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 March 31, 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 May
15, 1998: 98,501.0004.
PAGE 2
JORDAN INDUSTRIES, INC.
INDEX
Part I. Page No.
Financial Information 3
Condensed Consolidated Balance Sheets
at March 31, 1998, and December 31, 1997 3
Condensed Consolidated Statements of Operations
for the Three Months Ended March 31, 1998 4
and 1997
Condensed Consolidated Statements of Cash Flows
for the Three Months Ended March 31, 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 23
Signatures 24
<PAGE>PAGE 3
JORDAN INDUSTRIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(ALL DOLLAR AMOUNTS IN THOUSANDS)
March 31, December 31,
1998 1997
(unaudited)
ASSETS
Current Assets:
Cash and cash equivalents $ 53,206 $ 52,500
Accounts receivable, net 146,247 134,177
Inventories 140,226 124,000
Prepaid expenses and other current assets 13,389 12,706
Total Current Assets 353,068 323,383
Property, plant and equipment, net 111,960 105,070
Investments in and advances to affiliates 1,722 1,722
Goodwill, net 463,628 433,294
Other assets 72,176 66,762
Total Assets $1,002,554 $930,231
LIABILITIES AND NET CAPITAL DEFICIENCY
Current Liabilities:
Notes payable $ 3,510 $ 2,650
Accounts payable 62,927 58,781
Accrued liabilities 67,354 70,473
Advance deposits 8,544 5,424
Current portion of long-term debt 9,508 9,547
Total Current Liabilities 151,843 146,875
Long-term debt 1,001,708 921,871
Other non-current liabilities 12,424 13,403
Deferred income taxes 1,444 1,444
Minority interest - 88
Preferred stock 22,730 21,835
Net Capital Deficiency:
Common stock 1 1
Additional paid-in capital 2,116 2,116
Accumulated comprehensive income (3,404) (504)
Accumulated deficit (186,308) (176,898)
Total Net Capital Deficiency (187,595) (175,285)
Total Liabilities and Net Capital
Deficiency $1,002,554 $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)
THREE MONTHS ENDED
March 31,
1998 1997
Net sales $207,702 $151,543
Cost of sales, excluding depreciation 133,707 95,693
Selling, general and administrative
expenses 43,464 33,095
Depreciation 5,364 4,377
Amortization of goodwill and other
intangibles 5,020 3,251
Management fees and other 1,771 1,152
Operating income 18,376 13,975
Other (income) and expenses:
Interest expense 26,311 18,576
Interest income (798) (713)
Other 3 263
Total other expenses 25,516 18,126
Loss before income taxes, minority
interest, equity in investee and
extraordinary items (7,140) (4,151)
Provision for income taxes 2,122 277
Loss before minority interest, equity in
investee, and extraordinary items (9,262) (4,428)
Minority interest (149) (388)
Equity in losses of investee - (785)
Loss before extraordinary item (9,411) (5,601)
Extraordinary item, net of tax - 319
Net loss $ (9,411)$ (5,920)
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)
THREE MONTHS ENDED
March 31,
1998 1997
Cash flows from operating activities:
Net loss $ (9,411) $ (5,920)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization 10,384 7,614
Provision for deferred income taxes - 453
Amortization of deferred financing fees 1,289 1,046
Minority interest 149 388
Non-cash interest 6,344 3,233
Equity in investee - 785
Extraordinary item - 319
Changes in operating assets and
liabilities net of effects from
acquisitions:
Increase in current assets (12,655) (6,978)
Decrease in current liabilities (2,794) (3,597)
Decrease (increase) in non-current assets 4,164 (1,404)
Decrease increase) in non-current
liabilities (979) 663
Net cash used in operating activities (3,509) (3,398)
Cash flows from investing activities:
Capital expenditures (3,851) (3,429)
Advances to affiliates - (1,133)
Acquisition of subsidiaries (57,249) (4,100)
Net cash acquired in purchase of subsidiaries 1,957 -
Net cash used in investing activities (59,143) (8,662)
Cash flows from financing activities:
Proceeds from revolving credit facilities, net 64,000 13,500
Repayment of long-term debt (1,171) (2,821)
Other borrowing 1,577 -
Other (49) (639)
Net cash provided by financing activities 64,357 10,040
Foreign currency translation (999) (255)
Net increase (decrease) in cash and
cash equivalents 706 (2,275)
Cash and cash equivalents at beginning of
period 52,500 32,797
Cash and cash equivalents at end of period $ 53,206 $ 30,522
See accompanying notes to condensed consolidated financial statements.
<PAGE>
PAGE 6
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:
March 31, December 31,
1998 1997
Raw materials $ 54,584 $ 45,324
Work-in-process 17,007 15,897
Finished goods 68,635 62,779
$140,226 $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 March 31, 1998 and
December 31, 1997, are as follows:
March 31, December 31,
1998 1997
Deferred tax liabilities
Intangibles $ 4,572 $ 4,393
Tax over book depreciation 7,187 7,260
Basis in subsidiary 798 798
Lifo reserve 147 83
Intercompany tax gain 7,289 7,289
Other 691 531
Total deferred tax liabilities 20,684 20,354
PAGE 7
JORDAN INDUSTRIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
(ALL DOLLAR AMOUNTS IN THOUSANDS)
Deferred tax assets
NOL carryforwards 39,982 37,482
Accrued interest on discount debentures 13,510 13,510
Stock Appreciation Rights Agreements 3,772 3,772
Pension obligation 162 444
Vacation accrual 417 891
Uniform capitalization of inventory 1,611 1,501
Allowance for doubtful accounts 1,219 1,125
Foreign NOL's 4,572 3,582
Deferred financing fees 794 814
Intangibles 1,311 1,242
Tax asset basis over book basis at
subsidiary 7,289 7,289
Other 167 484
Total deferred tax assets 74,806 72,136
Valuation allowance for deferred
tax assets (55,566) (53,226)
Net deferred tax assets 19,240 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.
During the first quarter of 1998 and 1997, total comprehensive (loss) income
was ($12,311) and ($4,444), respectively.
E. Segment Reporting
Effective January 1, 1997, the Company adopted the Financial Accounting
Standards Board's Statement of Financial Accounting Standards No. 131,
Disclosures about Segments of an Enterprise and Related Information (Statement
131). Statement 131 superseded FASB Statement No. 14, Financial Reporting for
Segments of a Business Enterprise. Statement 131 establishes standards for
the way that public business enterprises report information about operating
segments in annual financial statements and requires that those enterprises
report selected information about operating segments in interim financial
reports. Statement 131 also establishes standards for related disclosures
PAGE 8
JORDAN INDUSTRIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(ALL DOLLAR AMOUNTS IN THOUSANDS)
about products and services, geographic areas, and major customers. The
adoption of Statement 131 did not affect results of operations or financial
position, but did affect the disclosure of segment information.
F. 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.
G. 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.
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 JII 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 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 Industries, Inc. ("Motors and Gears"),
through its newly formed wholly-owned subsidiary, FIR Group Holdings, Inc.
and
PAGE 10
JORDAN INDUSTRIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(ALL DOLLAR AMOUNTS IN THOUSANDS)
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.
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.
PAGE 11
JORDAN INDUSTRIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(ALL DOLLAR AMOUNTS IN THOUSANDS)
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.
Unaudited pro forma information with respect to the Company as if the 1998 and
1997 acquisitions had occurred on January 1, 1998 and 1997 is as follows:
THREE MONTHS ENDED
March 31,
1998 1997
Net sales $214,084 $190,998
Net income (loss) before taxes (6,265) (4,037)
Net income (loss) (10,644) (7,587)
PAGE 12
JORDAN INDUSTRIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(ALL DOLLAR AMOUNTS IN THOUSANDS)
H. 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. Receivables from Welcome Home owed to the Company was $5,737 as
of March 31, 1998.
Cape Craftsmen, a consolidated subsidiary of the Company, would also be
adversely affected by a liquidation of Welcome Home. In the first quarter of
1998, Cape's sales to Welcome Home were $3,098, or 67.6%, of Cape's total
first quarter sales. Cape's receivable outstanding related to these sales was
$2,662 at March 31, 1998.
I. 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.
PAGE 13
JORDAN INDUSTRIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(ALL DOLLAR AMOUNTS IN THOUSANDS)
J. 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 $1.0 million
during the first quarter of 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. The remaining portion of the liability, plus interest, of
$3,337 is included in accrued liabilities at December 31, 1997. The Company
paid $3,391 to Aim on May 4, 1998, which was the remaining liability.
K. 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.
PAGE 14
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 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 has paid $1,388 to the former
owner of Viewsonics during the first quarter of 1998.
The Company also 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.
L. 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
PAGE 15
JORDAN INDUSTRIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(ALL DOLLAR AMOUNTS IN THOUSANDS)
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, the Company issued 864.6345 shares of Senior Preferred Stock
as payment of dividends through that date.
The JTP Senior Preferred Stock has no voting rights and is mandatorily
redeemable on August 1, 2009.
M. Foreign Exchange Instruments and Risk Management
The Company enters into foreign currency forward exchange contract 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 $11,074 notional amount of foreign currency forward exchange
contracts outstanding at March 31, 1998 ($0 at December 31, 1997).
N. Subsequent Events
On May 15, 1998, the Company, through a newly formed wholly-owned subsidiary,
Advanced D.C. Holdings, Inc., acquired all of the outstanding stock of
Advanced D.C. Motors, Inc. and its affiliates ("ADC"). ADC is a designer and
manufacturer of direct current ("DC") permanent magnet motors and starters
(generators) which range from 4.5 inches to 9 inches in frame size. The
Company sells 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 known as
commutators.
PAGE 16
JORDAN INDUSTRIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(ALL DOLLAR AMOUNTS IN THOUSANDS)
In connection with the acquisition, the Company paid $53.0 million to the
sellers in cash. The acquisition was financed with existing cash and
borrowings under the Motors & Gears Industries, Inc. Credit Agreement. The
Company has a contingent purchase price agreement of $5.6 million relating to
the acquisition of ADC whereas the contingent purchase price is dependent upon
the acquired entity's results of operations exceeding certain targeted levels
substantially above the historical experience of ADC at the time of
acquisition. The purchase price has not been allocated at this time.
<PAGE>
PAGE 17
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(UNAUDITED)
(ALL DOLLAR AMOUNTS IN THOUSANDS)
QUARTER ENDED MARCH 31,
1998 1997
Net Sales:
Specialty Printing & Labeling $23,736 $23,216
Jordan Specialty Plastics (c) 13,812 6,032
Motors and Gears 58,567 31,519
Telecommunications Products (c) 72,101 46,925
Welcome Home (d) - 2,456
Consumer and Industrial Products 39,486 41,395
Total $207,702 $151,543
Operating Income (Loss) (a):
Specialty Printing & Labeling $ 489 $ 377
Jordan Specialty Plastics (c) 1,972 498
Motors and Gears 10,715 7,093
Telecommunications Products (c) 7,789 6,612
Welcome Home (d) - (1,107)
Consumer and Industrial Products 4,217 5,282
Total $ 25,182 $ 18,755
Operating Margins (b):
Specialty Printing & Labeling 2.1% 1.6%
Jordan Specialty Plastics (c) 14.3 8.3
Motors and Gears 18.3 22.5
Telecommunications Products (c) 10.8 14.1
Welcome Home (d) - (45.1)
Consumer and Industrial Products 10.7 12.8
Consolidated (a) 12.1 12.4
(a)Before corporate overhead of $6,827 and $4,780 for the three months ended
March 31, 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 realigned 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 H.
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 first quarter
ended March 31, 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 March 31, 1998, the Specialty
Printing and Labeling group consisted of SPAI, Valmark, Pamco, and Seaboard.
Net sales for the three months ended March 31, 1998 increased $0.5 million or
2.2% and operating income for the first quarter increased $0.1 million or
29.7%. The increase in sales is primarily due to higher sales of ad specialty
products and calendars at SPAI, $1.0 million and $0.4 million, respectively,
increased sales of labels at Pamco, $0.2 million, and higher sales of membrane
switches at Valmark, $0.2 million. Partially offsetting these increases are
lower sales of shielding devices and screen printed products at Valmark, $0.7
million and $0.2 million, respectively, decreased sales of folding boxes at
Seaboard, $0.3 million, and lower sales of school annuals at SPAI, $0.1
million.
Operating income increased primarily due to higher operating income at SPAI,
$0.1 million. This increase at SPAI is due to lower selling, general, and
administrative expenses, primarily medical insurance and commissions.
Operating margin increased 0.5%, from 1.6% in 1997 to 2.1% in 1998, due to the
lower costs at SPAI.
Jordan Specialty Plastics. As of March 31, 1998, the Jordan Specialty
Plastics group consisted of Beemak, Sate-Lite, Deflecto, and Rolite.
Net sales for the three months ended March 31, 1998 increased $7.8 million or
129.0% and operating income for the first quarter increased $1.5 million or
296.0%. The increase in sales is primarily due to the acquisitions of
Deflecto and Rolite during the first quarter of 1998. Deflecto and Rolite
contributed sales in the first quarter of 1998 of $7.1 million and $0.4
million, respectively. In addition, net sales increased due to higher sales
of warning triangles, bike reflectors, and other bike parts at Sate-Lite, $0.2
million, each. Partially offsetting these increases are lower sales of
plastic injection molded products at Beemak, $0.3 million.
Operating income increased primarily due to the acquisitions of Deflecto and
Rolite, as discussed above. Deflecto and Rolite contributed operating income
in the first quarter 1998 of $1.2 million and $0.1 million, respectively. In
addition, the increase was due to higher operating income at Sate-Lite, $0.2
million, stemming from increased sales of higher gross margin products.
PAGE 19
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Operating margin increased 6.0%, from 8.3% in 1997 to 14.3% in 1998, primarily
due to the acquisitions of Deflecto and Rolite and increased gross profit and
decreased depreciation expense at Sate-Lite.
Motors and Gears. As of March 31, 1998, the Motors and Gears group
consisted of Imperial, Scott, Gear, Merkle-Korff, ED&C, and Motion Control.
Net sales for the first three months of 1998 increased $27.0 million or 85.8%
and operating income for the first quarter increased $3.6 million or 51.1%.
The increase in sales is primarily due to the acquisitions of FIR Group, ED&C
Company, and Motion Control Engineering in June 1997, October 1997, and
December 1997, respectively. FIR, ED&C, and Motion Control contributed sales
in the first quarter of 1998 of $9.4 million, $3.5 million, and $11.6 million,
respectively, or 90.7% of the total increase in sales. In addition, sales
increased due to a 5.8% increase in sales of sub-fractional motors and a 17.0%
increase in sales of fractional/integral motors. These increases are
attributed to continued strength in the vending and appliance markets and
stronger sales in the floor care and elevator markets, respectively.
The increase in operating income is primarily due to the increase in sales of
sub-fractional motors and fractional/integral motors, as discussed above.
Operating margin decreased 4.2%, from 22.5% in 1997 to 18.3% in 1998,
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 March 31, 1998, the
Telecommunications Products group consisted of Dura-Line, AIM, Cambridge,
Johnson Components, Diversified, Viewsonics, Vitelec, Bond, Northern
Technologies, LoDan, EEI, and TSI.
Net sales for the three months ended March 31, 1998 increased $25.2 million or
53.7% and operating income for the first quarter increased $1.2 million or
17.8%. The increase in sales is primarily due to the acquisitions of LoDan,
EEI, and TSI which occurred subsequent to the first quarter of 1997. LoDan,
EEI, and TSI contributed sales in the first quarter of 1998 of $6.7 million,
$4.1 million, and $10.6 million, respectively. In addition, K&S Sheet Metal
was acquired during the first three months of 1998 and contributed sales of
$2.6 million. Sales also increased due to higher sales of infrastructure
products and equipment, particularly power conditioning systems and CATV
products, increased sales of electronic connectors, and higher sales of custom
assemblies. Partially offsetting these increases are decreased sales of cable
conduit due to severe weather conditions in the west coast and southern United
States markets, an unfavorable currency differential between the United States
dollar and the British pound and Czech crown, and the closure of a facility in
China for facility upgrades.
Operating income increased primarily due to the acquisitions of LoDan, EEI,
PAGE 20
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
and TSI, as discussed above. LoDan, EEI, and TSI contributed operating
income
in the first quarter of 1998 of $0.7 million, $0.1 million, and $1.8 million,
respectively. Partially offsetting these increases is decreased operating
income at Dura-Line and Diversified due to lower overhead absorption, and
lower operating income at Cambridge due to lower sales of higher margin
products. Operating margin decreased 3.3%, from 14.1% in 1997 to 10.8% in
1998, due to lower overhead absorption, decreased gross profit on electronic
connectors, and higher amortization costs related to the new acquisitions.
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
March 31, 1998. See Note F.
Consumer and Industrial Products. As of March 31, 1998, the Consumer and
Industrial Products group consisted of DACCO, Riverside, Parsons, Cape
Craftsmen, Cho-Pat, and Dura-Line Retube.
Net sales for the three months ended March 31, 1998 decreased $1.9 million or
4.6% and operating income for the first quarter decreased $1.1 million or
20.2%. The decrease in sales is primarily due to the sales of Paw Print and
Hudson in July 1997 and May 1997, respectively. Paw Print and Hudson
contributed sales in the first quarter of 1997 of $4.3 million and $4.6
million, respectively. In addition, sales decreased due to lower contract
distribution sales at Riverside, $0.4 million. Partially offsetting these
decreases are higher sales of rebuilt converters at Dacco, $0.6 million,
increased sales of bibles, books, and video tapes at Riverside, $0.4 million,
$1.3 million, and $0.2 million, respectively, higher sales of aircraft parts
at Parsons, $0.3 million, increased sales of wooden furniture and other
accessories at Cape, $3.7 million, higher sales of plastic pipe at Dura-Line
Retube, $0.5 million, and sales at Cho-Pat, $0.4 million, due to the
acquisition of the company in September 1997.
Operating income decreased primarily due to the sale of Paw Print and Hudson,
as discussed above. Paw Print and Hudson contributed operating income in the
first quarter of 1997 of $0.5 million and $1.5 million, respectively.
Partially offsetting these decreases is higher operating income at: Dacco,
$0.2 million, Riverside, $0.1 million, Parsons, $0.3 million, Cape, $0.1
million, Cho-Pat, $0.1 million, and Dura-Line Retube, $0.1 million. The
offsetting increase to operating income is primarily due to increased sales of
higher gross margin products at Dacco and increased gross profit at Parsons
stemming from a reduction in overhead costs and an increase in sales of
titanium hot formed products. Operating margin decreased 1.9%, from 12.8% in
1997 to 10.9% in 1998, primarily due to the divestitures of Paw Print and
Hudson.
PAGE 21
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Consolidated Results: (See Condensed Consolidated Statements of
Operations.)
Consolidated net sales for the first three months of 1998 increased $56.2
million or 37.1% and operating income for the first quarter increased $4.4
million or 31.5%. The increase in sales is primarily due to the 1998
acquisitions of Deflecto and Rolite in the Jordan Specialty Plastics 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 first
quarter of 1997: FIR, ED&C, and Motion Control in the Motors and Gears group;
LoDan, 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 and calendars in the Specialty Printing
and Labeling group, increased sales of bike reflectors, warning triangles, and
other bike products in the Jordan Specialty Plastics group, higher sales of
sub-fractional motors and fractional/integral motors in the Motors and Gears
group, increased sales of power conditioning systems, CATV products,
electronic connectors, and custom cable assemblies in the Telecommunications
Products group, and higher sales of rebuilt converters, bibles, books,
videotapes, and aircraft parts in the Consumer and Industrial Products group.
Partially offsetting these increases are lower sales of shielding devices in
the Specialty Printing and Labeling group, decreased sales of cable conduit in
the Telecommunications Products group, and lower sales in the Consumer and
Industrial Products group due to the sales of Paw Print and Hudson during
1997.
The increase in operating income is primarily due to the 1998 and 1997
acquisitions, as discussed above. In addition, operating income increased due
to lower selling, general, and administrative costs in the Specialty Printing
and Labeling group, the higher sales of sub-fractional and fractional/integral
motors in the Motors and Gears group, a reduction in overhead costs and an
increase in sales of titanium hot-formed products in the Consumer and
Industrial Products group, and the deconsolidation of Welcome Home. Partially
offsetting these increases is decreased operating income due to lower overhead
absorption and lower sales of higher margin products in the Telecommunications
Products group and decreased sales in the Consumer and Industrial Products
group due to the sales of Paw Print and Hudson, as discussed above. Operating
margin remained consistent between 1997 and 1998.
Interest expense increased $7.7 million or 41.6% due to higher debt levels
stemming from the Company's July 1997 debt and preferred stock 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 $201.2
million in working capital at March 31, 1998, compared to $176.5 million at
the end of 1997, representing an increase of $24.6 million or 14.0%. This
increase is due to increased net trade receivables, higher inventory, and
decreased accrued liabilities. Partially offsetting these increases in
PAGE 22
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
working capital is an increased accounts payable balance and a higher advance
deposits balance.
Net cash used in operating activities for the three months ended March 31,
1998 is $3.5 million, compared to $3.4 million used in operating activities
in
the same period of 1997.
Net cash used in investing activities for the three months ended March 31,
1998 is $59.1 million, compared to $8.7 million used in investing activities
in the same period of 1997. This increase is primarily due to the
acquisitions of Deflecto, Rolite, and K&S Sheet Metal.
Net cash provided by financing activities for the three months ended March 31,
1998 is $64.4 million, compared to $10.0 million provided by financing
activities in the same period of 1997. This increase is primarily due to
increased revolver borrowings at the JTP and JII levels.
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 month.<PAGE>PAGE 23
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 24
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.
May 15, 1998 By: /s/ Thomas C. Spielberger
Thomas C. Spielberger
Senior Vice President,
Finance and Accounting
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> MAR-31-1998
<CASH> 53,206
<SECURITIES> 0
<RECEIVABLES> 149,790
<ALLOWANCES> (3,543)
<INVENTORY> 140,226
<CURRENT-ASSETS> 353,068
<PP&E> 214,634
<DEPRECIATION> (102,674)
<TOTAL-ASSETS> 1,002,554
<CURRENT-LIABILITIES> 151,843
<BONDS> 811,594
22,730
0
<COMMON> 1
<OTHER-SE> (187,596)
<TOTAL-LIABILITY-AND-EQUITY> 1,002,554
<SALES> 207,702
<TOTAL-REVENUES> 207,702
<CGS> 133,707
<TOTAL-COSTS> 189,326
<OTHER-EXPENSES> (795)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 26,311
<INCOME-PRETAX> (7,140)
<INCOME-TAX> 2,122
<INCOME-CONTINUING> (9,262)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (9,411)
<EPS-PRIMARY> 0
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