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, 1998 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 16, 1998: 98,501.0004.
<PAGE>
PAGE 2
JORDAN INDUSTRIES, INC.
INDEX
Part I. Page No.
Financial Information
Condensed Consolidated Balance Sheets 3
at September 30, 1998, and December 31, 1997
Condensed Consolidated Statements of Operations 4
for the Three Months and Nine Months Ended
September 30, 1998 and 1997
Condensed Consolidated Statements of Cash Flows 5
for the Nine Months Ended September 30, 1998
and 1997
Notes to Condensed Consolidated Financial 7
Statements
Management's Discussion and Analysis of 20
Financial Condition and Results of Operations
Part II.
Other Information 28
Signatures 29
<PAGE>
PAGE 3
JORDAN INDUSTRIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(ALL DOLLAR AMOUNTS IN THOUSANDS)
September 30, December 31,
1998 1997
(unaudited)
ASSETS
Current Assets:
Cash and cash equivalents $ 21,766 $ 52,500
Accounts receivable, net 172,153 134,177
Inventories 148,713 124,000
Prepaid expenses and other current assets 19,112 12,706
Total Current Assets 361,744 323,383
Property, plant and equipment, net 132,744 105,070
Investments in affiliates 1,722 1,722
Goodwill, net 496,101 433,294
Other assets 71,067 66,762
Total Assets $1,063,378 $930,231
LIABILITIES AND NET CAPITAL DEFICIENCY
Current Liabilities:
Notes payable $ 241 $ 2,650
Accounts payable 73,597 58,781
Accrued liabilities 76,711 70,473
Advance deposits 5,398 5,424
Current portion of long-term debt 10,225 9,547
Total Current Liabilities 166,172 146,875
Long-term debt 1,051,475 921,871
Other non-current liabilities 9,414 13,403
Deferred income taxes 1,444 1,444
Minority interest 798 88
Preferred stock 24,693 21,835
Net Capital Deficiency:
Common stock 1 1
Additional paid-in capital 2,116 2,116
Accumulated comprehensive income (1,177) (504)
Accumulated deficit (191,558) (176,898)
Total Net Capital Deficiency (190,618) (175,285)
Total Liabilities and Net Capital
Deficiency $1,063,378 $930,231
See accompanying notes to condensed consolidated financial statements.
<PAGE>
PAGE 4
JORDAN INDUSTRIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
(ALL DOLLAR AMOUNTS IN THOUSANDS)
NINE MONTHS ENDED
THIRD QUARTER September 30,
1998 1997 1998 1997
Net sales $248,567 $183,041 $701,785 $507,930
Cost of sales, excluding
depreciation 158,251 116,923 446,407 319,982
Selling, general and administra-
tive expenses, excluding deprecia-
tion 49,443 35,725 138,758 103,527
Depreciation 6,370 5,072 17,596 14,099
Amortization of goodwill and other
intangibles 5,379 3,808 15,810 10,714
Stock appreciation rights expense - - - 15,418
Management fees and other 1,446 1,049 5,514 2,549
Operating income 27,678 20,464 77,700 41,641
Other (income) and expenses:
Interest expense 27,869 21,009 81,428 58,784
Interest income (323) (595) (1,755) (2,201)
Loss (gain) on sale of
subsidiary and other 397 (1,454) 5,445 (19,466)
Total other expenses 27,943 18,960 85,118 37,117
Income (loss) before income taxes,
minority interest, equity in
investee, and extraordinary items (265) 1,504 (7,418) 4,524
Provision for income taxes 1,933 167 3,494 1,367
Income (loss) before minority
interest, equity in investee,
and extraordinary items (2,198) 1,337 (10,912) 3,157
Minority interest 491 356 710 1,120
Equity in investee - 667 - 4,835
Income (loss) before extraordinary (2,689) 314 (11,622) (2,798)
items
Extraordinary items 179 21,630 179 30,993
Net income (loss) $(2,868)$(21,316)$(11,801) $(33,791)
See accompanying notes to condensed consolidated financial statements.
<PAGE>
PAGE 5
JORDAN INDUSTRIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
(ALL DOLLAR AMOUNTS IN THOUSANDS)
NINE MONTHS ENDED
September 30,
1998 1997
Cash flows from operating activities:
Net loss $(11,801) $(33,791)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization 33,406 27,052
Provision for deferred income taxes - 132
Amortization of deferred financing fees 3,421 -
Minority interest 710 1,120
Non-cash interest 19,661 12,159
Equity in investee - 4,835
Extraordinary item 179 30,993
Loss (gain) on sale of subsidiary 5,368 (19,493)
Changes in operating assets and
liabilities net of effects from
acquisitions:
Increase in current assets (46,364) (17,237)
Increase (decrease) in current liabilities 18,108 (10,055)
Increase in non-current assets (9,314) (6,848)
Decrease (increase) in non-current
liabilities (2,970) 4,666
Net cash provided by (used in)
operating activities 10,404 (6,467)
Cash flows from investing activities:
Net proceeds from sale of a subsidiary 13,500 45,954
Capital expenditures, net (17,181) (11,029)
Advances to affiliates - (4,222)
Redemption of investment in affiliate - 12,500
Acquisition of subsidiaries (118,071) (112,684)
Additional purchase price payments and
SAR payments (10,390) -
Net cash acquired in purchase of subsidiaries 2,240 3,049
Other 10 (241)
Net cash used in investing activities (129,892) (66,673)
<PAGE>
PAGE 6
JORDAN INDUSTRIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
(ALL DOLLAR AMOUNTS IN THOUSANDS)
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)
Proceeds from revolving credit facilities, net 99,500 6,000
Repayment of long-term debt (8,246) (2,682)
Repayment of senior notes (3,400) (271,600)
Proceeds from debt issuance - Jordan
Industries, Inc. - 120,000
Proceeds from debt issuance - Jordan
Telecommunications Products, Inc. - 273,545
Proceeds from preferred stock issuance -
Jordan Telecommunication Products, Inc. - 25,000
Deferred financing costs - (26,361)
Payment of premium and consent fee (179) (13,600)
Other borrowing 1,687 -
Net cash provided by financing activities 89,362 77,801
Foreign currency translation (608) -
Net (decrease)increase in cash and cash equivalents (30,734) 4,661
Cash and cash equivalents at beginning of period 52,500 32,797
Cash and cash equivalents at end of period $ 21,766 $ 37,458
See accompanying notes to condensed consolidated financial statements.
<PAGE>
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 and are of a normal recurring nature, 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,
1997, which are included in the Company's Annual Report filed on Form 10-K for
such year (the "1997 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,
1998 1997
Raw materials $ 58,546 $ 45,324
Work-in-process 17,439 15,897
Finished goods 72,728 62,779
$148,713 $124,000
C. 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 30,1998
and December 31, 1997, are as follows:
September 30, December 31,
1998 1997
Deferred tax liabilities
Intangibles $ 4,612 $ 4,393
Tax over book depreciation 7,260 7,260
Basis in subsidiary 798 798
Lifo reserve 60 83
Intercompany tax gain 7,289 7,289
Other 612 531
Total deferred tax liabilities 20,631 20,354
<PAGE>
PAGE 8
JORDAN INDUSTRIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
(ALL DOLLAR AMOUNTS IN THOUSANDS)
Deferred tax assets
NOL carryforwards 39,985 37,482
Accrued interest on discount debentures 13,510 13,510
Stock Appreciation Rights Agreements 2,682 3,772
Pension obligation 112 444
Vacation accrual 411 891
Uniform capitalization of inventory 1,712 1,501
Allowance for doubtful accounts 1,432 1,125
Foreign NOL's 5,412 3,582
Deferred financing fees 790 814
Intangibles 1,173 1,242
Tax asset basis over book basis at
subsidiary 7,289 7,289
Other 189 484
Total deferred tax assets 74,697 72,136
Valuation allowance for deferred
tax assets (55,510) (53,226)
Net deferred tax assets 19,187 18,910
Net deferred tax liabilities $ 1,444 $ 1,444
D. Comprehensive Income
As of January 1, 1998, the Company adopted the Financial Accounting Standards
Board's Statement of Financial Accounting Standards No. 130, "Reporting
Comprehensive Income." Statement 130 establishes new rules for the reporting
and display of comprehensive income and its components; however, the adoption
of this Statement had no impact on the Company's net income or shareholders'
equity. Statement 130 requires foreign currency translation adjustments,
which prior to adoption were reported separately in shareholders' equity, to
be included in other comprehensive income. Certain amounts in prior year
financial statements have been reclassified to conform to the requirements of
Statement 130.
Total comprehensive income was $(1,554) and $(22,996) for the three months
ended September 30, 1998 and 1997, respectively, and $(12,474)and $(37,054)for
the nine months ended September 30, 1998 and 1997, respectively.
<PAGE>
PAGE 9
JORDAN INDUSTRIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(ALL DOLLAR AMOUNTS IN THOUSANDS)
E. Sale of Subsidiaries
On July 9, 1998, JTP sold its stock of Diversified Wire and Cable for $16,000
which resulted in a loss of $5,368. The proceeds from the sale were used to
pay $1,500 in subordinated seller notes to the original owners of Diversified,
$13,500 to pay down JTP's revolving credit facility, and $1,000 which is
placed in escrow until January 9, 1999, pending certain events subsequent to
the sale.
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
$17,081 was recorded in 1997 relating to this sale.
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.
F. Acquisition and Formation of Subsidiaries
On January 20, 1998, Jordan Telecommunication Products, Inc. ("JTP") through a
newly created subsidiary K&S Sheet Metal Holdings ("K&S Holdings"), a
subsidiary of 80% owned Bond Technologies, purchased the stock of K&S Sheet
Metal ("K&S"). K&S is a manufacturer of precision metal enclosures for
electronic original equipment manufacturers. K&S is located in Huntington
Beach, California.
The purchase price of $15,500, including estimated costs incurred directly
related to the transaction, has been preliminarily allocated to working
capital of $2,666, property, plant and equipment of $1,002, non-compete
agreements of $1,545 and other assets of $91 resulting in an excess purchase
price over net identifiable assets of $10,196. The acquisition was financed
with $14,000 of borrowings from JTP's revolving credit agreement and $1,500 of
a subordinated seller note.
On February 9, 1998, the Company completed the formation of Jordan Specialty
Plastics, Inc. ("JSP"). JSP was formed as a Restricted Subsidiary under the
Company's Indenture. The Company sold the stock of Beemak and Sate-Lite to
JSP for $11,500 of Preferred Stock, which will accrete at plus or minus 97.5%
of the cumulative JSP net income or net loss, as the case may be, through the
earlier of an Early Redemption Event (as defined) or the end of year five.
The Company will also keep its intercompany notes with Sate-Lite ($1.2 million
at January 31,
<PAGE>
PAGE 10
JORDAN INDUSTRIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(ALL DOLLAR AMOUNTS IN THOUSANDS)
1998) and Beemak ($9.8 million at January 31, 1998). The Company has sold
these
subsidiaries in order to establish them as more independent, stand-alone,
industry-focused companies, and to allow the Company's stockholders and
employees to invest directly in JSP.
On February 11, 1998, JSP purchased all of the common stock of Deflecto
Corporation ("Deflecto"). Deflecto designs, manufactures and markets plastic
injection molded products such as office supplies, hardware products and
houseware products.
The purchase price of $43,000, including costs directly related to the
transaction, was allocated to working capital of $10,402, property, plant, and
equipment of $13,929, other long term assets and liabilities of ($2,030), and
resulted in an excess purchase price over net identifiable assets of $20,699.
The acquisition was financed with cash from the Jordan Industries, Inc. credit
line and a $5,000 subordinated seller note.
On February 26, 1998, JSP purchased all of the net assets of Rolite Plastics,
Inc. Rolite is a manufacturer of extruded vinyl chairmats for the office
products industry.
The purchase price of $6,000 including costs directly related to the
transaction, was allocated to working capital of $483, property, plant, and
equipment of $793, and resulted in an excess purchase price over net
identifiable assets of $4,724. The acquisition was financed with cash and a
$900 subordinated seller note.
On May 15, 1998, Motors and Gears Industries, Inc. ("Motors and Gears")
acquired all of the outstanding stock of Advanced D.C. Motors, Inc. and its
affiliated corporations (collectively "ADC") for $55,500. The purchase price,
including costs incurred directly related to the transaction, was allocated to
working capital of $9,345; property and equipment of $4,088; covenants not to
compete of $662; other long-term assets and liabilities of $54; and resulted
in an excess purchase price over net identifiable assets of $41,351. ADC
designs and manufactures special purpose, custom designed motors for use in
electric lift trucks, power sweepers, electric utility vehicles, golf carts,
electric boats, and other niche products. ADC also designs and manufactures
its own production equipment as well as electric motor components know as
commutators.
On July 14, 1998, JTP, through its 70% owned subsidiary, TSI, purchased the
net assets of Opto-Tech Industries, Inc. ("Opto-Tech"). Opto-Tech assembles
and sells radio frequency interference products, attenuators and message
waiting indicators to Regional Bell Operating Companies, independent phone
operators and distributors of telecommunications products. The purchase price
of $6,400, including costs incurred directly related to the transaction, has
not been allocated at this time. The acquisition was financed with $5,150 of
borrowings from JTP's revolving credit agreement and $1,250 of subordinated
seller notes.
<PAGE>
PAGE 11
JORDAN INDUSTRIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(ALL DOLLAR AMOUNTS IN THOUSANDS)
On January 8, 1997, Beemak 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. Beemak now serves as
ACI's primary supplier. The integration of ACI into Beemak's operations has
provided for 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 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, a non-compete 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, 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 $51,026, including costs directly related to the
transaction, was allocated to working capital of $16,562, property, plant, and
equipment of $4,918, other long term assets and liabilities of ($3,442), and
resulted in an excess of purchase price over net identifiable assets of
$32,988. 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.
On September 2, 1997, JTP purchased the assets of Engineered Endeavors Inc.
("EEI"). EEI designs, manufactures and installs custom cellular personal
communication systems and radio/broadcasting towers.
<PAGE>
PAGE 12
JORDAN INDUSTRIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(ALL DOLLAR AMOUNTS IN THOUSANDS)
The purchase price of $41,500, including estimated costs incurred directly
related to the transaction, was allocated to working capital of $2,068,
property, plant, and equipment of $799, a non-compete agreement of $2,500,
other long-term assets of $14, and resulted in an excess purchase price over
net identifiable assets of $36,119. 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 orthopedic
supports and patented preventive 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 27, 1997, 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 $19,850, including costs incurred directly related to
the transaction, was allocated to working capital of $3,514, property, plant,
and equipment of $81, covenants not to compete of $120, and resulted in an
excess purchase price over net identifiable assets of $16,135. The
acquisition was financed through a $16,000 borrowing on the Motors and Gears
line of credit and a $3,850 subordinated seller note.
On October 31, 1997, JTP,through its newly formed 70% owned subsidiary,
Telephone Services Holdings, Inc., 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 purchase price of $53,303, including estimated costs incurred directly
related to the transaction, has been allocated to working capital of $3,864,
property, plant, and equipment of $1,528, a non-compete agreement of $2,000,
and non current assets of $107, resulting in an excess purchase price over net
identifiable assets of $45,804. The acquisition was financed with a $48,000
<PAGE>
PAGE 13
JORDAN INDUSTRIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(ALL DOLLAR AMOUNTS IN THOUSANDS)
borrowing under the JTP credit facility, a $5,000 subordinated seller note and
the assumption of a $303 deferred purchase agreement.
On December 18, 1997, Motors and Gears, purchased all of the common stock of
Motion Control Engineering, Inc. ("MCE"). MCE is the leading independent
supplier of electronic motion and logic control products to the elevator
industry.
The purchase price of $53,925, including costs directly related to the
transaction, was allocated to working capital of $10,071, property and
equipment of $1,428, non-compete agreements of $1,005, other long-term assets
and liabilities of ($12), and resulted in an excess of purchase price over net
identifiable assets of $41,433. The cash was provided from the issuance of
$100 million of 10 3/4% bonds by Motors and Gears, Inc.
Unaudited pro forma information with respect to the Company as if the 1998 and
1997 acquisitions had occurred on January 1, 1997 is as follows:
NINE MONTHS ENDED
September 30,
1998 1997
Net sales $710,879 $663,789
Net income (loss) before taxes (337) 6,730
Net income (loss) (6,670) (1,518)
G. 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 has continued 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 January 31, 1999.
<PAGE>
PAGE 14
JORDAN INDUSTRIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(ALL DOLLAR AMOUNTS IN THOUSANDS)
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. The amount due to the Company from Welcome Home was $1,579 as
of September 30, 1998.
Cape Craftsmen, a consolidated subsidiary of the Company, would also be
adversely affected by a liquidation of Welcome Home. In the third quarter of
1998, Cape's sales to Welcome Home were $4,638, or 68.6%, of Cape's total
third quarter sales. Cape's receivable outstanding related to these sales was
$4,023 at September 30, 1998.
H. 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.
I. Payment of Stock Appreciation Rights
In March 1992, the former shareholders of a wholly-owned subsidiary, were
granted Stock Appreciation Rights ("SAR") exercisable in full or in part on
the occurrence of the disposition by voting power and/or value of the capital
stock of the subsidiary. The value of the stock appreciation rights was 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 $1,875 of remaining preferred stock be redeemed
one year from the date of the agreement. The Company recorded a charge of
$15,418 related to this agreement during 1997. The Company paid $1,000 on the
deferred payment amount and $1,875 on the preferred stock redemption amount
during 1998 and has a remaining liability of $4,800 at September 30, 1998.
As consideration for the signing of the Redemption Agreement, the Company
<PAGE>
PAGE 15
JORDAN INDUSTRIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(ALL DOLLAR AMOUNTS IN THOUSANDS)
paid the former shareholders non-compete payments totaling $352 and a special
bonus of approximately $454, determined based on a percentage of the
subsidiary's gross profit during fiscal 1997.
In connection with the Company's acquisitions of AIM and Cambridge in 1989,
the seller of these companies was granted stock appreciation rights. The
formula used to value these rights was calculated by determining 20% of a
multiple of average cash flow of these companies for the two years preceding
the date when these rights were exercised, less the indebtedness of these
companies. The seller passed away during the third quarter of 1996 and the
seller's estate exercised these rights. The total amount owed under these
rights is approximately $6,260. AIM had fully accrued for these rights as of
December 31, 1996. In 1997, the Company entered into an agreement to purchase
and redeem the Estate's and Decedent's interest in the SAR for $3,111 in cash
and a deferred payment, including interest at 9% per annum, of $3,391 payable
on May 2, 1998. JTP paid the remaining liability of $3,391 on May 4, 1998.
J. Additional Purchase Price Agreements
The Company has a contingent purchase price agreement relating to its
acquisition of Deflecto in 1998. The plan is based on Deflecto achieving
certain earnings before interest and taxes and is payable on April 30, 2008.
If Deflecto is sold prior to April 30, 2008, the plan is payable 120 days
after the transaction.
The Company has a contingent purchase price agreement relating to its
acquisition of Viewsonics in 1996. The plan is based on Viewsonics achieving
certain earnings before interest and taxes and can pay a minimum of $0 and a
maximum of $2,000 for the year ended July 31, 1997 and $3,000 for the year
ending July 31, 1998. As of December 31, 1997, the Company had accrued $1,388
for the plan year ended July 31, 1997, which was paid to the former owner of
Viewsonics during the first quarter of 1998. As of September 30, 1998, the
Company has accrued $1,000 for the plan year ended July 31, 1998 which is
payable during the first quarter of 1999.
The Company has a contingent purchase price agreement relating to its
acquisition of Motion Control on December 18, 1997. The terms of the Company's
Motion Control acquisition agreement provides for additional consideration to
be paid if the acquired entity's results of operations exceed certain targeted
levels. Targeted levels are set substantially above the historical experience
of the acquired entity at the time of acquisition. The agreement becomes
exercisable in 2003 and payments, if any, under the contingent agreement will
be placed in a trust and paid out in cash in equal annual installments over a
four year period.
In addition, the Company has an agreement to make an additional purchase price
payment of up to $4,000 to the former owners of TSI if certain earnings
projections are met as of October 31, 1998. At September 30, 1998, $3,666 has
been accrued and is payable on or before March 1, 1999.
<PAGE>
PAGE 16
JORDAN INDUSTRIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(ALL DOLLAR AMOUNTS IN THOUSANDS)
The Company has a contingent purchase price agreement relating to its
acquisition of Advanced D.C. The contingent purchase price of up to $5,600 is
dependent upon the acquired entity's results of operations exceeding certain
targeted levels substantially above its historical experience.
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 December 31,
1997, the preferred stock is classified as an accrued liability. This
liability was paid in full during the first quarter of 1998.
In May 1997, Motors and Gears Holdings, Inc., a majority-owned subsidiary of
the Company, issued $1,500 of senior, non-voting 8.0% cumulative preferred
stock to its minority shareholders.
On July 25, 1997, JTP issued and sold twenty-five thousand units, each
consisting of (i) $1 aggregate liquidation preference of 13.25% Senior
Exchangeable Preferred Stock due August 1, 2009 ("JTP Senior Preferred
Stock"), and (ii) one share of JTP Common Stock.
Holders of the JTP Senior Preferred Stock are entitled to receive dividends at
a rate of 13.25% per annum of the liquidation preference. All dividends are
cumulative, whether or not earned or declared, and are payable on February 1,
May 1, August 1, and November 1 of each year. On or before August 1, 2002,
JTP may, at its option, pay dividends in cash or in additional shares of JTP
Senior Preferred Stock having an aggregate liquidation preference equal to the
amount of such dividends. After August 1, 2002, dividends may be paid only in
cash. On November 1, 1997, JTP issued 889.3836 of additional shares of JTP
Senior Preferred Stock, as payment of dividends through that date. On
February 1, 1998, May 1, 1998, and August 1, 1998 the Company issued
864.6345,864.3747 and 922.3787 shares, respectively, of Senior Preferred
Stock, as payment of dividends. The JTP Senior Preferred Stock has no voting
rights and is mandatorily redeemable on August 1, 2009.
L. Foreign Exchange Instruments and Risk Management
The Company enters into foreign currency forward exchange contracts to hedge
transactions and firm commitments that are denominated in foreign currencies
(principally the Czech Koruna and Italian Lira) and not to engage in currency
speculation. The Company primarily utilizes forward exchange contracts with a
duration of one year or less. Gains or losses on hedges of transaction
exposures are included in income in the period in which exchange rates
change. Gains and losses on contracts which hedge specific foreign
<PAGE>
PAGE 17
JORDAN INDUSTRIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(ALL DOLLAR AMOUNTS IN THOUSANDS)
currency denominated commitments, primarily royalty payments from the
Company's Czech and Italian operations, are deferred and recognized in the
basis of the transactions underlying the commitments.
Forward exchange contracts generally require the Company to exchange U.S.
dollars for foreign currencies at maturity, at rates that are agreed to at
inception of the contracts. If the counterparties to the exchange contracts
(primarily highly-rated financial institutions) do not fulfill their
obligations to deliver the contracted currencies, the Company could be at risk
for any currency related fluctuation.
The Company has $4,925 notional amount of foreign currency forward exchange
contracts outstanding at September 30, 1998 ($0 at December 31, 1997).
M. Year 2000 Compliance
The Company has assembled an internal project team that is addressing the
issue of computer programs and embedded computer chips being unable to
distinguish between the year 1900 and the Year 2000. The project team has
developed and is in the process of implementing a three-step plan intended to
result in the Company's operations continuing with no or minimal interruption
through the Year 2000.
For purposes of this discussion, "Year 2000 compatible" means that the
computer hardware, software or device in question will function in 2000
without modification or adjustment or will function in 2000 with a one-time
manual adjustment. However, there can be no assurance that any such Year 2000
compatible hardware, software or device will function properly when
interacting with any Year 2000 noncompatible hardware, software or device.
PROCESS OVERVIEW
The first step in the Company's plan is to inventory all of its computer
hardware and software and all of its devices having imbedded computer
technology. The Year 2000 project team is focusing on five areas: (i)
business systems; (ii) production (E.G., desk top computers); (iii) financial
management (E.G., banking software, postage equipment and time clocks); (iv)
facilities (E.G., heating and air conditioning systems, elevators, telephones,
and fire and security systems); and (v) significant vendors and customers.
The inventory is approximately 50% complete and is expected to be finished by
the end of 1998.
In the second step, the project team is determining whether each inventoried
system, device, customer or vendor is Year 2000 compatible. In the third
step, those that are not compatible will be upgraded or replaced.
BUSINESS SYSTEMS. The Company's subsidiaries are in the process of assessing
whether their business systems are Year 2000 compatible and what remediation
may be required to make them compatible.
<PAGE>
PAGE 18
JORDAN INDUSTRIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(ALL DOLLAR AMOUNTS IN THOUSANDS)
PRODUCTION, FINANCIAL MANAGEMENT AND FACILITIES. Once they have been
inventoried, each device and each piece of hardware and non-business system
software (a "Non-System Item") that can be tested by the Company is being
tested for the Year 2000 compatibility. In the case of any Non-System Items
that cannot be tested, the vendor is being asked for a certification regarding
compatibility. Each Non-System Item that is noncompatible will be either
upgraded or replaced. Approximately 20% of the Non-System Items that have
been inventoried to date have been tested or certified by the vendor. The
Company expects substantially all of its Non-System Items will have been
tested or certified and upgraded or replaced by the end of the third quarter
of 1999.
CUSTOMERS AND VENDORS. The project team has just begun the process of
contacting each of the Company's significant customers and vendors and
requesting that they apprise the Company of the status of their Year 2000
compliance programs. The Company has targeted the end of the first quarter of
1999 as the date for receiving substantially all customer and vendor
responses, although minimal responses have been received to date. There can be
no assurance as to when this process will be completed.
COSTS
The total cost associated with the Company becoming Year 2000 compatible is
not expected to be material to its financial position. The estimate of the
cost to upgrade or replace Non-System Items is very preliminary and the
Company expects to develop a more definitive estimate once the inventory has
been completed and the testing/certification process is further along.
RISKS
The failure to correct a material Year 2000 problem could result in an
interruption in or failure of certain normal business activities or operations
of the Company. Such failures could have a material adverse effect on the Compa
ny. Due to the general uncertainty inherent in the Year 2000 problem,
resulting in part from the uncertainty of Year 2000 compliance by the
Company's significant customers and vendors, the Company is unable to
determine at this time whether the consequences of Year 2000 noncompliance
will have a material adverse effect on the Company, although its Year 2000
project is expected to significantly reduce that uncertainty.
The Company believes that the areas that present the greatest risk to the
Company are (i) disruption of the Company's business due to Year 2000
noncompatibility of one of its critical business systems and (ii) disruption
of the business of
certain of its significant customers and venders due to their noncompliance.
At this time, the Company believes that all of its business systems will be
Year 2000 compatible before the end of 1999. Whether disruption of a
customer's or vendor's business due to noncompliance will have a material
adverse effect on the Company will depend on several factors including the
nature and duration of the disruption, the significance of the customer or
vendor and, in the case of vendors, the availability of alternate sources for
the vendor's products.
<PAGE>
PAGE 19
JORDAN INDUSTRIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(ALL DOLLAR AMOUNTS IN THOUSANDS)
The Company is in the process of developing a contingency plan to address and
material Year 2000 noncompliance issues and expects to have the plan completed
by the end of 1999.
<PAGE>
PAGE 20
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(UNAUDITED)
(ALL DOLLAR AMOUNTS IN THOUSANDS)
NINE MONTHS ENDED
THIRD QUARTER September 30,
1998 1997 1998 1997
Net Sales:
Specialty Printing and Labeling $ 29,461 $29,152 $ 84,907 $ 83,673
Jordan Specialty Plastics (c) 20,066 5,849 52,894 18,199
Motors and Gears 78,037 39,861 208,304 106,379
Telecommunications Products 78,231 68,741 232,441 174,944
Welcome Home (d) - - - 2,456
Consumer and Industrial Products 42,771 42,140 123,238 124,981
Total $248,566 $185,743 $701,784 $510,632
Operating Income:
Specialty Printing and Labeling $ 1,362 $ 2,164 $ 4,915 $ 5,316
Jordan Specialty Plastics (c) 1,532 613 5,393 1,843
Motors and Gears 12,814 7,762 33,843 21,978
Telecommunications Products (c) 8,600 7,876 23,722 6,469
Welcome Home (d) - - - (1,107)
Consumer and Industrial Products(c) 4,071 4,201 12,415 12,220
Total(a) $28,379 $22,616 $80,288 $ 46,719
Operating Margins (b):
Specialty Printing and Labeling 4.6% 7.4% 5.8% 6.4%
Jordan Specialty Plastics(c) 7.6 10.5 10.2 10.1
Motors and Gears 16.4 19.5 16.3 20.7
Telecommunications Products (c) 11.0 11.5 10.2 3.7
Welcome Home (d) - - - (45.1)
Consumer and Industrial Products(c) 9.5 10.0 10.1 9.8
Consolidated (a) 11.4 12.2 11.4 9.2
(a) The total does not include corporate overhead of $702 and $700 for the
third quarter ended September 30, 1998 and 1997, respectively, and $2,589 and
$3,627 for the nine months ended September 30, 1998 and 1997, respectively.
(b) Operating margin is operating income divided by net sales.
(c) In 1998, Sate-Lite and Beemak were reclassified from the Consumer and
Industrial Product segment to the Jordan Specialty Plastics segment. In 1997,
the Retube product line of Dura-Line was reclassified from the
Telecommunications Products segment to the Consumer and Industrial Products
segment. Prior period results were also restated into these new groups in
order to provide accurate comparisons between periods.
(d) For the period from January 1, 1997 to January 21, 1997, the
date of the Chapter 11 filing. See Footnote G.
<PAGE>
PAGE 21
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with Management's
Discussion and Analysis of Financial Condition and Results of Operations
contained in the 1997 10-K and the financial statements and the related notes
thereto.
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
ended September 30, 1998 and 1997. This discussion reviews the foregoing
segment data and certain of the consolidated financial data for the Company.
Specialty Printing and Labeling. As of September 30, 1998, the Specialty
Printing and Labeling group consisted of SPAI, Valmark, Pamco, and Seaboard.
For the third quarter and first nine months of 1998, net sales increased $0.3
million or 1.1%, and $1.2 million or 1.5%, respectively, over the same periods
last year. The third quarter increase is due to higher sales of ad specialty
products at SPAI, $0.7 million, and increased sales of membrane switches at
Valmark, $0.5 million. Partially offsetting these increases are decreased
sales of calendars at SPAI, $0.4 million, lower sales of screen printed and
rollstock products at Valmark, $0.1 million and $0.2 million, respectively,
and decreased sales of printed boxes at Seaboard, $0.2 million. The increase
in sales for the first nine months of 1998 is due to higher sales of ad
specialty products at SPAI, $2.2 million, increased sales of membrane switches
at Valmark, $1.0 million, and higher sales of labels at Pamco, $0.1 million.
Partially offsetting these increases are decreased sales of calendars and
school annuals at SPAI, $0.1 million and $0.2 million, respectively, lower
sales of shielding devices, screen printed product and rollstock product at
Valmark, $1.0 million, $0.4 million, and $0.3 million, and decreased sales of
printed boxes at Seaboard, $0.1 million. The increased ad specialty sales at
SPAI are due to management's focus on the higher growth corporate program
business, while decreased sales of shielding devices at Valmark are due to a
major customer's decision to reduce production of laptop computers that
require the shields.
For the third quarter and first nine months of 1998, operating income
decreased $0.8 million or 37.1% and $0.4 million or 7.5%, respectively, over
the same periods last year. The third quarter decrease in operating income is
due to lower operating income at Pamco, SPAI, and Seaboard, $0.3 million, $0.1
million, and $0.4 million, respectively. The nine month decrease in operating
income is also due to lower operating income at Pamco, SPAI, and Seaboard,
$0.3 million, $0.3 million, and $0.1 million, respectively. Partially
offsetting this is increased operating income at Valmark, $0.1 million, and
decreased corporate expenses, $0.2 million. The decreased operating income at
SPAI is due to the hiring of additional salespeople to focus on continued
growth in the corporate program ad specialty segment, as discussed above. The
improved operating income at Valmark is due to Valmark negotiating more
favorable pricing with customers, while the decreased corporate expenses are
due to lower bank fees as bank debt was repaid in 1997.
<PAGE>
PAGE 22
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
For the third quarter and first nine months of 1998, the operating margin
decreased to 4.6% and 5.8%, respectively, from 7.4% and 6.4%, respectively, in
1997, due to the reasons mentioned above.
Jordan Specialty Plastics. As of September 30, 1998, the Jordan Specialty
Plastics group consisted of Beemak, Sate-Lite, Deflecto, and Rolite.
For the third quarter and first nine months of 1998, net sales increased $14.2
million or 243.1% and $34.7 million or 190.6%, respectively, over the same
periods last year. The increase in third quarter sales is primarily due to
the acquisitions of Deflecto and Rolite during the first quarter of 1998.
Deflecto and Rolite contributed sales in the third quarter of 1998 of $13.4
million and $1.0 million, respectively. In addition, sales of truck and auto
lenses at Sate-Lite increased $0.1 million. Partially offsetting these
increases are decreased sales of warning triangles and custom molded product
at Sate-Lite, $0.1 million and $0.2 million, respectively. The increase in
sales for the first nine months of 1998 is also primarily due to the
acquisitions of Deflecto and Rolite. Deflecto contributed $32.7 million in
the first nine months while Rolite contributed $2.2 million. In addition,
sales of miscellaneous bike parts and warning triangles increased at
Sate-Lite, $0.2 million each. Partially offsetting these increases are
decreased sales of molded and fabricated products at Beemak, $0.3 million and
$0.1 million, respectively, and lower sales of custom molded product at
Sate-Lite, $0.2 million.
For the third quarter and first nine months of 1998, operating income
increased $0.9 million or 149.9% and $3.6 million or 192.6%, respectively,
over the same periods last year. The increase in third quarter operating
income is primarily due to the acquisitions of Deflecto and Rolite, as
discussed above. Deflecto and Rolite contributed operating income in the
third quarter of 1998 of $1.6 million and $0.3 million, respectively.
Partially offsetting these increases is lower operating income at Beemak and
Sate-Lite, $0.5 million each. The nine month increase in operating income is
also primarily due to the acquisitions of Deflecto and Rolite who contributed
operating income in 1998 of $4.4 million and $0.5 million, respectively.
Partially offsetting these increases is lower operating income at Beemak and
Sate-Lite, $0.6 million and $0.7 million, respectively. The decreased
operating income at Beemak is due to lower absorption of fixed operating
expenses at a lower sales level, as well as additional costs associated with
Beemak's expansion into a larger facility. The decrease in operating income
at Sate-Lite is primarily due to competitive pricing caused by a weaker Yen.
For the third quarter and first nine months of 1998, the operating margin
decreased to 7.6% and increased to 10.2%, respectively, from 10.5% and 10.1%,
respectively, in 1997. The decrease in third quarter operating margin is due
to the reasons mentioned above.
<PAGE>
PAGE 23
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Motors and Gears. As of September 30, 1998, the Motors and Gears group
consisted of Imperial, Scott, Gear, Merkle-Korff, Fir Group, ED&C, Motion
Control, and Advanced D.C.
For the third quarter and first nine months of 1998, net sales increased $38.2
million or 95.8%, and $101.9 million or 95.8%, respectively, over the same
periods last year. The third quarter increase in sales is primarily due to
the acquisitions of FIR Group, ED&C, Motion Control Engineering, and Advanced
D.C. in June 1997, October 1997, December 1997, and May 1998, respectively.
FIR, ED&C, Motion Control, and Advanced D.C. contributed sales in the third
quarter of 1998 of $12.7 million, $2.2 million, $13.9 million, and $11.0
million, respectively, or 85.6% of the total increase in sales, compared to
sales at FIR of $7.1 million in the third quarter of 1997. In addition, sales
increased due to a 23.0% increase in sales of sub-fractional motors and a 3.0%
increase in sales of fractional/integral motors. The nine month increase in
net sales is also primarily due to the acquisitions of FIR, ED&C, Motion
Control, and Advanced D.C. These companies contributed sales in 1998 of $33.5
million, $8.7 million, $39.0 million, and $16.6 million, respectively,
compared to sales at FIR of $7.1 million in the first nine months of 1997. In
addition, sales of sub-fractional motors increased 13.0% and sales of
fractional/integral motors increased 7.0%. These increases are attributed to
continued strength in the vending machine and appliance markets and stronger
sales in the floor care and elevator markets, respectively.
For the third quarter and first nine months of 1998, operating income
increased $5.1 million or 65.1%, and $11.9 million or 54.0%, respectively,
over the same periods last year. The third quarter increase in operating
income is due to the acquisitions and higher sales of sub-fractional motors
and fractional/integral motors, as discussed above.
Operating margins for the third quarter and first nine months of 1998
decreased to 16.4% and 16.3%, respectively, from 19.5% and 20.7%,
respectively, in 1997. The decrease in operating margins is primarily due to
FIR, ED&C, and Motion Control operating at a slightly lower gross margin than
the rest of the group.
Telecommunications Products. As of September 30, 1998, the Telecommunications
Products group consisted of Dura-Line, AIM, Cambridge, Johnson Components,
Viewsonics, Vitelec, Bond, Northern Technologies, LoDan, EEI, TSI, K&S Sheet
Metal, and Opto-Tech.
Net sales for the third quarter and first nine months of 1998 increased $9.5
million or 13.8%, and $57.5 million or 32.9%, respectively, over the same
periods last year. Net sales increased primarily due to the acquisitions of
EEI, TSI, K&S Sheet Metal, and Opto-Tech which occurred in September 1997,
October 1997, January 1998, and July 1998, respectively.
<PAGE>
PAGE 24
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
EEI, TSI, K&S Sheet Metal, and Opto-Tech contributed sales of $4.2 million,
$12.5 million, $3.2 million, and $0.4 million in 1998, respectively, compared
to net sales at EEI of $1.9 million in 1997. In addition, net sales increased
due to higher sales of power conditioning systems. Partially offsetting these
increases are decreased sales of certain custom cable assemblies and
electronic components as well as reduced sales at Diversified Wire and Cable
due to the divestiture of the company in July 1998. The nine month increase
is also primarily due to the acquisitions of EEI, TSI, K&S Sheet Metal, and
Opto-Tech as discussed above. EEI, TSI, K&S Sheet Metal, and Opto-Tech
contributed sales of $12.6 million, $35.4 million, $8.7 million, and $0.4
million, respectively, compared to net sales at EEI of $1.9 million in 1997.
The increase is also due to higher sales of infrastructure products and
equipment, particularly power conditioning systems and CATV products.
Partially offsetting these increases are decreased sales of fiber optic
conduit systems and certain custom cable assemblies as well as reduced sales
at Diversified, as discussed above.
For the third quarter and first nine months of 1998, operating income
increased $0.7 million or 9.2%, and $17.3 million or 266.7%, respectively,
over the same periods last year. Third quarter operating income increased due
to the acquisitions of TSI, K&S Sheet Metal, and Opto-Tech, as discussed
above. TSI, K&S Sheet Metal and Opto-Tech contributed operating income of
$2.6 million, $1.4 million, and $0.2 million, respectively. The nine month
increase is primarily due to the payment of $15.4 million for stock
appreciation rights in 1997. In addition, operating income increased due to
the acquisitions discussed above. TSI, K&S Sheet Metal, and Opto-Tech
contributed operating income of $5.9 million, $2.4 million, and $0.2 million,
respectively. Partially offsetting these increases is decreased operating
income from the infrastructure products and equipment segment due to lower
sales of higher margin product and higher amortization costs related to the
new acquisitions.
For the third quarter and first nine months of 1998, operating margins
decreased to 11.0% and increased to 10.2%, respectively, from 11.5% and 3.7%,
respectively, in 1997. The fluctuations are due to the reasons mentioned
above.
Welcome Home. Net sales decreased $2.5 million or 100.0%, and the operating
loss decreased $1.1 million or 100.0%. Due to Welcome Home filing Chapter 11
bankruptcy on January 21, 1997, the results of operations of Welcome Home are
not included in the consolidated results of the Company at September 30,
1998. See Note G.
Consumer and Industrial Products. As of September 30, 1998, the Consumer and
Industrial Products group consisted of DACCO, Riverside, Parsons, Cape
Craftsmen, Cho-Pat, and Dura-Line Retube.
For the third quarter and first nine months of 1998, net sales increased $0.6
million or 1.5% and decreased $1.7 million or 1.4%, respectively, over the
same periods least year. The increase in third quarter sales is due to
increased sales of rebuilt converters at Dacco, $1.0 million, higher sales of
bibles, books, audio materials, video materials, music, gifts, and contract
distribution sales
<PAGE>
PAGE 25
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
at Riverside, $0.5 million, $1.1 million, $0.1 million, $0.2 million, $0.3
million, $0.1 million, and $0.2 million, respectively, increased sales of
wooden furniture and other home accessories at Cape, $0.3 million, higher
sales of orthopedic supports and other pain-reducing devices at Cho-Pat, $0.3
million, and increased sales of plastic pipe at Dura-Line Retube, $0.4
million. Partially offsetting these increases are lower sales of aircraft
parts at Parsons, $1.0 million, and decreased sales at Paw Print, $2.9
million, due to the divestiture of the company in July 1997. The decrease in
net sales for the first nine months of 1998 is primarily due to the
divestiture of Paw Print in July 1997 as well as the divestiture of Hudson in
May 1997. Paw Print and Hudson contributed net sales of $11.1 million and
$6.7 million in the first nine months of 1997. In addition, sales decreased
due to lower sales of aircraft parts at Parsons, $1.1 million, and decreased
contract distribution sales at Riverside, $0.3 million. Partially offsetting
these decreases are increased sales of rebuilt converters and other hard parts
at Dacco, $2.8 million, higher sales of bibles, books, video material, music,
and gifts at Riverside, $0.8 million, $3.3 million, $0.6 million, $0.6
million, and $0.4 million, respectively, increased sales of wooden furniture
and other home accessories at Cape, $6.9 million, higher sales of orthopedic
supports and other pain-reducing devices at Cho-Pat, $1.1 million, and
increased sales of plastic pipe at Dura-Line Retube, $1.0 million. Sales
increased at Dacco due to the addition of eight retail stores in 1998, and
sales increased at Cape due to management's success at broadening Cape's
customer base. Cho-Pat, which was purchased in September 1997, contributed
sales of $0.1 million in 1997 compared to sales of $1.2 million in 1998.
For the third quarter and first nine months of 1998, operating income
decreased $0.1 million or 3.1% and increased $0.2 million or 1.6%,
respectively, over the same periods last year. The decrease in third quarter
operating income is due to lower operating income at Parsons and Riverside,
$0.3 million and $0.1 million, respectively, as well as lower operating income
at Paw Print, $0.5 million, due to the divestiture of the company, as
mentioned above. Partially offsetting these decreases are increased operating
income at Dacco, Cape, and Dura-Line Retube, $0.3 million, $0.3 million, and
$0.2 million, respectively. Operating income for the first nine months of
1998 increased at Dacco, Riverside, Cape, and Cho-Pat, $1.3 million, $0.2
million, $2.4 million, and $0.2 million, respectively. Partially offsetting
these increases is decreased operating income at Paw Print and Hudson due to
the divestitures of the companies in July 1997 and May 1997, respectively.
Paw Print and Hudson contributed operating income of $1.5 million and $2.2
million, respectively, during the first nine months of 1997. In addition,
operating income decreased at Parsons, $0.2 million. The increased operating
income at Cape is due to increased sales of higher gross margin product
primarily wooden furniture, the increased operating income at Cho-Pat is due
to the acquisition of the company in September 1997, and the decreased
operating income at Parsons is due to lower absorption of fixed overhead due
to lower sales of aircraft parts.
Operating margin in the third quarter decreased to 9.5% from 10.0% in 1997
while operating margin for the first nine months of 1998 increased to 10.1%
from 9.8%
<PAGE>
PAGE 26
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
in 1997. Operating margin for the first nine months of 1998 increased due to
the reasons mentioned above.
Consolidated Results: (See Condensed Consolidated Statements of Operations.)
For the third quarter and first nine months of 1998, consolidated net sales
increased $65.5 million or 35.8%, and $193.9 million or 38.2%, respectively,
over the same periods last year. The increase in sales is primarily due to
the 1998 acquisitions of Deflecto and Rolite in the Jordan Specialty Plastics
group, Advanced D.C. in the Motors and Gears group, and K&S Sheet Metal and
Opto-Tech in the Telecommunications Products group. In addition, sales
increased due to the 1997 acquisitions that occurred subsequent to the third
quarter of 1997: ED&C and Motion Control in the Motors and Gears group; TSI in
the Telecommunications Products group; and Cho-Pat in the Consumer and
Industrial Products group. Sales also increased due to higher sales of ad
specialty products, membrane switches, and labels in the Specialty Printing
and Labeling group, increased sales of bike parts and warning triangles in the
Jordan Specialty Plastics group, higher sales of sub-fractional motors and
fractional/intergral motors in the Motors and Gears group, higher sales of
power conditioning systems and CATV products in the Jordan Telecommunicaitons
group, and increased sales of rebuilt converters, bibles, books, video, music,
gifts, orthopedic supports, and home accessories in the Consumer and
Industrial Products group. Partially offsetting these increases are decreased
sales of calendars, school annuals, screen printed product, rollstock product
and folding boxes, in the Specialty Printing and Labeling group, lower sales
of plastic injection molding and fabrication products in the Jordan Specialty
Plastics group, decreased sales of fiber optic cable conduit systems and
certain custom cable assemblies in the Jordan Telecommunications group, and
lower contract distribution sales and sales of aircraft parts in the Consumer
and Industrial Products group. In addition, sales decreased due to the
divestitures of Paw Print and Hudson from the Consumer and Industrial Products
group, and Diversified Wire and Cable from the Jordan Telecommunications
group.
For the third quarter and first nine months of 1998, operating income
increased $7.2 million or 35.3%, and $36.1 million or 86.6%, respectively,
over the same periods last year. The increase is primarily due to the 1998
and 1997 acquisitions, as discussed above. In addition, operating income
increased due to the payment of stock appreciation rights in the Jordan
Telecommunications group which reduced operating income in the second quarter
of 1997. Operating income also increased due to more favorable pricing
contracts and decreased corporate expenses in the Specialty Printing and
Labeling group and increased sales of higher gross margin product in the
Consumer and Industrial Products group. Partially offsetting these increases
is decreased operating income due to additional costs associated with facility
expansion and unfavorable fluctuations in the value of the Yen in the Jordan
Specialty Plastics group, lower sales of higher gross margin product and
higher amortization costs in the Jordan Telecommunications group, and the
divestitures of Paw Print and Hudson from the Consumer and Industrial Products
group and Diversified Wire and Cable from the Jordan Telecommunications group.
<PAGE>
PAGE 27
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
For the third quarter and first nine months of 1998 interest expense increased
$6.9 million or 32.7%, and $22.6 million or 38.5%, respectively, due to
higher debt levels stemming from the Company's July 1997 debt offering at JTP
and the Company's December 1997 debt offering at Motors and Gears. Interest
expense also increased due to the financing of the Company's acquisitions.
Interest income remained consistent between 1997 and 1998.
Liquidity and Capital Resources. The Company had approximately $195.6 million
in working capital at September 30, 1998, compared to $176.5 million at the
end of 1997, representing an increase of $19.1 million or 10.8%. This
increase is due to increased net trade receivables, higher inventory, and
increased prepaids. Partially offsetting these increases in working capital
are higher accrued expenses and an increased accounts payable balance.
Operating activities. Net cash provided by operating activities for the nine
months ended September 30, 1998 was $10.4 million compared to $6.5 million
used in operating activities during the same period in 1997. This increase is
due to improved operating results, partially offset by an increase in interest
expense and working capital.
Investing activities. Net cash used in financing activities for the nine
months ended September 30, 1998 was $129.9 million compared to $66.7 million
used in investing activities during the same period in 1997. This increase is
due to proceeds from the sale of two subsidiaries resulting from the
divestitures of Hudson and Paw Print in 1997, increased capital expenditures
and increased acquisitions during 1998, and additional purchase price and SAR
payments made during 1998.
Financing activities. Net cash provided by financing activities for the nine
months ended September 30, 1998 was $89.4 million compared to $77.8 million
provided by financing activities during the same period in 1997. This
increase is primarily due to increased proceeds from the Company's revolving
credit facilities used for working capital needs and the acquisitions of
subsidiaries.
None of the subsidiaries require significant amounts of capital spending to
sustain current operations or to achieve projected growth.
The Company expects its principal sources of liquidity to be from its
operating activities and funding from the revolving line-of-credit agreement.
The Company further expects that these sources will enable it to meet its
long-term cash requirements for working capital, capital expenditures,
interest, taxes, and debt repayment for at least the next 12 months.
<PAGE>
PAGE 28
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
None
27. EDGAR Financial Data Schedule
<PAGE>
PAGE 29
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 16, 1998 By: /s/ Thomas C. Spielberger
Thomas C. Spielberger
Senior Vice President,
Finance and Accounting
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> SEP-30-1998
<CASH> 21,766
<SECURITIES> 0
<RECEIVABLES> 176,089
<ALLOWANCES> (3,936)
<INVENTORY> 148,713
<CURRENT-ASSETS> 361,744
<PP&E> 247,364
<DEPRECIATION> (114,620)
<TOTAL-ASSETS> 1,063,378
<CURRENT-LIABILITIES> 166,172
<BONDS> 1,051,475
24,693
0
<COMMON> 1
<OTHER-SE> (190,619)
<TOTAL-LIABILITY-AND-EQUITY> 1,063,378
<SALES> 701,785
<TOTAL-REVENUES> 701,785
<CGS> 446,407
<TOTAL-COSTS> 177,678
<OTHER-EXPENSES> 85,118
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 81,428
<INCOME-PRETAX> (7,418)
<INCOME-TAX> 3,494
<INCOME-CONTINUING> (10,912)
<DISCONTINUED> 0
<EXTRAORDINARY> 179
<CHANGES> 0
<NET-INCOME> (11,801)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>