SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For fiscal year ended December 31, 1997 Commission File Number 33-24317
JORDAN INDUSTRIES, INC.
(Exact name of registrant as specified in charter)
Illinois 36-3598114
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
ArborLake Centre, Suite 550 60015
1751 Lake Cook Road (Zip Code)
Deerfield, Illinois
(Address of Principal Executive Offices)
Registrant's telephone number, including Area Code:
(847) 945-5591
Securities registered pursuant to Section 12(b) of the Act:
Name of Each Exchange
Title of Each Class on Which Registered
None N/A
Securities registered pursuant to Section 12(g) of the Act:
None
Indicated by checkmark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding twelve (12) months (or for such shorter period that
the registrant was required to file such reports) and (2) has been subject to
such filing requirements for the past ninety (90) days.
Yes X No
The aggregate market value of voting stock held by non-affiliates of the
Registrant is not determinable as such shares were privately placed and there
is currently no public market for such shares.
The number of shares outstanding of Registrant's Common Stock as of
March 31, 1998: 98,501.0004.
<PAGE>
PART I
Item 1. BUSINESS
Jordan Industries, Inc. (the "Company") was organized to acquire and operate a
diverse group of businesses on a decentralized basis, with a corporate staff
providing strategic direction and support. The Company is currently comprised
of 32 businesses which are divided into five strategic business units: (i)
Specialty Printing and Labeling, (ii) Consumer and Industrial Products, (iii)
Motors and Gears (iv) Jordan Telecommunication Products and (v) Welcome
Home. As of January 21, 1997, Welcome Home is no longer consolidated in the
Company's results of operations. (See note 3 to the financial statements.)
The Company believes that its businesses are characterized by leading
positions in niche industries, high operating margins, strong management,
minimal working capital and capital expenditure requirements and low
sensitivity to technological change and economic cycles.
The Company's business strategy is to enhance the growth and profitability of
each business unit, and to build upon the strengths of those units through
product line and other strategic acquisitions. Key elements of this strategy
have been the consolidation and reorganization of acquired businesses,
increased focus on international markets, facilities expansion and the
acquisition of complementary product lines. When, through such activities,
the Company believes that critical mass is attained in a particular industry
segment, the related companies are organized as a discreet business unit. For
example, the Company acquired Imperial in 1983 and made a series of
complementary acquisitions, which resulted in the formation of Motors and
Gears, Inc., a leading domestic manufacturer of electric motors, gears, and
motion control systems. Similarly, the Company acquired Dura-Line in 1985,
and expanded its presence in the telecommunications industry through eleven
complementary acquisitions. The organization of these companies as Jordan
Telecommunication Products created a leading global supplier of products and
equipment serving the telecommunications industry. The Company is currently
evaluating various alternatives to expand its automotive aftermarket products
business and its specialty plastics business, and is utilizing its
subsidiaries, DACCO and Beemak, respectively, as the foundation for these
efforts.
Through the implementation of this strategy, the Company has demonstrated
significant and consistent growth in net sales. The Company generated
combined net sales of $707.1 million for the year ended December 31, 1997 as
compared to $327.3 million for the year ended December 31, 1992, representing
a compound annual growth rate of 16.7%.
The following chart depicts the operating subsidiaries which comprise the
Company's five strategic business units, together with the net sales for each
of the five groups for the year ended December 31, 1997.
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JORDAN INDUSTRIES, INC.
$707.1 Million of Net Sales
SPECIALTY PRINTING AND LABELING -Sales Promotion Associates
$119.3 Million of Net Sales -Pamco
-Valmark
-Seaboard
CONSUMER AND INDUSTRIAL -DACCO
$179.6 Million of Net Sales -Sate-Lite
-Cape Craftsmen
-Beemak
-Riverside
-Parsons
-Cho-Pat
-Dura-Line Retube
JORDAN TELECOMMUNICATION PRODUCTS(1) -Dura-Line
$257.0 Million of Net Sales -AIM
-Cambridge
-Johnson
-Diversified
-Viewsonics
-Vitelec
-Bond
-Northern
-LoDan
-Engineered Endeavors
-Telephone Services, Inc.
MOTORS AND GEARS(1) -Imperial
$148.7 Million of Net Sales -Scott
-Gear
-Merkle-Korff
-FIR
-Electrical Design & Control
-Motion Control Engineering
WELCOME HOME(2) -Welcome Home
$2.5 Million of Net Sales
(1)The subsidiaries comprising Jordan Telecommunication Products and Motors
and Gears are Non-Restricted Subsidiaries, the common stock of which is owned
by stockholders and affiliates of the Company and management of the respective
companies. The Company's ownership in these subsidiaries is solely in the
form of JTP Junior Preferred Stock and M&G Junior Preferred Stock. See
footnote 5 to the financial statements.
(2)Welcome Home was deconsolidated as of January 21, 1997, the date of its
Chapter 11 bankruptcy filing. The sales included represent the period from
January 1, 1997 to January 21, 1997, only. See footnote 3 to the financial
statements.
<PAGE>
The Company's operations were conducted through the following business units
as of December 31, 1997:
Specialty Printing and Labeling
The Specialty Printing and Labeling group manufactures and markets (i)
promotional and specialty advertising products for corporate buyers, (ii)
labels, tapes and printed graphic panel overlays for electronics and other
manufacturing companies and (iii) printed folding cartons and boxes and other
shipping materials. The companies that are part of Specialty Printing and
Labeling have provided its customers with products and services for an average
of over 40 years. For the fiscal year ended December 31, 1997, the Specialty
Printing and Labeling group generated net sales of $119.3 million. Each of
the Specialty Printing and Labeling subsidiaries is discussed below:
SPAI. The Company's former subsidiaries, The Thos. D. Murphy Co. ("Murphy"),
which was founded in 1889, and Shaw-Barton, Inc. ("Shaw-Barton"), which was
founded in 1940, merged to form JII/SPAI in March 1989. One hundred percent
of JII/SPAI's assets were sold by JII, on terms equivalent to those that would
have been obtained in an arm's length transaction, to the Specialty Printing
and Labeling group in August 1995 and the company was renamed Sales Promotion
Associates, Inc. ("SPAI"). SPAI is a producer and distributor of calendars
for corporate buyers and is a distributor of corporate recognition, promotion
and specialty advertising products.
SPAI's net sales for fiscal 1997 were $60.6 million. Approximately 58.5% of
SPAI's 1997 net sales were derived from distributing a broad variety of
corporate recognition products, promotion and specialty advertising
products. These products include apparel, watches, crystal, luggage, writing
instruments, glassware, caps, cases, labels and other items that are printed
and identified with a particular corporate logo and/or corporate advertising
campaign. Approximately 30% of SPAI's 1997 net sales were derived from the
sale of a broad variety of calendars, including hanging, desktop and pocket
calendars that are used internally by corporate customers and distributed by
them to their clients and customers. High-quality artistic calendars are also
distributed. SPAI also manufactures and distributes softcover school
yearbooks for kindergarten through eighth grade.
SPAI assembles and finishes calendars that are printed both in-house as well
as by a number of outside printers. Facilities for in-house manufacturing
include a composing room, a camera room, a calendar finishing department and a
full press room. Print stock, binding material, packaging and other materials
are supplied by a number of independent companies. Specialty advertising
products are purchased from more than 900 suppliers. Calendars and specialty
advertising products are sold through a 1,100-person sales force, most of whom
are independent contractors.
Management believes that SPAI has one of the largest domestic sales forces in
the industry. With this large sales force and a broad range of calendars and
corporate recognition products available, management believes that SPAI is a
strong competitor in its market. This market is very fragmented and most of
the competition comes from smaller-scale producers and distributors.
<PAGE>
Valmark. Valmark, which was founded in 1976 and purchased by the Company in
1994, is a specialty printer and manufacturer of pressure sensitive label
products for the electronics Original Equipment Manufacturer ("OEM") market.
Valmark's products include adhesive-backed labels, graphic panel overlays,
multi-color membrane switches and ratio frequency interference ("RFI")
shielding devices. Approximately 63% of Valmark's 1997 net sales of $17.6
million were derived from the sale of graphic panel overlays and membrane
switches, 27% from labels and 10% from shielding devices.
The specialty screen products sold in the electronics industry continue to
operate relatively free of foreign competition due to the high level of
communication and short time frame usually required to produce orders.
Currently, the majority of Valmark's customer base of approximately 1,500 is
located in the Northern California area.
Valmark sells to four primary markets: personal computers; general
electronics; turn-key services; and medical instrumentation. Sales to the
personal computer industry have experienced the most growth over recent years
due to Valmark's RFI shield protection capabilities. Sales to Apple of RFI
devices represented approximately 12% of net sales in 1997.
Valmark is able to provide OEMs with a broader range of products than many of
its competitors. Valmark's markets are very competitive in terms of price and
accordingly Valmark's advantage over its competitors is derived from its
diverse product line and excellent quality ratings.
Pamco. Pamco, which was founded in 1953 and purchased by the Company in 1994,
is a manufacturer and distributor of a wide variety of printed tapes and
labels. Pamco offers a range of products from simple one and two-color
labels, such as basic bar codes and address labels, to seven-color,
varnish-finished labels for products such as video games and food packaging.
One hundred percent of Pamco's products are made to customers' specifications
and 92% of all sales are manufactured in-house. The remaining 8% of net sales
are purchased printed products and include business cards and stationery.
Pamco's products are marketed by a team of eighteen sales representatives who
focus on procuring new accounts. Existing accounts are serviced by nine
customer service representatives and five internal salespeople. Pamco's
customers represent several different industries with the five largest
accounting for approximately 19% of 1997 net sales of $16.0 million.
Pamco competes in a highly fragmented industry. Pamco emphasizes its
impressive 24-hour turnaround and its ability to accommodate rush orders that
other printers cannot handle.
Seaboard. Seaboard, which was founded in 1954 and purchased by the Company in
1996, is a manufacturer of printed folding cartons and boxes, insert packaging
and blister pack cards.
<PAGE>
Seaboard sells directly to a broad customer base, located primarily east of
the Mississippi River, operating in a variety of industries including
hardware, personal hygiene, toys, automotive supplies, food and drugs.
Seaboard's top ten customers accounted for approximately 36% of Seaboard's
1997 net sales of $25.1 million.
Seaboard has exhibited consistent sales growth, high profit margins, and
excellent operating capabilities and has gained a reputation for exceeding
industry standards. Seaboard has historically been highly successful in
buying and profitably integrating smaller acquisitions.
Seaboard's markets are very competitive in terms of price and, accordingly,
Seaboard's advantage over its competitors is derived from its high quality
product and excellent service.
Consumer and Industrial Products
Consumer and Industrial Products serves many product segments. It is the
leading supplier of remanufactured torque converters to the automotive
aftermarket parts industry and is the leading integrated manufacturer of
specialty "take-one" point of purchase displays. In addition, Consumer and
Industrial Products manufactures and markets reflectors for bicycles;
publishes and markets Bibles, religious books and audio materials;
manufactures hot-formed titanium materials for the aerospace and other
industries; manufactures and imports gift items; and manufactures orthopedic
supports and pain reducing medical devices. The Company is currently evaluating
various alternatives to expand its automotive aftermarket products business and
its specialty plastics business, utilizing DACCO and Beemak, respectively, as
the foundation for such efforts. The companies which are part of Consumer and
Industrial Products have provided their customers with products and services
for an average of over 34 years. For the year ended December 31 1997, the
Consumer and Industrial Products subsidiaries generated combined net sales of
$179.6 million. Each of the Consumer and Industrial Products subsidiaries is
discussed below:
DACCO. DACCO is a producer of remanufactured torque converters, as well as
automotive transmission sub-systems and other related products used by
transmission repair shops. DACCO was founded in 1965 and acquired by the
Company in 1988.
Approximately 76% of DACCO's products are classified as "hard" products, which
primarily consist of torque converters and hydraulic pumps that have been
rebuilt or remanufactured by DACCO. The torque converter, which replaces a
clutch in an automatic transmission, transfers power from the engine to the
drive shaft. The hydraulic pump supplies oil to all the systems in the
transmission.
DACCO's primary supply of used torque converters is its customers. As a part
of each sale, DACCO recovers the used torque converter which is being replaced
with its remanufactured converter. DACCO also purchases used torque
converters from automobile salvage companies. Other hard parts, such as
clutch plates and fly wheels, are purchased from outside suppliers.
Approximately 24% of DACCO's products are classified as "soft" products, such
as sealing rings, bearings, washers, filter kits and rubber components.
Approximately 11,000 soft products are purchased from a number of vendors and
are re-sold in a broad variety of packages, configurations and kits.
<PAGE>
DACCO's customers are automotive transmission parts distributors and
transmission repair shops and mechanics. DACCO has fifty-one independent
sales representatives who accounted for approximately 67% of DACCO's net sales
of $61.2 million in 1997. These sales representatives sell nationwide to
independent warehouse distributors and to transmission repair shops. DACCO
also owns and operates thirty-two distribution centers which sell directly to
transmission shops. DACCO distribution centers average 4,000 square feet,
cover a 50 to 100-mile selling radius and sell approximately 42% hard products
and 58% soft products. In 1997 no single customer accounted for more than 1%
of DACCO's net sales.
The domestic market for DACCO's hard products is fragmented and DACCO's
competitors primarily consist of a number of small regional and local
rebuilders. DACCO believes that it competes strongly against these rebuilders
by offering a broader product line, quality products, and lower prices, all of
which are made possible by DACCO's size and economies of operation. However,
the market for soft products is highly competitive and several of its
competitors are larger than DACCO. DACCO competes in the soft products market
on the basis of its low prices due to volume buying, its growing distribution
network and its ability to offer one-step procurement of a broad variety of
both hard and soft products.
Sate-Lite. Sate-Lite manufactures safety reflectors for bicycle and
commercial truck manufacturers, as well as plastic parts for bicycle
manufacturers and colorants for the thermoplastic industry. Sate-Lite was
founded in 1968 and acquired by the Company in 1988. Bicycle reflectors and
plastic bicycle parts accounted for approximately 41% of Sate-Lite's net sales
of $13.9 million in 1997. Sales of triangular flares and specialty reflectors
and lenses to commercial truck customers accounted for approximately 34% of
1997 net sales. The remainder of Sate-Lite's net sales was derived primarily
from the sale of colorants to the thermoplastics industry.
Sate-Lite's bicycle products are sold directly to a number of OEMs. The three
largest OEM customers for bicycle products are the Huffy Corporation,
Roadmaster and Murray/Ohio Manufacturing Company, which accounted for
approximately 25% of Sate-Lite's fiscal 1997 net sales. The triangular flares
and other truck reflector products are also sold to a broad range of OEM
customers. Colorants are sold primarily to mid-western custom molded plastic
parts manufacturers. In 1997, Sate-Lite's ten largest customers accounted for
approximately 52% of net sales.
Sate-Lite's products are marketed on a nationwide basis by its management.
Sales to foreign customers are handled directly by management and by
independent trading companies on a commission basis. In 1997, Sate-Lite's
export net sales accounted for approximately 14% of its total net sales.
Export sales were principally to China and Canada. The principal raw
materials used in manufacturing Sate-Lite's products are plastic resins,
adhesives, metal fasteners and color pigments. Sate-Lite obtains these
materials from several independent suppliers.
The markets for bicycle parts and thermoplastic colorants are highly
competitive. Sate-Lite competes in these markets by offering innovative
products and by relying on its established reputation for producing
high-quality plastic components and colorants. Sate-Lite's principal
competitors in the reflector market consist of foreign manufacturers.
Sate-Lite competes with regional companies in the colorants market.
<PAGE>
Riverside. Riverside is a publisher of Bibles and a distributor of Bibles,
religious books and music recordings. Riverside was founded in 1943 and
acquired by the Company in 1988. Approximately 70% of Riverside's business
consists of products published by other companies. Riverside sells world-wide
to more than 12,000 wholesale, religious and trade book store customers,
utilizing an in-house telemarketing system, four independent sales
representative groups and printed sales media. In addition, Riverside sells a
small percentage of its products through direct mail and to retail customers.
No single customer accounted for more than 5% of Riverside's 1997 net sales of
$52.5 million.
Riverside also provides Bible indexing, warehousing, inventory and shipping
services for domestic book publishers and music producers. Riverside competes
with larger firms, including the Zondervan Corporation, The Thomas Nelson
Company, and Ingram Book Company, on the basis of price, product line and
customer service.
Parsons. Parsons is a diversified supplier of hot formed titanium parts,
precision machined parts and fabricated components for the U.S. aerospace
industry. Parsons was founded in 1959 and acquired by the Company in 1988.
Approximately 82% of Parsons' 1997 net sales of $15.0 million came from sales
to The Boeing Company. Parsons employs precision machining,
welding/fabrication and sheet metal forming processes to manufacture its
products at its facilities in Parsons, Kansas. Parsons continues to invest in
its titanium hot forming operation, which permits Parsons to participate in
the aerospace market for precision titanium components.
Parsons uses metals, including stainless steel, aluminum and titanium, to
fabricate its products. These materials are either supplied by Parsons'
customers or obtained from a number of outside sources.
Parsons sells its products directly to a broad base of aerospace and military
customers, relying on longstanding associations and Parsons' reputation for
high quality and service.
Beemak. Beemak, which was founded in 1951 and acquired by the Company in July
1989, is an integrated manufacturer of specialty "take-one" point-of-purchase
brochure, folder and application display holders. Beemak sells these
proprietary products to approximately 21,000 customers around the world. In
addition, Beemak produces a small amount of custom injection-molded plastic
parts for outside customers on a contract manufacturing basis. Beemak's net
sales for 1997 were $10.2 million.
Beemak's products are both injection molded and custom fabricated and its
molds made by outside suppliers. The manufacturing process consists primarily
of the injection molding of polystyrene plastic and the fabrication of plastic
sheets. Beemak also provides silk screening of decals and logos onto the
final product.
Beemak has no sales force. All sales originate from Beemak's extensive
on-going advertising campaign and reputation. Beemak sells to distributors,
major companies and competitors which resell the product under a different
name. Beemak has been very successful in providing excellent service on
orders of all sizes, especially small orders. Beemak's average order size was
approximately $400 in 1997.
<PAGE>
The display holder industry is very fragmented, consisting of a few other
known holder and display firms and regionally based sheet fabrication shops.
Beemak has benefitted from the growth in "direct" advertising budgets at major
companies. Significant advertising dollars are spent each year on direct-mail
campaigns, point-of-purchase displays and other forms of non-media
advertising.
In January 1997, Beemak purchased the net assets of Arnon-Caine, Inc.
("Arnon-Caine"), a designer and distributor of modular storage systems
primarily for sale to wholesale home centers and hardware stores. During
the first half of 1997, Arnon-Caine subcontracted its production to third-
party injection molders located primarily in sourthern California, which used
materials and equipment similar to that used by Beemak. Since July 1997,
Beemak has served as Arnon-Caine's primary supplier. The integration of Arnon-
Caine into Beemak's operations will provide for future manufacturing cost
savings as well as coordinated marketing efforts.
Cape Craftsmen. Founded in 1991 and purchased by the Company in 1996, Cape
Craftsmen is a manufacturer and importer of gifts, wooden furniture, framed
art and other accessories. Cape Craftsmen manufactures in North Carolina and
imports from Mexico and the Far East. Cape Craftsmen sells its products
through one in-house salesperson and forty independent sales representatives.
Approximately 68% of Cape Craftsmen's net sales of $14.6 million in 1997 were
to Welcome Home, an affiliated entity. Cape Craftsmen competes in a highly
fragmented industry and has therefore found it most effective to compete on
the basis of price with most wood manufacturers and importers. Cape Craftsmen
also strives to deliver better quality and service than its competitors.
Cho-Pat. In September 1997, the Company purchased Cho-Pat, Inc., a leading
designer and manufacturer of orthopedic supports and patented preventative and
pain reducing medical devices. Cho-Pat currently produces nine different
products primarily for reduction of pain from injuries and the prevention of
injuries resulting from over use of the major joints. From the acquisition
date through December 31, 1997 Cho-Pat had net sales of $0.4 million.
During 1997, two companies that were a part of the Consumer and Industrial
group were sold. Hudson, which was sold in May, contributed $6.7 million in
net sales from January 1, 1997 through its sale date, and Paw Print added $5.5
million of net sales from the beginning of the year through its sale date in
July 1997.
Motors and Gears
Motors and Gears is a leading domestic manufacturer of specialty purpose
electric motors, gears and motion control systems, serving a diverse customer
base. Its products are used in a broad range of applications, including
vending machines, refrigerator ice dispensers, commercial floor care
equipment, elevators, photocopy machines, and conveyor and automation
systems. The Motors and Gears subsidiaries have sold their brand name
products to their customers for over 70 years. For the year ended December
31, 1997, Motors and Gears' subsidiaries generated combined net sales of
$148.7 million. Each of Motors and Gears' subsidiaries is discussed below.
Merkle-Korff. Merkle-Korff was founded in 1911 and was purchased, along with
its wholly owned subsidiaries, Elmco Industries, Inc. and Mercury Industries,
Inc., by the Company's subsidiary, Motors & Gears Industries, Inc., in
September 1995. Merkle-Korff is a custom manufacturer of Alternating Current
("AC") and Direct Current ("DC") refrigerators, freezers, dishwashers, vending
machines, business machines, pumps and compressors. Approximately 62% of
Merkle-Korff's 1997 net sales of $91.2 million, were drived from the home
appliance and vending machine market. Merkle-Korff's prominent customers
include General Electric Company, Vendo, Whirlpool Corporation and
Dixie-Narco, Inc. In 1997, the Company's top 10 customers represented
approximately 54% of total sales.
<PAGE>
Barber-Colman, founded in 1894, was purchased by Merkle-Korff in 1996 and
renamed Colman Motor Products ("Colman Motors") in January 1997. Colman
Motors is a vertically integrated manufacturer of both AC and DC subfractional
horsepower motors and gear motors. The Colman Motors' product line serves a
wide variety of applications, and they are used as components in such products
as vending machines, copiers, printers, ATM machines, currency changers, X-ray
machines, peristaltic pumps, HVAC activators, medical equipment and others.
The majority of Colman Motors' products are sold directly to OEMs; however,
management has initiated an effort to direct small orders to four
distributors. Each of these distributors is fully stocked with Colman Motors'
standardized parts and equipment using a computerized catalog system which
facilitates the efficient selection of products and components at the
distributor level.
Merkle-Korff experiences limited competition across its product lines
including Colman Motor Products. Competitors are generally much smaller in
terms of revenues but also produce a much more limited product line.
Imperial. Imperial manufactures elevator motors, floor care equipment motors
and automatic hose reel motors. Imperial was founded in 1889 and acquired by
the Company in 1988. All of Imperial's assets were sold on arm's length terms
to Motors and Gears Industries, Inc. in November 1996.
Imperial designs, manufactures and distributes specialty electric motors for
industrial and commercial use. Its products, AC and DC motors, generators and
permanent magnet motors are sold principally in the U.S. and Canada and to a
limited extent in Europe and Australia. Approximately 28% of Imperial's 1997
net sales of $27.9 million were drived from elevator motors, ranging from 5 to
100 horsepower, sold to major domestic elevator manufacturers. Approximately
72% of Imperial's 1997 net sales were drived from permanent magnet motors and
parts sold primarily to domestic manufacturers of floor care equipment.
Otis Elevator Company, Westinghouse Corporation and other leading elevator
manufacturers have in recent years discontinued internal manufacturing of
motors and have turned to Imperial and other independent manufacturers. In
1997, Clark Industries, Inc. accounted for approximately 11% of Imperial's net
sales, and Imperial's top ten customers accounted for 58% of total net sales.
Imperial's products are marketed domestically by its management and one
independent sales representative and internationally by management.
Imperial manufactures specialty motors with steel, magnets, copper wire,
castings and other components supplied by a variety of firms. In the elevator
motor market, Imperial competes with several firms of varying size. The other
markets in which Imperial competes are also highly competitive. However, the
Company's management believes that Imperial is able to effectively compete
with these firms on the basis of product reliability, price and customer
service.
<PAGE>
Scott. Scott was founded in 1982 and acquired by Imperial in August 1988.
Scott's net sales in 1997 were $4.1 million. All of Scott's assets were sold
on arm's-length terms to Motors and Gears Industries, Inc. in November 1996.
Scott manufacutres and sells floor care machine motors; silicone controlled
rectifier motors, which are variable speed motors used in conveyers, machine
tools, treadmills, mixers and metering pumps; and low voltage DC motors.
Scott offers a number of standard motors designed for a variety of
applications. Scott also custom designs motors for special applications.
Scott manufactures many of the sub-assemblies, components and molds for its
products from raw materials, which gives it the ability to manufacture these
special application motors. Scott obtains these raw materials from a number
of independent sources.
Scott markets its products through an internal sales force and serves OEMs
requiring custom designed products. Numerous competitors exist and tend to be
of similar size and scope.
Gear. Gear manufactures precision gears and gear boxes for OEMs requiring
high-precision commercial gears. Gear was founded in 1952 and acquired by
Imperial in November 1988. All of Gear's assets were sold on arm's-length
terms to Motors and Gears Industries, Inc. in November 1996. Gear
manufactures precision gears for both AC and DC electric motors in a variety
of sizes. The gears are sold primarily to the food, floor care machine and
aerospace industries and to other manufacturers of machines and hydraulic
pumps. Gear's products are nationally advertised in trade journals and are
sold by one internal salesman and one independent sales representative. Gear
precision machines its products from steel forgings and castings. Net sales
for Gear in 1997 were $11.9 million.
The gear industry is very fragmented and competitive. Gear competes primarily
on the basis of quality. In addition, the ability of Imperial, Scott and Gear
to offer both electric motors and gear boxes as a package, and to custom
design these items for customers, may allow all three subsidiaries to gain
greater market penetration.
FIR. Founded in 1925 and acquired by the Company in June 1997, FIR is a
leading European manufacturer of AC and DC motors and pumps for special-end
applications such as pumps for commercial dishwashers, motors for industrial
sewing machines, motors for industrial fans and ventilators, explosion-proof
motors for gasoline pumps and the oil industry, and asynchronous and brushless
motors for lift doors. With the exception of motors for industrial sewing
machines, FIR produces custom products only after receiving specific customer
orders. Motors for industrial sewing machines, which comprised approximately
15% of FIR's 1997 net sales of $14.8 million since its date of acquisition,
are fairly standardized and are manufactured and stocked based on internal
forecasts.
FIR sells both directly to customers and through two non-exclusive independent
sales rperesentatives located in France and Germany. The Company enjoys
long-term relationships with its customers, some of which have been customers
for over 20 years. The successful development of long-term customer
relationships is a direct result of FIR's reputation for high-quality products
and on-time delivery. Within FIR's 450-plus customer base, no single customer
accounts for more than 7% of sales. FIR's top 10 customers in 1997 accounted
for approximately 38% of total sales.
FIR has many competitors across a very fragmented European motor market.
However, FIR has distinguished itself by providing highly engineered custom
products for small markets.
<PAGE>
FIR provides Motors and Gears with a strong foundation upon which to expand
its overseas market. Through FIR, Motors and Gears will have access to
established European markets, including Italy, Germany, France, Spain and
Great Britain, as well as emerging Eastern European markets such as Poland,
the Czech Republic, and Russia. Through its European market presence and
established brand name, the Company believes FIR will enable Motors and Gears
to further develop leadership positions within market niches and expand
globally.
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, and was purchased by Motors &
Gears Industries, Inc. in October of 1997. ED&C provides comprehensive
design, build and support services to produce electronic control panels which
regulate the speed and movement of conveyor systems used in a variety of
automotive plants and other industrial applications. ED&C had net sales of
$1.8 million from the acquisition date through December 31, 1997.
Motion Control. In December 1997, the Company's subsidiary Motors & Gears
Industries, Inc. purchased Motion Control, a manufacturer of electronic motion
control products for elevator markets and specifically the elevator
modernization market. Motion Control's net sales from the acquisition date
through the end of the year were $1.2 million.
Jordan Telecommunication Products
Jordan Telecommunication Products ("JTP") is a leading supplier of
infrastructure products and equipment, electronic connectors and custom cable
assemblies to the telecommunications industry. It has provided its customers
with products and services for an average of over 20 years. For the fiscal
year ended December 31, 1997, Jordan Telecommunication Products generated
combined net sales of $257.0 million.
JTP acquired all of the Jordan Telecommunication Products subsidiaries from
the Company, concurrent with the issuance of certain debt for aggregate
consideration of $294.0 million, consisting of $284.0 million of cash proceeds
and $10.0 million of assumed obligations (See footnote 5 to the financial
statements). As part of the transactions, the Company purchased $20.0 million
aggregate initial liquidation preference of JTP Junior Preferred Stock,
resulting in net cash proceeds to the Company of $264.0 million. Each of the
Jordan Telecommunication Products subsidiaries is discussed below.
Dura-Line. Dura-Line is a manufacturer and supplier of "Innerduct" pipe
through which fiber optic cable is installed and housed. Dura-Line sells this
product to major telecommunications companies throughout the world. Dura-Line
also manufactures flexible polyethylene water and natural gas pipe. Dura-Line
was founded in 1974, and acquired by the Company in 1988.
In 1997, approximately 96% of Dura-Line's net sales of $97.0 million came from
sales of its Innerduct product. Dura-Line sells to major telecommunications
companies, such as SPT Telecom, GTE, Bell South and Pacific Bell, each of
which accounted for less than 12% of Dura-Line's Innerduct net sales.
Innerduct is marketed worldwide by Dura-Line's management, ten manufacturing
representatives and forty in-house sales representatives. Dura-Line
negotiates long-term contracts with major telecommunications companies for its
Innerduct product line. The cable conduit market is highly competitive. In
the United States, Dura-Line faces competition from a wide range of companies
including national, international and regional suppliers of cable conduit. In
addition to other independent manufacturers of cable conduit outside of the
United States, Dura-Line's competitors include manufacturers that produce pipe
and tubing for other uses, such as gas and water transportation. Competition
within the industry is based primarily on quality, price, production capacity,
field support, technical capabilities, service and reputation.
<PAGE>
In addition, approximately 4% of Dura-Line's 1997 net sales came from the sale
of polyethylene water and natural gas pipe to a variety of hardware stores,
contractors, plumbing supply firms and distributors. Dura-Line markets its
water and natural gas pipe products through sixty manufacturing
representatives in the Sourthern and Eastern U.S. The water and natural gas
pipe market is very competitive. Dura-Line competes on the basis of qualilty
and price with a number of regional and local firms.
Dura-Line's products are manufactured through the plastic extrusion process.
Dura-Line procures raw plastic for extrusion from a number of independent
suppliers. In March 1989, Dura-Line opened a new manufacturing facility in
the United Kingdom to manufacture products for sale to British Telecom and
other foreign customers. Approximately 52% of Dura-Line's net sales are
foreign sales. In late 1990, Dura-Line purchased a facility in Reno, Nevada.
This facility opened in early 1991 and has increased Dura-Line's annual
capacity by approximately 50%. In 1993, Dura-Line entered into joint venture
agreements in the Czech Republic and Israel to service Eastern Europe and the
Middle East more effectively. In early and late 1995, Dura-Line opened
subsidiaries in Mexico and China to manufacture and supply HDPE plastic
conduit systems to Central and South American markets as well as China and
other Asian markets. Dura-Line owns 100% of the equity in both subsidiaries.
In August 1996, Dura-Line incorporated a subsidiary in India under a joint
venture agreement in which Dura-Line has the controlling interest. The
subsidiary was established to manufacture and supply HDPE plastic conduit
systems to India and neighboring countries.
AIM. AIM, which was founded in 1981 and acquired by the Company in May 1989,
is an importer and manufacturer of electronic connectors, adapters, switches,
tools and other electronic hardware products for the commercial and consumer
electronics markets. Electronic connectors are AIM's main product,
representing more than 44% of AIM's 1997 net sales of $14.7 million.
AIM's products are manufactured to its specifications overseas, primarily in
the Far East, and carry the "AIM" logo. Producers are under the supervision
of an AIM agent. The products are sold worldwide to electronics, electrical,
general line and industrial distributors. AIM has warehousing and order
processing systems that enable AIM to provide delivery on a 24-hour basis to
most customers.
AIM sells nationwide to approximately 2,000 distributors in the U.S. and
Central and South America. AIM uses a combination of fifteen manufacturers,
representative organizations and six factory direct salesmen to service
existing accounts and to locate new distributors. The customer base is very
broad, with the larget customer accounting for about 3% of sales. AIM also
mails product catalogs and other marketing pieces to current customers and
potential new accounts.
The two largest companies in the $13.0 billion domestic connector and
interconnect supply industry are AMP and Amphenol. AMP and Amphenol
specialize strictly in electronic device production. Small and mid-sized
companies such as AIM have captured market share during the past 10 years by
offering distributors better service on orders compared to the industry
leaders.
<PAGE>
In 1994, AIM began to market manufactured cable and harness assemblies made at
its facility in Florida. Sales of cable and harness assemblies are estimated
to be approximately 12% of AIM's 1997 net sales.
Cambridge. Cambridge, which was founded in 1972 and acquired by the Company
in September 1989, is a domestic provider of high-quality electronic
connectors, plugs, adapters and other accessories. Cambridge is primarily a
designer and marketer of approximately 300 types of specialty radio frequency
("RF") coaxial electronic connectors used in radio, mobile communications,
television and computer equipment. RF coaxial connectors are used to
integrate separate systems by connecting input-output power and signal
transmission sources. Cambridge is essentially an assembly operation. The
primary componets of Cambridge's connector products are screw machine and
diecast parts which are purchased from approximately twenty suppliers. The
production process is highly automated, with direct labor accounting for only
12% of 1997 net sales of $6.9 million. Equipment consists of semi-automatic
parts assembly and packaging equipment which has been designed and
manufactured by Cambridge.
A portion of Cambridge's connectors are manufactured according to a design
that allows users to affix the connector to the cable faster and easier
without the need for complicated tools and time-consuming soldering.
Cambridge sells its products nationwide to 450 distributors, 100 OEMs, and
approximately 150 other various end-users. Cambridge uses a combination of
six manufacturers' representative organizations and five factory direct
salesmen located throughout North America. Cambridge's two largest customers
(excluding AIM) account for approximately 22% of 1997 net sales. Cambridge
also mails a large number of catalogs to current customers and potential new
accounts. Cambridge strongly emphasizes that it is an "American" producer of
high-quality electronic connectors.
Cambridge competes in the same market as AIM. Cambridge does not offer the
product selection of its large competitors; however, it competes effectively
by targeting distributors and manufacturers which require fast service and
prefer an American-made product.
Johnson. Purchased by the Company in 1996, Johnson was the components
division of E.F. Johnson Company, Inc., which was founded in 1953. Johnson is
a high-quality, fully integrated manufacturer of RF coaxial connectors and
electronic hardware. Johnson specializes in manufacturing miniature and
sub-miniature RF connectors used primarily in telecommunication, computer and
other OEM applications which require high frequency ranges. The miniature and
sub-miniature connector arena is experiencing excellent growth as the size of
electronic card products continues to shrink.
Johnson sells approximately 35% of its products directly to OEMs in large
orders, while the remaining 65% of Johnson's sales are sold in smaller
quantities through over 80 distributors, primarily in the United States and
Canada. Johnson's National Sales Manager coordinates the selling efforts of
three company employed Regional Sales Managers and 21 independent
representative organizations. In 1997, Johnson generated net sales of $19.8
million.
<PAGE>
Vitelec. Vitelec was founded in 1987 and purchased by the Company in 1996.
Vitelec is an importer, packager and master distributor of over 700 different
connectors, plugs, jacks, sockets, adapters and terminators, cabling
convertors, cable assemblies and other accessories for data communications and
telecommunications networks sold to the commercial and consumer electronics
markets. Vitelec's RF products are subcontract manufactured for them in
Taiwan. Vitelec, through its Vidata subsidiary, also distributes local area
network ("LAN") and wide area network ("WAN") cabling, connectors and
converters and the accessories for data communication networks.
Vitelec sells its products via five company-employed salespeople, four
in-house and one located in Paris, France. Vitelec has customers in 42
countries. The largest customer accounted for 9% of 1997 net sales of $5.4
million, with the rest of the customer base being very fragmented.
AIM, Cambridge, Johnson and Vitelec all supply the electronic connector
industry which is highly fragmented with more than 1,500 connector
manufacturers competing worldwide. As a result, the companies generally
compete with different suppliers in each of the various categories of the
overall market in which the comanies operate, as well as with certain large
national suppliers. The companies compete within this market primarily on the
basis of quality, reliability, reputation, customer service, delivery time and
price.
Diversified. Diversified was founded in 1988 and purchased by the Company in
1996. Diversified is a broad-line provider and value-added reseller of wire,
cable, connectors and custom cable assemblies. Diversified's product offering
is used in LANs, custom cable assemblies, cable for electrical applications,
cable for sound and security, cable for OEM applications and other
miscellaneous cable applications. In 1997, Diversified generated net sales of
$31.3 million.
Diversified sells its products through a skilled direct sales force. The
sales staff consists of 20 inside and 5 outside salespeople, all of whom are
product and market specialists. Diversified markets and advertises its
products through various trade journals dependent on the marketplace.
Specialty wire and cable distribution is highly fragmented. Diversified
competes in this market by focusing on service, quality, price, value added
capabilities and reputation.
Viewsonics. Viewsonics was founded in 1974 and purchased by the Company in
1996. Viewsonics designs, manufactures and markets branded cable television
("CATV"), electronic network components, and electronic security components
mainly for the "drop" or home connection portion of the CATV infrastructure.
Viewsonics develops, warehouses and sells its products out of its Florida
facility. Viewsonics sources the majority of its products from China, 60% of
which is manufactured in Viewsonics' Shanghai facility, and the remaining 40%
is manufactured by subcontractors. The overseas procurement has allowed
Viewsonics to lower production costs and it has also positioned Viewsonics to
exploit the overeseas CATV component markets as they develop.
Viewsonics sells 50% of its products to multisystem operatons including
companies such as Time/Warner, Cencast, Continental Cablevision, and TCI.
Viewsonics also sells to a network of distributors, six of whom account for
the majority of the other 50% of sales. In 1997, Viewsonics generated net
sales of $12.4 million. Competition in the industry is focused on quality
service, engineering support and price.
<PAGE>
Bond. Bond was founded in 1988 and the Company acquired 80% of the
outstanding shares of Bond in 1996. Bond designs, engineers and manufactures
high-quality custom electronic cables and connector sub-assemblies for
computer-related and telecommunications customers. All of Bond's products are
custom-made and are specifically designed to meet a customer's needs. Bond
has three fully integrated, independent manufacturing facilities. Bond has
rapidly become an industry leader due to its commitment to high quality,
competitively priced products offered in conjunction with outstanding and
dependable service.
Bond has established two separate, very profitable sales agencies in Northern
and Sourthern California to represent them. Bond is continuing to actively
solicit strategic new customers located throughout the United States via an
independent sales representative network. In 1997, Bond's single-largest
customer accounted for approximately 49% of its net sales of $21.8 million.
LoDan. LoDan, founded in 1967 and acquired by the Company in May 1997,
designs, engineers, manufactures, and distributes high-quality, custom
electronic cable assemblies, sub assemblies, and electro-mechanical assemblies
to OEMs in the data and telecommuncations segments of the electronics
industry. LoDan manufactures approximately 78% of the products it sells
in-house at an ISO-9001 certified manuacturing facility, with the remaining
22% being distributed products. For fiscal 1996, LoDan's net sales were $14.7
million.
The acquisiton of LoDan has bolstered the presence of Jordan Telecommunication
Products in the custom cable assembly business. LoDan's customer base, which
compliments that of Bond, was built based on providing innovative solutions to
customers' needs. The Company's largest customer, Cisco Systems, is the
world's pre-eminent networking company and provides LoDan with access to
international markets. LoDan's products are sold through internal and
external sales forces.
Bond and LoDan supply the custom cable assembly market which encounters
competition from a broad range of companies, several of which are much larger
and have greater financial resources than either Bond or LoDan. In addition
to other independent manufacturers of cable assemblies, offshore manufacturers
compete in this market, primarily on the basis of price. Competition within
the industry is based on quality, production, capacity, breadth of product
line, engineering support capability, price, local support capability, systems
support and financial strength.
Northern. Northern was founded in 1985 and was purchased by the Company in
1996. Northern designs, manufactures and markets power conditioning and power
protection equipment for primarily telecommunication applications, such as
cellular and Personal Communication System ("PCS") networks. Northern also
offers a variety of products including voltage regulators, uninterruptible
power supplies, isolation transformers, and grounding devices to protect any
power-critical application.
Northern sells on a direct basis through its own highly technical in-house
sales force of 23 employees, who are supported by seven application engineers
and four product development engineers. Northern sells to such large telecom
OEMs as Sprint, Motorola, Lucent, Erickson and Nokia. Northern's largest
customer accounted for approximately 45% of net sales in 1997 of $23.3 million
and its 10 largest customers accounted for approximately 58% of net sales in
1997.
<PAGE>
Engineered Endeavors ("EEI"). EEI was founded in 1987 and acquired by JTP in
September 1997. EEI designs complete cellular and PCS towers, manufactures
monopole antenna mount platforms, custom bill and clock towers, and
accessories. EEI also distributes ancillary products used in the construction
of cellular and PCS towers. EEI reported $7.5 million of net sales from its
acquisition date through the end of the year.
Telephone Services, Inc. ("TSI"). In October 1997, JTP acquired 70% of TSI.
TSI designs, manufactures and provides custom cable assemblies, terminal
strips and terminal blocks and other connecting devices primarily to the
telephone operating companies and major telecommunication manufactures. TSI
recorded $4.4 million of net sales from its acquisition date through December
31, 1997.
<PAGE>
Backlog
As of December 31, 1997, the Company had a backlog of approximately $109.6
million, compared with $75.0 million as of December 31, 1996 The backlog in
1997 is primarily due to titanium hot formed sales at Parsons and motor sales
at Merkle Korff. Management believes that the backlog may not be indicative
of future sales.
Seasonality
The Company's aggregate business has a certain degree of seasonality. SPAI's
and Riverside's sales are somewhat stronger toward year-end due to the nature
of their products. Calendars at SPAI have an annual cycle while Bibles and
religious books at Riverside are popular as holiday gifts.
Research and Development
As a general matter, the Company operates businesses that do not require
substantial capital or research and development expenditures. However,
development efforts are targeted at certain subsidiaries as market
opportunities are identified. None of these subsidiaries' development efforts
require substantial resources from the Company.
Patents, Trademarks, Copyrights and Licenses
The Company relies on a combination of patent, copyright, trademark and trade
secret laws and contractual agreements to protect its proprietary technology
and know how. The Company owns and uses trademarks and brandnames to identify
itself as a source of certain goods and services including the DURA-LINE and
SILICORE trademarks, both of which are registered in the United States and
various foreign countries, and the VIEWSONICS brandname, in which the Company
has common law rights. The Company's SILICORE technology includes a patented
solid co-extruded polymer lubricant lining that uses a silicone-based
lubricant which is marketed and sold under the SILICORE trademark. There can
be no assurance that the Company will be granted additional patents or that
the Company's patents either will be upheld as valid if ever challenged or
will prevent the development of competitive products. The Company's U.S.
patent with respect to the SILICORE lubricant lining expires in 2007. The
Company has not sought foreign patents for most of its technologies, including
technologies which have been patented in the United States, such as the
SILICORE lubricant lining, which may adversely affect the Company's ability to
protect its technologies and products in foreign countries. The Company
protects its confidential, proprietary information as trade secrets.
Except for the SILICORE polymer pipe products, certain of the Company's CATV
components and its fiber optic connector technology, the Company's products
are generally not protected by virtue of any proprietary rights such as
patents. There can be no assurance that the steps taken by the Company to
protect its proprietary rights will be adequate to prevent misappropriation of
its technology and know-how or that the Company's competitors will not
independently develop technologies that are substantially equivalent to or
superior to the Company's technology. In addition, the laws of some foreign
countries do not protect the Company's proprietary rights to the same extent
as do the laws of the United States. In the Company's opinion, the loss of
any intellectual property asset, would not have a material adverse effect on
the conduct of the Company's business.
<PAGE>
The Company is also subject to the risk of adverse claims and litigation
alleging infringement of the proprietary rights of others. From time to time,
the Company has received notice of infringement claims from other parties.
Although the Company does not believe it infringes the valid proprietary
rights of others, there can be no assurance against future infringement claims
by third parties with respect to the Company's current or future products.
The resolution of any such infringement claims may require the Company to
enter into license arrangements or result in protracted and costly litigation,
regardless of the merits of such claims.
Employees
As of December 31, 1997, the Company and its subsidiaries employed
approximately 6,200 people. Approximately 1,100 of these employees were
members of various labor unions. The company has not experienced any work
stoppages in the past five years as a result of labor disruptions. The
Company believes that its subsidiaries' relations with their respective
employees are good.
Environmental Regulations
The Company is subject to numerous U.S. and foreign federal, state,
provincial, and local laws and regulations relating to the storage, handling,
emission and discharge of materials into the environment, including the U.S.
Comprehensive Environmental Response, Compensation and Liability Act
("CERCLA"), the Clean Water Act, the Clean Air Act, the Emergency Planning and
Community Right-To-Know Act and the Resource Conservation and Recovery Act.
Under CERCLA and analogous state laws, a current or previous owner or operator
of real property may be liable for the cost of removal or remediation of
hazardous or toxic substances on, under, or in such property. Such laws
frequently impose cleanup liability regardless of whether the owner or
operator knew of or was responsible for the presence of such hazardous or
toxic substances and regardless of whether the release or disposal of such
substances was legal at the time it occurred. Regulations of particular
significance to the Company's ongoing operations include those pertaining to
handling and disposal of solid and hazardous waste, discharge of process
wastewater and stormwater and release of hazardous chemicals. The Company
believes it is in substantial compliance with such laws and regulations.
The Company generally conducts a Phase I environmental survey on each
acquisition candidate prior to purchasing the company to assess the potential
for the presence of hazardous or toxic substances that may lead to cleanup
liability with respect to such properties. The Company does not currently
anticipate any material adverse effect on its results of operations, financial
condition or competitive position as a result of compliance with federal,
state, provincial, local or foreign environmental laws or regulations.
However, some risk of environmental liability and other costs is inherent in
the nature of the Company's business, and there can be no assurance that
material environmental costs will not arise. Moreover, it is possible that
future developments such as the obligation to investigate or clean up
hazardous or toxic substances at the Company's property for which
indemnification is not available, could lead to material costs of
environmental compliance and cleanup by the Company.
<PAGE>
Barber-Colman Motors, a product line of the Company and formerly a
wholly-owned subsidiary of the Company, leases property that has been the
subject of remedial investigation and corrective action following the removal
of a small, underground waste oil tank in 1994. Contaminated soils have been
removed up to the edge of the foundation of an overlying structure and down to
bedrock. The Wisconsin Department of Natural Resources has advised the
Company that no further action is necessary at this time. In connection with
the acquisition of Barber-Colman, the Company obtained indemnification from
the former owner of Barber-Colman Motors for environmental liability resulting
from its prior operations.
FIR, a wholly-owned subsidiary of the Company, owns property in Casalmaggiore,
Italy that is the subject of investigation and remediation under the review of
government authorities for soils and groundwater contaminated by historic
waste handling practices. In connection with the acquisition of FIR, the
Company obtained indemnification from the former owners for this investigation
and remediation.
DACCO is a potentially responsible party ("PRP") at the John P. Saad & Sons
site in Nashville, Tennessee (the "Saad Site").
DACCO and a number of other PRPs have entered into a consent agreement with
the U.S. Environmental Protection Agency (the "EPA"), dated April 18, 1990,
and follow-on orders relating to the clean-up of the Saad Site (the "Consent
Agreements"). All work has been completed under the Consent Agreements.
Additional work proceeded under a Unilateral Administrative Order for Removal
Response Activities dated July 28, 1995. This work has been completed and
DACCO has paid its full share of total expenses related to the clean-up
efforts. It is not likely that the EPA will make any further removal
requirements.
DACCO's interim allocation of expenses relating to the clean-up is currently
1.48 percent. It is not likely that DACCO will have to make any additional
payments to the Steering Committee. Total expenses incurred by the PRP group
through January 1998 are approximately $4.3 million. These expenses include
removal costs, engineering and attorneys fees, but do not include
administrative oversight costs incurred by the EPA or the State of Tennessee.
The EPA has incurred administrative oversight costs of approximately $1.1
million through January 1998. The EPA has agreed not to pursue DACCO or other
members of the Saad Site Steering Committee for its administrative oversight
costs in exchange for their cooperation in pursuing recalcitrant parties.
DACCO is not responsible for costs incurred by the State of Tennessee.
<PAGE>
Item 2. Properties
The Company leases approximately 31,700 square feet of office space for its
headquarters in Illinois. The principal properties of each subsidiary of the
Company at December 31, 1997, and the location, the primary use, the capacity,
and ownership status thereof, are set forth in the table below:
SQUARE OWNED/
COMPANY LOCATION USE FEET LEASED
AIM
Sunrise, FL Manufacturing/Administration/
Distribution 28,000 Leased
Beemak
Gardena, CA Manufacturing (2 buildings) 34,500 Leased
Warehouse 12,000 Leased
Bond
Anaheim, CA Manufacturing/Administration 16,000 Leased
Fremont, CA Manufacturing/Administration 17,000 Leased
Austin, TX Manufacturing/Administration 12,000 Leased
Cambridge
Windsor, CT Manufacturing 9,000 Leased
Cape Craftsmen
Elizabethtown, NC Manufacturing 230,200 Leased
Wilmington, NC Administration 8,500 Leased
Cho-Pat
Hainesport, NJ Manufacturing/Administration 7,000 Leased
DACCO
Cookeville, TN Administration/Manufacturing 140,000 Owned
Huntland, TN Manufacturing 65,000 Owned
Rancho Cucamonga, CA Administration/Manufacturing 40,000 Owned
Diversified
Troy, MI Manufacturing/Administration/Distribution 45,000 Leased
Nashville, TN Distribution/Sales Office 7,100 Leased
Dura-Line
Middlesboro, KY Manufacturing/Administration 80,000 Owned
Grimsby, U.K. Manufacturing/Administration 35,000 Owned
Sparks, NV Manufacturing 35,000 Owned
Zlin, Czech Republic Manufacturing/Administration 40,000 Owned
Knoxville, TN Administration 10,000 Leased
Tel Aviv, Israel Manufacturing/Administration 10,000 Leased
Queretaro, Mexico Manufacturing/Administration 43,000 Leased
Mexico City, Mexico Sales Office/Administration 2,000 Leased
Shanghai, China Manufacturing/Administration 50,000 Owned
Shanghai, China Sales Office/Administration 1,000 Leased
Goa, India Manufacturing/Administration 48,000 Owned
New Delhi, India Manufacturing/Administration 2,000 Leased
ED&C
Troy, MI Manufacturing/Administration 12,000 Leased
Troy, MI Administration 4,000 Leased
EEI
Mentor, OH Manufacturing/Administration 48,000 Leased
Belle Chasse, LA Warehouse 105,000 Leased
FIR
Casalmaggiore, Italy Manufacturing/Administration 100,000 Owned
Varano, Italy Manufacturing 30,000 Owned
Bedonia, Italy Manufacturing 8,000 Owned
Reggio Emilia, Italy Manufacturing 35,000 Leased
Reggio Emilia, Italy Manufacturing 30,000 Leased
Genoa, Italy Manufacturing 33,000 Leased
Gear
Grand Rapids, MI Manufacturing/Administration 39,000 Owned
Imperial
Akron, OH Manufacturing/Administration 43,000 Owned
Stow, OH Administration 7,000 Leased
Middleport, OH Manufacturing 85,000 Owned
Cuyahoga Falls, OH Manufacturing 63,000 Leased
Johnson
Waseca, MN Manufacturing/Administration 70,000 Subleased
LoDan
San Carlos, CA Manufacturing/Administration 22,500 Leased
San Carlos, CA Manufacturing 13,500 Leased
Merkle-Korff
Des Plaines, IL Manufacturing/Administration 38,000 Leased
Des Plaines, IL Manufacturing/Administration 45,000 Leased
Richland Center, WI Manufacturing/Administration 45,000 Leased
Crystal Lake, IL Manufacturing 46,000 Leased
Darlington, WI Manufacturing 68,000 Leased
Belvedere, IL Design/Administration 12,000 Leased
Motion Control
Rancho Cordova, CA Administration 40,000 Leased
Northern
Liberty Lake, WA Manufacturing/Administration 22,600 Leased
Pamco
Des Plaines, IL Manufacturing/Administration 24,500 Owned
Parsons
Parsons, KS Manufacturing/Administration 97,500 Owned
Riverside
Iowa Falls, IA Distribution/Administration 65,900 Leased
Sparks, NV Distribution 35,000 Leased
Sate-Lite
Niles, IL Manufacturing/Administration 120,000 Leased
Scott
Alamogordo, NM Manufacturing 15,000 Leased
Seaboard
Fitchburg, MA Administration/Manufacturing 260,000 Owned
Miami, FL Manufacturing 90,000 Owned
Brentwood, NY Manufacturing 35,000 Leased
Brooklyn, NY Manufacturing 35,000 Leased
Bohemia, NY Manufacturing 20,000 Leased
SPAI
Red Oak, IA Manufacturing/Administration
(Four buildings) 136,500 Owned
Coshocton, OH Manufacturing/Administration 240,000 Leased
<PAGE>
SQUARE OWNED/
COMPANY LOCATION USE FEET LEASED
TSI
Grand Prairie, TX Manufacturing/Administration 15,000 Leased
Shasta Lake City, FL Administration 6,000 Leased
Riverview, FL Manufacturing 75,000 Leased
Tampa, FL Manufacturing 20,000 Leased
Valmark
Fremont, CA Manufacturing/Administration 46,000 Leased
Fremont, CA Manufacturing/Administration 15,000 Leased
Viewsonics
Boca Raton, FL Administration/Distribution/
Research and Development 14,500 Leased
Shanghai, China Manufacturing/Administration 25,000 Leased
St. Petersburg,Russia Manufacturing/Administration 10,000 Leased
VitelecBordon, U.K. Distribution/Administration/
Assembly 16,500 Owned
Paris, France Sales Office 1,000 Leased
DACCO also owns or leases thirty-two distribution centers, which average 4,000
square feet in size. DACCO maintains four distribution centers in Florida,
California, and Tennessee, two distribution centers in each of Illinois,
Arizona, Michigan, Texas and Alabama, and the remaining distribution centers
are located in Pennsylvania, Indiana, Minnesota, Missouri, Nebraska, New
Jersey, West Virginia, Ohio, Oklahoma and South Carolina.
Merkle-Korff's facilities are leased from the chairman of Merkle-Korff and
Northern's Liberty Lake, Washington, facility is leased from a general
partnership consisting of the former owners. The Company believes that the
terms of these leases are comparable to those which would have been obtained
by the Company had these leases been entered into with an unaffiliated third
party.
On January 1, 1998, Merkle-Korff entered into a new lease agreement in
preparation for exiting the Crystal Lake, IL and Belvedere, IL locations. The
new facility is approximately 112,000 square feet and will be used primarily
for manufacturing. The six year lease expires on December 31, 2003 and
includes an option to extend the agreement an additional five years.
On January 19, 1998, ED&C entered into a new lease agreement in preparation
for exiting both Troy, MI locations. The new facility is approximately 29,240
square feet and will be used for manufacturing and administration. The five
year lease expires December, 2002. The relocation to the new facility was
completed in February of 1998.
The Company also has sales representatives in field offices in Florida,
Illinois, Ohio, Oregon, Virginia and internationally in Brazil, Bulgaria,
Germany, Malaysia, Romania, Russia and Slovakia.
None of the Company's significant existing leases are scheduled to expire in
1998. The Company believes that its existing leased facilities are adequate
for the operations of the Company and its subsidiaries.
Item 3. LEGAL PROCEEDINGS
On January 21, 1997, Welcome Home filed for Chapter 11 bankruptcy protection.
As a result of the Chapter 11 filing, the results of Welcome Home are not
consolidated with the Company's results for periods subsequent to January 21,
1997.
<PAGE>
The Company's subsidiaries are parties to various other legal actions arising
in the normal course of their business. The Company believes that the
disposition of such actions individually or in the aggregate will not have a
material adverse effect on the consolidated financial position of the Company.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the fiscal
year ended December 31, 1997.
PART II
Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
(a)The only authorized, issued and outstanding class of capital stock of the
Company is Common Stock. There is no established public trading market for
the Company's Common Stock.
(b)At December 31, 1997, there were 19 holders of record of the Company's
Common Stock.
(c)The Company has not declared any cash dividends on its Common Stock since
the Company's formation in May, 1988. The Indenture (the "Indenture"), dated
as of September 9, 1997, by and between the Company and First Bank National
Association, as Trustee, with respect to the 10 3/8% Senior Notes and the 11
3/4% Senior Subordinated Discount Debentures contain restrictions on the
Company's ability to declare or pay dividends on its capital stock. The
Indenture prohibits the declaration or payment of any dividends or the making
of any distribution by the Company or any Restricted Subsidiary (as defined in
the Indenture) other than dividends or distributions payable in stock of the
Company or a Subsidiary and other than dividends or distributions payable to
the Company.
<PAGE>
Item 6. SELECTED FINANCIAL DATA
The following table presents selected operating, balance sheet and other
data of the Company and its subsidiaries as of and for the five years ended
December 31, 1997. The financial data of the Company and its subsidiaries as
of and for the years ended December 31, 1993 through 1997 were derived from
the consolidated financial statements of the Company and its subsidiaries.
Year Ended December 31,
(Dollars in thousands)
1997 1996 1995 1994 1993
Operating data:(1)
Net sales.................. $707,112 $601,567 $507,311 $424,391 $358,611
Cost of sales, excluding
depreciation.............. 446,580 375,745 320,653 262,730 221,518
Gross profit, excluding
depreciation.............. 260,532 225,822 186,658 161,661 137,093
Selling, general and
administrative expense.... 148,921 150,951 121,371 97,428 80,496
Operating income .......... 55,444 13,392 32,360 42,944 36,387
Interest expense........... 82,455 63,340 46,974 40,887 41,049
Interest income ........... (2,713) (2,538) (2,841) (1,471) (1,845)
Income (loss) before income
taxes, minority interest,
equity in earnings of investee,
and extraordinary items... (6,173) (47,410) (11,773) 27,689 (2,817)
Income (loss) before extra-
ordinary items (2)....... (14,260) (51,884) (7,470) 23,741 (3,483)
Net income (loss) (2) $(45,618) $(55,690) $ (7,470)$ 23,741 $(29,675)
Balance sheet data (at end of period):
Cash and cash equivalents $ 52,500 $ 32,797 $ 41,253 $ 56,386 $ 68,273
Working capital........... 176,508 123,479 115,387 123,395 121,490
Total assets.............. 930,231 681,885 532,384 398,474 338,509
Long-term debt
(less current portion)... 921,871 687,936 513,690 380,966 356,981
Net capital deficiency(3). $(175,285)$(130,281)$(74,479)$(66,867) $(90,669)
(1)The Company has acquired a diversified group of operating companies over
the five year period which significantly affects the comparability of the
information shown above.
(2)Net loss in 1993 includes an extraordinary loss of $26,192 related to the
Company's refinancing. Net income in 1994 includes a gain from the sale of a
partial interest in Welcome Home of $24,161. Net loss in 1995 includes $6,929
of restructuring and non-recurring charges related to Welcome Home. Net loss
in 1996 includes compensation expense related to a stock appreciation right
and other compensation agreements of $9,822, the loss on the purchase of an
affiliate, $4,488, and restructuring charges related to Welcome Home, $8,106,
and other non-recurring changes, $4,136. Net loss in 1997 includes
compensation expense related to a stock appreciation right and other
compensation agreements of $15,871, a gain on the sale of a subsidiary of
$17,081, the recording of equity in the loss of an investee of $3,386, and
an extraordinary loss of $31,358 related to the Company's refinancing.
(3)No cash dividends on the Company's Common Stock have been declared or
paid.
<PAGE>
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
OPERATIONS AND FINANCIAL CONDITION
Historical Results of Operations
Summarized below are the historical net sales, operating income and
operating margin (as defined below) for each of the Company's business groups
for the fiscal years ended December 31, 1997, 1996 and 1995. This discussion
should be read in conjunction with the historical consolidated financial
statements and the related notes thereto contained elsewhere in this Annual
Report.
In 1995, The Company's business segments were realigned into five
distinct groups. In 1996, Dura-Line was moved from the Consumer and
Industrial Products segment to the Telecommunications Products segment. In
1997, the Retube product line of Dura-Line was moved from the
Telecommunication 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.
Year ended December 31,
1997 1996 1995
(dollars in thousands)
Net Sales:
Specialty Printing & Labeling.. $119,346 $109,587 $ 96,514
Motors and Gears............... 148,669 117,571 54,218
Telecommunications Products.... 257,010 131,592 98,777
Welcome Home(3)................ 2,456 81,855 93,166
Consumer and Industrial Products(4) 179,631 160,962 164,636
Total ..................... $707,112 $601,567 $507,311
Operating Income (1):
Specialty Printing & Labeling.. 10,031 7,078 $ 8,067
Motors and Gears............... 31,058 26,164 12,236
Telecommunications Products.... 18,365 13,490 17,774
Welcome Home(3)................ (1,107) (15,975) (10,066)
Consumer and Industrial Products(4) 23,497 17,941 21,987
Total .................... $81,844 $ 48,698 $ 49,998
Operating Margin (2):
Specialty Printing & Labeling.. 8.4% 6.5% 8.4%
Motors and Gears............... 20.9% 22.3% 22.6%
Telecommunications Products.... 7.1% 10.3% 18.0%
Welcome Home(3)................ (45.1)% (19.5%) (10.8)%
Consumer and Industrial Products(4) 13.1% 11.2% 13.4 %
Combined (1)................... 11.6% 8.1% 9.9 %
(1) Before corporate overhead of $26,400 for the year ended December 31,
1997. The Telecommunications Products operating income includes expense of
$15,871 related to compensation agreements in 1997. The operating income for
the year ended December 31, 1996 is before corporate overhead of $26,946, the
write-off of $4,488 in notes receivable resulting from the Cape Craftsmen
acquisition and the charge of $3,872 for a compensation agreement. 1995
results are before corporate overhead of $17,638. The Telecommunications
Products' operating income includes the AIM and Cambridge SARA expense of
$5,422 for the year ended December 31, 1996, and $400 for the year ended
December 31, 1995.
<PAGE>
(2)Operating margin is operating income divided by net sales.
(3)For the period from January 1, 1997 to January 21, 1997, the date of the
Chapter 11 filing (See Footnote 3 to the financial statements).
(4)Consumer and Industrial Products includes Hudson for the period from
January 1, 1997 to May 15, 1997, and Paw Print for the period from January 1,
1997 to July 25, 1997. (See Footnote 16 to the financial statements).
Specialty Printing & Labeling. As of December 31, 1997, the Specialty
Printing and Labeling group consisted of SPAI, Valmark, Pamco, and Seaboard.
1997 Compared to 1996. Net sales increased $9.8 million or 8.9% and
operating income increased $3.0 million or 41.7%. Sales increased due to
higher sales of ad specialty products at SPAI, $2.2 million, increased sales
of rollstock and membrane switches at Valmark, $1.0 million and $0.6 million,
respectively, higher sales of labels at Pamco, $0.3 million, and increased
sales of folding boxes at Seaboard, $7.3 million, due to the acquisition of
Seaboard in May 1996. Partially offsetting these increases were decreased
sales of calendars and school annuals at SPAI, $0.1 million and $0.2 million,
respectively, and lower sales of shielding devices at Valmark, $1.3 million.
Operating income increased due to higher operating income at SPAI, $0.6
million, increased operating income at Valmark, $0.1 million, and higher
operating income at Seaboard, $2.6 million. Partially offsetting these
increases was decreased operating income at Pamco, $0.3 million. The higher
operating income at SPAI is due to lower selling, general, and administrative
costs, primarily medical insurance and commissions, while the increase at
Valmark is due to higher sales and lower operating costs. The decrease in
operating income at Pamco is attributed to lower gross profit stemming from
decreased sales of custom-made labels. Operating margin increased 1.9%, from
6.5% in 1996 to 8.4% in 1997, primarily due to higher sales and lower
operating costs as discussed above.
1996 Compared to 1995. Net sales increased $13.1 million or 13.6% and
operating income decreased $1.0 million or 12.3%. Sales increased due to the
1996 acquisition of Seaboard, which contributed $17.8 million in sales. The
Seaboard acquisition was offset by sales declines at Valmark, $4.4 million,
and Pamco, $.3 million. The sales decline at Valmark is primarily due to
lower sales of shielding devices to Apple Computer.
The decrease in operating income is due to decreases at SPAI, $.6 million,
Valmark, $1.9 million, and Pamco, $.8 million. These decreases were partially
offset by the acquisition of Seaboard, which contributed $2.3 million in
operating income during 1996. The decrease in operating income at SPAI is due
to higher selling, general and administrative expenses, which should
contribute to future sales. The decrease at Valmark is due to lower sales,
while the decrease at Pamco is due to lower sales and a lower gross margin
stemming from price pressures coupled with higher operating costs. Operating
margin decreased 1.9%, from 8.4% in 1995 to 6.5% in 1996, due to lower gross
margins and increased selling, general and administrative expense mentioned
above.
Motors and Gears. As of December 31, 1997, the Motors and Gears group
consisted of Imperial, Scott, Gear, Merkle-Korff, FIR, ED&C and Motion
Control. Effective January 1997, Barber-Colman became a fully integrated
division of Merkle-Korff. Motors and Gears operates in two separate business
segments; electric motors ("motors") and electronic motion control systems
("controls"). Motors and Gears entered the controls business segment through
the acquisition of ED&C and Motion Control during 1997.
<PAGE>
1997 Compared to 1996. Net sales increased $31.1 million or 26.5% and
operating income increased $4.9 million or 18.7%. Sales increased partially
due to the acquisitions of the FIR Group in June 1997, ED&C in October 1997,
and Motion Control in December 1997. These companies contributed $14.8
million, $1.8 million, and $1.2 million, respectively, in 1997, or 57.2% of
the total increase in net sales. In addition, net sales increased due to an
18.3% increase in sales of subfractional motors at Merkle-Korff and a 24.0%
increase in sales of planetary gears at Gear. Partially offsetting these
increases was a 6.6% decrease in sales of fractional/integral motors at
Imperial and Scott.
The sales increases were primarily due to (a) strong sales of subfractional
motors in the vending and appliance markets and (b) strong sales of planetary
gears in the floor care market. The decrease in net sales of
fractional/integral motors was primarily due to unusually strong sales in the
first half of 1996 resulting from the high backlog of orders accumulated in
the fourth quarter of 1995.
The increase in operating income was primarily due to the increase in sales of
subfractional motors and planetary gears as discussed above. Partially
offsetting these increases were slightly decreased gross margins in the
fractional/integral motors group due to FIR operating at slightly lower gross
margins than the rest of the group, and increased operating expenses
attributed to the acquisitions of Barber-Colman in 1996, and FIR, ED&C and
Motion Control in 1997. Operating margin decreased 1.4% from 22.3% in 1996 to
20.9% in 1997, due to the decreased gross margins and increased operating
expenses discussed above.
1996 Compared to 1995. Net sales increased $63.4 million or 116.8%, and
operating income increased $14.0 million or 113.8%. The increase in net sales
is partially due to the acquisition of Barber-Colman in March of 1996 which
reported sales of $17.6 million from its acquisition date through the end of
the year. The group also benefitted from a full year of the results of
Merkle-Korff which was purchased in September 1995. Merkle-Korff had sales of
$59.6 million for the full year of 1996 as compared to $14.1 million for the
period from the acquisition date to the end of 1995. This accounted for $45.4
million of the current year increase. In addition, Scott's sales increased
$0.4 million due to higher motor sales.
The increase in operating income was partially attributable to the acquisition
of Barber-Colman, which contributed $1.7 million of operating income to the
current years results. Also, operating income for the entire year for
Merkle-Korff was $15.2 million as compared to $2.6 million for the period from
the acquisition date to the end of 1995. This accounted for $12.6 million of
the current year's increase. The above were partially offset by decreases in
operating income at Imperial and Gear of $0.2 million and $0.3 million,
respectively. Operating margin decreased from 22.6% to 22.3% due to the
addition of Barber-Colman, which operates at a lower operating margin than the
rest of the group.
Telecommunications Products. As of December 31, 1997, the
Telecommunications Products group consisted of Dura-Line, AIM, Cambridge,
Johnson, Diversified, Viewsonics, Vitelec, Bond, Northern, LoDan, EEI and
TSI. Due to the similarity of many of the Telecommunications Products
subsidiaries' product lines, management evaluates, oversees and manages the
companies based on three product group segments: Infrastructure Products and
Equipment which includes Dura-Line, Viewsonics, Northern and EEI; Electronic
Connectors and Components which includes AIM, Cambridge, Johnson and Vitelec;
and Custom Cable Assemblies and Specialty Wire and Cable which includes Bond,
Diversified, LoDan and TSI.
<PAGE>
1997 Compared to 1996. Net sales increased $125.4 million or 95.3% and
operating income increased $4.9 million or 36.1%. The increase in net sales
was primarily due to the acquisitions of Johnson, Diversified, Viewsonics,
Vitelec, and Bond in 1996 and Northern, LoDan, EEI and TSI in 1997. These
companies contributed net sales of $19.8 million, $31.3 million, $12.4
million, $5.4 million, $21.8 million, $23.3 million, $14.7 million, $7.5
million, and $4.4 million, respectively, in 1997 compared to net sales in 1996
of $16.9 million for Johnson, $13.9 million for Diversified, $5.1 million for
Viewsonics, $2.4 million for Vitelec, $3.6 million for Bond, and $0 for
Northern, LoDan, EEI, and TSI. In addition, net sales increased $26.7 million
due to higher sales of infrastructure products and equipment, particularly
cable conduit. This increase was primarily due to higher international sales
resulting from the addition of new manufacturing facilities in Mexico and
China.
Operating income increased primarily due to the acquisitions discussed above.
These companies contributed operating income in 1997 of $3.6 million, $1.4
million, $3.7 million, $1.0 million, $2.7 million, $4.3 million, $1.1 million,
$1.0 million and $0.1 million, respectively, compared to operating income in
1996 of $2.9 million for Johnson, $0.7 million for Diversified, $0.5 million
for Vitelec, $0.3 million for Bond, and $0 for Viewsonics, Northern, LoDan,
EEI, and TSI. In addition, operating income at Aim increased $4.1 million due
to Stock Appreciation Rights ("SAR") expense of $5.2 million in 1996.
Operating income at Aim, excluding SAR expense, decreased $1.1 million in 1997
primarily due to lower domestic sales and gross profits. Partially offsetting
the increase in operating income related to the above acquisitions, operating
income at Dura-Line decreased $13.7 million. This decrease was due to SAR
expense of $15.9 million in 1997 related to the acquisition of Dura-Line in
1988. Operating income at Dura-Line, excluding SAR, increased $2.2 million in
1997 primarily due to higher sales of cable conduit in Europe, particularly
the Czech Republic.
Operating margin decreased 3.2%, from 10.3% in 1996 to 7.1% in 1997.
Excluding the SAR expenses, operating margins would have decreased 0.8%, from
14.2% in 1996 to 13.4% in 1997. The decrease in operating margin was
primarily due to international market development costs in 1997 not incurred
in 1996 and lower operating margins at Aim.
1996 Compared to 1995. Net sales increased $32.8 million or 33.2% and
operating income decreased $4.3 million or 24.1%. The increase in sales was
due primarily to the following 1996 acquisitions: Johnson Components, $16.9
million, Diversified, $13.9 million, Viewsonics, $5.1 million, Vitelec, $2.4
million, and Bond, $3.6 million. Net sales also increased due to higher sales
of electronic connectors at AIM, $0.5 million. Partially offsetting the sales
increases were decreased sales of Innerduct at Dura-Line, $7.4 million, and
lower sales of connectors at Cambridge, $2.2 million. The decrease in
Innerduct sales at Dura-Line is due to a general market slowdown in the U.S.
and U.K. due to uncertainty surrounding the anticipated effects of the Telecom
Act. The decreased Innerduct sales in the U.S. and U.K. were partially offset
by increased sales of $10.7 million or 90% in the Czech Republic, where the
Czech subsidiary has approximately an 80% share of the Czech market, plus the
opening of the Mexico and China operations in 1996, which contributed $1.1
million and $.3 million to net sales, respectively.
The decrease in operating income is due primarily to Dura-Line, $4.5 million,
and AIM, $4.4 million. Partially offsetting the decrease in operating income
are the 1996 acquisitions: Johnson, $2.9 million, Diversified, $0.5 million,
Vitelec, $0.5 million, and Bond, $.2 million. Cambridge also helped to
partially offset the decrease with a $.3 million increase in operating
income. The decrease at AIM is due to increased compensation expense of $5.0
million related to a Stock Appreciation Rights Agreement ("SARA") (see
footnote 21 to the financial statements). The decrease at Dura-Line is due to
lower sales coupled with increased operating costs related to Dura-Line's
global expansion, $1.9 million. Excluding AIM's SARA expense, operating
income for the group would have increased $.3 million or 1.7%.
<PAGE>
Operating margin decreased 7.7%, from 18.0% in 1995 to 10.3% in 1996. In
addition to the effect of AIM's SARA expense, the decline in the group's
operating margin is partially attributable to (1) the acquisition of
Diversified, which operates at a lower margin as compared to other companies
in the group, and (2) a lower margin at Dura-Line due to higher operating
costs primarily associated with international expansion.
Welcome Home. (See note 3 to the Consolidated Financial Statements.)
1997 Compared to 1996. Net sales decreased $79.4 million or 97.0%, while
the operating loss decreased $14.9 million or 93.1%. These fluctuations are
the direct result of Welcome Home's Chapter 11 bankruptcy filing on January
21, 1997 (see note 3 to the financial statements). As a result of the filing,
the Company no longer has the ability to control the operations and financial
affairs of Welcome Home. Accordingly, the results of operations of Welcome
Home from January 21, 1997 to December 31, 1997, are not included in the
consolidated results of the Company. Since January 21, 1997 the Company has
accounted for its investment in Welcome Home under the equity method of
accounting.
1996 Compared to 1995. Sales decreased $11.3 million or 12.1%. The
decrease in sales is due to a downturn in outlet mall traffic and the closing
of 26 stores in 1996 related to the company's reorganization efforts.
Operating income decreased $5.9 million or 58.7% due to lower sales, higher
operating costs, and non-recurring restructuring charges. The decrease in
operating income caused by the above factors was partially offset by an
improvement in the gross margin to 40.5% from 38.3% stemming from fewer
markdowns in 1996. The operating margin decreased from (10.8%) to (19.5%).
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").
Consumer and Industrial Products. As of December 31, 1997, the Consumer
and Industrial Products group consisted of DACCO, Sate-Lite, Riverside,
Parsons, Beemak, Cape, Cho-Pat and Dura-Line Retube.
1997 Compared to 1996. Net sales increased $18.7 million or 11.6%. The
increase in net sales is partially due to the acquisitions of Cape and Paw
Print in July and November 1996, respectively, Arnon-Caine (by Beemak) in
January 1997, and Cho-Pat in September 1997. These companies contributed net
sales of $12.8 million, $5.5 million, $3.9 million, and $0.4 million,
respectively, in 1997 compared to net sales in 1996 of $1.3 million for Cape,
$1.6 million for Paw Print, and $0 for Arnon-Caine and Cho-Pat. Further
contributing to the rise in 1997 net sales were increased sales of soft parts
and scrap at DACCO, $0.6 million and $0.2 million, respectively, higher sales
of bicycle reflectors and custom molding products at Sate-Lite, $0.5 million
and $0.2 million, respectively, higher sales of bibles, books, audio tapes,
and music products at Riverside, $0.9 million, $1.4 million, $1.0 million, and
$0.8 million respectively, increased sales of aircraft parts at Parsons, $7.6
million, and higher sales of plastic pipe at Dura-Line Retube, $0.2 million.
Partially offsetting these increases were decreased sales of rebuilt
converters at DACCO, $1.8 million, lower contract distribution sales at
Riverside, $3.1 million, decreased sales of plastic injection molded products
at Beemak, $0.7 million, and lower sales at Hudson, $8.8 million, due to the
sale of the Company.
<PAGE>
The sales increases were primarily due to (a) the increased focus on sales of
soft parts through an expanded line of retail stores at DACCO, (b) the
extension of sales of bicycle reflectors into Asian markets at Sate-Lite, (c)
the resolution of computer system problems at Riverside which negatively
impacted the fourth quarter of 1996, and (d) strong sales of aircraft parts to
Boeing at Parsons. The decrease in net sales of rebuilt converters at DACCO
was primarily due to good weather in the Northeast part of the United States,
while the lower sales to contract distribution customers at Riverside were due
to less focus on the lower margin contract distribution business and more
focus on the higher margin publishing and distribution business.
Operating income increased $5.6 million or 31.0%. The increase in operating
income was partially due to the acquisitions of Cape, Paw Print and
Arnon-Caine. These companies contributed $0.4 million, $1.6 million and $1.4
million, respectively, in 1997, compared to operating income in 1996 of ($0.2)
million for Cape, and $0 for Paw Print and Arnon-Caine. In addition, the
increase was due to higher operating income at: Sate-Lite, $1.1 million,
Riverside, $0.6 million, Parsons, $2.8 million, Beemak, $0.6 million
(excluding Arnon-Caine), and Dura-Line Retube, $0.1 million. These increases
were partially offset by decreased operating income at DACCO, $2.1 million and
Hudson $1.1 million, due to the divestiture of the company. The increase in
operating income was primarily due to (a) higher gross profit at Sate-Lite
stemming from increased sales of custom molded products, (b) improved product
mix at Riverside, (c) increased gross profit at Parsons due to higher sales of
titanium hot formed products, and (d) decreased operating expenses at Beemak
due to a focused cost cutting program. The offsetting decrease to operating
income at DACCO was primarily due to lower sales and slightly higher material
prices.
1996 Compared to 1995. Net sales decreased $3.7 million or 2.2% and
operating income decreased $4.0 million or 18.4%. The decrease in net sales
is due to decreased scrap sales at DACCO, $1.0 million, lower sales of (a) mag
wheels to bicycle manufacturers, $.8 million, (b) emergency warning triangles,
$.4 million, and (c) colorants to the thermoplastics industry, $.4 million at
Sate-Lite, decreased sales of bibles and religious books, $4.8 million, and
contract distribution sales, $4.2 million at Riverside, decreased lock sales
at Hudson, $.7 million, and lower POG sales at Beemak, $2.5 million.
Partially offsetting the decrease in net sales are the acquisitions of Cape
and Paw Print, which contributed sales of $1.3 million and $1.6 million during
1996, respectively, increased sales of rebuilt converters and soft parts at
DACCO, $4.5 million, and $1.2 million, respectively, increased sales of
titanium parts at Parsons, $1.1 million, and increased sales of plastic pipe
at Dura-Line Retube, $1.4 million.
The sales decreases are due to (a) industry buying trends, uncertainty
surrounding safety regulations, and price competition from competitors at
Sate-Lite (b) increased competition coupled with a downturn in the religious
market at Riverside, and (c) a new IBM product line in 1995 coupled with lower
1996 sales to Kryptonite at Hudson. Sales of POGS at Beemak during 1995 are
isolated to that year, when Beemak took advantage of the short-lived interest
in POGS. Sales increases at DACCO are due primarily to the company's strong
market presence and good market conditions in general, while sales increases
at Parsons are due to strong Boeing activity.
The decrease in operating income is due to lower operating income at:
Sate-Lite, $1.3 million, Riverside, $2.5 million, Hudson, $1.3 million,
Beemak, $1.0 million, Cape $0.2 million, and Dura-Line Retube, $0.5 million.
These decreases are partially offset by increased operating income at DACCO,
$2.0 million, and Parsons, $0.8 million. The decreases in operating income
are due to lower sales as well as certain non-recurring charges at Sate-Lite
and Beemak, $1.0 million collectively, higher operating costs at Riverside,
and compensation expense related to a stock appreciation right plan at Hudson,
$.5 million. Increased operating income at DACCO was due to higher sales and
steady margins, while operating income at Parsons increased due to higher
sales and a higher gross margin. The decrease in the operating margin is
driven by overall lower sales and the effect of non-recurring charges.
<PAGE>
Consolidated Operating Results. (see Consolidated Statements of
Operations).
1997 Compared to 1996. Net sales increased $105.5 million or 17.6%, and
operating income increased $42.1 million or 314.0%. The increase was
primarily due to the 1997 acquisitions of FIR, ED&C, and Motion Control in the
Motors and Gears group, Northern, LoDan, EEI, and TSI in the
Telecommunications Products group, and Arnon-Caine and Cho-Pat in the Consumer
and Industrial Products group. Sales also increased from the benefit of a
full year of sales at Seaboard in the Specialty Printing and Labeling group,
Johnson, Diversified, Viewsonics, Vitelec, and Bond in the Telecommunications
group, Barber-Colman in the Motors and Gears group, and Cape in the Consumer
and Industrial Products group. In addition, sales increased due to higher
sales of ad specialty products at SPAI, increased sales of subfractional
motors at Merkle-Korff, higher sales of planetary gears at Gear, increased
sales of cable conduit at Dura-Line, and increased sales of titanium aircraft
parts at Parsons. Partially offsetting these increases, were lower sales of
shielding devices at Valmark, decreased sales of fractional/integral motors at
Imperial and Scott, and lower sales at Welcome Home due to their
deconsolidation from the Company's financial statements.
Operating income increased primarily due to the 1997 acquisitions, a full year
of operations at the companies acquired in 1996, lower medical and commissions
expenses at SPAI, lower compensation expenses at AIM as their SAR was expensed
in 1996, increased gross profits at Sate-Lite from sales of custom molded
products, and higher gross profits at Parsons. In addition, operating income
increased due to the deconsolidation of Welcome Home. Partially offsetting
these increases were decreased gross profits at Pamco stemming from lower
sales of custom labels, decreased gross profits at FIR, increased operating
expenses attributed to the Motors and Gears acquisitions, higher operating
expenses at Dura-Line stemming from the SAR expense, lower sales and slightly
higher material prices at DACCO, and decreased operating income at Hudson due
to the divestiture of the company in May of 1997. Consolidated operating
margin increased 5.6%, from 2.2% in 1996 to 7.8% in 1997 due to the above
factors.
Interest expense increased $19.1 million or 30.2% primarily due to the
increase in long-term debt stemming from the Company's refinancing in July
1997.
1996 Compared to 1995. Consolidated net sales increased $94.3 million or
18.6% and operating income increased $19.0 million or 58.8%. The increase is
primarily due to the 1996 acquisitions of Seaboard in the Specialty Printing
and Labeling group, Johnson, Diversified, Viewsonics, Vitelec, and Bond in the
Telecommunications Products group, Barber-Colman in the Motors and Gears
group, and Cape and Paw Print in the Consumer and Industrial Products group.
Sales also increased from the benefit of a full year of sales at Merkle-Korff,
increased sales of rebuilt converters and other hard parts at DACCO, and
increased sales of titanium parts to Boeing at Parsons. Partially offsetting
the sales increases were lower sales at Welcome Home, decreased sales of
shielding devices to Apple Computer at Valmark, lower sales of Innerduct at
Dura-Line, and lower sales of connectors at AIM and Cambridge.
The decrease is primarily due to increased corporate expenses, the write-off
in notes receivable related to the Cape acquisition, higher compensation
expense related to compensation agreements and stock appreciation rights plans
at AIM, Cambridge, and Hudson, $9.4 million, collectively, lower sales and
increased global expansion costs at Dura-Line, lower sales at Valmark, lower
sales due to store closings and increased restructuring charges at Welcome
Home, lower sales and higher operating costs at Riverside, and certain
non-recurring charges at Beemak and Sate-Lite. These decreases were partially
offset by the 1996 acquisitions, a full year of operations at Merkle-Korff,
increased operating income at DACCO due to higher sales, and higher operating
income at Parsons due to higher Boeing sales. Consolidated operating margin
decreased to 2.2% from 6.4% due to the above factors. If the decrease in
operating income at Welcome Home, $5.9 million, the increase in compensation
expense related to SARA and other compensation agreements, $9.4 million, the
loss on the purchase of Cape Craftsmen, $4.5 million, and other non-recurring
changes of $4.1 million are excluded from the above analysis, operating income
would have increased $4.9 million or 15.1%.
Interest expense increased $16.4 million or 34.8% primarily due to increased
revolver borrowings at the corporate level as well as Welcome Home and the
inclusion of a full year of interest on Merkle-Korff debt and interest on the
Motors and Gears, Inc. Senior Notes issued in 1996.
Interest income decreased $.3 million or 10.6% due to lower average cash
balances stemming primarily from 1996 acquisition activity.
Liquidity and Capital Resources
The Company had approximately $176.5 million of working capital at the
end of 1997 compared to approximately $123.5 million at the end of 1996. The
increase in working capital from 1996 to 1997 was primarily due to higher
receivables, inventory, and other current assets of $44.8 million, $15.9
million, and $3.0 million, respectively, and higher cash balances of $19.7
million. These increases in working capital are partially offset by higher
accounts payable, $11.7 million, higher accrued expenses, $12.6 million,
increased current portion of long-term debt, $0.8 million, and increased other
current liabilities of $5.3 million.
The Company has acquired businesses through leveraged buyouts, and as a
result has significant debt in relation to total capitalization. See
"Business". Most of this acquisition debt was initially financed through the
issuance of bonds which were subsequently refinanced in 1997. See Note 5 to
the Consolidated Financial Statements.
In connection with each acquisition of a subsidiary, the subsidiary
entered into intercompany notes, and intercompany management and tax sharing
agreements, which permit the subsidiaries, including the majority-owned
subsidiaries, substantial flexibility in moving funds from the subsidiaries to
the Company.
Management expects continued growth in net sales and operating income in
1998. Capital spending levels in 1998 are anticipated to be consistent with
1997 levels and, along with working capital requirements, will be financed
internally from operating cash flow. Operating margins and operating cash
flow are expected to be favorably impacted by ongoing cost reduction programs,
improved efficiencies and sales growth. Management believes that the
Company's cash on hand and anticipated funds from operations will be
sufficient to cover its working capital, capital expenditures, debt service
requirements and other fixed charges obligations for at least the next 12
months.
The Company is, and expects to continue to be, in compliance with the
provisions of the Indentures relating to the Company's Senior Notes, 2007
Seniors, 2009 Debentures, and Senior Subordinated Discount Debentures.
None of the subsidiaries require significant amounts of capital spending
to sustain their current operations or to achieve projected growth.
<PAGE>
Net cash provided by operating activities for the year ended December 31, 1997
was $17.5 million, compared to $23.1 million provided from operating
activities during the same period in 1996. The decrease is attributed to
increases in accounts receivable and inventories due to revenue growth and is
partially offset by increases in accounts payable and accrued expenses.
Net cash used in investing activities for the year ended December 31, 1997 was
$184.7 million, compared to $167.2 million used in investing activities during
the same period in 1996. Increased acquisition of subsidiaries is partially
offset by net proceeds from sale of subsidiary, redemption of investment in
affiliate, decreased capital expenditures, and decreased notes receivable from
affiliate.
Net cash provided by financing activities for the year ended December 31, 1997
was $180.1 million, compared to $136.0 million provided from financing
activities during the same period in 1996. Proceeds from the Jordan
Industries, Inc., Motors and Gears, Inc., and Jordan Telecommunications
Products, Inc. debt issuances and the Jordan Telecommunications Products, Inc.
preferred stock issuance are partially offset by the increase in repayment of
long-term debt, and lower borrowings under revolving credit facilities.
Impact of Inflation
General inflation has had only a minor effect on the operations of the
Company and its internal and external sources for liquidity and working
capital, as the Company has been able to increase prices to reflect cost
increases, and expects to be able to do so in the future.
Year 2000
In July 1996, the Emerging Issues Task Force of the Financial Accounting
Standards Board reached a consensus on Issue 96-14, Accounting for the Costs
Associated with Modifying Computer Software for the Year 2000, which provides
that costs associated with modifying computer software for the year 2000 be
expensed as incurred. The Company is assessing the extent of the necessary
modifications to its computer software.
The Company is in the process of conducting a comprehensive review of its
computer systems to identify the systems that could be affected by the "Year
2000" issue and is developing an implementation plan to resolve the issue.
The Year 2000 problem is the result of computer programs being written using
two digits (rather than four) to define the applicable year. Any of the
company's programs that have time-sensitive software may recognize a date
using "00" as the Year 1900 rather than the Year 2000. This could result in a
system failure or miscalculations. Management has not yet assessed the Year
2000 compliance expense and related potential affect on the company's
earnings.
<PAGE>
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Page No.
Reports of Independent Auditors .................. 36
Consolidated Balance Sheets as of December 31,
1997 and 1996................................. 41
Consolidated Statements of Operations for the
years ended December 31, 1997, 1996 and 1995.. 42
Consolidated Statements of Changes in
Shareholders' Equity (Net Capital Deficiency)
for the years ended December 31, 1997, 1996
and 1995...................................... 43
Consolidated Statements of Cash Flows for the
years ended December 31, 1997, 1996 and 1995.. 44
Notes to Consolidated Financial Statements........ 46
<PAGE>
Report of Independent Auditors
The Board of Directors and Shareholders
Jordan Industries, Inc.
We have audited the accompanying consolidated balance sheets of Jordan
Industries, Inc. as of December 31, 1997 and 1996, and the related
consolidated statements of operations, shareholders' equity (net capital
deficiency), and cash flows for each of the three years in the period ended
December 31, 1997. Our audits also included the financial statement schedule
listed in the index at Item 14 (a). These financial statements and schedule
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements and the schedule based on our
audits. We did not audit the financial statements of certain subsidiaries
whose statements reflect total assets constituting 19% and 5% as of
December 31, 1997 and 1996, respectively, and net sales constituting 10% and
3% for the years ended December 31, 1997 and 1996, respectively, of the
related consolidated totals. Those statements were audited by other auditors
whose reports have been furnished to us, and our opinion, insofar as it
relates to data included for these subsidiaries, is based solely on the
reports of the other auditors.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits and the reports
of other auditors provide a reasonable basis for our opinion.
In our opinion, based on our audits and the reports of other auditors, the
financial statements referred to above present fairly, in all material
respects, the consolidated financial position of Jordan Industries, Inc. at
December 31, 1997 and 1996, and the consolidated results of its operations and
its cash flows for each of the three years in the period ended December 31,
1997, in conformity with generally accepted accounting principles. Also, in
our opinion, the related financial statement schedule, when considered in
relation to the basic financial statements taken as a whole, presents fairly
in all material respects the information set forth therein.
ERNST & YOUNG LLP
Chicago, Illinois /s/ ERNST & YOUNG LLP
March 27, 1998
<PAGE>
Independent Auditors' Report
Board of Directors
Diversified Wire & Cable, Inc.
Troy, Michigan
We have audited the balance sheets of Diversified Wire & Cable, Inc. as of
December 31, 1997 and 1996 and the related statements of operations, changes
in stockholders' equity and cash flows for the year ended December 31, 1997
and for the period June 25, 1996 (Commencement of Operations) through December
31, 1996, respectively, (not separately presented herein). These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosure in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion the financial statements referred to above present fairly, in
all material respects, the financial position of Diversified Wire & Cable,
Inc. as of December 31, 1997 and 1996, and the results of its operations, the
changes in stockholders' equity and its cash flows for the year ended December
31, 1997 and for the period June 25, 1996 through December 31, 1996,
respectively, in conformity with generally accepted accounting principles.
Mellen, Smith & Pivoz, P.C.
Bingham Farms, Michigan /s/MELLEN, SMITH & PIVOZ, P.C.
January 22, 1998
<PAGE>
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors of FIR Group
We have audited the consolidated balance sheet of Fir Group (the
"Company") composed of FIR Elettromeccanica S.p.A., CIME S.P.A., Selin Sistemi
S.p.A., TEA S.r.1. and Nuova BETA S.r.1. as of October 31, 1997, and the
related consolidated statements of income, retained earnings, and cash flows
for the five months then ended (not separately presented herein). These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatements. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of the
Company as of October 31, 1997, and the results of its operations and its cash
flows for the five months then ended in conformity with generally accepted
accounting principles.
COOPERS & LYBRAND S.p.A.
/S/COOPERS & LYBRAND S.p.A.
Milan, 27 February 1998
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of
Motion Control Engineering, Inc.:
We have audited the balance sheet of MOTION CONTROL ENGINEERING, INC. (a
California corporation) as of December 31, 1997 and the related statements of
income, shareholders' equity and cash flows for the 13 days ended December 31,
1997 (not separately presented herein). These financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
from material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Motion Control Engineering,
Inc. as of December 31, 1997 and the results of its operations and its cash
flows for the period then ended in conformity with generally accepted
accounting principles.
ARTHUR ANDERSEN LLP
/s/ ARTHUR ANDERSEN LLP
Sacramento, California
February 18, 1998
<PAGE>
Independent Auditors' Report
To the Board of Directors and Stockholders
Northern Technologies Holdings, Inc.
We have audited the balance sheet of Northern Technologies Holdings, Inc. as
of December 31, 1997 and the related statements of income, stockholder's
equity, and cash flows for the year then ended (not separately presented
herein). These consolidated financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on
these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosure in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Northern
Technologies Holdings, Inc. as of December 31, 1997, and the results of its
operations and cash flows for the year then ended in conformity with generally
accepted accounting principles.
McFarland & Alton P.S.
/S/ MCFARLAND & ALTON P.S.
Spokane, Washington
January 21, 1998
<PAGE>
JORDAN INDUSTRIES, INC.
CONSOLIDATED BALANCE SHEETS
(dollars in thousands)
December 31,
1997 1996
ASSETS
Current assets:
Cash and cash equivalents $ 52,500 $ 32,797
Accounts receivable, net of allowance
of $3,645 and $2,683 in 1997 and 1996,
respectively 134,177 89,301
Inventories 124,000 108,132
Prepaid expenses and other current assets 12,706 9,703
Total current assets 323,383 239,933
Property, plant and equipment, net 105,070 111,040
Investments in and advances to affiliates 1,722 14,222
Goodwill, net 433,294 266,436
Other assets 66,762 50,254
Total Assets $930,231 $ 681,885
LIABILITIES AND SHAREHOLDERS' EQUITY (NET CAPITAL DEFICIENCY)
Current liabilities:
Notes payable and lines of credit $ 2,650 $ 856
Accounts payable 58,781 47,036
Accrued liabilities 70,473 57,910
Advance deposits 5,424 1,900
Current portion of long-term debt 9,547 8,752
Total current liabilities 146,875 116,454
Long-term debt 921,871 687,936
Other noncurrent liabilities 13,403 3,572
Deferred income taxes 1,444 1,444
Minority interest 88 885
Preferred stock 21,835 1,875
Shareholders' equity (net capital deficiency):
Common stock $.01 par value:
authorized - 100,000 shares
issued and outstanding - 98,501 shares
in 1997 and 95,001 shares in 1996 1 1
Additional paid-in capital 2,116 2,557
Note receivable from officers - (1,460)
Retained earnings (accumulated deficit) (177,402) (131,379)
Total shareholders' equity (net capital
deficiency) (175,285) (130,281)
Total Liabilities and Shareholders' Equity
(Net Capital Deficiency) $930,231 $ 681,885
See accompanying notes.
<PAGE>
JORDAN INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(dollars in thousands)
Year ended December 31,
1997 1996 1995
Net sales $707,112 $601,567 $507,311
Cost of sales, excluding depreciation 446,580 375,745 320,653
Selling, general and administrative expense 148,921 150,951 121,371
Depreciation 19,612 18,939 12,891
Amortization of goodwill and other
intangibles 15,709 11,499 8,793
Stock appreciation right and compensation
agreements 15,871 9,822 400
Loss on purchase of an affiliated company - 4,488 -
Management fees and other 4,975 4,489 3,914
Restructuring charges - 8,106 5,913
Other non-recurring charges - 4,136 1,016
Operating income 55,444 13,392 32,360
Other (income) and expenses:
Interest expense 82,455 63,340 46,974
Interest income (2,713) (2,538) (2,841)
Gain on sale of a subsidiary and other (18,125) - -
Total other expenses 61,617 60,802 44,133
Loss before income taxes, minority
interest, equity in investee and
extraordinary item (6,173) (47,410) (11,773)
Provision (benefit) for income taxes 6,575 4,415 (2,446)
Loss before minority interest, equity in
investee and extraordinary items (12,748) (51,825) (9,327)
Minority interest (1,874) 59 (1,857)
Equity in losses of investee 3,386 - -
Loss before extraordinary items (14,260) (51,884) (7,470)
Extraordinary loss 31,358 3,806 -
Net loss $(45,618) $(55,690) $(7,470)
See accompanying notes.
<PAGE>
JORDAN INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(NET CAPITAL DEFICIENCY)
(dollars in thousands)
Total
Share-
Retained holders'
Common Stock Note Earnings Equity
Additional Receivable (Accumu- (Net Cap-
Number of Paid-in from lated ital Def-
Shares Amount Capital officer Deficit) iciency)
Balance at January 1, 1995
93,501 $ 1 $1,097 - (69,840) $(68,742)
Net Loss - - - - (7,470) (7,470)
Cumulative translation adjustment
- - - - (97) (97)
Dividends declared on preferred stock of subsidiary
- - - - (45) (45)
Balance at December 31, 1995
93,501 1 1,097 - (77,452) (76,354)
Net loss - - - - (55,690) (55,690)
Cumulative translation adjustment
- - - - 1,763 1,763
Common stock issuance
1,500 - 1,460 (1,460) - -
Balance at December 31, 1996
95,001 1 2,557 (1,460) (131,379) (130,281)
Net loss
(45,618) (45,618)
Cumulative translation adjustment
(1,489) (1,489)
Purchase of common stock
(1,500) - (1,460) 1,460 - -
Issuance of common stock
5,000 - 1,019 - - 1,019
Sale of subsidiary to Related Party 1,084 1,084
Balance at December 31, 1997
98,501 $ 1 $2,116 $ - $(177,402) $(175,285)
See accompanying notes.
<PAGE>
JORDAN INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(dollars in thousands)
Year Ended December 31,
1997 1996 1995
Cash flows from operating activities:
Net (loss) income $(45,618) $(55,690) $( 7,470)
Adjustments to reconcile net (loss)
to net cash provided by operating
activities:
Restructuring charges - 8,106 5,913
Other non-recurring charges - - 1,016
Amortization of deferred financing
costs 3,622 3,001 1,743
Depreciation and amortization 35,321 30,438 21,684
Provision for (Benefit from)
deferred income taxes - 2,184 (4,247)
Equity in losses of investee 3,386 - -
Gain on sale of subsidiary (17,081) - -
Loss on acquisition of affiliated
company - 4,488 -
Minority interest 351 59 (1,857)
Extraordinary loss 31,358 3,806 -
Non-cash interest 18,456 11,987 10,694
Changes in operating assets and
liabilities (net of acquisitions):
Accounts receivable (15,942) 13,894 (8,084)
Inventories (5,695) 796 (5,430)
Prepaid expenses and other current
assets 796 (851) (170)
Non-current assets (602) (1,071) (2,020)
Accounts payable, accrued liabilities,
and other current liabilities 3,713 2,560 3,856
Advance deposits 3,524 69 169
Non-current liabilities 3,799 (526) 679
Other 345 (146) (266)
Net cash provided by operating activities 17,508 23,104 16,210
Cash flows from investing activities:
Capital expenditures (14,179) (17,395) (15,276)
Notes receivable from affiliates - (5,263) (13,424)
Acquisitions of subsidiaries (229,807)(150,360) (102,125)
Net cash acquired in purchase of subsidiaries 4,972 5,869 696
Acquisitions of minority interests and other - (81) (6,117)
Net proceeds from sale of subsidiary 45,954 - -
Redemption of investment in affiliate 12,500 - -
Investment in Fannie May Holdings - - (1,722)
Proceeds from asset sale - - 732
Net cash used in investing activities (180,560)(167,230) (137,236)
(Continued on following page.)
See accompanying notes.
<PAGE>
JORDAN INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(dollars in thousands)
(continued)
Year Ended December 31,
1997 1996 1995
Cash flows from financing activities:
Proceeds of debt issuance - SPL Holdings,
Inc. $ - $ 13,000 $33,000
Proceeds of debt issuance - MK Holdings,
Inc. - 20,000 72,500
Proceeds of debt issuance - JII, Inc. 120,000 - -
Proceeds from preferred stock issuance -
Jordan Telecommunications Products, Inc. 25,000 - -
Proceeds of debt issuance - Motors and
Gears, Inc. 105,692 170,000 -
Proceeds of debt issuance -
Jordan Telecommunications, Inc. 273,545 - -
Proceeds from revolving credit facilities,
net 21,500 40,909 7,213
Payment of financing costs (29,514) (11,858) (2,322)
Repayment of long-term debt (331,560) (98,143) (6,020)
Other borrowing - 2,107 1,522
Net cash provided by financing
activities 184,663 136,015 105,893
Foreign currency translation (1,908) (345) -
Net increase (decrease) in cash and cash
equivalents 19,703 (8,456) (15,133)
Cash and cash equivalents at beginning
of year 32,797 41,253 56,386
Cash and cash equivalents at end of year $ 52,500 $ 32,797 $ 41,253
Supplemental disclosures of cash flow
information:
Cash paid during the year for:
Interest $ 56,957 $45,563 $ 33,360
Income taxes, net $ 4,617 $ 2,603 $ 1,801
Noncash investing activities:
Capital leases $ 2,318 $ 5,543 $ 19,151
See accompanying notes.
<PAGE>
Note 1 - Organization
Jordan Industries, Inc. (the Company), an Illinois corporation, was formed by
Chicago Group Holdings, Inc. on May 26, 1988 for the purpose of combining into
one corporation certain companies in which partners and affiliates of The
Jordan Company (the Jordan Group) acquired ownership interests through
leveraged buy-outs. Chicago Group Holdings, Inc. was formed on February 8,
1988 and had no operations. The Company was merged with Chicago Group
Holdings, Inc. on May 31, 1988 with the Company being the surviving company.
The Company's business is divided into five groups. The Specialty Printing
and Labeling group consists of Sales Promotion Associates, Inc. ("SPAI"),
Valmark Industries, Inc. ("Valmark"), Pamco Printed Tape and Label Co., Inc.
("Pamco") and Seaboard Folding Box, Inc. ("Seaboard"). The Motors and Gears
group consists of The Imperial Electric Company ("Imperial") and its
subsidiaries, The Scott Motors Company ("Scott") and Gear Research, Inc.
("Gear"), Merkle-Korff Industries, Inc. ("Merkle-Korff"), FIR Group Companies
("FIR"), Electrical Design & Control ("ED&C"), and Motion Control Engineering
("Motion Control"). The Telecommunications Products Group consists of
Dura-Line Corporation ("Dura-Line"), AIM Electronics Corporation ("AIM"),
Cambridge Products Corporation ("Cambridge"), Johnson Components, Inc.
("Johnson"), Diversified Wire and Cable, Inc. ("Diversified"), Viewsonics,
Inc. ("Viewsonics"), Vitelec Electronics Ltd. ("Vitelec"), Bond Holdings, Inc.
("Bond"), LoDan West, Inc. ("LoDan"), Northern Technologies, Inc.
("Northern"), Engineered Endeavors, Inc. ("EEI") and Telephone Services, Inc.
("TSI"). Welcome Home, Inc. ("Welcome Home") is managed on a stand-alone
basis and is no longer consolidated in the Company's results of operations.
(See note 3). The remaining businesses comprise the Company's Consumer and
Industrial Products group. This group consists of DACCO, Incorporated
("DACCO"), Sate-Lite Manufacturing Company ("Sate-Lite"), Riverside Book and
Bible House, Inc. ("Riverside"), Parsons Precision Products, Inc. ("Parsons"),
Beemak Plastics, Inc. ("Beemak"), Cape Craftsmen, Inc. ("Cape"), Cho-Pat Inc.
("Cho-Pat") and Dura-Line Retube ("Retube"). All of the foregoing
corporations are collectively referred to herein as the "Subsidiaries," and
individually as a "Subsidiary."
Note 2 - Significant accounting policies
Principles of consolidation
The consolidated financial statements include the accounts of the Company and
subsidiaries. All significant intercompany balances and transactions have
been eliminated. Operations of FIR are included for the period ended two
months prior to the Company's year end to ensure timely preparation of the
consolidated financial statements.
Cash and cash equivalents
The Company considers all highly liquid investments purchased with an initial
maturity of three months or less to be cash equivalents.
At December 31, 1997, the Company's cash balance included $1,550 which is
being held as collateral with respect to a capital lease. A certain cash
balance is required to remain intact throughout the term of the lease which
expires on November 17, 1998.
Inventories
Inventories are stated at the lower of cost or market. Inventories are
primarily valued at either average or first-in, first-out (FIFO) cost.
Depreciation and amortization
<PAGE>
Property, plant and equipment - Depreciation and amortization of property,
plant and equipment is calculated using estimated useful lives, or over the
life of the underlying leases, if less, using the straight-line method.
The useful lives of plant and equipment for the purpose of computing book
depreciation are as follows:
Machinery and equipment 3-10 years
Buildings and improvements 7-35 years
Furniture & fixtures 5-10 years
Leaseholds Life of Lease
Goodwill - Goodwill is being amortized on the straight-line basis over periods
ranging from 15 to 40 years. Goodwill at December 31, 1997 and 1996 is net of
accumulated amortization of $32,380, and $22,765, respectively. The Company
evaluates the recoverability of long-lived assets by measuring the carrying
amount of the assets against the estimated undiscounted future cash flows
associated with them. At the time such evaluations indicate that the future
undiscounted cash flows of certain long-lived assets are not sufficient to
recover the carrying value of such assets, the assets are adjusted to their
fair values. Based on these evaluations, there were no adjustments to the
carrying value of long-lived assets in 1997 or 1996.
Other assets
Patents are amortized over the remainder of their legal lives, which
approximate their useful lives, on the straight-line basis. Deferred
financing costs amounting to $38,568 and $23,008, net of accumulated
amortization of $9,939 and $6,317 at December 31, 1997 and 1996, respectively,
are amortized over the terms of the loans or, if shorter, the period such
loans are expected to be outstanding. Non-compete covenants and customer
lists amounting to $12,121 and $9,518, net of accumulated amortization of
$47,632 and $44,626 at December 31, 1997 and 1996, respectively, are amortized
on the straight-line basis over their estimated useful lives, ranging from
three to ten years. Organizational costs are amortized over five years.
Income taxes
Deferred tax assets and liabilities are determined based on differences
between the financial reporting and tax basis of assets and liabilities and
are measured using the enacted tax rates and laws that are expected to be in
effect when the differences reverse. The Company has not provided for U.S.
Federal and State Income Taxes on undistributed earnings of foreign
subsidiaries to the extent the undistributed earnings are considered to be
permanently reinvested.
Revenue recognition
Revenues are primarily recognized when products are shipped to customers.
Use of estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the amounts reported in the financial statements and accompanying
notes. Actual results could differ from those estimates.
Reclassification
Certain amounts in prior years financial statements have been reclassified to
conform with the presentation in 1997.
<PAGE>
Realignment of segment reporting
In 1995, the Company's business segments were realigned into five distinct
groups. In 1996, Dura-Line was moved from the Consumer and Industrial
Products segment to the Telecommunications Products segment. In 1997, the
Retube product line of Dura-Line was moved 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.
New pronouncements
In June 1997, the Financial Accounting Standards Board issued Statement No.
130, "Reporting Comprehensive Income". The Statement establishes components
in a full set of general purpose financial statements. The Statement is
effective for the Company in 1998. The Company does not anticipate that
adoption of this Statement will have a material impact on the current
presentation of its financial statements.
In June 1997, the Financial Accounting Standards Board Issued Statement No.
131, "Disclosures about Segments of an Enterprise and Related Information",
which is effective for years beginning after December 15, 1997. This
Statement 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. It also establishes standards for
related disclosures about products and services, geographic areas, and major
customers. This Statement is effective for financial statements for fiscal
years beginning after December 15, 1997, and therefore the Company will adopt
the new requirements in 1998. Management does not anticipate that the
adoption of this Statement will have significant effect on the Company's
reported segments.
Note 3 - 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 from 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.
<PAGE>
The operating results of Welcome Home included in the consolidated results of
the Company over the last three years are as follows:
Year Ended December 31,
1997 1996 1995
Net sales $2,456 $ 81,855 $ 93,166
Operating loss (1,107) $(15,975) $(10,066)
Loss before income taxes (1,195) $(18,154) $(11,586)
From January 21, 1997, the Company accounted for its investment in Welcome
Home under the equity method of accounting and recognized a $3,386 loss on its
investment.
The assets and liabilities of Welcome Home included in the consolidated
results of the Company at December 31, 1996 are as follows:
Cash and cash equivalents $ 612
Inventories 16,291
Prepaids and other assets 575
Property and equipment, net 8,563
Other assets 222
Total assets $ 26,263
Accounts payable 4,104
Accrued expenses 7,723
Intercompany payable to the Company 15,622
Credit line 10,123
Capital leases 927
Total liabilities 38,499
Excess of liabilities over assets
at December 31, 1996 12,236
Elimination of intercompany payables (15,622)
Net assets included at December 31, 1996 $ 3,386
The amounts listed in the table do not reflect any adjustments resulting from
the Welcome Home bankruptcy filings. Certain items, however, would be
significantly impacted by a liquidation of Welcome Home. The ultimate
disposition of the amounts are not expected to be finalized until the
resolution of the Welcome Home bankruptcy proceedings, the timing of which
cannot currently be estimated.
Cape Craftsmen, a consolidated subsidiary of the Company, would also be
adversely affected by a liquidation of Welcome Home. In 1997, Cape's sales to
Welcome Home were $9,966, or 68% of their total sales for the year. The
Company's receivable outstanding related to these sales was $1,941 at December
31, 1997.
Note 4 - Restructuring charges
In the fourth quarter of 1995, Welcome Home adopted a restructuring plan which
continued through 1996. The major elements of the plan included a change in
Welcome Home's merchandising strategy and the liquidation of merchandise
which was not consistent with that strategy, closure of unprofitable stores,
and strengthening the company's executive management team and information
systems as necessary to successfully implement the above strategies.
<PAGE>
In 1995, Welcome Home recorded the following restructuring charges:
(i)A charge of $2,379 against its inventory to reflect the reduction in
the value of items owned as of December 31, 1995 which management determined
did not fit with Welcome Home's strategy and, accordingly, were liquidated at
reduced prices in 1996.
(ii)A charge of $2,816 against its recorded investment in its information
systems as of December 31, 1995. Management determined that these systems
would not support its merchandising and other strategies and, therefore,
replaced these systems in 1996.
(iii)A charge of $526 to reflect the cost of planned store closings in
1996, representing primarily its recorded investment in the related furniture,
fixtures and leasehold improvements.
(iv)A charge and accrued liability of $192 related to payments due to a
former executive in accordance with its employment and severance agreement
with that individual.
Restructuring charges incurred in 1996 were primarily due to store closings.
In the fourth quarter of 1996, Welcome Home recorded restructuring charges of
$8,106, of which $872 related to employee contracts, $4,266 related to leases
and inventory, and $2,968 related to its investment in furniture, fixtures,
and leasehold improvements.
Note 5 - Financial Recapitalization and Business Repositioning Plan ("The
Plan")
Motors and Gears Holdings, Inc., along with its wholly-owned subsidiary,
Motors and Gears, Inc. ("M&G"), were formed in September 1995 to combine a
group of companies engaged in the manufacture and sale of fractional and
subfractional motors and gear motors primarily to customers located throughout
the United States.
At the end of 1996, M&G was comprised of Merkle-Korff and its wholly-owned
subsidiary, Barber-Colman, and Imperial and its wholly-owned subsidiaries,
Scott and Gear. All of the outstanding shares of Merkle-Korff were purchased
by M&G in September 1995 and the net assets of Barber-Colman were purchased by
Merkle-Korff in March 1996. Barber-Colman was legally merged into
Merkle-Korff as of January 1, 1997 and now operates as a division of
Merkle-Korff. The net assets of Imperial, Scott and Gear were purchased by
M&G, from the Company, at an arms length basis on November 7, 1996, with the
proceeds from a debt offering. The purchase price was $75,656, which included
the repayment of $6,008 in Imperial liabilities owed to the Company, and a
contingent payment payable pursuant to a contingent earnout agreement. Under
the terms of the contingent earnout agreement, 50% of Imperial, Scott and
Gear's cumulative earnings before interest, taxes, depreciation and
amortization, as defined, exceeding $50,000 during the five fiscal years ended
December 31, 1996, through December 31, 2000, will be paid to the Company.
Payments, if any, under the contingent earnout agreement will be determined
and made on April 30, 2001.
As a result of this sale to M&G, the Company recognized approximately $62,700
of deferred gain at the time of sale for U.S. Federal income tax purposes, as
adjusted for the value of the earnout, once finally determined. A portion of
this deferred gain will be reported as the M&G group reports depreciation and
amortization over approximately 15 years on the step-up in basis of those
purchased assets. As long as M&G remains in the Company's affiliated group,
the gain reported and the depreciation on the step-up in basis should exactly
offset each other. Upon any future deconsolidation of M&G from the Company's
affiliated group for U.S. Federal income tax purposes, any unreported gain would
be fully reported and subject to tax.
<PAGE>
On May 16, 1997, the Company participated in a recapitalization of M&G. In
connection with the recapitalization, M&G issued 16,250 shares of M&G common
stock (representing approximately 82.5% of the outstanding shares of M&G
common stock) to certain stockholders and affiliates of the Company and M&G
management for a total consideration of $2,200 (of which $1,110 was paid in
cash and $1,090 was paid through the delivery of 8.0% zero coupon notes due
2007). As a result of the Recapitalization, certain of the Company's
affiliates and M&G management own substantially all of the M&G common stock
and the Company's investment in M&G is represented solely by the Cumulative
Preferred Stock of M&G (the "M&G Junior Preferred Stock"). The M&G Junior
Preferred Stock represents 82.5% of M&G's stockholder voting rights and 80%
of M&G's net income or loss is accretable to the Junior Preferred Stock.
The Company has obtained an independent opinion as to the fairness, from a
financial point of view, of the recapitalization to the Company and its
public bondholders. The Company continues to consolidate M&G and its
subsidiaries, for financial reporting purposes, as subsidiaries of the
Company. The M&G Junior Preferred Stock discontinues its participation in
M&G's earnings on the fifth anniversary of issuance. This financial
consolidation and a continuing Company investment in M&G will be discontinued
upon the redemption of the M&G Junior Preferred Stock, or at such time as the
M&G Junior Preferred Stock ceases to represent at least a majority of the
voting power and a majority share in the earnings of the relevant company.
As long as the M&G Junior Preferred Stock is outstanding, the Company expects
the vote test to be satisfied. The M&G Junior Preferred Stock is mandatorily
redeemable upon certain events and is redeemable at the option of M&G, in whole
or in part, at any time.
The Company also expects to include the subsidiaries of M&G in its
consolidated group for U.S. Federal income tax purposes. This consolidation
would be discontinued, however, upon the redemption of the M&G Junior Preferred
Stock, which could result in recognition by the Company of substantial income
tax liabilities arising out of the recapitalization. If such deconsolidation
had occurred at December 31, 1997, the Company believes that the amount of
taxable income to the Company attributable to M&G would have been approximately
$58,000 (or approximately $23,200 of tax liabilities, assuming a 40.0% combined
Federal, state and local income tax rate). The Company currently expects to
offset these tax liabilities arising from deconsolidation by using net operating
loss carryforwards (approximately $75,000 at December 31, 1997), and to pay
any remaining liability with redemption proceeds from the M&G Junior Preferred
Stock. Deconsolidation would also occur with respect to M&G if the M&G Junior
Preferred Stock ceased to represent at least 80.0% of the voting power and 80.0%
of the combined stock value of the outstanding M&G Junior Preferred Stock and
common stock of M&G. As long as the M&G Junior Preferred Stock is outstanding,
the Company expects the vote test to be satisfied. The value test depends on
the relative values of the M&G Junior Preferred Stock and common stock of M&G.
It is likely that by the fifth anniversary of their issuances, the M&G Junior
Preferred Stock would cease to represent 80.0% of the relevant total combined
stock value. It is entirely possible, however, that the 80.0% value test
could fail well prior to the fifth anniversary after issuance. In the event
that deconsolidation for U.S. Federal income tax purposes occurs without a
redemption of the M&G Junior Preferred Stock, the tax liabilities discussed
above would be incurred without the Company receiving the proceeds of the
redemption.
On July 25, 1997, the Company recapitalized its investment in Jordan
Telecommunication Products, Inc. ("JTP") and JTP acquired the Company's
telecommunications and data communications products business from the Company
for total consideration of approximately $294,027, consisting of $264,027 in
cash, $10,000 of assumed indebtedness and preferred stock, and the issuance to
the Company of $20,000 aggregate liquidation preference of JTP Junior
Preferred Stock. The Company's stockholders and affiliates and JTP management
invested in and acquired the JTP common stock. As a result of the
recapitalization, certain of the Company's affiliates and JTP management own
substantially all of the JTP common stock. The Company's investment in JTP is
represented solely by the JTP Junior Preferred Stock. The JTP Junior Preferred
Stock represents 95% of JTP's stockholder voting rights and 95% of JTP's net
income or loss in the accreted Junior Preferred Stock. The Company has obtained
an independent opinion as to the fairness, from a financial point of view, of
the recapitalization to the Company and its public bondholders.
<PAGE>
The Company continues to consolidate JTP and its subsidiaries, for financial
reporting purposes, as subsidiaries of the Company. The JTP Junior
Preferred Stock discontinues its participation in JTP's earnings on the fifth
anniversary of issuance. This financial consolidation and any
continuing Company investment in JTP will be discontinued upon the redemption
of the JTP Junior Preferred Stock, or at such time as the JTP Junior Preferred
Stock ceases to represent at least a majority of the voting power and a
majority share in the earnings of the relevant company. As long as the JTP
Junior Preferred Stock is outstanding, the Company expects the vote test to be
satisfied. The JTP Junior Preferred Stock is mandatorily redeemable upon
certain events and is redeemable at the option of JTP, in whole or in part, at
any time.
The Company also expects to include the subsidiaries of JTP in its
consolidated group for U.S. Federal income tax purposes. This consolidation
would be discontinued, however, upon the redemption of the JTP Junior Preferred
Stock, which could result in recognition by the Company of substantial income
tax liabilities arising out of the recapitalization. If such deconsolidation
had occurred at December 31, 1997, the Company believes that the amount of
taxable income to the Company attributed to JTP would have been approximately
$125,000 (or approximately $50,000 of tax liabilities, assuming a 40.0%
combined Federal, state and local income tax rate). The Company currently
expects to offset these tax liabilities arising from deconsolidation by using
net operating loss carryforwards (approximately $75,000 at December 31, 1997),
and to pay any remaining liability with redemption proceeds from the JTP Junior
Preferred Stock. Deconsolidation for federal income tax purposes would also
occur with respect to JTP if the JTP Junior Preferred Stock ceased to
represent at least 80.0% of the voting power and 80.0% of the combined stock
value of the outstanding JTP Junior Preferred Stock and common stock. It is
likely that by the fifth anniversary of their issuances, the JTP Junior
Preferred Stock would cease to represent 80.0% of the relevant total combined
stock value. It is entirely possible, however, that the 80.0% value test could
fail well prior to the fifth anniversary after issuance. In the event that
deconsolidation for federal income tax purposes occurs without a redemption
of the JTP Junior Preferred Stock, the tax liabilities discussed above would
be incurred without the Company receiving the proceeds of a redemption.
JTP financed the cash portion of this total consideration through JTP's
private placement of $190,000 of JTP Senior Notes due 2007, $85,000 of cash
proceeds of JTP Senior Discount Debentures due 2007, and $25,000 of JTP Senior
Preferred Stock due 2009.
In conjunction with the recapitalization of JTP, the Company privately placed
$120,000 of the Company's Senior Notes due 2007, and used the net proceeds
from this private placement, as well as the net proceeds received by the
Company in connection with the JTP recapitalization, to repay approximately
$78,000 of bank borrowings by the Company's subsidiaries under their credit
agreements and repurchase $271,600 of the Company's 10⅜% Senior Notes
due 2003 pursuant to a tender offer and related consent solicitation. The
Company also conducted a consent solicitation with regard to its 11¾%
Senior Subordinated Discount Debentures due 2009 in order to conform their
covenant structure to those in the Company's Senior Notes due 2007.
<PAGE>
Note 6 - Inventories
Inventories consist of:
Dec. 31, Dec. 31,
1997 1996
Raw materials $ 45,324 $ 26,682
Work-in-process 15,897 12,274
Finished goods 62,779 69,176
$124,000 $108,132
Note 7 - Property, plant and equipment
Property, plant and equipment, at cost, consists of:
Dec. 31, Dec. 31,
1997 1996
Land $ 7,488 $ 5,079
Machinery and equipment 126,265 136,298
Buildings and improvements 34,360 38,458
Furniture and fixtures 34,418 25,851
$202,531 205,686
Accumulated depreciation and
amortization (97,461) (94,646)
$105,070 $111,040
Note 8 - Investment in affiliate
On July 2, 1997, the Company received from Fannie May Holdings, Inc. ("Fannie
May"), $14,348 in exchange for the following investments held by the Company:
$5,500 aggregate principal amount of Subordinated Notes and $7,000 aggregate
principal amount of participation in outstanding term loans of Archibald Candy
Corporation, a wholly-owned subsidiary of Fannie May. The amount received
also included $1,573 of accrued interest and a $275 premium on the above
Subordinated Notes and term loans. On July 7, 1997, the Company received
$3,013 as a return of the $3,000 certificate of deposit held by the Company
as security for an obligation to purchase additional participation in the
above-mentioned term loans, plus $13 of accrued interest thereon.
On May 15, 1995, the Company purchased 75.6133 shares of Class A PIK Preferred
Stock of Fannie May at face value for $1,571. The Company also acquired
151.28 shares of common stock of Fannie May (representing 15.1% of the
outstanding common stock of Fannie May on a fully diluted basis) for $151.
These shares of Fannie May Common Stock were purchased from the John W. Jordan
II Revocable Trust.
Fannie May's Chief Executive Officer is Mr. Quinn, and its stockholders
include Mr. Jordan, Mr. Quinn, Mr. Zalaznick, and Mr. Boucher, who are
directors and stockholders of the Company, as well as other partners, principals
and associates of The Jordan Company, who are also stockholders of the Company.
Fannie May, which is also known as "Fannie May Candies", is a manufacturer and
marketer of kitchen-fresh, high-end boxed chocolates through its 375
company-owned retail stores and through specialty sales channels. Its
products are marketed under both the "Fannie May Candy" and "Fanny Farmer
Candy" names.
<PAGE>
Note 9 - Accrued liabilities
Accrued liabilities consist of: Dec. 31, Dec. 31,
1997 1996
Accrued vacation $ 2,559 $2,276
Accrued income taxes 3,609 5,470
Accrued other taxes 1,454 1,179
Accrued commissions 2,797 2,411
Accrued interest payable 18,175 15,064
Accrued payroll and payroll taxes 4,344 4,458
Accrued stock appreciation rights
and preferred stock payments 8,051 7,127
Restructuring reserve - 4,906
Insurance reserve 2,461 2,791
Accrued management fees 3,125 -
Accrued deferred financing fees 3,455 -
Accrued other expenses 20,443 12,228
$70,473 $57,910
Note 10 - Operating leases
Certain subsidiaries lease land, buildings, and equipment under noncancellable
operating leases.
Total minimum rental commitments under noncancellable operating leases at
December 31, 1997 are:
1998 $ 9,401
1999 8,308
2000 6,902
2001 5,334
2002 5,008
Thereafter 14,821
$49,774
Rental expense amounted to $7,996, $14,808 and $11,378 for 1997, 1996 and
1995, respectively. Rental expense decreased primarily due to the exclusion
in 1997 of rental expense incurred at Welcome Home, as the Company no longer
consolidates Welcome Home in its financial statements (see note 3). Rental
expense at Welcome Home was $8,650 in 1996 and $8,053 in 1995.
Note 11 - Benefit plans
In January 1993 the Company established the Jordan Industries, Inc. 401(k)
Savings Plan ("the Plan"), a defined-contribution plan. The Plan covers
substantially all employees of the Company. Contributions to the Plan are
discretionary and totaled $1,119, $450 and $152 in 1997, 1996 and 1995,
respectively.
<PAGE>
Note 12 - Debt
Long-term debt consists of: Dec. 31, Dec. 31,
1997 1996
Revolving Credit Facilities (A) $ 68,000 $ 56,622
Notes payable (B) 3,388 1,343
Subordinated promissory notes (C) 26,500 19,100
Capital lease obligations (D) 24,660 27,494
Bank Term Loans (E) 1,229 36,037
Senior Notes (F) 586,475 445,000
Senior Subordinated Discount Debentures (F) 221,166 111,092
931,418 696,688
Less current portion 9,547 8,752
$921,871 $687,936
Aggregate maturities of long-term debt at December 31, 1997 are as follows:
1998 $ 9,547
1999 8,349
2000 14,416
2001 6,463
2002 9,795
Thereafter 882,848
$931,418
A At December 31, 1997, the Company had borrowings outstanding on lines of
credit totaling $68,000. All of the outstanding borrowings were at Jordan
Telecommunications Products, Inc.
On July 25, 1997, the Company amended and restated its revolving credit
facility with BankBoston, N.A. (Formerly the First National Bank of Boston)
and other banks, decreasing the facility from $85,000 to $75,000. The
facility, which matures on June 29, 1999, will be used for working capital and
acquisitions over the term of the loan. At December 31, 1997, Jordan
Industries, Inc. had no outstanding borrowings ($34,000 at December 31,
1996). The facility is secured by substantially all of the assets of the
Restricted Subsidiaries. The Company must comply with certain financial
covenants as specified in the revolver agreement, and at December 31, 1997,
the Company is in compliance with such covenants.
On July 25, 1997, JTP entered into a revolving credit agreement with certain
parties thereto, and BankBoston, N.A., as agent, under which JTP is able to
borrow up to approximately $110,000 in the form of a revolving credit facility
over a term of five years. Interest on borrowings is at BankBoston's base
rate plus an applicable margin (9.50% at December 31, 1997), or, at the
Company's option, the rate at which BankBoston's eurodollar lending office is
offered dollar deposits (Eurodollar Rate) plus an applicable margin (8.47% at
December 31, 1997). The credit agreement is secured by a first priority
security interest in substantially all of JTP's assets, including a pledge of
all of the stock of JTP's subsidiaries. JTP has $68,000 of outstanding
borrowings and a $2,070 standby letter of credit under this credit agreement
at December 31, 1997. JTP has $39,930 of additional borrowings available
under the revolving credit agreement at December 31, 1997. Unused commitments
are subject to an availability fee equal to 0.5% per annum.
In August 1995, SPL established a Revolving Credit Facility (the "Revolver")
with The First National Bank of Boston. In May of 1996, the Revolver was
amended and restated and available borrowings increased from $20,000 to
$27,000. The facility bore interest at the Libor rate plus 2.75% payable on a
30, 60, or 90 day basis. This facility was secured by all of the assets of
SPL. All outstanding borrowings under this facility were repaid during 1997
and the facility was terminated in conjunction with the Company's issuance of
$120,000 of Senior Notes.
Motors and Gears, Inc. has available a long-term line of credit from Bankers
Trust Company in the amount of $75,000. Outstanding borrowings carry a
floating note of Libor plus 2.5% or base rate plus 1.5%. At December 31,
1997, no amounts were outstanding on the line of credit.
B Notes payable are due in monthly or quarterly installments and bear interest
at rates ranging from 3.0% to 17.0%. Certain assets of the subsidiaries are
pledged as collateral for the loans.
C Subordinated promissory notes payable are due to minority interest
shareholders and former shareholders of the subsidiaries in annual
installments through 2004, and bear interest ranging from 8% to 9%. The
loans are unsecured.
D Interest rates on capital leases range from 8.3% to 14.5% and mature in
installments through 2002.
The future minimum lease payments as of December 31, 1997 under capital leases
consist of the following:
1998 $10,821
1999 4,211
2000 10,055
2001 1,684
2002 1,131
Thereafter 1,257
Total 29,159
Less amount representing interest 4,499
Present value of future minimum
lease payments $24,660
The present value of the future minimum lease payments approximates the book
value of property, plant and equipment under capital leases at December 31,
1997.
E Bank term loans in 1997 consist of a mortgage on the Pamco facility, which
bears interest at 8.12% and is due in monthly installments through 2026.
The mortgage is secured by the Pamco facility.
Bank term loans consisted of certain indebtedness at SPL as of December 31,
1996. SPL had two term loan agreements with The First National Bank of
Boston. All outstanding borrowings under these agreements were repaid in 1997
in connection with the Company's issuance of $120,000 of Senior Notes and the
recapitalization of JTP. In conjunction with this transaction, the Company
recorded an extraordinary loss of $2,538 relating to the write-off of deferred
financing fees and the premium assessed on the new issue.
<PAGE>
F In July of 1993, the Company issued $275,000 10 3/8% Senior Notes ("Senior
Notes") due 2003. These notes bore interest at a rate of 10 3/8% per
annum, payable semi-annually in cash on February 1 and August 1 of each year.
During 1997, $271,545 of the principal balance, plus all accrued interest
thereon, was repaid in connection with the Company's issuance of $120,000 new
Senior Notes and the recapitalization of JTP. The remaining $3,455
outstanding retains the characteristics of the original issue. In conjunction
with this transaction, the Company recorded an extraordinary loss of $19,232
relating to the write-off of deferred financing fees and the related prepay-
ment penalty.
The fair value of the Senior Notes was $3,593 at December 31, 1997. The
fair value was calculated using the Senior Notes' December 31, 1997 market
price multiplied by the face amount. The Senior Notes are not secured by the
assets of the Company.
In July 1993 the Company issued $133,075 11 3/4% Senior Subordinated Discount
Debentures, ("Discount Debentures") due 2005. The Discount Debentures were
issued at a substantial discount from this principal amount. The interest on
the Discount Debentures would have been payable in cash semi-annually on
February 1 and August 1 of each year beginning in 1999.
In April of 1997, the Company refinanced substantially all of the $133,075
aggregate principal amount of its Discount Debentures and issued $214,036
aggregate principal amount of 11 3/4% Senior Subordinated Discount Debentures
due 2009 ("2009 Debentures"). The 2009 Debentures were issued at a
substantial discount from the principal amount. The interest on the 2009
Debentures will be payable in cash semi-annually on April 1 and October 1 of
each year beginning October 1, 2002. 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 accreted premium on the new issue.
The 2009 Debentures are redeemable for 105.875% of the accreted value from
April 1, 2002 to March 31, 2003, 102.937% from April 1, 2003 to March 31, 2004
and 100% from April 1, 2004 and thereafter plus any accrued and unpaid
interest from April 1, 2002 to the redemption date if such redemption occurs
after April 1, 2002.
The fair value of the 2009 Debentures was $126,281 at December 31, 1997. The
fair value was calculated using the 2009 Debentures' December 31, 1997 market
price multiplied by the face amount. The 2009 Debentures are not secured by
the assets of the Company.
In July 1997, the Company issued $120,000 10 3/8% Senior Notes due 2007 ("2007
Seniors"). These notes bear interest at a rate of 10 3/8% per annum, payable
semi-annually in cash on February 1 and August 1 of each year, commencing
February 1, 1998.
The 2007 Seniors are redeemable for 105.188% of the principal amount from
August 1, 2002 to July 31, 2003, 102.594% from August 1, 2003 to July 31,
2004, and 100% from August 1, 2004 and thereafter plus any accrued and unpaid
interest to the date of redemption.
The fair value of the 2007 Seniors was $121,200 at December 31, 1997. The
fair value was calculated using the Senior Notes' December 31, 1997 market
price multiplied by the face amount. The 2007 Seniors are not secured by the
assets of the Company.
On July 25, 1997, a majority owned subsidiary of the Company, Jordan
Telecommunications Products ("JTP") issued and sold $190,000 principal amount
of 9.875% Senior Notes due August 1, 2007 ("JTP Senior Notes") and $120,000
principal amount at maturity ($85,034 initial accreted value) of 11.75% Senior
Discount Notes due August 1, 2007 ("JTP Senior Discount Notes"). The JTP
Senior Notes bear interest at a rate of 9.875% per annum, payable
semi-annually in cash in arrears on February 1 and August 1 of each year,
commencing on February 1, 1998. The JTP Senior Discount Notes will accrete at
a rate of 11.75%, compounded semi-annually, to par by August 1, 2000.
Commencing August 1, 2000, the JTP Senior Discount Notes bear interest at a
rate of 11.75% per annum, payable semi-annually in cash in arrears on February
1 and August 1 of each year, commencing on February 1, 2001.
The JTP Senior Notes are redeemable for 104.9375% of the principal amount from
August 1, 2002 to July 31, 2003, 102.4688% from August 1, 2003 to July 31,
2004, and 100% on or after August 1, 2004, plus any accrued and unpaid
interest to the date of redemption.
The JTP Senior Discount Notes are redeemable for 105.8750% of the accreted
value from August 1, 2002 to July 31, 2003, 102.9375% from August 1, 2003 to
July 31, 2004, and 100% on or after August 1, 2004, plus any accrued and
unpaid interest from August 1, 2000 to the redemption date, if such redemption
occurs after August 1, 2000.
The fair value of the JTP Senior Notes and JTP Senior Discount Notes was
$194,275 and $97,200, respectively, at December 31, 1997. The fair values
were calculated by multiplying the face amount by the market prices of each
security at December 31, 1997.
The Company incurred approximately $16,093 of costs related to the issuance
and sale of the JTP Senior Notes, JTP Senior Discount Notes, and the JTP
Senior Preferred Stock Units, $9,885 of which was allocated to deferred
financing fees and $6,208 of which was allocated to stockholders' equity.
On November 7, 1996, a majority owned subsidiary of the Company, Motors and
Gears Holdings, Inc., through its wholly-owned subsidiary, Motors and Gears
Inc., issued $170,000 aggregate principal amount of 10 3/4% Senior Notes ("M&G
Senior Notes"). Interest on the M&G Senior Notes is payable in arrears on
May 15 and November 15 of each year commencing May 15, 1997.
On December 10, 1997, the Company issued $100,000 aggregate principal amount
of 10 3/4% Senior Notes ("C Notes"). Interest on the Notes is payable in
arrears on May 15 and November 15 of each year, commencing May 15, 1998. The
C Notes were issued at a premium of 4.5% which will be amortized over the
remaining term of the Notes.
<PAGE>
In conjunction with the consummation of the C Note offering, the Company used
a portion of the net proceeds to repay existing indebtedness under the new
credit agreement, acquire Motion Control, provide additional working capital
and pay fees and expenses incurred in connection with the offering.
On January 9, 1998, the Company completed an exchange offer under which
$270,000 of 10 3/4% Series D Senior Notes ("D Notes") were exchanged for the
$170,000 of Senior Notes and the $100,000 of Senior Notes. The terms of the
new Notes are substantially identical to the terms of the old Notes.
The fair value of the M&G Senior Notes at December 31, 1997, was $286,875.
The fair value was calculated using the M&G Senior Notes' December 31, 1997
market price multiplied by the face amount. The M&G Senior Notes are not
secured by the assets of Motors and Gears, Inc., Motors and Gears Holdings,
Inc., or the Company.
The Indentures relating to the Senior Notes, the Discount Debentures, the 2007
Seniors and the 2009 Debentures restrict the ability of the Company to incur
additional indebtedness at its restricted subsidiaries. The Indentures also
restrict: the payment of dividends, the repurchase of stock and the making of
certain other restricted payments; restrictions that can be imposed on
dividend payments to the Company by its subsidiaries; significant
acquisitions; and certain mergers or consolidations. The Indentures also
require the Company to redeem the Senior Notes, the Discount Debentures, the
2007 Seniors and the 2009 Debentures upon a change of control and to offer to
purchase a specified percentage of the Senior Notes, the Discount Debentures,
the 2007 Seniors and the 2009 Debentures if the Company fails to maintain a
minimum level of capital funds (as defined).
The indentures governing the JTP Senior Notes and the JTP Senior Discount
Notes contain certain covenants which limit the Company's ability to (i) incur
additional indebtedness; (ii) make restricted payments (including dividends);
(iii) enter into certain transactions with affiliates; (iv) create certain
liens; (v) sell certain assets; and (vi) merge, consolidate or sell
substantially all of JTP's assets.
The Notes are unsecured obligations of the Company and mature on November 15,
2006. The Notes are redeemable at the option of the Company, in whole or in
part, at any time on or after November 15, 2001. In addition, notwithstanding
the foregoing, the Company may redeem up to 35% of the original aggregate
principal amount prior to November 15, 1999 under certain circumstances. The
Indenture relating to the Notes contains certain covenants which, among other
things, restricts the ability of the Company to incur additional indebtedness,
to pay dividends or make other restricted payments, engage in transaction with
affiliates, to complete certain mergers or consolidations, or to enter into
certain guarantees of indebtedness.
The Company is, and expects to continue to be, in compliance with the
provisions of these Indentures.
Included in interest expense is $3,622, $3,001 and $1,743 of amortization of
debt issuance costs for the years ended December 31, 1997, 1996 and 1995,
respectively.
<PAGE>
Note 13 - Income taxes
The provision (benefit) for income taxes consists of the following:
Year Ended December 31,
1997 1996 1995
Current:
Federal $ - $ - $ 400
Foreign 2,818 1,753 769
State and local 3,757 478 632
6,575 2,231 1,801
Deferred - 2,184 (4,247)
Total $6,575 $ 4,415 $(2,446)
Deferred income taxes consist of: Dec. 31, Dec. 31,
1997 1996
Deferred tax liabilities:
Intangibles $ 4,393 $ -
Tax over book depreciation 7,260 7,346
Basis in subsidiary 798 798
LIFO reserve 83 147
Intercompany tax gain 7,289 2,500
Other 531 311
Total deferred tax liabilities 20,354 11,102
Deferred tax assets:
NOL carryforwards 37,482 28,900
Stock Appreciation Rights
Agreements 3,772 3,162
Accrued interest on discount debentures 13,510 12,262
Pension obligation 444 174
Vacation accrual 891 591
Uniform capitalization of inventory 1,501 472
Allowance for doubtful accounts 1,125 1,020
Capital lease obligations - 343
Foreign NOL's 3,582 -
Deferred financing fees 814 -
Intangibles 1,242 -
Tax asset basis over book basis at
subsidiary 7,289 2,500
Other 484 248
Total deferred tax assets 72,136 49,672
Valuation allowance for deferred
tax assets (53,226) (40,014)
Net deferred tax assets 18,910 9,658
Net deferred tax liabilities $ 1,444 $ 1,444
The increase in the valuation allowance during 1997 and 1996 was $13,212 and
$18,548, respectively.
<PAGE>
The provision (benefit) for income taxes differs from the amount of income tax
benefit computed by applying the United States federal income tax rate to
(loss) income before income taxes, including the extraordinary loss. A
reconciliation of the differences is as follows:
Year ended
December 31,
1997 1996 1995
Computed statutory tax benefit $(12,760) $(17,413) $(4,003)
Increase (decrease) resulting from:
Foreign subsidiary losses 1,906 1,465 680
Amortization of goodwill 1,404 903 756
Disallowed meals and entertainment 295 645 425
State and local tax 772 478 632
Alternative minimum tax - - 400
Increase (decrease) in valuation allowance 14,368 18,548 (1,962)
Other items, net 590 (211) (143)
Provision (benefit) for income taxes $ 6,575 $ 4,415 $(2,446)
As of December 31, 1997, the consolidated loss carryforwards are approximately
$75,000 and $64,000 for regular tax and alternative minimum tax purposes,
respectively, and expire in various years through 2012. In addition, a
subsidiary of the Company, which is not consolidated for tax purposes, has
approximately $36,000 of net operating loss carryforwards that expire in
various years through 2010. A valuation reserve of $12,000 has been recorded
against the related $12,000 asset.
Note 14 - 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.
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.
<PAGE>
Note 15 - 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 have been reflected in the
Statement of Changes in Shareholders Equity. Paw Print is a value-added
provider of direct mail services.
Note 16 - Related party transactions
The principals, partners, officers, employees and affiliates of The Jordan
Company (the "Jordan Group") own substantially all of the common stock of the
Company.
On July 29, 1996, the Company acquired Cape Craftsmen from a related party in
exchange for $12,128 of notes receivable from Cape Craftsmen.
On July 25, 1997, a previous agreement with TJC Management Corporation ("TJC")
was amended and restated whereby the Company will pay TJC a $750 quarterly
fee. Under these agreements the Company accrued fees to TJC of $2,955, $2,530
and $2,691 in 1997, 1996 and 1995, respectively.
On July 25, 1997, a previous agreement with TJC was amended and restated whereby
the Company will pay TJC an investment banking fee of up to 1%, based on the
aggregate consideration paid, for its assistance in acquisitions undertaken
by the Company or its subsidiaries, and a financial consulting fee not to
exceed 1/2 of 1% of the aggregate debt and equity financing that is arranged
by the Jordan Company, plus the reimbursement of out-of-pocket and other
expenses. The Company paid $5,075, $2,610, and $2,055 in 1997, 1996, and
1995, respectively, to the Jordan Company for their fees in relation to
acquisition and refinancing activities.
In February 1988, the Company entered into an employment agreement with its
President and Chief Operating Officer which provides for annual compensation,
including base salary and bonus, of not less than $350. The agreement also
provides for severance payments in the event of termination for reasons other
than cause, voluntary termination, disability or death; disability payments,
under certain conditions, in the event of termination due to disability; and a
lump sum payment of $1,000 in the event of death. The Company maintains a
$5,000 "key man" life insurance policy on its president under which the
Company is the beneficiary.
An individual who is a shareholder, Director, General Counsel and Secretary
for the Company is also a partner in a law firm used by the Company. The firm
was paid $1,812, $1,462 and $376 in fees and expenses in 1997, 1996 and 1995,
respectively. The rates charged to the Company were at arms-length.
Note 17 - Capital stock
Under the terms of a restricted common stock agreement with certain
shareholders and members of management, the Company has the right, under
certain circumstances, for a specified period of time to reacquire shares from
certain shareholders and management at their original cost. Starting in 1993
or within 60 days of termination, the Company's right to repurchase may be
nullified if $1,800, in the aggregate, is paid to the Company by management.
On January 20, 1989, the Company, in exchange for three thousand five hundred
dollars, sold warrants to acquire 3,500 shares of its common stock to
Mezzanine Capital & Income Trust 2001, PLC (MCIT), a publicly traded U.K.
investment trust, in which principal stockholders of the Company also hold
capital and income shares. These warrants were sold in conjunction with
MCIT's purchase of $7,000 of Senior Subordinated Notes. Each Warrant entitles
the holder to purchase one share of the Company's common stock at a price of
$4.00 (dollars) at any time, subject to certain events, prior to January 20,
1999. These warrants were exercised in 1997.
On April 3, 1997, the Company issued an additional 1,500 shares of stock for
$135 cash to an employee. An independent appraiser valued the common stock at
$1,005, therefore a charge of $870 has increased the Company's loss before
income taxes, minority interest, equity in investee and extraordinary items.
In connection with its initial capitalization on July 21, 1997, JTP issued and
sold 959,639 shares of Common Stock ("JTP Common Stock")to it's management and
certain stockholders of the Company for approximately $1,920. On July 25,
1997, JTP issued and sold 35,000 shares of JTP Common Stock for approximately
$72, 25,000 shares of which were issued and sold as part of the sale of
preferred stock units described in note 19.
In connection with its recapitalization on May 16, 1997, Motors & Gears
Holdings, Inc. bought back 1,725 common shares and reissued 3,450 new common
shares to its shareholders giving the effect of a 2-for-1 stock split. In
addition Motors and Gears Holdings, Inc. issued and sold 16,250 shares of
common stock to its management and certain stockholders of the Company for
approximately $2,200.
Note 18 - 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.
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.
<PAGE>
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.
The JTP Senior Preferred Stock has no voting rights and is mandatorily
redeemable on August 1, 2009.
Note 19 - Business segment information
The Company's business operations are classified into five business segments:
Specialty Printing and Labeling, Motors and Gears, Telecommunications
Products, Welcome Home, and Consumer and Industrial Products. As of January
21, 1997, Welcome Home is no longer consolidated in the Company's results of
operations. (See note 3)
Motors and Gears includes the manufacture of specialty purpose electric motors
for both industrial and commercial use by Imperial; small electrical motors by
Scott; precision gears and gear boxes by Gear; AC and DC gears and gear motors
and subfractional AC and DC motors and gear motors for both industrial and
commercial use by Merkle-Korff and FIR; and electronic motion control systems
for use in industrial and commercial processes such as conveyor systems,
packaging systems, elevators and automated assembly operations by ED&C and
Motion Control.
Telecommunications Products includes the manufacture and distribution of
silicon pre-lubricated plenum and other configurations of Innerduct, a
proprietary plastic pipe used in the installation of fiber optic cable, and
rigid polyethylene pipe used for transporting potable water by Dura-Line;
electronic connectors and switches by AIM and Cambridge; RF coaxial connectors
and electronic hardware by Johnson; cable TV electronic network components and
electronic security components by Viewsonics; custom electronic cables and
connectors for high technology, computer related applications by Bond; custom
electronic cable assemblies, sub-assemblies and electro-mechanical assemblies
for the data and telecommunications markets by LoDan; design and installation
of cellular personal communications systems and radio/broadcasting towers by
EEI; custom cable assemblies and other correcting devices by TSI; and power
conditioning and power protection equipment by Northern. Diversified and
Vitelec are not manufacturing-intensive. Diversified is a provider and
value-added reseller of wire, cable, and custom cable assemblies, and Vitelec
is an importer, packager, and master distributor of over 400 RF connectors and
other electronic components.
Welcome Home includes the specialty retailing of decorative home furnishing
accessories by 124 Welcome Home stores.
<PAGE>
Consumer and Industrial Products includes the remanufacturing of transmission
sub-systems for the U.S. automotive aftermarket by DACCO; manufacture and
marketing of safety reflectors, lamp components, bicycle reflector kits,
colorants and emergency warning triangles by Sate-Lite; the publishing of
Bibles and the distribution of Bibles, religious books, and recorded music by
Riverside; precision machined titanium hot formed parts used by the aerospace
industry by Parsons; point-of-purchase advertising displays by Beemak;
decorative home furnishing accessories by Cape; the manufacturer of plastic
pipe by Dura-Line Retube and the manufacture of orthopedic supports and pain
reducing medical devices at Cho-Pat.
Inter-segment sales exist between Cape and Welcome Home. These sales were
eliminated in consolidation prior to January 22, 1997, and were not presented
in segment disclosures. No single customer accounts for 10% or more of
segment or consolidated net sales.
Operating income by business segment is defined as net sales less operating
costs and expenses, excluding interest and corporate expenses.
Identifiable assets are those used by each segment in its operations.
Corporate assets consist primarily of cash and cash equivalents, equipment,
notes receivable from affiliates and deferred debt issuance costs.
Summary financial information by business segment is as follows:
Year ended
December 31,
1997 1996 1995
Net sales:
Specialty Printing & Labeling $119,346 $109,587 $ 96,514
Motors and Gears 148,669 117,571 54,218
Telecommunications Products 257,010 132,999 98,777
Welcome Home 2,456 81,855 93,166
Consumer and Industrial Products 179,631 159,555 164,636
Total $707,112 $601,567 $507,311
Operating income:
Specialty Printing & Labeling $ 10,031 $ 7,078 $ 8,067
Motors and Gears 31,058 26,164 12,236
Telecommunications Products 18,365 12,985 17,774
Welcome Home ( 1,107) (15,975) (10,066)
Consumer and Industrial Products 23,497 18,446 21,987
Total business segment operating
income 81,844 48,698 49,998
Corporate expenses (26,400) (35,306) (17,638)
Total consolidated operating
income $ 55,444 $13,392 $ 32,360
Depreciation and amortization
(including the amortization of
goodwill and intangibles):
Specialty Printing & Labeling $ 5,284 $ 4,800 $ 3,776
Motors and Gears 9,015 7,078 2,262
Telecommunications Products 10,934 7,204 5,105
Welcome Home 119 2,096 2,121
Consumer and Industrial Products 6,459 5,785 6,248
Total business segment
depreciation and amortization 31,811 26,963 19,512
Corporate 3,510 3,475 2,172
Total consolidated depreciation
and amortization $ 35,321 $30,438 $21,684
Capital expenditures:
Specialty Printing & Labeling $ 1,609 $ 2,235 $ 1,106
Motors and Gears 1,396 1,381 870
Telecommunications Products 9,386 6,399 5,400
Welcome Home - 1,403 5,022
Consumer and Industrial Products 838 3,325 2,625
Corporate 950 2,652 253
Total $49,179 $17,395 $15,276
<PAGE>
Dec. 31, Dec. 31, Dec. 31,
1997 1996 1995
Identifiable assets:
Specialty Printing & Labeling $104,979 $107,016 $ 89,090
Motors and Gears 316,756 173,565 142,289
Telecommunications Products 310,060 175,796 62,908
Welcome Home - 25,464 32,176
Consumer and Industrial Products 129,073 136,021 112,804
Total business segment assets 860,868 617,862 439,267
Corporate assets 69,363 64,023 93,117
Total consolidated assets $930,231 $681,885 $532,384
Summary financial information by geographic area is as follows:
Year ended
December 31,
1997 1996 1995
Net sales to unaffiliated customers:
United States $ 635,127 $ 565,937 $ 477,256
Foreign 71,985 35,630 30,055
Total 707,112 601,567 507,311
Operating Income:
United States $ 45,955 $ 7,820 $ 28,062
Foreign 9,489 5,572 4,298
Total $ 55,444 $ 13,392 $ 32,360
Dec. 31 Dec. 31 Dec. 31
1997 1996 1995
Identifiable assets:
United States $809,525 $638,578 $510,379
Foreign 120,706 43,307 22,005
Total $930,231 $681,885 $532,384
<PAGE>
Note 20 - Acquisition of minority interest
In March 1992, a subsidiary of the Company entered into an agreement with its
minority shareholders whereby the shareholders would exchange their common
stock, which amounted to a 24% interest, for 7% cumulative preferred stock,
stock appreciation rights, and covenants not to compete. The total
consideration paid for this minority interest was $12,381.
On April 10, 1997, the Company paid the former shareholders pursuant to an
agreement ("The Redemption Agreement"), as if the subsidiary was sold for
$110,000. The former shareholders received $9,438 in cash and a deferred
payment of $5,980 over five years including interest. The Redemption
Agreement also requires that the $1,875 of remaining preferred stock be
redeemed one year from the date of the agreement (see note 15).
The covenants not to compete of $2,679 were paid over five years beginning in
1992. Of this amount, $81 and $324 was paid in 1997 and 1996, respectively.
Note 21 - Acquisitions of subsidiaries
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. ACI subcontracts its
production to third party injection molders located primarily in Southern
California, which use materials and machines similar to those used by Beemak.
By early 1998, Beemak will serve as ACI's primary supplier. The integration
of ACI into Beemak's operations will provide for future manufacturing cost
savings as well as synergistic marketing efforts.
The purchase price of $4,600, including costs incurred directly related to the
acquisition, was allocated to working capital of $300, property, plant and
equipment of $82, and excess purchase price over net identifiable assets of
$4,218. The acquisition was financed with cash.
On May 30, 1997, JTP purchased the assets of LoDan West, Inc. ("LoDan"), which
designs, engineers and manufactures high-quality custom electronic cable
assemblies, sub-assemblies and electro-mechanical assemblies for original
equipment manufacturers in the data and telecommunications markets of the
electronics industry.
The purchase price of $17,000, including estimated costs incurred directly
related to the transaction, was allocated to working capital of $5,066,
property, plant and equipment of $783, non-competition agreement of $250,
noncurrent assets of $41, and resulted in an excess purchase price over net
identifiable assets of $10,860. The acquisition was financed with cash and a
$1,500 subordinated seller note.
On June 12, 1997, Motors and Gears Industries, Inc., through its newly formed
wholly-owned subsidiary, FIR Group Holdings, Inc. and its wholly-owned
subsidiaries, Motors and Gears Amsterdam, B.V. and FIR Group Holdings Italia,
SrL, purchased all of the common stock of the FIR Group Companies, consisting
of CIME S.p.A., SELIN S.p.A., and FIR S.p.A. The FIR Group Companies are
manufacturers of electric motors and pumps for niche applications such as
pumps for catering dishwashers, motors for industrial sewing machines, and
motors for industrial fans and ventilators.
The purchase price of $50,496, including costs directly related to the
transaction, was preliminarily allocated to working capital of $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.
<PAGE>
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, non-competition 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 orthopaedic
supports and patented preventative and pain reducing medical devices. Cho-Pat
currently produces nine different products primarily for reduction of pain
from injuries and the prevention of injuries resulting from overuse of the
major joints.
The purchase price of $1,200, including estimated costs incurred directly
related to the transaction, was allocated to working capital of $17, property,
plant and equipment of $23, and other long-term assets of $34 which resulted
in an excess purchase price over net identifiable assets of $1,126. The
acquisition was financed with cash.
On October 27, 1997 Motors and Gears Industries, Inc. ("Motors and Gears")
acquired all of the outstanding stock of Electronic Design and Control Company
("ED&C"). ED&C is a full service electrical engineering company which
designs, engineers and manufactures electrical control systems and panels for
material handling systems and other like applications. ED&C provides
comprehensive design, build and support services to produce electronic control
panels which regulates the speed of movement of conveyor systems used in a
variety of automotive plants and other industrial applications.
The purchase price of $20,000, including costs incurred directly related to
the transaction, has been 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 preliminarily allocated to working
capital of $3,864, property, plant, and equipment of $1,528, 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.
<PAGE>
On December 10, 1997, Motors and Gears Industries, Inc., 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-competes and other of $1,005, 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.
On January 23, 1996, the Company purchased the net assets of Johnson
Components, Inc. ("Johnson"), a manufacturer of RF coaxial connectors and
electronic hardware.
The purchase price of $16,098, including costs incurred directly related to
the transaction, was allocated to working capital of $1,616, property, plant
and equipment of $4,660, and non-compete agreements of $1,050, and resulted in
an excess purchase price over net identifiable assets of $8,772. The
acquisition was financed with cash.
On March 8, 1996, Merkle-Korff, then owned by a non-restricted subsidiary, M-K
Holdings, Inc., acquired the net assets of Barber-Colman Motors Division, a
division of Barber-Colman Company, which was wholly owned by Siebe, plc. This
division consisted of Colman OEM and Colman Motor Products, wholly owned
subsidiaries of Barber-Colman Company, and the motors division of
Barber-Colman Company, collectively Barber-Colman Motors ("BCM"), and is a
vertically integrated manufacturer of sub-fractional horsepower AC and DC
motors and gear motors, with applications in such products as vending
machines, copiers, printers, ATM machines, currency changers, X-ray machines,
peristaltic pumps, HVAC actuators and other products. BCM was subsequently
merged into Merkle-Korff in January 1997.
The purchase price of $21,700, including costs incurred directly related to
the transaction, was allocated to working capital of $4,882, property, plant
and equipment of $5,843, non-compete agreements of $1,000, and other
non-current assets of $810, and resulted in an excess purchase price over net
identifiable assets of $9,165. The acquisition was financed with $21,700 of
new and existing credit facilities.
On May 1, 1996, the Company through its non-restricted subsidiary, SPL
Holdings, Inc., acquired the net assets of Seaboard Folding Box Corporation
("Seaboard"), a manufacturer of printed folding cartons and boxes, insert
packaging, and blister pack cards.
The purchase price of $27,847, including costs incurred directly related to
the transaction, was allocated to working capital of $8,745, property, plant
and equipment of $6,965, non-compete agreements of $1,000, other non-current
assets of $10, long term liabilities of $1,663, and resulted in an excess
purchase price over net identifiable assets of $12,790. The acquisition was
financed with cash of $2,000 from the Company, a $1,500 subordinated seller
note, a new $13,000 term loan, and $11,000 from the existing SPL Holdings,
Inc. revolving credit facility.
<PAGE>
On June 25, 1996, the Company purchased the stock of Diversified Wire and
Cable, Inc. ("Diversified"), a provider and value added re-seller of wire,
cable and custom cable assemblies.
The purchase price of $18,978, including costs incurred directly related to
the transaction, was allocated to working capital of $3,058 property, plant
and equipment of $607, non-compete agreements of $500, other assets of $27,
capital leases and minority interest of $388, and resulted in an excess
purchase price over net identifiable assets of $15,174. The acquisition was
financed with cash and a $1,500 subordinated seller note. Immediately after
Diversified was purchased by the Company, the seller acquired a 12.5% interest
in Diversified.
On August 1, 1996, the Company purchased the net assets of Viewsonics, Inc.
and Shanghai Viewsonics Electric Co., Ltd. ("Viewsonics"), a designer and
manufacturer of cable TV electronic network components and electronic security
components.
The purchase price of $15,319, including costs incurred directly related to
the transaction was allocated to working capital of $6,697, property, plant
and equipment of $446, and resulted in an excess purchase price over net
identifiable assets of $8,176. The acquisition was financed with cash.
On August 5, 1996, the Company purchased the stock of Vitelec Electronics,
Limited ("Vitelec"), a United Kingdom based importer, packager, and master
distributor of over 400 RF connectors sold to commercial and consumer
electronic markets.
The purchase price of $14,040, including costs incurred directly related to
the transaction was allocated to working capital of $1,496, property, plant
and equipment of $1,053, and resulted in an excess purchase price over net
identifiable assets of $11,491. The acquisition was financed with cash.
On September 20, 1996, the Company, through its wholly-owned subsidiary Bond
Holdings, Inc., purchased 80% of the outstanding common stock of Bond
Technologies, Inc. ("Bond"). The remaining 20% ownership has been retained by
the sellers. Bond designs, engineers and manufactures custom electronic
cables and connectors for high technology, computer related and
telecommunication customers.
The purchase price of $8,627, which included costs incurred directly related
to the transaction, was allocated to working capital of $2,099, property,
plant and equipment of $902, non compete agreements of $800, other assets of
$52, a minority interest and debt assumed of $53, and resulted in an excess
purchase price over net identifiable assets of $4,827. The purchase price
includes $700 of cash held in escrow which will be paid to the sellers at a
pre-determined date if certain levels of EBIT (as defined) are achieved. The
acquisition was financed with cash.
On November 8, 1996, the Company purchased the net assets of Paw Print Mailing
List Services, Inc. ("Paw Print"), a value-added provider of direct mail
services.
The purchase price of $11,751, including costs incurred directly related to
the acquisition, was allocated to working capital of $679, property, plant,
and equipment of $511, non-competition agreements of $900, and resulted in
excess purchase price over net identifiable assets of $9,661. The acquisition
was financed with cash of $9,250 and a $2,500 subordinated seller note.
On December 31, 1996, the Company purchased 100% of the stock of Northern
Technologies, Inc. ("Northern"), a manufacturer of power conditioning and
power protection equipment for telecommunications applications such as
cellular and personal communication system networks.
<PAGE>
The purchase price of $21,500, including estimated costs incurred directly
related to the transaction, was allocated to working capital of $4,661,
property, plant, and equipment of $571, non-competition agreements of $500,
long-term assets of $425, long-term liabilities of $115, and resulted in an
excess purchase price over net identifiable assets of $15,458. The
acquisition was financed with cash.
Unaudited pro forma information with respect to the Company as if the 1996 and
1997 acquisitions had occurred on January 1, 1997 and 1996, respectively, and
as if the 1996 acquisitions had occurred on January 1, 1996 and January 1,
1995, respectively, and as if the 1995 acquisition had occurred on January 1,
1995, is as follows:
Year Ended December 31,
1997 1996 1995
(unaudited)
(dollars in millions)
Net sales $825,412 $745,166 $704,723
Net (loss) income before
extraordinary items (12,408) (30,121) 8,066
Net (loss) income $(43,777) $(33,927) $ 8,066
Note 22 - SPL Holdings, Inc.
On August 30, 1995, the Company sold on an arms length basis, the net assets
of Sales Promotion Associates, Inc. ("SPAI"), formerly a wholly-owned
subsidiary of the Company, and a specialty printer and distributor of
calendars, advertising specialty products and soft cover year books to SPL
Holdings, Inc. ("SPL", formerly known as J2, Inc.) a majority owned subsidiary
of the Company. SPL and its subsidiaries were designated as non-restricted
subsidiaries for purposes of the Company's Indentures relating to its Senior
Notes and Senior Subordinated Discount Debentures.
Concurrent with the sale of the net assets of SPAI, SPL was recapitalized with
(i) an equity investment of $22,300 by the Company and $160 from certain
affiliated investors, (ii) subordinated debt of $11,000, and (iii) a new
$45,000 senior secured bank financing comprised of a $20,000 Revolver and a
$25,000 Term Loan A. On May 1, 1996, concurrent with the acquisition of
Seaboard, SPL entered into an Amended and Restated Revolving Credit and Term
Loan Agreement. This agreement extended the above Revolver facility to
$27,000 and added a Term Loan B in the amount of $13,000. During 1997, the
Company repaid all indebtedness outstanding under these agreements and SPL
became a Restricted Subsidiary.
Following the sale of the net assets and recapitalization transactions, SPL is
83.3% owned by the Company and 16.7% owned by certain affiliates of the
Company, including partners and affiliates of The Jordan Company, including
Mr. Jordan, Mr. Quinn, Mr. Zalaznick, and Mr. Boucher.
SPL was formed to combine a group of companies engaged in the design,
manufacture and marketing of specialty printing and label products. SPL is
comprised of Valmark Industries, Inc. ("Valmark"), Pamco Printed Tape and
Label Co., Inc. ("Pamco"), Sales Promotion Associates, Inc. ("SPAI"), and
Seaboard Folding Box Corporation ("Seaboard").
<PAGE>
Note 23 - Compensation Agreements
Effective October 1, 1996, the Company voluntarily agreed to pay to an
executive $3,876 in view of his contributions to the Company, including
identifying and analyzing acquisition candidates for the Company and
providing
strategic advice to the Board of Directors of the Company. The Company
accrued for this compensation agreement in 1996. The Company paid the
executive $1,300 in 1996, and $867 during 1997 with the remaining $1,709
payable in four equal semi-annual installments payable on each April 1, and
October 1, through October 1, 1999.
Note 24 - Additional Purchase Price Agreements
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 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 $4.0 million to the former owners of TSI if certain earnings
projections are met on or before March 1, 1999.
Note 25 - Concentration of credit risk
Financial instruments which potentially subject the Company to concentration
of credit risk consist principally of cash and cash equivalents and accounts
receivable. The Company places cash and cash equivalents with high quality
financial institutions, and is restricted by its revolving credit facilities
as to its investment instruments. Concentration of credit risk relating to
accounts receivable is limited due to the large number of customers from many
different industries and locations. The Company believes that its allowance
for doubtful accounts is adequate to cover potential credit risk.
<PAGE>
Note 26 - Contingencies
The Company is subject to legal proceedings and claims which arise in the
ordinary course of its business. The Company believes that the final
disposition of such matters will not have a material adverse effect on the
financial position or results of operations of the company.
Note 27 - Subsequent Events
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 $26,000 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.
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 $44,000, including costs directly related to the
transaction, has not been allocated at this time. The acquisition was
financed with cash from the JII credit line at FNBB and a $5 million
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, has not been allocated at this time. The acquisition was
financed with cash.
<PAGE>
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
The following sets forth the names and ages of each of the Company's directors
and executive officers and the positions they hold at the Company:
Name Age Position with the Company
John W. Jordan II 50 Chairman of the Board of Directors
and Chief Executive Officer.
Thomas H. Quinn 50 Director, President and Chief
Operating Officer.
Joseph S. Steinberg 54 Director.
David Z. Zalaznick 43 Director.
Jonathan F. Boucher 41 Director and Vice President.
G. Robert Fisher 58 Director, General Counsel and
Secretary.
Each of the directors and executive officers of the Company will serve until
the next annual meeting of the stockholders or until their death, resignation
or removal, whichever is earlier. Directors are elected annually and
executive officers hold office for such terms as may be determined by the
Company's board of directors (the "Board of Directors").
Set forth below is a brief description of the business experience of each
director and executive officers of the Company.
Mr. Jordan has served as Chairman of the Board of Directors and Chief
executive Officer of the Company since 1988. Mr. Jordan is a managing partner
of The Jordan Company, a private merchant banking firm which he founded in
1982. Mr. Jordan is also a director of American Safety Razor Company,
AmeriKing, Inc., Carmike Cinemas, Inc., Welcome Home and Apparel Ventures,
Inc., as well as other privately held companies. In January 1997, Welcome
Home filed a voluntary petition for bankruptcy.
Mr. Quinn has served as a director, President and Chief Operating Officer
of the Company since 1988. From November 1985 to December 1987, Mr. Quinn was
Group Vice President and a corporate officer of Baxter International
("Baxter"). From September 1970 to November 1985, Mr. Quinn was employed by
American Hospital Supply Corporation ("American Hospital"), where he was a
Group Vice President and a corporate officer when American Hospital was
acquired by Baxter. Mr. Quinn is also the Chairman of the Board and Chief
Executive Officer of American Safety Razor Company and AmeriKing, Inc., as
well as a director of Welcome Home and other privately held companies. In
January 1997, Welcome Home filed a voluntary petition for bankruptcy.
Mr. Steinberg has served as a director of the Company since 1988. Since
1979, Mr. Steinberg has been the President and a director of Leucadia National
Corporation, a bank holding company. He is also a Trustee of New York
University.
Mr. Zalaznick has served as a director of the Company since June 1997.
Since 1982, Mr. Zalaznick has been a managing partner of The Jordan Company.
Mr. Zalaznick is also a director of Carmike Cinemas, Inc., AmeriKing, Inc.,
American Safety Razor Company, Marisa Christina, Inc. and Apparel Ventures,
Inc., as well as other privately held companies.
Mr. Boucher has served as a Vice President and a director of the Company
since 1988. Since 1983, Mr. Boucher has been a partner of The Jordan
Company. Mr. Boucher is also a director of American Safety Razor Company, as
well as other privately held companies. In December 1996, Mr. Boucher
resigned as a director and officer of Welcome Home. In January 1997, Welcome
Home filed a voluntary petition for bankruptcy.
Mr. Fisher has served as a director, General Counsel and Secretary since
1988. Since June 1995, Mr. Fisher has been a member of the law firm of Bryan
Cave LLP, a firm that represents the Company in various legal matters. For
the prior 27 years, Mr. Fisher was a member of the law firm of Smith, Gill,
Fisher & Butts, P.C., which combined with Bryan Cave LLP in June 1995.
Item 11. EXECUTIVE COMPENSATION
The following table shows the cash compensation paid by the Company, for
the three years ended December 31, 1997, for services in all capacities to the
President and Chief Operating Officer of the Company.
Summary Compensation Table(1)
Annual Compensation
Name and Principal Position Year Salary Bonus Other Compensation
John W. Jordan II, Chief 1997 - - -
Executive Officer(2) 1996 - - -
1995 - - -
Thomas H. Quinn, 1997 500,000 2,392,524 870,000(3)
President and Chief 1996 500,000 1,850,750 -
Operating Officer 1995 500,000 1,557,650 -
(1)The aggregate number of shares of restricted Common Stock held by the
Company's executive officers and directors at December 31, 1997 was 5,000
shares, consisting of 4,000 shares held by Mr. Quinn and 1,000 shares held by
Mr. Boucher. The value of the restricted shares is not able to be calculated
because there is no market price for shares of the Company's unrestricted
Common Stock. Dividends will be paid on the restricted shares to the same
extent paid on unrestricted shares. See "Management-Restricted Stock
Agreements."
(2)Mr. Jordan derived his compensation from the Jordan Company and JZCC for
his services to the Company and its subsidiaries. He received no compensation
from the Company or its subsidiaries for his services as Chief Executive
Officer.
(3)The difference between the amount paid for 1,500 shares of common stock and
the related market value of the stock.
Employment Agreement. Mr. Quinn has an employment agreement with the
Company which provides for his employment as President and Chief Operating
Officer of the Company. The employment agreement can be terminated at any
time by the Company. His base salary is $500,000 per year, and he is provided
with a guaranteed bonus of $100,000 per year, which amounts are inclusive of
any compensation, fees, salary, bonuses or other payments to Mr. Quinn by any
of the subsidiaries or affiliates of The Jordan Company. Under the employment
agreement, if Mr. Quinn's employment is terminated for reasons other than
voluntary termination, cause, disability or death, he will be paid a severance
payment equal to the greater of $350,000 or the sum of his most recent base
annual salary plus $100,000. If employment is terminated for reasons of cause
or voluntary termination, no severance payment is made. The Company maintains
a $5.0 million "key man" life insurance policy on Mr. Quinn under which the
Company is the beneficiary.
<PAGE>
Restricted Stock Agreements. The Company is a party to restricted stock
agreements, dated as of February 25, 1988, with each of Messrs. Quinn and
Boucher, pursuant to which they were issued shares of Common Stock which, for
purposes of such restricted stock agreements, were classified as "Group 1
Shares" or "Group 2 Shares". Messrs. Quinn and Boucher were issued 3,500 and
1,870.7676 Group 1 shares, respectively, and 4,000 and 1,000 Group 2 Shares,
respectively at $4.00 per share. The Group 1 Shares are not subject to
repurchase or contractual restrictions on transfer pursuant to the Restricted
Stock Agreements. The Group 2 Shares are subject to repurchase at cost, in
the event that Messrs. Quinn or Boucher ceases to be employed (as a partner,
officer or employee) by the Company, The Jordan Company, Jordan/Zalaznick
Capital Company ("JZCC"), or any reconstitution thereof conducting similar
business activities in which they are a partner, officer or employee. If such
person ceases to be so employed prior to January 1, 2003, the Group 2 Shares
can also be repurchased at cost, unless such person releases and terminates
such repurchase option by making a payment of $300.00 per share to the
Company. Certain adjustments to the foregoing occur in the event of the death
or disability of any of the partners of The Jordan Company or JZCC, the death
or disability of such person, or the sale of the Company. On January 1, 1992,
the Company issued Messrs. Quinn and Boucher 600 and 533.8386 shares,
respectively, at $107.00 per share, pursuant to similar Restricted Stock
Agreements, dated as of January 1, 1992, under which such shares were
effectively treated as "Group 1 Shares". On December 31, 1992, the Company
issued an additional 400 shares to Mr. Quinn for $107.00 per share pursuant to
similar Restricted Stock Agreements, under which such shares were effectively
treated as "Group 1 Shares". The purchase price per share was based upon an
independent appraiser's valuation of the shares of Common Stock at the time of
their issuance. In June 1997, the Company issued an additional 1,500 shares
to Mr. Quinn for approximately $86.67 per share pursuant to a similar
Restricted Stock Agreement, under which such shares were effectively treated
as "Group 1 Shares". These shares were issued by the Company to provide a
long-term incentive to the recipients to advance the Company's business and
financial interest.
Director's Compensation. The Company compensates its directors quarterly,
at the rate of $20,000 per year for each director. The Indentures permit
director fees of up to $250,000 per year in the aggregate. In addition, the
Company reimburses directors for their travel and other expenses incurred in
connection with attending Board meetings (and committees thereof) and
otherwise performing their duties as directors of the Company.
<PAGE>
Item 12. PRINCIPAL STOCKHOLDERS
The following table furnishes information, as of March 28, 1998, as to the
beneficial ownership of the Company's Common Stock by (i) each person known by
the Company to beneficially own more than 5% of the outstanding shares of
Common Stock (ii) each director and executive officer of the Company, and
(iii) all officers and directors of the Company as a group.
Amount of Beneficial Ownership
Number ofPercentage
Shares Owned(1)
Executive Officers and Directors
John W. Jordan II (2)(3)(4) 41,820.9087 42.5%
David W. Zalaznick(3)(5)(6) 19,965.0000 20.3%
Thomas H. Quinn(7) 10,000.0000 10.2%
Leucadia Investors, Inc.(3) 9,969.9999 10.1%
Jonathan F. Boucher(8) 5,533.8386 5.6%
G. Robert Fisher(4)(9) 624.3496 0.6%
Joseph S. Steinberg(10) 0.0000 0.0%
All directors and officers as a group
(5 persons)(3) 87,914.0968 89.3%
(1)Calculated pursuant to Rule 13d-3(d) under the Exchange Act. Under Rule
13d-3(d), shares not outstanding which are subject to options, warrants,
rights or conversion privileges exercisable within 60 days are deemed
outstanding for the purpose of calculating the number and percentage owned by
such person, but not deemed outstanding for the purpose of calculating the
percentage owned by each other person listed. As of December 31, 1997, there
were 98,501.0004 shares of Common Stock issued and outstanding.
(2)Includes 1 share held personally and 41,819.9087 shares held by John W.
Jordan II Revocable Trust. Does not include 309.2933 shares held by Daly
Jordan O'Brien, the sister of Mr. Jordan, 309.2933 shares held by Elizabeth
O'Brien Jordan, the mother of Mr. Jordan, or 309.2933 shares held by George
Cook Jordan, Jr., the brother of Mr. Jordan.
(3)Does not include 100 shares held by The Jordan Zalaznick Capital Company
("JZCC") or 3,500 shares of Common stock held by Mezzanine Capital & Income
Trust 2001 PLC ("MCIT"), a publicly traded U.K. investment trust advised by an
Affiliate of The Jordan Company (controlled by Messrs. Jordan and Zalaznick).
Mr. Jordan, Mr. Zalaznick and Leucadia, Inc. are the sole partners of JZCC.
Mr. Jordan and Mr. Zalaznick own and manage the advisor to MCIT.
(4)Does not include 3,248.3332 shares held by The Jordan Family Trust, of
which John W. Jordan II, George Cook Jordan, Jr. and G. Robert Fisher are the
trustees
(5)Does not include 82.1697 shares held by Bruce Zalaznick, the brother of Mr.
Zalaznick.
(6)Excludes 2,541.4237 shares that are held by John W. Jordan II Revocable
Trust, but which may be purchased by Mr. Zalaznick, and must be purchased by
Mr. Zalaznick, under certain circumstances, pursuant to an agreement, dated as
of October 27, 1988, between Mr. Jordan and Mr. Zalaznick.
(7)Includes 4,000 shares which are treated as "Group 2 Shares" pursuant to the
terms of a Restricted Stock Agreement between Mr. Quinn and the Company. See
"Management-Restricted Stock Agreements".
(8)Includes 1,000 shares which are treated as "Group 2 Shares" pursuant to the
terms of a Restricted Stock Agreement between Mr. Boucher and the Company.
See "Management-Restricted Stock Agreements".
(9)Includes 624.3496 shares held by G. Robert Fisher, as Trustee of the G.
Robert Fisher Irrevocable Gift Trust, U.T.I., dated December 26, 1990.
(10)Excludes 9,969.9999 shares held by Leucadia Investors, Inc., of which
Joseph S. Steinberg is President and a director.
<PAGE>
Stockholder Agreement. Each holder of outstanding shares of Common Stock
of the Company is a party to a Stockholder Agreement, dated as of June 1, 1998
(the "Stockholder Agreement"), by and among the Company and such
stockholders. The Stockholder Agreement subjects the transfer of shares of
Common Stock by such stockholders to a right of first refusal in favor of the
Company and "co-sale" rights in favor of the other stockholders, subject to
certain restrictions. Under certain circumstances, stockholders holding 60%
or more of the outstanding shares of Common Stock, on a fully diluted basis,
have certain rights to require the other stockholders to sell their shares
of Common Stock.
Item 13. CERTAIN TRANSACTIONS
Employment Agreements; Stock Transactions. On February 25, 1988, the Company
entered into an employment agreement with Thomas H. Quinn, pursuant to which
Mr. Quinn became the President and Chief Operating Officer of the Company,
effective January 1, 1988. See "Management-Employment Agreement."
In November 1996, the Company issued Mr. Quinn 1,500 shares of Common Stock
for $146,000 cash and a promissory note of $1,314,000. In June 1997, the
Company and Mr. Quinn reversed the November 1996 transaction such that the
Company canceled all debt owed and returned all consideration paid by Mr.
Quinn and Mr. Quinn returned the Common Stock to the Company. In June of
1997, the Company issued an additional 1,500 shares to Mr. Quinn for
approximately $86.67 per share. See "Management-Restricted Stock Agreements".
Fannie May. On May 15, 1995, the Company purchased from Fannie May $7.5
million aggregate principal amount of Subordinated Notes and 75.6133 shares of
junior Class A PIK Preferred Stock Fannie May at face value for $9.1 million.
Also, in 1995, the Company acquired 151.28 shares of common stock of Fannie
May (representing 15.1% of the outstanding common stock of Fannie May on a
fully-diluted basis) for $151,000. These shares of common stock were
purchased from the John W. Jordan II Revocable Trust, which purchased them in
July 1995 for $151,000. On June 28, 1995, the Company purchased from The
First National Bank of Chicago $7.0 million aggregate principal amount of
participations in term loans of a wholly-owned subsidiary of Fannie May for
$7.0 million, and agreed to purchase up to an additional $3.0 million
aggregate principal amount of such participations, depending upon the
financial performance of Fannie May. The additional $3.0 million obligation
is secured by a pledge from the Company of a $3.0 million certificate of
deposit purchased by the Company. On July 29, 1996, Mr. Jordan purchased $2.0
million of Fannie May Subordinated Notes from the Company at face value plus
accrued interest. Fannie May's Chief Executive Officer is Mr. Quinn, and its
stockholders include Messrs. Jordan, Quinn, Zalaznick and Boucher, who are
directors and stockholders of the Company, as well as other partners,
principals and associates of The Jordan Company who are also stockholders of
the Company. Fannie May, which is also known as "Fannie May Candies", is a
manufacturer and marketer of kitchen-fresh, high-end boxed chocolates through
its 337 company-owned retail stores and through third party retail and
non-retail sales channels. Its products are marketed under both the "Fannie
May" and "Fanny Farmer" brand names.
On July 2, 1997, the Company received from Fannie May, $14.3 million in
exchange for the above investments held by the Company. The amount received
also included $1.6 million of accrued interest and premium on the above
Subordinated Notes and term loans. On July 7, 1997, the Company received $3.0
million as a return of the certificate of deposit held by the Company as
security for an obligation to purchase additional participation in the
above-mentioned term loans.
Cape Craftsmen. On July 29, 1996, the Company acquired the stock of Cape
Craftsmen, Inc. ("Cape Craftsmen") from the Jordan Company and JZCC in
exchange for $12.1 million of notes receivable from Cape Craftsmen. Since the
Company and Cape Craftsmen have common ownership, the net assets of Cape
Craftsmen were recorded at the historical basis, $7.6 million, and resulted in
a non-cash loss of $4.5 million.
Legal Counsel. Mr. G. Robert Fisher, a director of, and the general counsel
and secretary to, the Company, is also a partner of Bryan Cave, a limited
liability partnership, and was a partner in a predecessor firm, Smith, Gill,
Fisher & Butts. Mr. Fisher and his law firm have represented the Company and
The Jordan Company in the past, and expect to continue representing them in
the future. In 1997, Bryan Cave LLP was paid approximately $1.8 million in
fees and expenses by the Company.
SAR Payments. In connection with acquiring the Company's subsidiaries, the
sellers of the subsidiaries, who usually included the subsidiary's management,
often receive seller notes, stock, stock appreciation rights ("SARs") and
special bonus plans in respect of those subsidiaries. In April 1997, the
Company paid and purchased SARs and related interests at three companies. At
Dura-Line, the Company paid $9.4 million to purchase Dura-Line SARs from the
president and chief financial officer of Dura-Line, and agreed to redeem $1.9
million of Dura-Line preferred stock held by the president and chief financial
officer of Dura-Line in April 1998. At AIM and Cambridge, the Company paid
$3.1 million to purchase AIM and Cambridge SARs (based upon 20% of AIM's and
Cambridge's appreciation from 1989 to 1996) from the estate of the former
president of AIM and Cambridge. Each of these payments and purchases in
respect of the SARs was expensed for financial reporting purposes.
<PAGE>
Sale of Paw Print. As part of the Plan, the Company sold the stock of Paw
Print on July 31, 1997 for approximately $10.0 million of net cash proceeds
(and the assumption by the purchaser of approximately $2.5 million of
indebtedness) to a newly-formed company, which is organized and owned by the
Jordan Group, but is not a subsidiary of the Company. The Company purchased
Paw Print on November 8, 1996, for a purchase price of $9.25 million and a
$2.5 million subordinated seller note. See "Recapitalization and
Repositioning Plan".
Directors and Officers Indemnification. The Company has entered into
indemnification agreements with each member of the Board of Directors whereby
the Company has agreed, subject to certain exceptions, to indemnify and hold
harmless each director from liabilities incurred as of a result of such
person's status as a director of the Company. See "Management-Directors and
Executive officers of the Company".
Future Arrangements. The Company has adopted a policy that future
transactions between the Company and its officers, directors and other
affiliates (including the Motors and Gears and the Jordan Telecommunication
Products subsidiaries) must (i) be approved by a majority of the members of
the Board of Directors and by a majority of the disinterested members of the
Board of Directors and (ii) be on terms no less favorable to the Company than
could be obtained from unaffiliated third parties.
<PAGE>
PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULE AND REPORTS ON FORM 8-K
(a) Documents filed as part of this report:
(1)Financial Statements
Reference is made to the Index to Consolidated Financial Statements appearing
at Item 8, which Index is incorporated herein by reference.
(2)Financial Statement Schedule
The following financial statement schedule for the years ended December 31,
1997, 1996 and 1995 is submitted herewith:
Item Page Number
Schedule II - Valuation and qualifying accounts 84
All other schedules for which provision is made in the applicable
accounting regulations of the Securities and Exchange Commission are not
required under the related instructions, are not applicable and therefore have
been omitted, or the information has been included in the consolidated
financial statements.
(3)Exhibits
An index to the exhibits required to be listed under this Item 14(a)(3)
follows the "Signatures" section hereof and is incorporated herein by
reference.
(b)Reports on Form 8-K
None.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
JORDAN INDUSTRIES, INC.
By /s/ John W. Jordan II
John W. Jordan II
Dated: March 31, 1998 Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
By /s/ John W. Jordan II
John W. Jordan II
Chairman of the Board of Directors
Dated: March 31, 1998 and Chief Executive Officer
By /s/ Thomas H. Quinn
Thomas H. Quinn
Director, President and Chief
Dated: March 31, 1998 Operating Officer
By /s/ Jonathan F. Boucher
Jonathan F. Boucher
Director and Vice President
Dated: March 31, 1998 (Principal Financial Officer)
<PAGE>
By /s/ G. Robert Fisher
G. Robert Fisher
Director, General Counsel and
Dated: March 31, 1998 Secretary
By /s/ David W. Zalaznick
David W. Zalaznick
Dated: March 31, 1998 Director
By /s/ Joseph S. Steinberg
Joseph S. Steinberg
Dated: March 31, 1998 Director
By /s/ Thomas C. Spielberger
Thomas C. Spielberger
Dated: March 31, 1998 Sr. Vice President, Finance
And Accounting
<PAGE>
Schedule II
JORDAN INDUSTRIES, INC.
VALUATION AND QUALIFYING ACCOUNTS
(dollars in thousands)
Uncollect-
ible
Additions balances
Balance at charged to written off Balance at
beginning of costs and net of end of
period expenses recoveries Other period
December 31, 1995:
Allowance for doubtful
accounts 1,058 884 (636) - 1,306
Valuation allowance
for deferred tax
assets (23,428) (1,962) - - (21,466)
December 31, 1996:
Allowance for doubt-
ful accounts $ 1,306 $ 1,343 $ (731) $ 765 $2,683
Valuation allowance
for deferred tax
assets 21,466 18,548 - - 40,014
December 31, 1997:
Allowance for doubt-
ful accounts 2,683 2,091 (1,170) 41 3,645
Valuation allowance
for deferred tax
assets 40,014 13,212 - - 53,226
<PAGE>
EXHIBIT INDEX
2(a)4 --Agreement and Plan of Merger between the Thos. D. Murphy Company
and Shaw-Barton, Inc.
3(a)1 --Articles of Incorporation of the Registrants.
3(b)1 --By-Laws of the Registrant.
4(a)3 --Indenture, dated as of December 15, 1989, between the
Registrant and First Bank National Association, Trustee,
relating to the Registrant's Notes.
10(a)1,2 --Intercompany Notes, dated June 1, 1988, by and among the
Registrant and the Subsidiaries.
10(b)1,2 --Intercompany Management Agreement, dated June 1, 1988, by and
among the Registrant and the Subsidiaries.
10(c)1,2 --Intercompany Tax Sharing Agreement, dated June 1, 1988, by and
among the Registrant and the Subsidiaries.
10(d)1 --Management Consulting Agreement, dated as of June 1, 1988,
between the Registrant and The Jordan Company.
10(e)3 --First Amendment to Management Consulting Agreement, dated as of
January 3, 1989, between the Registrant and The Jordan Company.
10(f)7 --Amended and Restated Management Consulting Agreement, dated
September 30, 1990, between the Company and The Jordan Company.
10(g)1 --Stockholders Agreement, dated as of June 1, 1988, by and among
the Registrant's holders of Common Stock.
10(h)1 --Employment Agreement, dated as of February 25, 1988, between
the Registrant and Thomas H. Quinn.
10(i)1 --Restricted Stock Agreement, dated February 25, 1988, between
the Registrant and Jonathan F. Boucher.
10(j)1 --Restricted Stock Agreement, dated February 25, 1988, between the
Registrant and John R. Lowden.
10(k)1 --Restricted Stock Agreement, dated February 25, 1988, between the
Registrant and Thomas H. Quinn.
10(l)1 --Stock Purchase Agreement, dated June 1, 1988, between Leucadia
Investors, Inc. and John W. Jordan, II.
10(m)1 --Zero Coupon Note, dated June 1, 1988, issued by John W. Jordan,
II to Leucadia Investors, Inc.
10(n)1 --Pledge, Security and Assignment Agreement, dated June 1, 1988 by
John W. Jordan, II.
10(o)5 --Revolving Credit and Term Loan Agreement, dated August 18, 1989,
between the Company and The First National Bank of Boston.
10(p)7 --Second Amendment to Revolving Credit Agreement, dated September
1, 1990 between the Company and The First National Bank of Boston.
10(q)5 --Supplemental Indenture No. 2, dated as of August 18, 1989,
between the Company and the First Bank National Association, as
Trustee.
10(r)8 --Supplemental Indenture No. 3, dated as of December 15, 1990,
between the Company and the First Bank National Association, as
Trustee.
10(s)5 --Guaranty, dated as of August 18, 1989, from DACCO, Incorporated
in favor of First Bank National Association, as Trustee. The
Company has also entered into similar guarantees with other
Restricted subsidiaries and will furnish the above guarantees
upon request.
10(t)9 --Amended and Restated Revolving Credit Agreement dated December
10, 1991 between the Company and The First National Bank of
Boston.
10(u)(10) --Revolving Credit Agreement dated as of June 29, 1994 among JII,
Inc., a wholly-owned subsidiary of the Company, and The First
National Bank of Boston and certain other Banks.
22 --Subsidiaries of the Registrant.
286 --Phantom Share Plan.
9911 --Other Exhibits - None
1Incorporated by reference to the Company's Registration Statement on Form S-1
(No. 33-24317).
2The Company has entered into Intercompany Notes, Intercompany Management
Agreements and Intercompany Tax Sharing Agreements with Riverside, AIM,
Cambridge, Beemak, Hudson, Scott and Gear which are identical in all material
respects with the notes and agreement incorporated by reference in this
Report. Copies of such additional notes and agreements have therefore not
been included as exhibits to this filing, in accordance with Instruction 2 to
Item 601 of Regulation S-K.
3Incorporated by reference to the Company's 1988 Form 10-K.
4Incorporated by reference to the Company's 1989 First Quarter Form 10-Q.
5Incorporated by reference to the Company's Second Quarter Report on Form 10-Q
Amendment No. 1, filed September 19, 1989.
6Incorporated by reference to the Company's 1989 Form 10-K.
7Incorporated by reference to the Company's 1990 Third Quarter Form 10-Q.
8Incorporated by reference to the Company's 1990 Form 10-K.
9Incorporated by reference to the Company's Form 8-K filed December 16, 1991.
10 Incorporated by reference to the Company's 1994 Second Quarter Form 10-Q.
11 Incorporated by reference to the Company's 1995 Form 10-K.
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