 March 31
1995 1995
Cash flows from operating activities
Divisional (loss) income $ (258,000) $ 618,000
Adjustments to reconcile divisional (loss)
income to net cash provided by operating
activities:
Depreciation and amortization 641,000 831,000
Deferred income taxes (39,000) (590,000)
Cumulative effect of change in accounting
for advertising costs 122,000 -
Changes in operating assets and liabilities:
Accounts receivable 1,622,000 (507,000)
Inventories 182,000 (567,000)
Prepaid expenses and other current assets 34,000 35,000
Accounts payable (2,153,000) 340,000
Accrued expenses and other current
liabilities (99,000) (60,000)
Net cash provided by operating activities 52,000 100,000
Cash flows from investing activities
Purchases of property, equipment, and leasehold
improvements (458,000) (699,000)
Proceeds from disposals of property, equipment,
and leasehold improvements 154,000 1,433,000
Net cash (used for) provided by investing
activities (304,000) 734,000
Cash flows from financing activities
Contributions by (distributions to) Parent 252,000 (834,000)
Net cash provided by (used for) financing
activities 252,000 (834,000)
Net change in cash - -
Cash at beginning of period 6,000 6,000
Cash at end of period $ 6,000 $ 6,000
See accompanying notes.
<PAGE>
Barber-Colman Motors Division
(A Division of Barber-Colman Company, a
wholly owned subsidiary of Siebe, plc.)
Notes to Financial Statements
1. Summary of Significant Accounting Policies
Nature of Business
Barber-Colman Motors Division (the Division) is a division of Barber-Colman
Company, which is a wholly owned subsidiary of Siebe, plc. (collectively, the
Parent). The Division consists of Colman OEM and Colman Motor Products,
wholly owned subsidiaries of Barber-Colman Company, and the motors division
of Barber-Colman Company. The Division is a vertically integrated
manufacturer of subfractional horsepower AC and DC motors and gear motors and
sells its products to customers located in North America.
Basis of Presentation
These financial statements present the assets, liabilities, and results of
operations of the Division. Costs related to functions performed by the
Parent and certain other costs which are attributable to the Division are
allocated to the Division by the Parent. Costs related to these functions
performed by the Parent include legal, property and casualty insurance, human
resources, financial reporting, general accounting, and other administrative
services. In addition, interest expense is allocated by the Note 9 for a
summary of allocated costs.
The Division is part of a consolidated group and as such has significant
transactions with related entities. The terms of these transactions were
determined between related parties and may, therefore, differ from terms
which would have occurred between wholly unrelated parties and may also
differ from the costs which would have been incurred had the Division
operated as a completely autonomous entity.
The assets, liabilities, income, and expenses shown on the Division's
financial statements are only part of those of a larger entity and are not
subject to the constraints of law and custom applicable to legal entities.
Consequently, they may be available to satisfy claims unrelated to and not
reflected in the financial statements of the nonlegal entity.
Cash Management
The Division transfers its cash to the Parent and the Parent advances funds
to the Division to finance its operations, the expansion of its business, and
its working capital requirements. The net activity in the regard is reflected
as a part of Division equity.
<PAGE>
Barber-Colman Motors Division
(A Division of Barber-Colman Company, a
wholly owned subsidiary of Siebe, plc.)
1. Summary of Significant Accounting Policies (continued)
Inventories
Inventories are valued at the lower of cost or market. The Division costs
certain inventories using the last in, first out (LIFO) method and other
inventories using the first in, first out (FIFO) method.
Property, Equipment, and Leasehold Improvements
Property and equipment are stated at cost, less accumulated depreciation.
Provisions for depreciation of property and equipment are determined using
the straight-line method over the estimated useful lives of the assets.
Leasehold improvements are stated at cost, less accumulated amortization.
Amortization is determined using the straight-line method over the life of
the leasehold improvement.
Goodwill
Goodwill is being amortized over 40 years using the straight-line method.
All of the goodwill was allocated by the Parent to the Division after the
acquisition of Barber-Colman Company in 1987.
Financial Instruments
Trade receivables may subject the Division to credit risk. Credit risk
associated with trade receivables is limited by the large number of customers
in the Division's customer base. The Division monitors the credit quality of
its customers and maintains allowances for potential credit losses which,
historically, have been within the range of the Division's expectations.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the amounts reported in the financial statements and accompanying
notes. Actual results could differ from those estimates.
<PAGE>
Barber-Colman Motors Division
(A Division of Barber-Colman Company, a
wholly owned subsidiary of Siebe, plc.)
1. Summary of Significant Accounting Policies (continued)
Advertising Costs
On April 1, 1995, the Division adopted Statement of Position 93-7, "Reporting
on Advertising Costs" (SOP 93-7). The adoption of SOP 93-7 changes the
Division's method of accounting for advertising costs. Previously, the
Division deferred advertising costs and amortized them over the related
period of advertising. Advertising costs are now expensed as incurred. The
cumulative effect of this change in accounting was to increase the divisional
loss for the nine months ended December 31, 1995 by $122,000, net of an
$82,000 income tax benefit.
2. Inventories
Inventories consist of the following:
December 31 March 31
1995 1995 1994
Raw materials $ 62,000 $ 152,000 $ 129,000
Work in process 3,220,000 3,341,000 2,937,000
Finished goods 199,000 135,000 40,000
Inventory obsolescence
reserve (451,000) (451,000) (451,000)
3,030,000 3,177,000 2,655,000
LIFO reserve (304,000) (269,000) (314,000)
$2,726,000 $2,908,000 $2,341,000
Inventories with a current cost of approximately $1,944,000; $1,842,000; and
$1,781,000, respectively, have been costed using the LIFO method.
<PAGE>
Barber-Colman Motors Division
(A Division of Barber-Colman Company, a
wholly owned subsidiary of Siebe, plc.)
3. Property, Equipment, and Leasehold Improvements
Property, equipment, and leasehold improvements consist of the following:
December 31 March 31
1995 1995 1994
Machinery and equipment $10,468,000 $10,132,000 $9,556,000
Furniture and fixtures 514,000 503,000 493,000
Construction in process 386,000 534,000 457,000
Leasehold improvements 432,000 421,000 418,000
Allocated software costs 1,079,000 1,093,000 1,093,000
Other fixed assets 57,000 46,000 46,000
12,936,000 12,729,000 12,063,000
Less: Accumulated depreciation
and amortization (5,995,000) (5,512,000) (4,802,000)
6,941,000 7,217,000 7,261,000
Allocated building costs, net 48,000 48,000 1,487,000
$ 6,989,000 $ 7,265,000 $8,748,000
Allocated building costs, net represents the portion of the cost of Barber-
Colman Company's headquarters facility allocated to the Division. This
facility was disposed of during the year ended March 31, 1995 and the related
allocation was reversed.
4. Division Equity
Division equity consists of the following:
Balance at March 31, 1994 $12,043,000
Divisional income 618,000
Distributions to Parent, net (834,000)
Balance at March 31, 1995 11,827,000
Divisional loss (258,000)
Contributions by Parent, net 252,000
Balance at December 31, 1995 $11,821,000
Distributions to/Contributions by Parent represent the change in net assets
of the Division, net of divisional income or loss during each respective
period.
<PAGE>
Barber-Colman Motors Division
(A Division of Barber-Colman Company, a
wholly owned subsidiary of Siebe, plc.)
5. Income Taxes
The provisions for income taxes consist of the following:
Nine months Year
ended ended
December 31 March 31,
1995 1995
Current:
Federal $131,000 $ 977,000
State 38,000 284,000
169,000 1,261,000
Deferred (39,000) (590,000)
$130,000 $ 671,000
The primary reasons for the difference between the statutory federal income
tax rate and the effective tax rate are state income taxes and amortization
of goodwill and other expenses not deductible for tax purposes.
The Division's operating results are included in the Parent's income tax
returns. The provision for current income taxes is based on the Division's
taxable income calculated on a separate return basis.
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial
reporting and income tax purposes.
<PAGE>
Barber-Colman Motors Division
(A Division of Barber-Colman Company, a
wholly owned subsidiary of Siebe, plc.)
Notes to Financial Statements
5. Income Taxes (continued)
Significant components of the Division's deferred tax assets and liabilities
consist of the following:
December 31 March 31
1995 1995 1994
Deferred income tax assets:
Allowance for doubtful accounts $ 13,000 $ 13,000 $ 13,000
Inventory obsolescence reserve 180,000 180,000 180,000
Accrued vacation 11,000 32,000 93,000
Accrued warranty 10,000 10,000 18,000
Other 84,000 14,000 8,000
298,000 249,000 312,000
Deferred income tax liabilities:
Book value in excess of tax basis
of property, equipment, and
leasehold improvements (1,971,000) (2,042,000) (2,696,000)
Prepaid expenses (170,000) (171,000) (170,000)
(2,141,000) (2,213,000) (2,866,000)
$(1,843,000) $(1,964,000) $(2,554,000)
6. Retirement Benefits
Substantially all of the Division's employees are covered by a qualified
retirement savings and/or profit sharing plan of the Parent. The Division
is charged for its share of the Parent's contributions to the plans. The
Division was charged approximately $161,000 and $214,000 for these
contributions during nine months ended December 31, 1995 and year ended
March 31, 1995, respectively.
<PAGE>
Barber-Colman Motors Division
(A Division of Barber-Colman Company, a
wholly owned subsidiary of Siebe, plc.)
7. Major Customers
During the nine months ended December 31, 1995 and year ended March 31, 1995,
the same three customers accounted for approximately 34% and 31% of sales,
respectively. At December 31, 1995; March 31, 1995; and March 31, 1994,
these same three customers accounted for approximately 31%, 37%, and 38% of
trade accounts receivable, respectively.
One of these customers is a related entity which accounted for approximately
9% of sales during both the nine months ended December 31, 1995 and the year
ended March 31, 1995. At December 31, 1995; March 31, 1995; and March 31,
1994, this related entity accounted for approximately 21%, 14%, and 8% of
trade accounts receivable, respectively.
8. Commitments
The Division leases manufacturing, office, and storage facilities and certain
equipment under noncancelable operating leases expiring in various years
through 2000. The leases require the Division to pay real estate taxes and
maintenance costs.
Commitments for future minimum payments under noncancelable leases are as
follows as of December 31, 1995:
1996 $1,244,000
1997 1,031,000
1998 960,000
1999 762,000
2000 and thereafter 386,000
Rental expense for the nine months ended December 31, 1995 and year ended
March 31, 1995 was approximately $842,000 and $984,000, respectively.
Included in these amounts is related party rental expense of approximately
$132,000 and $158,000 for the nine months ended December 31, 1995 and year
ended March 31, 1995, respectively.
<PAGE>
Barber-Colman Motors Division
(A Division of Barber-Colman Company, a
wholly owned subsidiary of Siebe, plc.)
9. Allocated Costs
Costs related to functions performed by the Parent and certain other costs
which are attributable to the Division are allocated to the Division by the
Parent as follows:
Nine months
ended Year ended
December 31, March 31,
1995 1995 Basis for Allocation
Cost of sales*:
Building rent $ 31,000 $ 38,000 Square feet occupied
Data processing 124,000 157,000 Hourly use
Insurance 112,000 168,000 Actual experience
$ 267,000 $ 363,000
Selling, general, and
administrative expenses:
Building rent $ 101,000 $ 120,000 Square feet occupied
Data processing 23,000 31,000 Hourly use
Insurance 68,000 63,000 Actual experience
Royalties 147,000 216,000 Actual third-party sales
Management fees 98,000 78,000 Budgeted sales
Other 449,000 473,000 Budgeted sales,
headcount, and actual
use of corporate
services
$ 886,000 $981,000
Interest $ 321,000 $425,000 Average net assets
*These costs are included in cost of sales of both third parties and related
entities.
