SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For quarter ended September 30, 1997 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
Former name, former address and former fiscal year, if changed since last
report: Not applicable.
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding twelve (12) months (or for such
shorter period that the registrant was required to file such reports) and
(2) has been subject to such filing requirements for the past ninety (90)
days.
Yes _X_ No___
The aggregate market value of voting stock held by non-affiliates
of the Registrant is not determinable as such shares were privately placed
and there is currently no public market for such shares.
The number of shares outstanding of Registrant's Common Stock as of
November 14, 1997: 98,501.0004
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PAGE 2
FORM 10-Q QUARTERLY REPORT
JORDAN INDUSTRIES, INC.
INDEX
Part I. Page No.
Financial Information
Condensed Consolidated Balance Sheets
at September 30, 1997, and December 31, 1996 3
Condensed Consolidated Statements of Operations
for the Third Quarter and Nine Months Ended
September 30, 1997 and 1996 4
Condensed Consolidated Statements of Cash Flows
for the Nine Months Ended September 30, 1997
and 1996 5
Notes to Condensed Consolidated Financial
Statements 7
Management's Discussion and Analysis of
Financial Condition and Results of Operations 17
Part II.
Other Information 24
Signatures 25
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PAGE 3
JORDAN INDUSTRIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(ALL DOLLAR AMOUNTS IN THOUSANDS)
September 30, December 31,
1997 1996
(unaudited)
------------ -----------
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $ 37,458 $ 32,797
Accounts receivable - net 117,014 89,301
Inventories 113,300 108,132
Prepaid expenses and other current
assets 10,986 9,703
------- -------
Total Current Assets 278,758 239,933
Property, plant and equipment - net 100,978 111,040
Investments in and advances to affiliates 1,722 14,222
Goodwill - net 328,273 266,436
Other assets 69,200 50,254
------- -------
Total Assets $778,931 $681,885
======= =======
LIABILITIES AND NET CAPITAL DEFICIENCY
Current Liabilities:
Notes payable - line of credit $ 1,036 $ 856
Accounts payable 51,195 47,036
Accrued liabilities 50,290 57,910
Advance deposits 6,832 1,900
Current portion of long-term debt 3,382 8,752
------- -------
Total Current Liabilities 112,735 116,454
Long-term debt 791,400 687,936
Other non-current liabilities 10,768 3,572
Deferred income taxes 514 1,444
Minority interest 4,961 885
Preferred stock 27,070 1,875
Net Capital Deficiency:
Common stock 66 1
Additional paid-in capital 4,018 2,557
Note receivable from shareholders (2,006) (1,460)
Cumulative translation (1,859) 1,404
Accumulated deficit (168,736) (132,783)
--------- --------
Total Net Capital Deficiency (168,517) (130,281)
--------- --------
Total Liabilities and Net Capital
Deficiency $778,931 $681,885
======== =======
See accompanying notes to condensed consolidated financial statements.
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PAGE 4
<CAPTION>
JORDAN INDUSTRIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
(ALL DOLLAR AMOUNTS IN THOUSANDS)
NINE MONTHS ENDED
THIRD QUARTER September 30,
------------------- -----------------
1997 1996 1997 1996
-------- --------- -------- -------
<S> <C> <C> <C> <C>
Net sales $183,041 $158,099 $507,930 $425,319
Cost of sales, excluding
depreciation 116,923 97,231 319,982 261,284
Selling, general and administra-
tive expenses, excluding deprecia-
tion 35,725 38,801 103,527 103,545
Depreciation 5,072 4,991 14,099 13,651
Amortization of goodwill and other
intangibles 3,808 3,216 10,714 8,372
Stock appreciation rights expense --- 9,022 15,418 9,322
Loss on acquisition of affiliated
company --- 4,488 --- 4,488
Management fees and other 1,049 1,233 2,549 3,337
------- ------- ------- -------
Operating income 20,464 (883) 41,641 21,320
Other (income) and expenses:
Interest expense 21,009 16,312 58,784 45,288
Interest income (595) (651) (2,201) (1,995)
Gain on sale of subsidiary and
other (1,454) --- (19,466) ---
-------- ------- -------- -------
Total other expenses 18,960 15,661 37,117 43,293
-------- ------- -------- -------
Income (loss) before income taxes,
minority interest, equity in
investee, and extraordinary items 1,504 (16,544) 4,524 (21,973)
Provision for (benefit from)
income taxes 167 (6,102) 1,367 (4,858)
------- -------- ------- -------
Income (loss) before minority
interest, equity in investee,
and extraordinary items 1,337 (10,442) 3,157 (17,115)
Minority interest 356 (498) 1,120 (1,584)
Equity in investee 667 --- 4,835 ---
------- ------- ------- ------
Income (Loss) before extraordinary
items 314 (9,944) (2,798) (15,531)
Extraordinary items 21,630 --- 30,993 ---
------- ------- ------- -------
Net loss $(21,316) $ (9,944) $(33,791) $(15,531)
======== ======== ======== ========
See accompanying notes to condensed consolidated financial statements.
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PAGE 5
JORDAN INDUSTRIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)
(ALL DOLLAR AMOUNTS IN THOUSANDS)
NINE MONTHS ENDED
September 30,
-----------------
1997 1996
-------- --------
<S> <C> <C>
Cash flows from operating activities:
Net loss $(33,791) (15,531)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization 27,052 24,549
Provision for (benefit from) deferred
income taxes 132 (5,593)
Loss on acquisition of affiliated company --- 4,488
Minority interest 1,120 (1,584)
Non-cash interest 12,159 8,876
Equity in investee 4,835 ---
Extraordinary item 30,993 ---
Gain on sale of subsidiary (19,493) ---
Changes in operating assets and
liabilities net of effects from acquisitions:
Increase in current assets (17,237) (4,329)
Decrease in current liabilities (10,055) (12,564)
Increase in non-current assets (6,848) (2,664)
Increase in non-current liabilities 4,666 2,093
------- ------
Net cash used in operating activities (6,467) (2,259)
Cash flows from investing activities:
Net proceeds from sale of subsidiaries 45,954 ---
Capital expenditures (11,029) (12,466)
Advances to affiliates (4,222) (5,263)
Redemption of investment in affiliate 12,500 ---
Acquisition of subsidiaries (112,684) (120,680)
Cash acquired in purchase of subsidiaries 3,049 4,853
Acquisitions of minority interests and other --- (306)
Other (241) ---
-------- --------
Net cash used in investing activities (66,673) (133,862)
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PAGE 6
JORDAN INDUSTRIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)
(ALL DOLLAR AMOUNTS IN THOUSANDS)
NINE MONTHS ENDED
September 30,
-----------------
1997 1996
-------- -------
<S> <C> <C>
Cash flows from financing activities:
Proceeds from Motors and Gears, Inc. common
stock issuance 1,100 ---
Proceeds from Jordan Telecommunication Products,
Inc. common stock issuance 1,203 ---
Repayment of term debt (34,804) ---
Repayment of other long-term debt, net (2,682) (11,961)
Repayment of senior notes (271,600) ---
Proceeds from revolving credit facilities, net 6,000 93,999
Proceeds from debt issuance - MK Holdings, Inc. --- 20,000
Proceeds from debt issuance - SPL Holdings, Inc. --- 13,000
Proceeds from debt issuance - Jordan
Industries, Inc. 120,000 ---
Proceeds from debt issuance - Jordan
Telecommunication Products, Inc. 273,545 ---
Proceeds from preferred stock issuance - Jordan
Telecommunication Products, Inc. 25,000 ---
Deferred Financing Costs (26,361) (1,559)
Payment of consent fee (13,600) ---
Other --- (48)
------- -------
Net cash provided by financing activities 77,801 113,431
Net increase (decrease) in cash and cash
equivalents 4,661 (22,690)
Cash and cash equivalents at beginning of period 32,797 41,253
------- -------
Cash and cash equivalents at end of period $ 37,458 $ 18,563
======= =======
Cash paid during the period for:
Interest $ 46,625 $ 42,055
======= =======
Income taxes, net $ 3,172 $ 2,648
======= =======
Non-cash investing activities:
Capital leases $ 1,490 $ 4,852
======= =======
Seller notes issued in acquisitions $ 5,500 $ 3,000
======= =======
See accompanying notes to condensed consolidated financial statements.
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PAGE 7
JORDAN INDUSTRIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
(ALL DOLLAR AMOUNTS IN THOUSANDS)
A. Organization
- ----------------
The unaudited condensed consolidated financial statements, which reflect
all adjustments that management believes necessary to present fairly the
results of interim operations, should be read in conjunction with the Notes
to the Consolidated Financial Statements (including the Summary of
Significant Accounting Policies) included in the Company's audited
consolidated financial statements for the year ended December 31, 1996,
which are included in the Company's Annual Report filed on Form 10-K for
such year (the "1996 10-K"). Results of operations for the interim periods
are not necessarily indicative of annual results of operations.
B. Inventories
- ---------------
Inventories are summarized as follows:
September 30, December 31,
1997 1996
------------ -----------
Raw materials $ 39,683 $26,682
Work in process 14,427 12,274
Finished goods 59,190 69,176
------- -------
$113,300 $108,132
======= =======
C. Notes receivable from affiliates and investment in affiliate
- ----------------------------------------------------------------
On July 2, 1997, the Company received from Fannie May Holdings, Inc.
("Fannie May"), $14,348 in exchange for the following investments held by
the Company: $5,500 aggregate principal amount of Subordinated Notes and
$7,000 aggregate principal amount of participation in outstanding term
loans of Archibald Candy Corporation, a wholly-owned subsidiary of Fannie
May. The amount received also included $1,573 of accrued interest and
premium on the above Subordinated Notes and term loans. On July 7, 1997,
the Company received $3,013 as a return of the $3,000 certificate of
deposit held by the Company as security for an obligation to purchase
additional participation in the above-mentioned term loans, plus $13 of
accrued interest thereon.
On May 15, 1995, the Company purchased 75.6133 shares of Class A PIK
Preferred Stock of Fannie May at face value for $1,571. 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.
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
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PAGE 8
JORDAN INDUSTRIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
(ALL DOLLAR AMOUNTS IN THOUSANDS)
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.
On January 21, 1997, Welcome Home filed for Chapter 11 bankruptcy
protection (see Note F). As a result of the Chapter 11 filing, the Company
no longer consolidates Welcome Home in its financial statements as of
January 21, 1997, the date of the filing. Receivables from Welcome Home
owed to the Company were $6,401 as of September 30, 1997.
D. Accounting for Income Taxes
- -------------------------------
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial
reporting purposes, and the amounts used for income tax purposes.
Significant components of the Company's deferred tax liabilities and assets
as of September 30, 1997 and December 31, 1996 are as follows:
<TABLE>
<CAPTION>
Sept. 30, Dec. 31,
1997 1996
-------- -------
<S> <C> <C>
Deferred tax liabilities
Tax over book depreciation $ 7,411 $ 7,346
Basis in subsidiary 798 798
LIFO reserve 126 147
Intercompany tax gain 2,500 2,500
Other 146 311
------- -------
Total deferred tax liabilities 10,981 11,102
------- -------
Deferred tax assets
NOL carryforwards 25,900 28,900
Stock Appreciation Rights Agreements 3,762 3,162
Accrued interest on discount debentures 12,262 12,262
Pension obligation 211 174
Vacation accrual 613 591
Uniform capitalization of inventory 212 472
Allowance for doubtful accounts 961 1,020
Capital lease obligations 542 343
Tax asset basis over book basis at
subsidiary 2,500 2,500
Other 192 248
------- -------
Total deferred tax assets 47,155 49,672
Valuation allowance for deferred
tax assets (36,688) (40,014)
-------- -------
Net deferred tax assets 10,467 9,658
------- -------
Net deferred tax liabilities $ 514 $ 1,444
======= =======
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PAGE 9
JORDAN INDUSTRIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
(ALL DOLLAR AMOUNTS IN THOUSANDS)
E. Acquisition of subsidiaries
- -------------------------------
On January 8, 1997, Beemak, a subsidiary of the Company, purchased the net
assets of Arnon-Caine, Inc. ("ACI"), a designer and distributor of modular
storage systems primarily for sale to wholesale home centers and hardware
stores. ACI subcontracts its production to third party injection molders
located primarily in Southern California, which use materials and machines
similar to those used by Beemak. By early 1998, Beemak will serve as ACI's
primary supplier. The Company believes that the integration of ACI into
Beemak's operations will provide for future manufacturing cost savings as
well as synergistic marketing efforts.
The purchase price of $4,600, including costs incurred directly related to
the acquisition, was allocated to working capital of $300, property, plant
and equipment of $82, and excess purchase price over net identifiable
assets of $4,218. The acquisition was financed with cash.
On May 30, 1997, JTP Industries, a newly formed wholly-owned subsidiary of
the Company, purchased the assets of LoDan West, Inc. ("LoDan"), which
designs, engineers and manufactures high-quality custom electronic cable
assemblies, sub-assemblies and electro-mechanical assemblies for original
equipment manufacturers in the data and telecommunications markets of the
electronics industry.
The purchase price of $17,000, including estimated costs incurred directly
related to the transaction, was allocated to working capital of $5,066,
property, plant and equipment of $783, non-competition agreement of $250,
noncurrent assets of $41, and resulted in an excess purchase price over net
identifiable assets of $10,860. The acquisition was financed with cash and
a $1,500 subordinated seller note.
On June 12, 1997, Motors and Gears Industries, Inc., through its newly
formed wholly-owned subsidiary, FIR Group Holdings, Inc. and its
wholly-owned subsidiaries, Motors and Gears Amsterdam, B.V. and FIR Group
Holdings Italia, SrL, purchased all of the common stock of the FIR Group
Companies, consisting of CIME S.p.A., SELIN S.p.A., and FIR S.p.A. The FIR
Group Companies are manufacturers of electric motors and pumps for niche
applications such as pumps for catering dishwashers, motors for industrial
sewing machines, and motors for industrial fans and ventilators.
The purchase price of $50,496, including costs directly related to the
transaction, was preliminarily allocated to working capital of $17,475,
property, plant, and equipment of $4,939, other long term liabilities of
$3,947, and resulted in an excess of purchase price over net identifiable
assets of $32,029. The cash was provided from borrowings under the Motors
and Gears Industries, Inc. Credit Agreement established on November 7, 1996
among Motors and Gears Industries, Inc., various banks, and Bankers Trust
Company, as agent.
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PAGE 10
JORDAN INDUSTRIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
(ALL DOLLAR AMOUNTS IN THOUSANDS)
On September 2, 1997 Jordan Telecommunication Products, Inc. ("JTP")
purchased the assets of Engineered Endeavors Incorporated ("EEI"). EEI
designs, manufactures and installs custom cellular personal communication
systems and radio/broadcasting towers.
The purchase price of $41,500, including estimated costs incurred directly
related to the transaction, was allocated to working capital of $5,616
property plant and equipment of $829, non-competition agreement of $2,500,
other long-term assets of $16, and resulted in an excess purchase price
over net identifiable assets of $32,539. The acquisition was financed with
$21,500 of cash and $20,000 of borrowings under the JTP credit facility.
On September 11, 1997 the Company purchased the net assets of Cho-Pat, Inc.
("Cho-Pat"). Cho-Pat is a leading designer and manufacturer of orthopaedic
supports and patented preventative and pain reducing medical devices. Cho-
Pat currently produces nine different products primarily for reduction of
pain from injuries and the prevention of injuries resulting from overuse of
the major joints.
The purchase price of $1,200, including estimated costs incurred directly
related to the transaction, was allocated to working capital of $17,
property, plant and equipment of $23, and other long-term assets of $34
which resulted in an excess purchase price over net identifiable assets of
$1,126. The acquisition was financed with cash.
On October 17, 1997 Motors and Gears Industries, Inc. ("Motors and Gears")
acquired all of the outstanding stock of Electronic Design and Control
Company ("ED&C"). ED&C is a full service electrical engineering company
which designs, engineers and manufactures electrical control systems and
panels for material handling systems and other like applications. ED&C
provides comprehensive design, build and support services to produce
electronic control panels which regulates the speed of movement of conveyor
systems used in a variety of automotive plants and other industrial
applications.
The purchase price of $20,000, including costs incurred directly related to
the transaction, has not been allocated at this time. The acquisition was
financed through a $16,000 borrowing on the Motors and Gears line of credit
and a $4,000 subordinated seller note.
On October 31, 1997 JTP purchased the stock of Telephone Services, Inc. of
Florida ("TSI"). TSI designs, manufactures and provides customer cable
assemblies, terminal strips and terminal blocks and other connecting
devices primarily to the telephone operating companies and major
telecommunication manufacturers.
The total purchase price of $53,000, including estimated costs incurred
directly related to the transaction, has not been allocated at this time.
The acquisition was financed with a $48,000 borrowing under the JTP credit
facility and a $5,000 subordinated seller note.
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PAGE 11
JORDAN INDUSTRIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
(ALL DOLLAR AMOUNTS IN THOUSANDS)
Unaudited pro forma information with respect to the Company as if the 1997
and 1996 acquisitions had occurred on January 1, 1997 and 1996 is as
follows:
NINE MONTHS ENDED
September 30,
-----------------
1997 1996
------- -------
Net sales $575,807 $499,506
Net (loss) income before extraordinary items 4,173 (80)
Net loss (26,820) (80)
F. Welcome Home Chapter 11 Filing
- ----------------------------------
On January 21, 1997, Welcome Home filed a voluntary petition for relief
under Chapter 11 ("Chapter 11") of title 11 of the United States code in
the United States Bankruptcy Court for the Southern District of New York
("Bankruptcy Court"). In Chapter 11, Welcome Home will continue to manage
its affairs and operate its business as a debtor-in-possession while it
develops a reorganization plan that will restructure its operations and
allow it to emerge from Chapter 11. As a debtor-in-possession in Chapter
11, Welcome Home may not engage in transactions outside of the ordinary
course of business without approval of the Bankruptcy Court.
Subsequent to the filing, Welcome Home reached an agreement with Fleet
Capital Corporation to provide secured debtor-in-possession financing in
the form of a credit facility. The credit facility provides for borrowings
dependent upon Welcome Home's level of inventory with maximum borrowings of
$12,750. The agreement grants a security interest in substantially all
assets. Advances under the facility bear interest at the prime rate plus
1.5%. The agreement will terminate on March 31, 1998.
As a result of Welcome Home's Chapter 11 filing, the Company no longer has
the ability to control the operations and financial affairs of Welcome
Home. Accordingly, the Company no longer consolidates Welcome Home in its
financial statements as of January 21, 1997, the date of the filing. For
the period ended January 21, 1997, the Company recorded a net loss of
$1,195 related to Welcome Home.
Cape Craftsmen, a consolidated subsidiary of the Company, would also be
adversely affected by a liquidation of Welcome Home. Currently 69.3% of
Cape's sales are to Welcome Home. Cape's net assets included in the
consolidated financial statements are $7,189 which includes a $3,311
receivable from Welcome Home.
<PAGE>
PAGE 12
JORDAN INDUSTRIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
(ALL DOLLAR AMOUNTS IN THOUSANDS)
G. Debenture Swap
- ------------------
On April 2, 1997, the Company privately placed approximately $214,036
aggregate principal amount of 11.75% Series A Senior Subordinated Discount
Debentures due 2009 (the "Series A Debentures"), at 56.52% of such
principal amount. The Company placed the Series A Debentures to refinance
substantially all of the $133,075 aggregate principal amount of its 11.75%
Senior Subordinated Discount Debentures due 2005. The Company has
successfully registered and exchanged 11.75% Series B Senior Subordinated
Discount Debentures due 2009 for its Series A Debentures. In conjunction
with this transaction, the Company recorded an extraordinary loss of $8,898
relating to the write-off of deferred financing fees and the premium
assessed on the new issue.
H. Payment of Stock Appreciation Rights
- ----------------------------------------
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 24.0% interest, for 7.0% cumulative
preferred stock, covenants not to compete, and stock appreciation rights
agreements. The total consideration paid for this minority interest was
$12,381.
Additionally, the former shareholders were granted Stock Appreciation
Rights ("SAR") 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 50.0% 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 15.0% of the ultimate sales price of the stock or assets sold,
less $15,625.
On April 10, 1997, the Company paid the former shareholders pursuant to an
agreement ("The Redemption Agreement"), as if the subsidiary was sold for
$110,000. The former shareholders received $9,438 in cash and a deferred
payment of $5,980 over five years including interest. The Redemption
Agreement also requires that the $1,875 of remaining preferred stock be
redeemed one year from the date of the agreement.
If at any time prior to April 30, 1998, the Company has received offering
proceeds from the registration of any shares of common stock of the
subsidiary (the "IPO"), the Company will pay the former shareholders an
additional $2,250.
If the Company has not received proceeds from the IPO, the former
shareholders will receive a special bonus of 25.0% of the subsidiary's 1997
gross profit (as defined) in excess of $30,000.
As consideration for the signing of the Redemption Agreement, the former
shareholders will receive total non-compete payments of $352 payable over
the next thirteen months.
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PAGE 13
JORDAN INDUSTRIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
(ALL DOLLAR AMOUNTS IN THOUSANDS)
I. Sale of Subsidiaries
- ------------------------
On May 15, 1997, the Company sold its subsidiary, Hudson Lock, Inc.
("Hudson"), for approximately $39,100. Hudson is a leading designer,
manufacturer, and marketer of highly engineered medium-security custom and
specialty locks for original equipment manufacturer customers. A gain of
$19,493 is recorded in the income statement at September 30, 1997.
On July 31, 1997, the Company sold its subsidiary, Paw Print Mailing List
Services, Inc. ("Paw Print"), for approximately $12,500. Paw Print is a
value-added provider of direct mail services.
J. Financial Recapitalization and Business Repositioning Plan
- --------------------------------------------------------------
In November 1996, Motors and Gears Holdings, Inc. ("M&G"), through its
subsidiaries, acquired the business and assets of the Company's restricted
subsidiaries Imperial Electric Company, Scott Motors Company and Gear
Research Company, for $75.7 million in cash, assumption of approximately
$5.0 million of liabilities, and an earnout based upon 50.0% of cumulative
EBITDA of the purchased businesses of Imperial, Scott and Gear over $50
million during the five years following the purchase. As a result of this
purchase, the Company recognized $62.7 million of deferred gain at the time
of purchase for Federal income tax purposes, as adjusted for the value of
the earnout, once finally determined. This deferred gain will be reported
as the M&G group reports depreciation and amortization over approximately
15 years on most of the step-up in basis of those purchased assets. As long
as M&G remains in the Company's affiliated group, the gain reported and the
depreciation on the step-up in basis should exactly offset each other. Upon
any future deconsolidation of M&G from the company's affiliated group for
Federal income tax purposes, any unreported gain would be fully reported
and subject to tax.
On May 16, 1997, the Company participated in a recapitalization of its
majority-owned subsidiary, M&G. In connection with the Recapitalization,
M&G issued 16,250 shares of M&G common stock (representing approximately
82.5% of the outstanding shares of M&G common stock) to certain
stockholders and affiliates of the Company and M&G management for a total
consideration of $2.2 million (of which $1.1 million was paid in cash and
$1.1 million was paid through the delivery of 8.0% zero coupon notes due
2007). As a result of the Recapitalization, certain of the Company's
affiliates and M&G management will own substantially all of the M&G common
stock and the Company's investment in M&G will be represented solely by the
Cumulative Preferred Stock of M&G (the "Junior Preferred Stock"), but not
by any common stock of M&G, which will be held by stockholders and
affiliates of the Company and management of M&G. The Company has obtained
an independent opinion as to the fairness, from a financial point of view,
of the Recapitalization to the Company and its public bondholders.
<PAGE>
PAGE 14
JORDAN INDUSTRIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
(ALL DOLLAR AMOUNTS IN THOUSANDS)
As long as the Company holds the M&G Junior Preferred Stock, the Company
expects to continue to consolidate M&G and its subsidiaries for financial
reporting purposes as subsidiaries of the Company. However, the Junior
Preferred Stock discontinues its participation in M&G's earnings on the
fifth anniversary of issuance. In addition, this financial consolidation
and a continuing Company investment in M&G will be discontinued upon the
redemption of the Junior Preferred Stock, or at such time as the Junior
Preferred Stock ceases to represent at least a majority of the voting power
and a majority share in the earnings of the relevant company. As long as
the Junior Preferred Stock is outstanding, the Company expects the vote
test to be satisfied. The value test depends on the relative values of the
Junior Preferred Stock and the common shares of M&G. The Junior Preferred
Stock is mandatorily redeemable upon certain events and is redeemable at
the option of M&G, in whole or in part, at any time.
The Company also expects to include the subsidiaries of M&G in its
consolidated group for Federal Income tax purposes. This consolidation
would be discontinued, however, upon the redemption of the Junior Preferred
Stock, which could result in recognition by the Company of substantial
income tax liabilities arising out of the Recapitalization. If such
deconsolidation had occurred at September 30, 1997, the Company believes
that the amount of taxable income to the Company attributable to M&G would
have been approximately $58.0 million (or approximately $23.2 million of
tax liabilities, assuming a 40.0% combined Federal, state and local income
tax rate). The Company currently expects to offset these tax liabilities
arising from deconsolidation by using net income loss carryforwards
(approximately $27.3 million at September 30, 1997), and to pay any
remaining liability with redemption proceeds from the Junior Preferred
Stock. Deconsolidation would also occur with respect to M&G if the Junior
Preferred Stock ceased to represent at least 80.0% of the voting power and
80.0% of the combined stock value of the outstanding Junior Preferred Stock
and common stock of M&G. As long as the Junior Preferred Stock is
outstanding, the Company expects the vote test to be satisfied. The value
test depends on the relative values of the Junior Preferred Stock and
common stock. It is likely that by the fifth anniversary of their
issuances, the Junior Preferred Stock would cease to represent 80.0% of the
relevant total combined stock value. It is entirely possible, however, that
the 80.0% value test could fail well prior to the fifth anniversary after
issuance. In the event that deconsolidation occurs without a redemption of
the Junior Preferred Stock, the tax liabilities discussed above would be
incurred without the Company receiving the proceeds of the redemption.
On July 25, 1997, the Company recapitalized its investment in Jordan
Telecommunication Products, Inc. ("JTP") and JTP acquired the Company's
telecommunications and data communications products business from the
Company for total consideration of approximately $294.0 million, consisting
of $264.0 million in cash, $10.0 million of assumed indebtedness and
preferred stock, and the issuance to the Company of $20.0 million aggregate
liquidation preference of JTP Junior Preferred Stock. The Company's
stockholders and
<PAGE>
PAGE 15
JORDAN INDUSTRIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
(ALL DOLLAR AMOUNTS IN THOUSANDS)
affiliates and JTP management invested in and acquired the JTP common
stock. The JTP recapitalization transactions were subject to a fairness
opinion issued to the Company and its bondholders.
JTP financed the cash portion of this total consideration through JTP's
private placement of $190 million of JTP Senior Notes due 2007, $85 million
of cash proceeds of JTP Senior Discount Debentures due 2007, and $25
million of JTP Senior Preferred Stock due 2009.
Pursuant to the plan, the Company privately placed $120 million of the
Company's Senior Notes due 2007, and used the net proceeds from this
private placement, as well as the net proceeds received by the Company in
connection with the JTP recapitalization, to repay approximately $78
million of bank borrowings by the Company's subsidiaries under their credit
agreements and repurchased $272 million of the Company's 10-3/8% Senior
Notes due 2003 pursuant to a tender offer and related consent solicitation.
The Company also conducted a consent solicitation with regard to its 11-3/4%
Senior Subordinated Discount debentures due 2009 in order to conform
their covenant structure to those in the Company's Senior Notes due 2007.
As a result of the Recapitalization, certain of the Company's affiliates
and JTP management will own substantially all of the JTP common stock. The
Company's investment in JTP will be represented solely by the Junior
Preferred Stock, but not by any common stock of JTP. The Company has
obtained an independent opinion as to the fairness, from a financial point
of view, of the Recapitalization to the Company and its public bondholders.
As long as the Company holds the Junior Preferred Stock, the Company
expects to continue to consolidate JTP and its subsidiaries for financial
reporting purposes as subsidiaries of the Company. However, the Junior
Preferred Stock discontinues its participation in JTP's earnings on the
fifth anniversary of issuance. In addition, this financial consolidation
and any continuing Company investment in JTP will be discontinued upon the
redemption of the Junior Preferred Stock, or at such time as the Junior
Preferred Stock ceases to represent at least a majority of the voting power
and a majority share in the earnings of the relevant company. As long as
the Junior Preferred Stock is outstanding, the Company expects the vote
test to be satisfied. The value test depends on the relative values of the
Junior Preferred Stock and the common shares of JTP. The Junior Preferred
Stock is mandatorily redeemable at the option of JTP, in whole or in part,
at any time.
The Company also expects to include the subsidiaries of JTP in its
consolidated group for Federal income tax purposes. This consolidation
would be discontinued, however, upon the redemption of the Junior Preferred
Stock, which could result in recognition by the Company of substantial
income tax liabilities arising out of the Recapitalization. If such
deconsolidation had occurred at September 30, 1997, the Company believes
that the amount of taxable income to the Company attributed to JTP would
have been approximately $125.0 million (or approximately $50.0 million of
tax liabilities, assuming a 40.0% combined Federal, state and local income
tax rate). The Company
<PAGE>
PAGE 16
JORDAN INDUSTRIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
(ALL DOLLAR AMOUNTS IN THOUSANDS)
currently expects to offset these tax liabilities arising from
deconsolidation by using net income loss carryforwards (approximately $27.3
million at September 30, 1997), and to pay any remaining liability with
redemption proceeds from the Junior Preferred Stock. Deconsolidation would
also occur with respect to JTP if the Junior Preferred Stock ceased to
represent at least 80.0% of the voting power and 80.0% of the combined
stock value of the outstanding Junior Preferred Stock and common stock. It
is likely that by the fifth anniversary of their issuances, the Junior
Preferred Stock would cease to represent 80.0% of the relevant total
combined stock value. It is entirely possible, however, that the 80.0%
value test could fail well prior to the fifth anniversary after issuance.
In the event that deconsolidation occurs without a redemption of the Junior
Preferred Stock, the tax liabilities discussed above would be incurred
without the Company receiving the proceeds of a redemption.
K. Preferred Stock
- -------------------
In April 1997, the Company entered into an agreement ("The Redemption
Agreement") with certain former shareholders of a subsidiary. Pursuant to
The Redemption Agreement, the Company is required to redeem $1,875 of
remaining preferred stock one year from the date of the agreement. At
September 30, 1997, the preferred stock is classified as an accrued
liability.
In May 1997, Motors and Gears Holdings, Inc., a majority-owned subsidiary
of the Company, issued $1.5 million of senior, non-voting 8.0% cumulative
preferred stock to its minority shareholders.
<PAGE>
PAGE 17
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(ALL DOLLAR AMOUNTS IN THOUSANDS)
The following discussion should be read in conjunction with Management's
Discussion and Analysis of Financial Condition and Results of Operations
contained in the 1996 10-K, the financial statements and the related notes
thereto which are included elsewhere in this quarterly report.
Results of Operations
- ---------------------
Summarized below are the net sales, operating income and operating margins
(as defined) for each of the Company's business segments for the third
quarter and nine months ended September 30, 1997 and 1996. Acquisitions are
included from the date of acquisition. This discussion reviews the
foregoing segment data and certain of the consolidated financial data for
the Company.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
THIRD QUARTER September 30,
---------------- -----------------
1997 1996 1997 1996
------- ------- ------- --------
<S> <C> <C> <C> <C>
Net Sales:
Specialty Printing and Labeling $ 29,152 $ 29,476 $ 83,673 $ 75,155
Motors and Gears 39,861 30,575 106,379 90,153
Telecommunications Products 67,142 39,144 174,944 90,733
Welcome Home (c) --- 20,654 2,456 51,873
Consumer and Industrial Products 46,886 38,250 140,478 117,405
-------- -------- ------- -------
Total $183,041 $158,099 $507,930 $425,319
======= ======= ======= =======
Operating Income (a):
Specialty Printing and Labeling $ 2,343 $ 1,878 $ 6,153 $ 3,926
Motors and Gears 7,819 6,883 23,075 20,694
Telecommunications Products 9,181 966 9,267 10,912
Welcome Home (c) --- (1,757) (1,107) (6,672)
Consumer and Industrial Products 6,290 5,375 19,203 15,797
------- ------- ------- -------
Total $ 25,633 $ 13,345 $ 56,591 $ 44,657
======= ======= ======= =======
Operating Margins (b):
Specialty Printing and Labeling 8.0% 6.4% 7.4% 5.2%
Motors and Gears 19.6 22.5 21.7 23.0
Telecommunications Products 13.7 2.5 5.3 12.0
Welcome Home (c) --- (8.5) (45.1) (12.9)
Consumer and Industrial Products 13.4 14.1 13.7 13.5
Consolidated (a) 14.0 8.4 11.1 10.5
____________________
(a) Before corporate overhead of $5,169 and $5,868 for the third quarter
ended September 30, 1997 and 1996, respectively and $14,950 and $14,977
for the nine months ended September 30, 1997 and 1996, respectively.
The third quarter of 1996 is also before the write off of $4,488 in
notes receivable from the Cape Craftsman acquisition and a charge of
$3,872 for Imperial's SAR expense. The telecommunications products
operating income reflects the Dura-Line SAR expense of $15,418 in the
nine months ended September 30, 1997 and the AIM SAR expense of $5,200
and $5,500 in the third quarter and nine months ended September 30,
1996, respectively.
(b) Operating margin is operating income divided by net sales.
(c) For the period from January 1, 1997 to January 21, 1997, the date
of the Chapter 11 filing. See Footnote F.
</TABLE>
<PAGE>
PAGE 18
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Specialty Printing and Labeling. As of September 30, 1997, the Specialty
Printing and Labeling group consisted of SPAI, Valmark, Pamco, and
Seaboard.
For the third quarter and first nine months of 1997, net sales decreased
$0.3 million or 1.1% and increased $8.5 million or 11.3%, respectively,
over the same periods last year. The third quarter decrease is due to the
decrease in sales of folding boxes at Seaboard, $0.6 million, and lower
sales of calendars at SPAI, $0.3 million. Partially offsetting these
decreases were increased label sales at Pamco, $0.2 million, and higher
sales of screen print, rollstock and membrane switches at Valmark, $0.1
million each, respectively. The increase in net sales for the first nine
months of 1997 is due to the acquisition of Seaboard, $7.7 million,
increased sales of screen print, rollstock and membrane switches at
Valmark, $0.5 million, $0.5 million and $0.4 million, respectively,
increased sales of labels at Pamco, $0.3 million, and higher sales of ad
specialty products at SPAI, $0.9 million. Partially offsetting these
increases were decreased sales of calendars and school annuals at SPAI,
$0.7 million and $0.1 million, respectively, and lower sales of shrouds to
Apple at Valmark, $1.0 million. The sales gains for both periods at Valmark
reflect management's success in expanding the company's customer base.
For the third quarter and first nine months of 1997, operating income
increased $0.5 million or 28.4% and $2.2 million or 55.6%, respectively,
over the same periods last year. The third quarter increase is due to
higher operating income at Valmark, $0.3 million, Pamco, $0.3 million, and
SPAI, $0.1 million. The nine month increase in operating income is due to
the acquisition of Seaboard, $1.4 million, and higher operating income at
Valmark and SPAI, $0.2 million and $0.7 million, respectively. Partially
offsetting these increases was decreased operating income at Pamco, $0.3
million. For both periods, the increase in operating income at Valmark is
attributed to higher sales and lower selling costs, while the increase in
operating income at SPAI is attributed to lower operating costs, primarily
medical insurance and commissions. The decrease in operating income at
Pamco for the first nine months of the year is due to an increase in plant
overhead stemming from the company's facility expansion in December 1996.
For the third quarter and first nine months of 1997, the consolidated
operating margin increased to 8.0% and 7.4%, respectively, from 6.4% and
5.2%, respectively, in the same periods last year. The improvement is due
in part to the acquisition of Seaboard, which contributes a significant
portion of the group's operating income and operates at an inherently
higher margin than the other companies in the group. In addition, the
increase in operating income is due to higher sales and lower selling costs
at Valmark and lower operating costs at SPAI compared to the same periods
last year.
Motors and Gears. As of September 30, 1997, the Motors and Gears group
consisted of Imperial, Scott, Gear, Merkle-Korff, and FIR. Effective
January 1997, Colman Motor Products became a fully integrated division of
Merkle- Korff.
<PAGE>
PAGE 19
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
For the third quarter and first nine months of 1997, net sales increased
$9.3 million or 30.0% and $16.2 million or 18.0%, respectively, as compared
with the same periods last year. Net sales of sub-fractional motors for the
third quarter and first nine months of 1997 increased 6.0% and 20.0%,
respectively. The strong growth in sub-fractional motors is primarily
attributed to the acquisition of Colman Motor Products on March 8, 1996, as
well as continued strength in the vending and appliance markets. Gears and
gear box sales for the third quarter and first nine months of 1997
increased 27.0% and 21.0% respectively over the same periods last year,
primarily as a result of strong sales of planetary gears in the floor care
market. Sales of fractional/integral motors for the third quarter and first
nine months of 1997 increased 99.0% and 13.0%, respectively, compared with
the same periods in the prior year, primarily due to the acquisition of the
FIR Group Companies on June 12, 1997. Sales in the existing
fractional/integral motors business increased 7.0% for the third quarter of
1997 and decreased 13.0% in the first nine months of 1997 compared to the
respective periods in 1996. This decrease is attributed to unusually strong
sales in the first half of 1996, principally due to a substantial reduction
in the backlog of orders accumulated in the fourth quarter of 1995.
Operating income increased $1.7 million or 28.0% and $3.6 million or 20.0%
for the third quarter and first nine months of 1997, respectively, compared
with the same periods last year. This increase in operating income is
primarily due to the increased sales for the third quarter and first nine
months of 1997 over the same periods in 1996.
Operating margins increased from 19.5% to 19.8% and from 20.4% to 20.7% in
the third quarter and first nine months of 1997, respectively.
Telecommunication Products. As of September 30, 1997, the JTP group
consisted of Dura-Line, AIM, Cambridge, Johnson, Diversified, Viewsonics,
Vitelec, Bond, Northern, LoDan, and EEI.
For the third quarter and first nine months of 1997, net sales increased
$28.0 million or 71.5% and $84.2 million or 92.8%, respectively, over the
same periods last year. The third quarter increase is primarily due to the
acquisitions of Diversified, Viewsonics, Vitelec, and Bond, all acquired in
the third quarter of 1996, Northern, acquired in the fourth quarter of
1996, and LoDan and EEI, acquired in the second and third quarters of 1997,
respectively. Combined, these acquisitions accounted for $23.4 million or
83.6% of the increase in third quarter sales. The remaining increase in
sales is due to higher domestic and international sales of Dura-Line's
Innerduct products, $1.1 million and $3.8 million, respectively. For the
first nine months of 1997, acquisitions accounted for $66.7 million or
79.2% of the increase in sales. The remaining increase in sales is due to
higher domestic and international sales for Dura-Line's Innerduct product,
$6.5 million and $11.7 million, respectively, and higher sales and Johnson,
$1.7 million. Partially offsetting these increases were lower sales at AIM
and Cambridge, $0.9 million each, respectively.
<PAGE>
PAGE 20
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
For the third quarter and first nine months of 1997, operating income
increased $8.2 million or 850.4% and decreased $1.6 million or 15.1%,
respectively, over the same periods last year. The increase in operating
income is primarily due to the acquisitions, which added operating income
of $3.9 million representing 45.3% of the increase in the third quarter. In
addition, operating income at AIM increased $4.7 million for the third
quarter of 1997 compared to 1996 due to Stock Appreciation Rights expense
of $5.2 million in 1996 (see Note H). Operating income at AIM, excluding
SAR expense, was $1.3 million for the third quarter of 1996. The decrease
in operating income for the first nine months of 1997 was primarily due to
an increase in SAR expense of $10.2 million, from $5.2 million in the first
nine months of 1996 to $15.4 million for the first nine months of 1997. The
increase in SAR expense was due to a $15.4 million charge in April 1997
relating to Dura-Line. Excluding the effects of SAR expenses, operating
income would have increased $8.6 million, or 53.4%, for the nine months
ended September 30, 1997. This increase is primarily due to the
acquisitions, which added $9.9 million in the first nine months of 1997.
Partially offsetting this increase was a decrease in operating income at
AIM (excluding SAR expense) of $0.8 million.
Excluding SAR expense, operating margins would have decreased from 15.8% to
14.2% and from 17.7% to 14.1% for the third quarter and first nine months
of 1997, respectively. These declines are due to international expansion
costs at Dura-Line of $1.7 million for the nine month period and
under-absorbed overhead related to the startups in China and Mexico.
Welcome Home. For the third quarter and first nine months of 1997, net
sales decreased $20.7 million or 100.0% and $49.4 million or 95.3%,
respectively, over the same periods last year. For the third quarter ended
September 30, 1997, the operating loss decreased $1.8 million or 100.0% and
for the first nine months of 1997, the operating loss decreased $5.6
million or 83.4%. These fluctuations are the direct result of Welcome
Home's Chapter 11 bankruptcy filing on January 21, 1997 (see Note F). As a
result of the filing, the Company no longer has the ability to control the
operations and financial affairs of the company. Accordingly, the results
of operations of Welcome Home from January 21, 1997 to September 30, 1997,
are not included in the consolidated results of the Company.
Consumer and Industrial Products. As of September 30, 1997, the Consumer and
Industrial Products group consisted of DACCO, Sate-Lite, Riverside, Parsons,
Beemak, Cape, and Cho-Pat.
For the third quarter and first nine months of 1997, net sales increased
$8.6 million or 22.4% and $23.1 million or 19.7%, respectively, over the
same periods last year. The third quarter increase is due to the
acquisitions of Cape and Paw Print in July and November 1996, respectively,
and Arnon-Caine (by Beemak) in January 1997. These companies contributed
$6.5 million, $2.9 million, and $0.9 million to net sales, respectively, in
the third quarter of 1997 compared to $0.6 million for Cape and $0 for Paw
Print and Arnon- Caine in the third quarter of 1996. Further contributing
to the rise in third quarter net sales were increased sales of rebuilt
converters and other hard parts at DACCO, $0.3 million, higher sales of
<PAGE>
PAGE 21
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
warning triangles at Sate-Lite, $0.4 million, and increased sales of
aircraft parts at Parsons, $2.1 million, of which $1.7 million is
attributed to sales to Boeing. Partially offsetting these increases in 1997
third quarter net sales was the lack of sales at Hudson due to the sale of
the Company on May 15, 1997. Hudson contributed $0 in sales to the third
quarter of 1997 compared to $4.0 million in sales in the third quarter of
1996. The increase in net sales for the first nine months of 1997 is driven
by the acquisitions of Cape, $9.3 million, Paw Print, $11.1 million, and
Arnon-Caine, $2.7 million, respectively, plus higher sales of aircraft
parts at Parsons, $6.4 million, of which $5.4 million is attributed to
Boeing. Partially offsetting the above nine month sales increases were
lower sales of rebuilt converters and other hard parts at DACCO, $0.7
million, decreased sales of bibles and religious books at Riverside, $1.0
million, and lower sales at Hudson of $4.6 million due to the sale of the
company. The decrease in net sales for the third quarter and first nine
months of the year at Riverside stems from a decrease in the lower margin
contract distribution business, as management is focusing on the company's
higher margin publishing and distribution lines.
For the third quarter and first nine months of 1997, operating income
increased $0.9 million or 16.6% and $3.4 million or 21.4%, respectively,
over the same periods last year. The third quarter increase is partially
due to the acquisitions of Cape, Paw Print, and Arnon-Caine. These
companies contributed $0.6 million, $0.6 million, and $0.3 million,
respectively, in the third quarter of 1997 compared to operating income of
$0.5 million for Cape and $0 for Paw Print and Arnon-Caine in the third
quarter of 1996. In addition, the increase is due to higher operating
income at Parsons, $0.9 million, Riverside, $0.5 million, and Sate-Lite,
$0.2 million. Partially offsetting these increases was lower operating
income at DACCO, $0.6 million, and decreased operating income at Hudson,
$1.2 million, due to the divestiture of the company. Hudson contributed $0
operating income in the third quarter of 1997 compared to $1.2 million in
the third quarter of 1996. The increase in operating income for the first
nine months of 1997 is primarily due to the acquisitions of Paw Print and
Arnon-Caine, which contributed $1.6 million and $0.9 million, respectively,
to 1997 operating income compared to $0 in 1996. In addition, the increase
is due to higher operating income at Parsons, $2.6 million , and Beemak
(excluding Arnon- Caine), $0.5 million. Partially offsetting these
increases was lower operating income at DACCO, $1.7 million, and Hudson,
$0.5 million due to the sale of the company in May 1997. The decreases for
the third quarter and first nine months at DACCO were primarily due to
lower sales and slightly higher material prices.
For the third quarter and first nine months of 1997, the consolidated
operating margin decreased to 13.4% and increased to 13.7%, respectively,
from 14.1% and 13.5%, respectively, in the same periods in 1996. The
decreased margin in the third quarter of 1997 was primarily due to the
lower sales and slightly higher material prices at DACCO. However, the
increased sales at Parsons and the acquisitions of Cape, Arnon-Caine, and
Paw Print offset this decrease in the first nine months of the year.
<PAGE>
PAGE 22
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Consolidated Results: (See Condensed Consolidated Statements of Operations.)
For the third quarter and first nine months of 1997, consolidated net sales
increased $24.9 million or 15.8% and $82.6 million or 19.4%, respectively,
over the same periods last year. The increase for both periods was
primarily due to the acquisition of Seaboard in the Specialty Printing and
Labeling group, Cape, Paw Print, and Arnon-Caine in the Consumer and
Industrial Products group, Colman Motors and the FIR Group Companies in the
Motors and Gears group, and Diversified, Viewsonics, Vitelec, Bond,
Northern, LoDan, and Engineered Endeavors in the Telecommunication Products
group. In addition, net sales increased due to higher sales of screen
print, rollstock, and membrane switches at Valmark, increased sales of ad
specialty products at SPAI, higher sales of aircraft parts at Parsons,
increased sales of gears and gear boxes at Gear, and higher domestic and
international sales of Dura- Line's Innerduct products. Partially
offsetting these increases were decreased sales of calendars at SPAI, lower
sales of shrouds to Apple at Valmark, decreased sales of rebuilt converters
and other hard parts at DACCO, lower sales of religious books at Riverside,
and decreased sales at Hudson due to the divestiture of the company.
For the third quarter and first nine months of 1997, consolidated operating
income increased $21.3 million and $20.3 million or 95.3%,
respectively, over the same periods last year. Third quarter operating
income increased significantly partially due to a decrease in SAR expense
of $9.0 between third quarter 1996 and 1997. Excluding SAR expense,
operating income would have increased $12.3 million or 151.4% and $26.4
million or 86.2%, over the third quarter and first nine months of 1996,
respectively. In addition, the increase in operating income in both periods
is due to the above-mentioned acquisitions as well as higher operating
income at Valmark, SPAI, Parsons, Beemak, and Imperial. Partially
offsetting these increases was decreased operating income at Pamco, DACCO,
and AIM. Excluding SAR expense, consolidated operating margins improved
from 5.1% to 11.2% and from 7.2% to 11.2% for the third quarter and first
nine months of 1997, respectively.
Interest expense increased $4.7 million or 28.8% and $13.5 million or 29.8%
for the third quarter and first nine months of 1997, respectively, over the
same periods last year. The increase is due to higher revolver borrowings
at JII, Inc. through July 1997, senior debt at Motors and Gears, Inc.
issued in November of 1996, and senior debt at JTP, Inc. issued in July of
1997. Interest income remained consistent between the third quarter of 1996
and 1997. Interest income for the first nine months of 1997 increased $0.2
million or 10.3% over the first nine months of 1996.
Liquidity and Capital Resources. The Company had $166.0 million in working
capital at September 30, 1997, compared to $123.5 million at the end of
1996, representing an increase of $42.5 million or 34.4%. This increase is
due to increased cash, higher net trade receivables, increased inventories,
higher prepaid assets, lower accrued liabilities, and decreased current
portion of long-term debt. Partially offsetting these increases was a
higher line of credit balance and a higher accounts payable balance.
<PAGE>
PAGE 23
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The Company's net cash used in operating activities increased $4.2 million
for the nine months ended September 30, 1997, versus the same period in
1996. The increase in 1997 is due to a higher net loss, $18.3 million, the
absence of a loss on the acquisition of an affiliated company, $4.5
million, gain on the sale of a subsidiary, $19.5 million, higher increase
in current assets, $12.9 million, and higher increase in non-current
assets, $4.2 million. Partially offsetting these changes are the increased
provision for income taxes, $5.7 million, higher depreciation and
amortization, $2.5 million, increased minority interest, $2.7 million,
higher non-cash interest, $3.3 million, equity in investee, $4.8 million,
extraordinary item, $31.0 million, lower decrease in current liabilities,
$2.5 million, and higher increase in non-current liabilities, $2.6 million.
The Company's net cash used in investing activities increased $67.2 million
for the nine months ended September 30, 1997, versus the same period in
1996. The decrease is due to net proceeds from the sale of subsidiaries in
1997, $46.0 million, lower capital expenditures, $1.4 million, decreased
advances to affiliates, $1.0 million, a redemption of investment affiliate,
$12.5 million, lower acquisition of subsidiaries, $8.0 million, and lower
acquisitions of minority interests and other, $0.1 million. Partially
offsetting these changes are decreased cash acquired in the purchase of
subsidiaries, $1.8 million.
The Company's net cash provided by financing activities decreased $35.6
million for the nine months ended September 30, 1997, versus the same
period in 1996. The decrease is due to higher repayment of term debt, $34.8
million, repayment of senior notes, $271.6 million, decreased proceeds from
revolving credit facilities, $88.0 million, increased deferred financing
costs, $24.8 million, and the payment of consent fees, $13.6 million.
Partially offsetting these changes are lower repayment of other long-term
debt, $9.3 million, proceeds from common stock issuances, $2.3 million,
proceeds from preferred stock issuance, $25.0 million, and increased
proceeds from debt issuances, $360.5 million.
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 charge obligations
for at least the next 12 months. At November 14, 1997, the Company had
available under revolving credit agreements $75 million at JII, Inc., $43.5
million at JTP Industries, Inc., and $24.5 million at Motors and Gears
Industries, Inc.
<PAGE>
PAGE 24
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
None
Item 2. Changes in Securities
None
Item 3. Defaults upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
27. EDGAR Financial Data Schedule
<PAGE>
PAGE 25
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
JORDAN INDUSTRIES, INC.
November 14, 1997 By: /s/ Thomas C. Spielberger
---------------------------
Thomas C. Spielberger
Vice President, Controller
and Principal Accounting
Officer
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> SEP-30-1997
<CASH> 37,458
<SECURITIES> 0
<RECEIVABLES> 119,136
<ALLOWANCES> (2,122)
<INVENTORY> 113,300
<CURRENT-ASSETS> 278,758
<PP&E> 188,294
<DEPRECIATION> (87,316)
<TOTAL-ASSETS> 778,931
<CURRENT-LIABILITIES> 112,735
<BONDS> 696,844
27,070
0
<COMMON> 66
<OTHER-SE> (168,583)
<TOTAL-LIABILITY-AND-EQUITY> 778,931
<SALES> 183,041
<TOTAL-REVENUES> 183,041
<CGS> 116,923
<TOTAL-COSTS> 116,923
<OTHER-EXPENSES> 45,654
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 21,009
<INCOME-PRETAX> 1,504
<INCOME-TAX> 167
<INCOME-CONTINUING> 314
<DISCONTINUED> 0
<EXTRAORDINARY> 21,630
<CHANGES> 0
<NET-INCOME> (21,316)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
