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 June 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 August 14,
1998: 98,501.0004.
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JORDAN INDUSTRIES, INC.
INDEX
Part I. Page No.
Financial Information
Condensed Consolidated Balance Sheets
at June 30, 1998, and December 31, 1997 3
Condensed Consolidated Statements of Operations
for the Three Months and Six Months Ended
June 30, 1998 and 1997 4
Condensed Consolidated Statements of Cash Flows
for the Six Months Ended June 30, 1998 and 1997 5
Notes to Condensed Consolidated Financial
Statements 6
Management's Discussion and Analysis of
Financial Condition and Results of Operations 17
Part II.
Other Information 25
Signatures 26
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JORDAN INDUSTRIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(ALL DOLLAR AMOUNTS IN THOUSANDS)
June 30, December 31,
1998 1997
(unaudited)
ASSETS
Current Assets:
Cash and cash equivalents $ 24,573 $ 52,500
Accounts receivable, net 160,923 134,177
Inventories 152,195 124,000
Prepaid expenses and other current assets 19,080 12,706
Total Current Assets 356,771 323,383
Property, plant and equipment, net 123,196 105,070
Investments in and advances to affiliates 1,722 1,722
Goodwill, net 498,265 433,294
Other assets 71,320 66,762
Total Assets $1,051,274 $930,231
LIABILITIES AND NET CAPITAL DEFICIENCY
Current Liabilities:
Notes payable $ 396 $ 2,650
Accounts payable 69,126 58,781
Accrued liabilities 67,746 70,473
Advance deposits 6,953 5,424
Current portion of long-term debt 10,214 9,547
Total Current Liabilities 154,435 146,875
Long-term debt 1,048,848 921,871
Other non-current liabilities 9,271 13,403
Deferred income taxes 1,444 1,444
Minority interest 1,662 88
Preferred stock 23,717 21,835
Net Capital Deficiency:
Common stock 1 1
Additional paid-in capital 2,116 2,116
Accumulated comprehensive income (2,491) (504)
Accumulated deficit (187,729) (176,898)
Total Net Capital Deficiency (188,103) (175,285)
Total Liabilities and Net Capital
Deficiency $1,051,274 $930,231
See accompanying notes to condensed consolidated financial statements.
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JORDAN INDUSTRIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
(ALL DOLLAR AMOUNTS IN THOUSANDS)
SIX MONTHS ENDED
SECOND QUARTER June 30,
1998 1997 1998 1997
Net sales $245,516 $173,346 $453,218 $324,889
Cost of sales, excluding
depreciation 154,449 107,367 288,156 203,059
Selling, general and administra-
tive expenses, excluding deprecia-
tion 45,851 34,707 89,315 67,802
Depreciation 5,862 4,651 11,226 9,027
Amortization of goodwill and other
intangibles 5,411 3,654 10,431 6,906
Stock appreciation rights expense - 15,418 - 15,418
Management fees and other 2,297 348 4,068 1,500
Operating income 31,646 7,201 50,022 21,177
Other (income) and expenses:
Interest expense 27,248 19,199 53,559 37,775
Interest income (634) (894) (1,432) (1,606)
Loss (gain) on sale of
subsidiary and other 5,045 (18,275) 5,048 (18,012)
Total other expenses 31,659 30 57,175 18,157
Income (loss) before income taxes,
minority interest, equity in
investee, and extraordinary items (13) 7,171 (7,153) 3,020
Provision (benefit) for income taxes (561) 923 1,561 1,200
Income (loss) before minority
interest, equity in investee,
and extraordinary items 548 6,248 (8,714) 1,820
Minority interest (70) (376) (219) (764)
Equity in investee - (3,383) - (4,168)
Income (Loss) before extraordinary
items 478 2,489 (8,933) (3,112)
Extraordinary items - (9,044) - (9,363)
Net income (loss) $ 478 $(6,555)$ (8,933)$(12,475)
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)
SIX MONTHS ENDED
June 30,
1998 1997
Cash flows from operating activities:
Net loss $ (8,933) $(12,475)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization 21,657 15,813
Provision for deferred income taxes - 163
Amortization of deferred financing fees 2,273 1,864
Minority interest 219 764
Non-cash interest 12,951 6,776
Equity in investee - 4,168
Extraordinary item - 9,363
Loss (gain) on sale of subsidiary 5,000 (18,508)
Changes in operating assets and
liabilities net of effects from
acquisitions:
Increase in current assets (32,703) (13,328)
Increase (decrease) in current liabilities 9,566 (3,199)
Decrease (increase) in non-current assets 1,212 (6,000)
Decrease (increase) in non-current
liabilities (3,113) 3,630
Net cash provided by (used in)
operating activities 8,129 (10,969)
Cash flows from investing activities:
Net proceeds from sale of a subsidiary - 35,218
Capital expenditures, net (9,872) (5,758)
Advances to affiliates - (1,335)
Acquisition of subsidiaries (114,044) (70,913)
Additional purchase price payments and
SARA payments (9,913) -
Net cash acquired in purchase of subsidiaries 2,222 456
Other - (446)
Net cash used in investing activities (131,607) (42,778)
Cash flows from financing activities:
Proceeds from Motors and Gears, Inc.
common stock issuance - 1,100
Proceeds from revolving credit facilities, net 99,500 56,000
Repayment of long-term debt (6,554) (5,263)
Other borrowing 1,898 -
Other 51 -
Net cash provided by financing activities 94,895 51,837
Foreign currency translation 656 -
Net decrease in cash and cash equivalents (27,927) (1,910)
Cash and cash equivalents at beginning of period 52,500 32,797
Cash and cash equivalents at end of period $ 24,573 $ 30,887
See accompanying notes to condensed consolidated financial statements.
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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:
June 30, December 31,
1998 1997
Raw materials $ 53,619 $ 45,324
Work-in-process 15,016 15,897
Finished goods 83,560 62,779
$152,195 $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 June 30,1998 and
December 31, 1997, are as follows:
June 30, December 31,
1998 1997
Deferred tax liabilities
Intangibles $ 4,711 $ 4,393
Tax over book depreciation 7,260 7,260
Basis in subsidiary 798 798
Lifo reserve 62 83
Intercompany tax gain 7,289 7,289
Other 610 531
Total deferred tax liabilities 20,730 20,354
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JORDAN INDUSTRIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
(ALL DOLLAR AMOUNTS IN THOUSANDS)
Deferred tax assets
NOL carryforwards 39,914 37,482
Accrued interest on discount debentures 13,510 13,510
Stock Appreciation Rights Agreements 2,682 3,772
Pension obligation 143 444
Vacation accrual 625 891
Uniform capitalization of inventory 1,712 1,501
Allowance for doubtful accounts 1,243 1,125
Foreign NOL's 5,372 3,582
Deferred financing fees 711 814
Intangibles 1,311 1,242
Tax asset basis over book basis at
subsidiary 7,289 7,289
Other 214 484
Total deferred tax assets 74,726 72,136
Valuation allowance for deferred
tax assets (55,440) (53,226)
Net deferred tax assets 19,286 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. Prior year financial statements
have been reclassified to conform to the requirements of Statement 130.
Total comprehensive income was $1,391 and ($5,274) for the three months ended
June 30, 1998 and 1997, respectively, and ($6,946) and ($14,058) for the six
months ended June 30, 1998 and 1997, respectively.
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PAGE 8
JORDAN INDUSTRIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(ALL DOLLAR AMOUNTS IN THOUSANDS)
E. 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
$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 to an affiliate. As
the transaction was among entities under common control, the proceeds received
in excess of the net assets of Paw Print of $1,084 were recorded as an
adjustment to Shareholder's Equity in 1997. Paw Print is a value-added
provider of direct mail services.
F. Acquisition and Formation of Subsidiaries
On January 20, 1998, the Company through a newly created subsidiary K&S Sheet
Metal Holdings ("K&S Holdings"), a subsidiary of 80% owned Bond Technologies,
purchased the stock of K&S Sheet Metal ("K&S"). K&S is a manufacturer of
precision metal enclosures for electronic original equipment manufacturers.
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 $2,257, 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 $10,605. 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, 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.
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PAGE 9
JORDAN INDUSTRIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(ALL DOLLAR AMOUNTS IN THOUSANDS)
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 preliminarily allocated to working capital of $8,598,
property, plant, and equipment of $6,346, other long term assets and
liabilities of ($1,941), and resulted in an excess purchase price over net
identifiable assets of $29,997. 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 $754, and resulted in an excess purchase price over net
identifiable assets of $4,763. The acquisition was financed with cash and a
$900 subordinated seller note.
On May 15, 1998, the Company 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 $9,247; property and
equipment of $4,088; covenants not to compete of $662; other long-term assets
and liabilities of $53; and resulted in an excess purchase price over net
identifiable assets of $41,450. 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 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.
<PAGE 10>
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JORDAN INDUSTRIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(ALL DOLLAR AMOUNTS IN THOUSANDS)
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 Industries, Inc. ("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 $50,496, 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
$32,458. 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.
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.
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JORDAN INDUSTRIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(ALL DOLLAR AMOUNTS IN THOUSANDS)
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 $20,000, including costs incurred directly related to
the transaction, was preliminarily allocated to working capital of $3,514,
property, plant, and equipment of $132, covenants not to compete of $120, and
resulted in an excess purchase price over net identifiable assets of $16,234.
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 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
borrowing under the JTP credit facility, a $5,000 subordinated seller note and
the assumption of a $303 deferred purchase agreement.
On December 10, 1997, Motors and Gears, through its newly formed wholly-owned
subsidiary, Motion Holdings, Inc., 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 $53,600, including costs directly related to the
transaction, was preliminarily 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 $41,108. The cash was provided
from the issuance of $100 million of 10 3/4% bonds by Motors and
Gears, Inc.
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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 1998 and
1997 acquisitions had occurred on January 1, 1997 is as follows:
SIX MONTHS ENDED
June 30,
1998 1997
Net sales $461,647 $425,868
Net income (loss) before taxes (1,613) 298
Net income (loss) (5,350) (5,317)
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.
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 $1,466 as of
June 30, 1998.
Cape Craftsmen, a consolidated subsidiary of the Company, would also be
adversely affected by a liquidation of Welcome Home. In the second quarter of
1998, Cape's sales to Welcome Home were $3,100, or 56.8%, of Cape's total
second quarter sales. Cape's receivable outstanding related to these sales
was $2,314 at June 30, 1998.
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PAGE 13
JORDAN INDUSTRIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(ALL DOLLAR AMOUNTS IN THOUSANDS)
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 $1,200 during
1998 and has a remaining liability of $4,800 at June 30, 1998.
As consideration for the signing of the Redemption Agreement, the Company
further agreed to pay 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.
<PAGE 14>
PAGE 14
JORDAN INDUSTRIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(ALL DOLLAR AMOUNTS IN THOUSANDS)
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. No amounts have been accrued for the
plan year ending July 31, 1998. The Company paid $1,388 to the former owner
of Viewsonics during the first quarter of 1998.
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 on or before March 1, 1999.
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.
<PAGE 15>
PAGE 15
JORDAN INDUSTRIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(ALL DOLLAR AMOUNTS IN THOUSANDS)
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 and May 1, 1998, the Company issued 864.6345 and 864.3747
shares of Senior Preferred Stock, respectively, 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 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 $6,257 notional amount of foreign currency forward exchange
contracts outstanding at June 30, 1998 ($0 at December 31, 1997).
M. Subsequent Events
On July 9, 1998, the Company sold its stock of Diversified Wire and Cable
<PAGE 16>
PAGE 16
JORDAN INDUSTRIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(ALL DOLLAR AMOUNTS IN THOUSANDS)
for $16,000 which resulted in a loss of $5,000. JTP adjusted the carrying
value of Diversified's net assets as of June 30, 1998 and recorded a charge of
$5,000 to reflect this loss. 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. Diversified's results of operations for the three and six months
ended June 30, 1998 and 1997 were as follows:
SIX MONTHS ENDED
Second Quarter June 30,
1998 1997 1998 1997
Net Sales $7,718 $7,617 $15,697 $15,193
Operating Income 257 422 668 1,034
Net Income (loss) (339) (182) (502) (204)
On July 14, 1998, the Company, through its 70% owned subsidiary, TSI,
purchased the net assets of Opto-Tech Industries, Inc. ("Opto-Tech").
Opto-Tech assembles and sells radio frequency interference products,
attenuators and message waiting indicators to Regional Bell Operating
Company's, 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 17>
PAGE 17
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(UNAUDITED)
(ALL DOLLAR AMOUNTS IN THOUSANDS)
SIX MONTHS ENDED
SECOND QUARTER June 30,
1998 1997 1998 1997
Net Sales:
Specialty Printing and Labeling $ 31,710 $31,305 $ 55,446 $ 54,521
Jordan Specialty Plastics (c) 19,016 6,318 32,828 12,350
Motors and Gears 71,700 34,999 130,267 66,518
Telecommunications Products (c) 82,109 59,278 154,210 106,203
Welcome Home (d) - - - 2,456
Consumer and Industrial Products(c) 40,981 41,446 80,467 82,841
Total $245,516 $173,346 $453,218 $324,889
Operating Income:
Specialty Printing and Labeling $ 3,426 $ 3,108 $ 3,553 $ 3,152
Jordan Specialty Plastics (c) 2,097 915 3,861 1,230
Motors and Gears 12,038 7,601 21,029 14,216
Telecommunications Products (c) 9,015 (7,112) 15,122 (1,407)
Welcome Home (d) - - - (1,107)
Consumer and Industrial Products(c) 5,228 3,884 8,344 8,019
Total(a) $ 31,804 $ 8,396 $51,909 $ 25,210
Operating Margins (b):
Specialty Printing and Labeling 10.8% 9.9% 6.4% 5.8%
Jordan Specialty Plastics(c) 11.0 14.5 11.8 10.0
Motors and Gears 16.8 21.7 16.1 21.4
Telecommunications Products (c) 11.0 (12.0) 9.8 (1.3)
Welcome Home (d) - - - (45.1)
Consumer and Industrial Products(c) 12.8 9.4 10.4 9.7
Consolidated (a) 13.0 4.8 11.5 7.8
(a) The total does not include corporate overhead is $158 and $1,195 for
the second quarter ended June 30, 1998 and 1997, respectively, and $1,887 and
$4,033 for the six months ended June 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 18>
PAGE 18
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 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 second quarter
ended June 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 June 30, 1998, the Specialty Printing
and Labeling group consisted of SPAI, Valmark, Pamco, and Seaboard.
For the second quarter and first six months of 1998, net sales increased $0.4
million or 1.3%, and $0.9 million or 1.7%, respectively, over the same periods
last year. The second quarter increase is due to higher sales of ad specialty
products at SPAI, $0.4 million, increased sales of membrane switches and
shielding devices at Valmark, $0.4 million and $0.7 million, respectively, and
higher sales of folding boxes at Seaboard, $0.4 million. Partially offsetting
these increases are lower sales of calendars and school annuals at SPAI, $0.1
million each, decreased sales of screen printed and rollstock products at
Valmark, $0.1 million and $1.1 million, respectively, and lower sales of
labels at Pamco, $0.1 million. The increase in sales for the first six months
of 1998 is due to higher sales of ad specialty products and calendars at SPAI,
$1.5 million and $0.3 million, respectively, increased sales of membrane
switches at Valmark, $0.6 million, and higher sales of folding boxes at
Seaboard, $0.1 million. Partially offsetting these increases are lower sales
of school annuals at SPAI, $0.2 million, and decreased sales of screen printed
and rollstock product at Valmark, $0.2 million and $1.2 million,
respectively. The sales gains for both periods at SPAI reflect continued
focus on growing the corporate programs segment of the ad specialty business
while the increased sales of membrane switches shows the continued
diversification of Valmark's customer base.
For the second quarter and first six months of 1998, operating income
increased $0.3 million or 10.2%, and $0.4 million or 12.7%, respectively, over
the same periods last year. The second quarter increase is due to higher
operating income at Valmark, $0.1 million, increased operating income at
Seaboard, $0.2 million, and decreased corporate expenses, $0.2 million.
Partially offsetting these increases is lower operating income at SPAI, $0.2
million. The six month increase in operating income is due to higher
operating income at Valmark, $0.1 million, increased operating income at
Seaboard, $0.2 million, and decreased corporate
<PAGE 19>
PAGE 19
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
expenses, $0.1 million. The improved operating income at Valmark is due to
Valmark negotiating more favorable pricing with customers, the increase at
Seaboard is due to higher sales more fully absorbing fixed operating expenses,
and the decreased corporate expenses is due to lower bank fees as bank debt
was repaid in 1997. The decrease in SPAI's operating income is due to the
hiring of additional salespeople to focus on continued growth in the ad
specialty segment.
For the second quarter and first six months of 1998, the operating margin
increased to 10.8% and 6.4%, respectively, from 9.9% and 5.8%, respectively,
due to the reasons mentioned above.
Jordan Specialty Plastics. As of June 30, 1998, the Jordan Specialty Plastics
group consisted of Beemak, Sate-Lite, Deflecto, and Rolite.
For the second quarter and first six months of 1998, net sales increased $12.7
million or 201.0%, and $20.5 million or 165.8%, respectively, over the same
periods last year. The increase in second 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 second quarter of 1998 of $12.1
million and $0.9 million, respectively. In addition, net sales of warning
triangles increased at Sate-Lite, $0.1 million. Partially offsetting these
increases are decreased sales of bike reflectors and custom molding products
at Sate-Lite, $0.2 million each. The increase in sales for the first six
months of 1998 is also due primarily to the acquisitions of Deflecto and
Rolite. Deflecto contributed $19.2 million in the first six months while
Rolite contributed $1.2 million. In addition, sales increased due to higher
sales of bike parts and warning triangles at Sate-Lite, $0.2 million and $0.3
million, respectively. Partially offsetting these increases are lower sales
of plastic injection molded products at Beemak, $0.4 million.
For the second quarter and first six months of 1998, operating income
increased $1.2 million or 129.2%, and $2.6 million or 213.9%, respectively.
The increase in second quarter operating income is primarily due to the
acquisitions of Deflecto and Rolite, as discussed above. Deflecto and Rolite
contributed operating income in the second quarter of 1998 of $1.6 million and
$0.1 million, respectively. Partially offsetting these increases is lower
operating income at Sate-Lite and Beemak, $0.4 million and $0.1 million,
respectively. The six month increase in operating income is primarily due to
the acquisitions of Deflecto and Rolite who contributed operating income in
1998 of $2.7 million and $0.2 million, respectively. Partially offsetting
these increases is decreased operating income at Sate-Lite and Beemak, $0.2
million and $0.1 million, respectively. The decrease in operating income at
Sate-Lite is due to unfavorable fluctuations in resin prices while the
decreased operating income at Beemak is primarily due to the lower absorption
of fixed operating expenses at a lower sales level.
<PAGE 20>
PAGE 20
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
For the second quarter and first six months of 1998, the operating margin
decreased to 11.0% and increased to 11.8%, respectively, from 14.5% and 10.0%,
respectively, in 1997. The decrease in second quarter operating
margin is due to the reasons mentioned above.
Motors and Gears. As of June 30, 1998, the Motors and Gears group consisted
of Imperial, Scott, Gear, Merkle-Korff, ED&C, Motion Control, and Advanced
D.C.
For the second quarter and first six months of 1998, net sales increased $36.7
million or 104.9%, and $63.7 million or 95.8%, respectively, over the same
periods last year. The second 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 second
quarter of 1998 of $11.5 million, $3.0 million, $13.5 million, and $5.6
million, respectively, or 91.6% of the total increase in sales. In addition,
sales increased due to an 11.0% increase in sales of sub-fractional motors and
a 2.0% increase in sales of fractional/integral motors. The six 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 $20.9 million, $6.5 million, $25.1 million, and $5.6 million,
respectively. In addition, sales of sub-fractional motors and
fractional/integral motors both increased 9.0%. 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 second quarter and first six months of 1998, operating income
increased $4.4 million or 58.4%, and $6.8 million of 47.9%, respectively, over
the same periods last year. The second 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 second quarter and first six months of 1998
decreased to 16.8% and 16.1% from 21.7% and 21.4%, 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 June 30, 1998, the Telecommunications
Products group consisted of Dura-Line, AIM, Cambridge, Johnson Components,
Viewsonics, Vitelec, Bond, Northern Technologies, LoDan, EEI, TSI, and K&S
Sheet Metal.
Net sales for the second quarter and first six months of 1998 increased $22.8
million or 38.5%, and $48.0 million or 45.2%, respectively, over the same
periods last year. Net sales increased primarily due to the acquisitions of
LoDan, EEI, TSI, and K&S Sheet Metal which occurred in May 1997, September
1997, October 1997, and January 1998, respectively. LoDan
<PAGE 21>
PAGE 21
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
sales increased $4.7 million over second quarter 1997 while EEI, TSI, and K&S
Sheet Metal contributed sales of $4.3 million, $12.3 million, and $3.0 million
in 1998, respectively. In addition, net sales increased due to higher sales
of power conditioning systems. Partially offsetting these increases are
decreased sales of fiber optic conduit systems and certain custom cable
assemblies. The six month increase is also primarily due to the acquisitions
of LoDan, EEI, TSI, and K&S Sheet Metal, as discussed above. LoDan sales
increased $11.4 million over the same period in 1997 while EEI, TSI, and K&S
Sheet Metal contributed sales of $8.4 million, $22.9 million, and $5.5
million, respectively. 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.
For the second quarter and first six months of 1998, operating income
increased $16.1 million or 226.8%, and $16.5 million or 1174.8%, respectively,
over the same periods last year. Operating income increased primarily due to
a payment of $15.4 million for stock appreciation rights which reduced
operating income in the second quarter of 1997. In addition, second quarter
operating income increased due to the acquisitions discussed above. LoDan
operating income increased $0.6 million over second quarter 1997 while EEI,
TSI, and K&S Sheet Metal contributed operating income of $0.3 million, $1.5
million, and $0.5 million, respectively. The six month increase is primarily
due to the payment of $15.4 million for stock appreciation rights in 1997, as
discussed above. In addition, operating income increased due to the
acquisitions discussed above. LoDan operating income increased $1.2 million
over the same period in 1997 while EEI, TSI, and K&S Sheet Metal contributed
operating income of $0.3 million, $3.3 million, and $1.1 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 second quarter and first six months of 1998, operating margins
increased to 11.0% and 9.8%, respectively, from (12.0%) and (1.3%),
respectively, in 1997. The increases 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 June 30, 1998. See
Note G.
Consumer and Industrial Products. As of June 30, 1998, the Consumer and
Industrial Products group consisted of DACCO, Riverside, Parsons, Cape
Craftsmen, Cho-Pat, and Dura-Line Retube.
<PAGE 22>
PAGE 22
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
For the second quarter and first six months of 1998, net sales decreased $0.5
million or 1.1%, and $2.4 million or 2.9%, respectively, over the
same periods last year. The decrease in second quarter sales is primarily due
to the divestitures of Paw Print and Hudson in July 1997 and May 1997,
respectively. Paw Print and Hudson contributed sales in the second quarter of
1997 of $3.9 million and $2.1 million, respectively. In addition, sales
decreased due to lower sales of aircraft parts at Parsons, $0.4 million, and
decreased contract distribution sales at Riverside, $0.2 million. Partially
offsetting these decreases were higher sales of rebuilt converters at Dacco,
$1.2 million, increased sales of bibles, books, videos, music, and gifts at
Riverside, $0.1 million, $0.8 million, $0.2 million, $0.2 million, and $0.1
million, respectively, increased sales of wooden furniture and other
accessories at Cape, $3.0 million, higher sales of plastic pipe at Dura-Line
Retube, $0.1 million, and sales at Cho-Pat, $0.4 million, due to the
acquisition of the company in September 1997. The decrease in sales for the
first six months of 1998 is also primarily due to the divestitures of Paw
Print and Hudson. Paw Print
and Hudson contributed sales in 1997 of $8.2 million and $6.7 million,
respectively. In addition, sales decreased due to lower contract
distribution sales at Riverside, $0.6 million, and lower sales of aircraft
parts at Parsons, $0.2 million. Partially offsetting these decreases are
increased sales of rebuilt converters at Dacco, $1.9 million, higher sales of
bibles, books, video, music, and gifts at Riverside, $0.4 million, $2.0
million, $0.4 million, $0.3 million, and $0.2 million, respectively, higher
sales at Dura-line Retube, $0.6 million, increased sales at Cape, $6.7
million, and sales at Cho-Pat, $0.8 million. The increase in sales at Cape
reflects management's success in broadening the customer base.
For the second quarter and first six months of 1998, operating income
increased $1.3 million or 34.6%, and $0.3 million or 4.1%, respectively, over
the same periods last year. The increase in second quarter operating income
is primarily due to higher operating income at Dacco, $1.0 million, increased
operating income at Riverside, $0.2 million, and higher operating income at
Cape, $1.9 million. Partially offsetting these increases is decreased
operating income at Parsons, $0.2 million, and the divestitures of Paw Print
and Hudson, as discussed above. Paw Print and Hudson contributed operating
income in the second quarter of 1997 of $0.6 million and $1.0 million,
respectively. The six month increase in operating income is primarily due to
higher operating income at Dacco, Riverside, Parsons, Cape, and Cho-Pat of
$1.0 million, $0.3 million, $0.1 million, $2.1 million, and $0.1 million,
respectively. Partially offsetting these increases are the divestitures of Paw
Print and Hudson. Paw Print and Hudson contributed operating income of $1.1
million and $2.2 million, respectively, in 1997. The increase in operating
income is primarily due to increased sales of higher gross margin product at
Dacco and Riverside, as well as increased absorption of fixed overhead costs
at Cape due to the higher sales.
Operating margin for the second quarter and first six months of 1998 increased
to 12.8% and 10.4%, respectively, from 9.4% and 9.7%,
<PAGE 23>
PAGE 23
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
respectively, in 1997. The six month decrease is primarily due to the
divestitures of Paw Print and Hudson, as discussed above.
Consolidated Results: (See Condensed Consolidated Statements of Operations.)
For the second quarter and first six months of 1998, consolidated net sales
increased $72.2 million or 41.6%, and $128.3 million or 39.5%, 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 in the
Telecommunications Products group. In addition, sales increased due to the
1997 acquisitions that occurred subsequent to the second quarter of 1997: Fir,
ED&C and Motion Control in the Motors and Gears group; EEI and 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, calendars, membrane switches, and folding boxes 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, and gifts in the Consumer and Industrial Products
group. Partially offsetting these increases are decreased sales of school
annuals, screen printed product, and rollstock product in the Specialty
Printing and Labeling group, lower sales of plastic injection molding 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 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.
For the second quarter and first six months of 1998, operating income
increased $24.4 million or 339.5%, and $28.8 million or 136.2%, 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 and higher
absorption of fixed overhead costs in the Consumer and Industrial Products
group. Partially offsetting these increases is decreased operating income due
to unfavorable fluctuations in resin prices 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 in the Consumer and Industrial Products group.
<PAGE 24>
PAGE 24
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
For the second quarter and first six months of 1998 interest expense increased
$8.0 million or 41.9%, and $15.8 million or 41.8%, 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 $202.3 million
in working capital at June 30, 1998, compared to $176.5 million at the end of
1997, representing an increase of $25.8 million or 14.6%. This increase is
due to increased net trade receivables, higher inventory, increased prepaids,
and decreased accrued liabilities. Partially offsetting these increases in
working capital is an increased accounts payable balance and a higher advance
deposits balance.
Operating activities. Net cash provided by operating activities for the six
months ended June 30, 1998 was $8.1 million compared to $11.0 million used in
operating activities during the same period in 1997. This increase is due to
an increase in sales and reduction of SAR expenses, partially offset by an
increase in interest expense.
Investing activities. Net cash used in financing activities for the six
months ended June 30, 1998 was $131.6 million compared to $42.8 million used
in investing activities during the same period in 1997. This increase is due
to proceeds from sale of a subsidiary resulting from the divestiture
of Hudson in the second quarter 1997, increased capital expenditures,
increased acquisitions during the first half of 1998, and additional purchase
price and SAR payments made during 1998.
Financing activities. Net cash provided by financing activities for the six
months ended June 30, 1998 was $94.9 million compared to $51.8 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 25
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 26
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.
August 14, 1998 By: /s/ Thomas C. Spielberger
Thomas C. Spielberger
Senior Vice President,
Finance and Accounting
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<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> JUN-30-1998
<CASH> 24,573
<SECURITIES> 0
<RECEIVABLES> 164,840
<ALLOWANCES> (3,917)
<INVENTORY> 152,195
<CURRENT-ASSETS> 356,771
<PP&E> 231,782
<DEPRECIATION> 108,586
<TOTAL-ASSETS> 1,051,274
<CURRENT-LIABILITIES> 154,435
<BONDS> 819,678
0
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<COMMON> 1
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<TOTAL-LIABILITY-AND-EQUITY> 1,051,274
<SALES> 453,218
<TOTAL-REVENUES> 453,218
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</TABLE>
