SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------------
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For quarter ended March 31, 1999 Commission File Number 33-24317
JORDAN INDUSTRIES, INC.
(Exact name of registrant as specified in charter)
Illinois 36-3598114
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
ArborLake Centre, Suite 550 60015
1751 Lake Cook Road, (Zip Code)
Deerfield, Illinois
(Address of Principal Executive Offices)
Registrant's telephone number, including Area Code: (847) 945-5591
Former name, former address and former fiscal year, if changed since last
report: Not applicable.
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding twelve (12) months (or for such shorter period that
the registrant was required to file such reports) and (2) has been subject to
such filing requirements for the past ninety (90) days.
Yes X No
The aggregate market value of voting stock held by non-affiliates of the
Registrant is not determinable as such shares were privately placed and there
is currently no public market for such shares.
The number of shares outstanding of Registrant's Common Stock as of May
13, 1999: 98,501.0004.
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PAGE 2
JORDAN INDUSTRIES, INC.
INDEX
PART I. PAGE NO.
Financial Information 3
Condensed Consolidated Balance Sheets
at March 31, 1999, and December 31, 1998 3
Condensed Consolidated Statements of Operations
for the Three Months Ended March 31, 1999 and 1998 4
Condensed Consolidated Statements of Cash Flows
for the Three Months Ended March 31, 1999 and 1998 5
Notes to Condensed Consolidated Financial Statements 6
Management's Discussion and Analysis of Financial
Condition and Results of Operations 14
Part II.
Other Information 21
Signatures 22
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JORDAN INDUSTRIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(ALL DOLLAR AMOUNTS IN THOUSANDS)
March 31, December 31,
1999 1998
(unaudited)
ASSETS
Current Assets:
Cash and cash equivalents $ 40,664 $ 23,008
Accounts receivable, net 170,678 160,586
Inventories 169,532 139,720
Prepaid expenses and other current assets 20,327 17,724
Total Current Assets 401,201 341,038
Property, plant and equipment, net 152,046 139,578
Investments in affiliates 1,722 1,722
Goodwill, net 550,005 491,510
Other assets 81,979 70,040
Total Assets $ 1,186,953 $ 1,043,888
LIABILITIES AND NET CAPITAL DEFICIENCY
Current Liabilities:
Notes payable $ 11,678 $ 737
Accounts payable 85,966 70,798
Accrued liabilities 70,726 68,722
Advance deposits 8,402 5,580
Current portion of long-term debt 4,901 6,136
Total Current Liabilities 181,673 151,973
Long-term debt 1,182,601 1,059,419
Other non-current liabilities 14,640 12,762
Deferred income taxes 1,444 1,444
Minority interest 923 785
Preferred stock 26,668 25,649
Net Capital Deficiency:
Common stock 1 1
Additional paid-in capital 2,116 2,116
Accumulated other comprehensive (loss) income (927) 2,038
Accumulated deficit (222,186) (212,299)
Total Net Capital Deficiency (220,996) (208,144)
Total Liabilities and Net Capital
Deficiency $ 1,186,953 $ 1,043,888
See accompanying notes to condensed consolidated financial statements.
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JORDAN INDUSTRIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(ALL DOLLAR AMOUNTS IN THOUSANDS)
THREE MONTHS ENDED
March 31,
1999 1998
Net sales $ 239,309 $ 207,702
Cost of sales, excluding
depreciation 154,293 133,707
Selling, general and administra-
tive expenses, excluding depreciation 47,488 43,464
Depreciation 7,000 5,364
Amortization of goodwill and other
intangibles 5,500 5,020
Management fees and other 862 1,771
Operating income 24,166 18,376
Other (income) and expenses:
Interest expense 28,592 26,311
Interest income (238) (798)
Other 1,034 3
Total other (income) and expenses 29,388 25,516
Loss before income taxes, minority ------- ------
interest, and extraordinary items (5,222) (7,140)
Provision for income taxes 2,924 2,122
Loss before minority
interest and extraordinary items (8,146) (9,262)
Minority interest 528 149
Loss before extraordinary
items (8,674) (9,411)
Extraordinary items 193 -
Net loss $ (8,867) $ (9,411)
See accompanying notes to the condensed consolidated financial statements.
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JORDAN INDUSTRIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(ALL DOLLAR AMOUNTS IN THOUSANDS)
THREE MONTHS ENDED
March 31,
1999 1998
Cash flows from operating activities:
Net loss $ (8,867) $ (9,411)
Adjustments to reconcile net loss to net
cash provided by (used in) operating activities:
Depreciation and amortization 12,500 10,384
Amortization of deferred financing fees 1,210 1,289
Minority interest 140 149
Non-cash interest 7,139 6,344
Changes in operating assets and
liabilities net of effects from
acquisitions:
Increase in current assets (993) (12,655)
Increase (decrease) in current liabilities 7,498 (2,794)
Decrease in non-current assets 4,995 4,164
Decrease in non-current liabilities (210) (979)
Net cash provided by (used in)
operating activities 23,412 (3,509)
Cash flows from investing activities:
Capital expenditures, net (3,245) (3,851)
Acquisition of subsidiaries (91,840) (57,249)
Additional purchase price payments and
SAR payments (8,944) -
Net cash acquired in purchase of subsidiaries 616 1,957
Other (102) -
Net cash used in investing activities (103,515) (59,143)
Cash flows from financing activities:
(Repayment of) proceeds from
revolving credit facilities, net (35,000) 64,000
Repayment of long-term debt (1,822) (1,171)
Proceeds from debt issuance - Jordan
Industries, Inc. 149,761 -
Payment of financing costs (13,684) -
Other borrowing 403 1,577
Other - (49)
Net cash provided by financing activities 99,658 64,357
Foreign currency translation (1,899) (999)
Net increase in cash and cash equivalents 17,656 706
Cash and cash equivalents at beginning of period 23,008 52,500
Cash and cash equivalents at end of period $ 40,664 $ 53,206
See accompanying notes to condensed consolidated financial statements.
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JORDAN INDUSTRIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(ALL DOLLAR AMOUNTS IN THOUSANDS)
A. Organization
The unaudited condensed consolidated financial statements, which reflect all
adjustments that management believes necessary to present fairly the results
of interim operations and are of a normal recurring nature, should be read in
conjunction with the Notes to the Consolidated Financial Statements (including
the Summary of Significant Accounting Policies) included in the Company's
audited consolidated financial statements for the year ended December 31,
1998, which are included in the Company's Annual Report filed on Form 10-K for
such year (the "1998 10-K"). Results of operations for the interim periods
are not necessarily indicative of annual results of operations.
B. Inventories
Inventories are summarized as follows:
March 31,December 31,
1999 1998
Raw materials $ 71,353 $ 59,350
Work-in-process 18,955 17,098
Finished goods 79,224 63,272
$ 169,532 $139,720
C. Accounting for Income Taxes
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components
of the Company's deferred tax liabilities and assets as of March 31, 1999 and
December 31, 1998, are as follows:
March 31, December 31,
1999 1998
Deferred tax liabilities
Intangibles $ 6,196 $ 6,966
Tax over book depreciation 7,942 8,016
Basis in subsidiary 798 798
Intercompany tax gain 14,435 14,435
Other 712 600
Total deferred tax liabilities $ 30,083 $ 30,815
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JORDAN INDUSTRIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(ALL DOLLAR AMOUNTS IN THOUSANDS)
Deferred tax assets
NOL carryforwards $ 52,547 $ 50,806
Accrued interest on discount debentures 13,510 13,510
Stock Appreciation Rights Agreements 2,264 2,264
Pension obligation 512 601
Vacation accrual 1,116 1,109
Uniform capitalization of inventory 2,211 2,147
Investment in partnership 282 282
Allowance for doubtful accounts 1,314 1,257
Foreign NOL's 3,862 3,230
Deferred financing fees 615 742
Intangibles 1,521 1,573
Tax assets basis over book basis at
subsidiary 14,435 14,435
Other 2,127 2,755
Total deferred tax assets 96,316 94,711
Valuation allowance for deferred
tax assets (67,677) (65,340)
Net deferred tax assets 28,639 29,371
Net deferred tax liabilities $ 1,444 $ 1,444
D. Comprehensive Income
Total comprehensive loss for the three months ended March 31, 1999 and 1998 is
as follows:
Three Months Ended
March 31,
1999 1998
Net income $ (8,867) $ (9,411)
Foreign currency translation adjustment (2,965) (2,900)
Comprehensive loss $(11,832) $(12,311)
E. Sale of Subsidiaries
On March 19, 1999 the Company sold its assets in the Consolidated Plumbing
Industries ("CPI") division of Dura-Line for $3,389. There was no material
gain or loss associated with the sale. CPI's product is used to replace
copper water pipe in homes.
On July 9, 1998, Jordan Telecommunication Products, Inc. ("JTP") sold its
stock of Diversified Wire and Cable for $15,000. Including expenses related
to the sale, the Company recorded a loss of $6,299. The proceeds from the
sale were used to pay $1,500 in subordinated seller notes to the original
owners of Diversified and $13,500 to pay down JTP's revolving credit facility.
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PAGE 8
JORDAN INDUSTRIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(ALL DOLLAR AMOUNTS IN THOUSANDS)
F. Acquisition and Formation of Subsidiaries
On February 18, 1999, JTP, through Northern Technologies Holdings, Inc.,
purchased the net assets of High Mountain Communications, Inc. ("HMC"). HMC
provides cellular and site maintenance services. The purchase price of $700,
which includes estimated transaction costs, has been preliminarily allocated
to working capital of $8, property, plant and equipment of $127, and
non-current assets of $25, resulting in an excess purchase price over
identifiable assets of $540.
On March 22, 1999, the Company purchased Alma Products ("Alma") for $86,166
including costs directly related to the transaction. Alma is comprised of
three primary product lines: (i) high quality remanufactured torque converters
used to supply warranty replacements for automotive transmissions originally
sold to Ford, Chrysler, John Deere and Caterpillar, (ii) new and
remanufactured air conditioning compressors for original equipment
manufacturers including Ford, Chrysler and General Motors, and (iii) new and
remanufactured clutch and disc assemblies used in standard transmissions sold
primarily to Ford. The purchase price of $86,166 is made up of cash of $84,077
and the assumption of a $2,089 long-term liability for retiree healthcare
benefits.
The purchase price was preliminarily allocated to working capital of $18,422,
property, plant and equipment of $7,885, retiree healthcare benefit
obligations of ($2,089), and resulted in an excess purchase price over net
identifiable assets of $57,770.
On March 31, 1999, JTP, through a newly created subsidiary Integral Holdings,
Inc. ("Integral Holdings"), a subsidiary of Dura-Line Corporation, purchased
the assets of Integral Corporation ("Integral"). Integral is a manufacturer of
high-density polyethylene conduit for the installation and protection of
cables used in electrical, telecommunications, and cable TV industries.
Integral has locations in Dallas, Texas; England; and Malaysia. The purchase
price of $18,716, which includes estimated related transaction costs, has been
preliminarily allocated to working capital of $6,412, property, plant, and
equipment of $8,174, non-current assets of $5,073 ($4,100 in non-compete
agreements) and non-current liabilities of ($943). The acquisition was
financed with four-month promissory notes for $10,653 and borrowings from
JTP's revolving credit line.
On January 20, 1998, JTP through a newly created subsidiary K&S Sheet Metal
Holdings ("K&S Holdings"), a subsidiary of 80% owned Bond Technologies,
purchased the stock of K&S Sheet Metal ("K&S"). K&S is a manufacturer of
precision metal enclosers for electronic original equipment manufacturers. The
purchase price of $15,930, including costs incurred directly related to the
transaction, has been allocated to working capital of $2,666, property, plant
and equipment of $1,002, non-compete agreements of $1,545 and other assets of
$91 resulting in an excess purchase price over net identifiable assets of
$10,626. The acquisition was financed with $14,430 of borrowings from JTP's
revolving credit line and $1,500 of a subordinated seller note.
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PAGE 9
JORDAN INDUSTRIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(ALL DOLLAR AMOUNTS IN THOUSANDS)
On February 9, 1998, the Company completed the formation of Jordan Specialty
Plastics, Inc. ("JSP"). JSP was formed as a Restricted Subsidiary under the
Company's Indenture. The Company sold the stock of Beemak and Sate-Lite to
JSP for $11,500 of Preferred Stock, which will accrete at plus or minus 97.5%
of the cumulative JSP net income or net loss, as the case may be, through the
earlier of an Early Redemption Event (as defined) or the end of year five.
The Company will also keep its intercompany notes with Beemak ($9.8 million at
January 31, 1998) and Sate-Lite ($1.2 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
house- ware products. The purchase price of $43,000, including costs directly
related to the transaction, was allocated to working capital of $8,598,
property, plant, and equipment of $6,346, other long-term assets and
liabilities of ($1,942), and resulted in an excess purchase price over net
identifiable assets of $29,998. The acquisition was financed with cash from
the Jordan Industries, Inc. credit line and a $5,000 subordinated seller note.
On February 26, 1998, JSP purchased all of the net assets of Rolite Plastics,
Inc.("Rolite"). Rolite is a manufacturer of extruded vinyl chairmats for the
office products industry. The purchase price of $6,000, including costs
directly related to the transaction, was allocated to working capital of $483,
property, plant, and equipment of $754, and resulted in an excess purchase
price over net identifiable assets of $4,763. The acquisition was financed
with cash and a $900 subordinated seller note.
On May 15, 1998, Motors and Gears Industries, Inc. ("Motors and Gears")
acquired all of the outstanding stock of Advanced D.C. Motors, Inc. and its
affiliated corporations (collectively "ADC") for $58,651. The purchase price,
including costs incurred directly related to the transaction, was allocated to
working capital of $9,345, property and equipment of $4,088, covenants
not-to-compete of $662, and other long-term assets and liabilities of ($51),
and resulted in an excess purchase price over net identifiable assets of
$44,607. ADC designs and manufactures special purpose, custom designed
motors for use in electric lift trucks, power sweepers, electric utility
vehicles, golf carts, electric boats, and other niche products. ADC also
designs and manufactures its own production equipment as well as electric motor
components known as commutators.
On July 14, 1998, JTP, through its 70% owned subsidiary, TSI, purchased the
net assets of Opto-Tech Industries, Inc. ("Opto-Tech"). Opto-Tech assembles
and sells radio frequency interference products, attenuators and message
waiting indicators to Regional Bell Operating Companies, independent phone
operators and distributors of telecommunications products. The purchase price
of $6,632, including costs incurred directly related to the transaction, has
been allocated to working capital of $261, property, plant and equipment of
$42, and non-current assets of $100, resulting in an excess purchase price
over net identifiable assets of $6,229. The acquisition was financed with
$5,382 of borrowings from JTP's revolving credit line and $1,250 of
subordinated seller notes.
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PAGE 10
JORDAN INDUSTRIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(ALL DOLLAR AMOUNTS IN THOUSANDS)
On December 31, 1998, Motors and Gears, through its wholly-owned subsidiary
Imperial, acquired all of the outstanding stock of Euclid Universal
Corporation ("Euclid") for $2,100. The purchase price, including costs
incurred directly related to the transaction, was preliminarily allocated to
working capital of $772, property and equipment of $953, and other non-current
assets and liabilities of ($498), resulting in an excess purchase price over
net identifiable assets of $873. Euclid designs and manufactures speed
reducers, custom gearing, right angle gearboxes and transaxles for use in a
wide array of industries including material handling, healthcare, and floor
care. Euclid has strong technical expertise in the areas of worm, spur and
helical gearing.
Acquisitions of the Company have been financed primarily through the use of
the revolving lines of credit and the issuance of Senior Debt. These
acquisitions have been accounted for using the purchase method of accounting.
Accordingly, the operating results of each of these acquisitions have been
included in the consolidated operating results of the Company since the date
of their acquisition.
Unaudited pro forma information with respect to the Company as if the 1999
and
1998 acquisitions had occurred on January 1, 1998 is as follows:
THREE MONTHS ENDED
March 31,
1999 1998
Net sales $ 269,095 $ 246,086
Net income (loss) before taxes (4,931) (4,577)
Net income (loss) $ (8,477)$ (7,942)
G. Welcome Home Chapter 11 Filing
On January 21, 1997, Welcome Home filed a voluntary petition for relief under
Chapter 11 ("Chapter 11") of title 11 of the United States code in the United
States Bankruptcy Court for the Southern District if New York ("Bankruptcy
Court"). In Chapter 11, Welcome Home has continued to manage its affairs and
operate it 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. As a result of Welcome Home's
Chapter 11 filing, the Company no longer has the ability to control the
operations and financial affairs of Welcome Home. Accordingly, the Company no
longer consolidates Welcome Home in its financial statements as of January 21,
1997, the date of the filing.
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 October 29,2003.
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PAGE 11
JORDAN INDUSTRIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(ALL DOLLAR AMOUNTS IN THOUSANDS)
The Company expects Welcome Home to emerge from Chapter 11 within the next 90
days. Upon emergence from Chapter 11, the Company will own approximately 94%
of the then outstanding common stock of Welcome Home, for consideration paid
to creditors of approximately $1,100.
In the first quarter of 1999, Cape Craftsmen, ("Cape"),a consolidated
subsidiary of the Company had sales to Welcome Home of $2,734 or 51.0% of
Cape's total first quarter sales. The Company's receivable outstanding
related to these sales was $1,811 on March 31, 1999.
H. Payment of Stock Appreciation Rights
JTP granted Stock Appreciation Rights ("SARs") to the sellers of Engineered
Endeavors. The agreement calls for payments to be made to the participants
upon exercise of the SARs, such exercise being a one-time election during the
calendar years 2003 through and including 2008. The amount payable to the
participants is based upon a specific formula, the basis of which is the
average EBIT (as defined) for the two calendar years preceding the exercise
date. A different formula applies if Engineered Endeavors is sold before
December 31, 2008. When exercised, the SARs are payable one-forth on or
before September 30th of the year of exercise, and the remaining three-fourths
payable in three equal annual installments.
On April 10, 1997, the Company paid the former shareholders of a wholly-owned
subsidiary pursuant to an agreement ("The Redemption Agreement"), as if the
subsidiary was sold for $110,000. The former shareholders received $9,438 in
cash and a deferred payment of $5,980 over five years including interest. The
Redemption Agreement also requires that $1,875 of remaining preferred stock be
redeemed one year from the date of the agreement. The Company recorded a
charge of $15,418 related to this agreement during 1997. The Company paid
$1,020 on the deferred payment amount and $1,875 on the preferred stock
redemption amount during 1998 and had a remaining liability of $4,960 at
December 31, 1998. In April 1999, the Company paid $1,101 related to this
agreement.
In connection with the Company's acquisitions of AIM and Cambridge in 1989,
the seller of these companies was granted SARs. The seller passed away during
the third quarter of 1996 and the seller's estate exercised these rights. The
Company accrued $6,260 for its obligation related to these SARs during 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 Company paid the remaining liability of $3,391 on May 2, 1998.
I. Additional Purchase Price Agreements
The Company has a contingent purchase price agreement relating to its
acquisition of Deflecto in 1998. The plan is based on Deflecto achieving
certain earnings before interest and taxes and is payable on April 30, 2008.
If Deflecto is sold prior to April 30, 2008, the plan is payable 120 days
after the transaction.
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PAGE 12
JORDAN INDUSTRIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(ALL DOLLAR AMOUNTS IN THOUSANDS)
The terms of the Company's Advanced DC purchase price agreement provides for
additional consideration of up to $5,600 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. Subject to the terms and conditions of the agreement,
the Company will make payments to the sellers on or before April 1st
immediately following the respective fiscal year during which each such
contingent payment is earned. The contingent payments apply to operations of
fiscal years 1998 and 1999. The Company made a payment of $3,151 related to
this agreement to the previous shareholders of Advanced DC in March 1999.
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 during the years ended July 31,
1997 and 1998, respectively. On January 2, 1998, the Company paid $1,388 for
the plan year ended July 31, 1997. At March 31, 1999, $1,081 was accrued for
the plan year ended July 31, 1998.
The Company has a contingent purchase price agreement relating to its
acquisition of Motion Control on December 18, 1997. The terms of the
Company's Motion
Control acquisition agreement provides for additional consideration to be paid
if the acquired entity's results of operations exceed certain targeted
levels. Targeted levels are set substantially above the historical experience
of the acquired entity at the time of acquisition. The agreement becomes
exercisable in 2003 and payments, if any, under the contingent agreement will
be placed in a trust and paid out in cash in equal annual installments over a
four year period.
The Company has an agreement to make additional purchase price payments and
bonus payments to the former owners of TSI if certain earnings projections are
met as of October 31, 1998. At December 31, 1998, $5,600 was accrued related
to this agreement. This amount was paid in March 1999.
The Company has an agreement with the previous owners of K&S to make
additional purchase price payments if certain earnings levels are met for the
plan years ended December 31, 1998 through December 31, 2004. There was no
accrual recorded related to this agreement at March 31, 1999.
J. Preferred Stock
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
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PAGE 13
JORDAN INDUSTRIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(ALL DOLLAR AMOUNTS IN THOUSANDS)
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 February 1, 1999 JTP issued 985.0173 shares of Senior Preferred Stock
as payment of dividends through that date. On February 1, 1998, May 1, 1998,
and August 1, 1998 the Company issued 864.6345, 864.3747, and 922.3787 shares,
respectively, of Senior Preferred Stock, as payment of dividends. The JTP
Senior Preferred Stock has no voting rights and is mandatorily redeemable on
August 1, 2009.
K. Foreign Exchange Instruments and Risk Management
The Company enters into foreign currency forward exchange contracts to hedge
transactions and firm commitments that are denominated in foreign
currencies (primarily in the Czech Koruna) and not to engage in currency
speculation. The Company primarily utilizes forward exchange contracts with a
duration of one year or less. Gains or losses on hedges of transaction
exposures are included in income in the period in which the exchange rates
change. Gains and losses on contracts which hedge specific foreign currency
denominated commitments, primarily royalty payments from the Company's Czech
operations, are deferred and recognized in the basis of the transactions
underlying the commitments. Forward exchange contracts generally require the
Company to exchange U.S. dollars for foreign currencies at maturity, at rates
that are agreed to at inception of the contracts. If the counterparts to the
exchange contracts (primarily highly rated financial institutions) do not
fulfill their obligations to deliver the contracted currencies, the Company
could be at risk for any currency related fluctuation.
The Company has $0 and $6,884 notional amount of foreign currency forward
exchange contracts outstanding at March 31,1999 and 1998, respectively.
L. Subsequent Events
On April 2, 1999 the Company purchased the net assets of Protech Systems,Inc.
("Protech") for $12,300. Protech is an information technology consulting
company. It provides software application development and customization. The
purchase price has not been allocated at this time.
M. Business Segment Information
See Part 1 "Financial Information" - Item 2 "Management's Discussion and
Analysis of Financial Condition and Results of Operations" for the Company's
business segment disclosures. There have been no changes from the Company's
December 31, 1998 consolidated financial statements with respect to
segmentation or the measurement of segment profit.
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PAGE 14
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(UNAUDITED)
(ALL DOLLAR AMOUNTS IN THOUSANDS)
THREE MONTHS ENDED
MARCH 31,
1999 1998
Net Sales:
Specialty Printing and Labeling $ 20,812 $ 23,736
Jordan Specialty Plastics 19,570 13,812
Motors and Gears 76,491 58,567
Telecommunication Products 75,699 72,101
Consumer and Industrial Products 46,737 39,486
Total $ 239,309 $207,702
Operating Income:
Specialty Printing and Labeling $ (811) $ 127
Jordan Specialty Plastics 674 1,764
Motors and Gears 13,054 8,991
Telecommunication Products 7,353 6,107
Consumer and Industrial Products 5,321 3,116
Total (a) $ 25,591 $ 20,105
Operating Margin (b):
Specialty Printing and Labeling (3.9%) 0.5%
Jordan Specialty Plastics 3.4 12.8
Motors and Gears 17.1 15.4
Telecommunication Products 9.7 8.5
Consumer and Industrial Products 11.4 7.9
Consolidated (a) 10.7 9.7
(a) The total does not include corporate overhead of $1,425 and $1,729 for
the quarter ended March 31, 1999 and 1998, respectively.
(b) Operating margin is operating income divided by net sales.
<PAGE>
PAGE 15
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(UNAUDITED)
(ALL DOLLAR AMOUNTS IN THOUSANDS)
The following discussion should be read in conjunction with Management's
Discussion and Analysis of Financial Condition and Results of Operations
contained in the 1998 10-K and the financial statements and the related notes
thereto.
Results of Operations
Summarized below are the net sales, operating income and operating margins (as
defined) for each of the Company's business segments for the quarter ended
March 31, 1999 and 1998. This discussion reviews the foregoing segment data
and certain of the consolidated financial data for the Company.
Specialty Printing and Labeling. As of March 31, 1999, the Specialty
Printing and Labeling group consisted of SPAI, Valmark, Pamco, and Seaboard.
Net sales for the three months ended March 31, 1999 decreased $2.9 million, or
12.3% and operating income for the first quarter decreased $0.9 million over
the same period in 1998. The decrease in sales is primarily due to lower sales
of calendars, school annuals, and ad specialty products at SPAI, $0.8 million,
$0.1 million, and $0.3 million, respectively, decreased sales of rollstock at
Valmark, $0.3 million, and lower sales of folding boxes at Seaboard, $1.5
million. Partially offsetting these decreases were increased sales of labels
at Pamco, $0.1 million. The lower sales of calendars at SPAI is due to SPAI
rescheduling its production runs to more efficiently utilize its labor pool,
and the decreased sales at Seaboard are due to a general slowdown in the
corrugated folding box industry.
Operating income decreased primarily due to lower operating income at SPAI and
Seaboard, $0.4 million and $0.5 million, respectively. The lower operating
income at SPAI and Seaboard is due to decreased absorption of fixed overhead
resulting from the lower sales discussed earlier. The decrease in operating
margin from 0.5% in 1998 to (3.9)% in 1999 is due to the lower absorption of
overhead, as mentioned above.
Jordan Specialty Plastics. As of March 31, 1999, the Jordan Specialty
Plastics group consisted of Beemak, Sate-Lite, Deflecto, and Rolite.
Net sales for the three months ended March 31, 1999 increased $5.8 million, or
41.7% and operating income for the first quarter decreased $1.1 million or
61.8% over the same period in 1998. Net sales increased primarily due to the
acquisitions of Deflecto and Rolite in February 1998. These companies
contributed net sales of $12.5 million and $1.2 million in 1999,
respectively, compared to net sales in 1998 of $7.1 million and $0.4 million,
respectively. In addition, sales increased due to higher sales of colorants at
Sate-Lite, $0.2 million. Partially offsetting these increases were decreased
sales of molded and fabricated products at Beemak, $0.1 million each, and
lower sales of bike reflectors and miscellaneous bike parts at Sate-Lite, $0.3
million and $0.1 million, respectively.
<PAGE>
PAGE 16
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(UNAUDITED)
(ALL DOLLAR AMOUNTS IN THOUSANDS)
Operating income decreased primarily due to lower operating income at Beemak,
Sate-Lite and Deflecto, $0.1 million, $0.5 million and $0.5 million,
respectively. The lower operating income at Sate-Lite is primarily due to
operating expenses incurred related to the expansion of manufacturing
operations into China and operating income at Deflecto decreased due to lower
sales in the higher gross margin office products market. Operating margin
decreased from 12.8% in 1998 to 3.4% in 1999 due to the reasons mentioned
above.
Motors and Gears. As of March 31, 1999, the Motors and Gears group
consisted of Imperial, Gear, Merkle-Korff, Fir, ED&C, Motion Control, and
Advanced DC.
Net sales for the three months ended March 31, 1999 increased $17.9 million,
or 30.6% and operating income for the first quarter increased $4.1 million or
45.2% over the same period in 1998. The increase in net sales was primarily
due to the 1998 acquisitions of Advanced DC and Euclid which collectively
contributed $14.2 million of sales in the first quarter of 1999. In addition,
net sales of sub-fractional motors increased 11.0% and net sales of
fractional/integral motors (excluding the 1998 acquisitions) increased 6.0%.
Sub-fractional motor sales increased primarily due to the continued strength
in the vending machine and appliance markets while sales of
fractional/integral motors increased primarily due to stronger sales in the
floor care and elevator markets.
Operating income increased primarily due to the higher sales of sub-fractional
and fractional/integral motors discussed above. In addition, gross margins
grew from 34.8% in 1998 to 36.2% in 1999 primarily driven by the effects of
the 1998 acquisitions and increased margins in the controls segment. Operating
margins increased from 15.4% in 1998 to 17.1% in 1999 due to the reasons
discussed above.
Telecommunication Products. As of March 31, 1999, the Telecommunication
Products group consisted of Dura-Line, Connectors, Viewsonics, Bond, Northern,
LoDan, EEI, and TSI.
Net sales for the three months ended March 31, 1999 increased $3.6 million, or
5.0%, and operating income for the first quarter increased $1.2 million or
20.4% over the same period in 1998. The increase in net sales was primarily
due to higher demand for cable conduit, fiber optic central office cables and
connectors, and data networking products. Partially offsetting these increases
were reduced sales of data server products and power conditioning equipment.
In addition, sales were reduced by $8.0 million due to the divestiture of
Diversified Wire & Cable in July 1998. The increase in sales of cable conduit
was due to new entrants into the telecommunications industry, while the
decreased sales of power conditioning equipment was due to the effect of a
change in the buying habits of a major wireless customer who postponed
purchases until the summer months in order to coincide with the timing of
construction.
Operating income increased due to the higher sales of cable conduit, fiber
optic cable and connectors, and data networking products mentioned above.
Partially offsetting these increases was decreased operating income due to
higher corporate expenses and the divestiture of Diversified Wire & Cable,
which reduced operating income by $0.4 million. Operating margin increased
from 8.5% in 1998 to 9.7% in 1999 due to the higher sales discussed above.
<PAGE>
PAGE 17
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(UNAUDITED)
(ALL DOLLAR AMOUNTS IN THOUSANDS)
Consumer and Industrial Products. As of March 31, 1999, the Consumer and
Industrial Products group consisted of Dacco, Riverside, Parsons, Cape,
Cho-Pat, and Alma.
Net sales for the three months ended March 31, 1999 increased $7.3 million, or
18.4% and operating income for the first quarter increased $2.2 million or
70.8% over the same period in 1998. Net sales increased primarily due to the
March 1999 acquisition of Alma which contributed net sales in 1999 of $3.9
million. In addition, net sales increased due to higher sales of
remanufactured torque converters at Dacco, $1.9 million, increased sales of
books, audio and video tapes, music, and contract distribution product at
Riverside, $0.3 million, $0.1 million, $0.2 million, $0.2 million, and $0.4
million, respectively, higher sales of home accessories and framed art at
Cape, $0.7 million and $0.1 million, respectively, higher sales of orthopedic
supports at Cho-Pat, $0.1 million, and increased sales of plastic pipe at CPI,
$0.2 million. Partially offsetting these increases were decreased sales of
Bibles at Riverside, $0.5 million, and lower sales of titanium aircraft parts
at Parsons, $0.3 million. Sales increased at Dacco due to the acquisition of
additional market share and the addition of five retail stores in the last
three quarters of 1998, and sales increased at Cape due to management's
success at broadening Cape's customer base.
Operating income increased primarily due to the acquisition of Alma which
contributed operating income in the first quarter of $0.8 million. In
addition, operating income increased at Dacco, Riverside and Cape, $0.9
million, $0.1 million, and $0.7 million, respectively. Partially offsetting
these increases was decreased operating income at Parsons, $0.3 million.
Operating income increased at Dacco due to higher absorption of overhead
resulting from the increased sales and operating income at Cape increased
primarily due to the increased sales of Cape's highest gross margin product
line, home accessories. The decrease in operating income at Parsons is due to
lower absorption of fixed expenses due to the lower sales of aircraft parts.
Operating margin increased from 7.9% in 1998 to 11.4% in 1999 due to the
reasons mentioned above.
Consolidated Results: (See Condensed Consolidated Statements of
Operations.)
Net sales for the three months ended March 31, 1999 increased $31.6 million or
15.2% and operating income increased $5.8 million, or 31.5%. Net sales
increased primarily due to the acquisitions that occurred during 1998 and the
first quarter of 1999 such as: Deflecto and Rolite in the Jordan Specialty
Plastics group; Advanced DC and Euclid in the Motors and Gears group; K&S,
Opto-Tech, and High Mountain in the Jordan Telecommunication Products group;
and Alma in the Consumer and Industrial Products group. In addition, net
sales increased due to higher sales of labels at Pamco, increased sales of
colorant at Sate-Lite, higher sales of sub-fractional motors at Merkle-Korff,
higher sales of fractional/integral motors at Imperial, increased sales of
cable conduit and data networking products in the Jordan Telecommunication
Products group, higher sales of torque converters at Dacco, and increased
sales of home accessories and framed art at Cape. Partially offsetting these
increases were decreased sales of calendars at SPAI, lower sales of plastic
injection molded products at Beemak, reduced sales of power conditioning
equipment in the Jordan Telecommunication Products group, lower sales of
Bibles at Riverside, and decreased sales of titanium aircraft parts at
Parsons. Sales were also reduced by the divestiture of Diversified Wire &
Cable during 1998.
<PAGE>
PAGE 18
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(UNAUDITED)
(ALL DOLLAR AMOUNTS IN THOUSANDS)
Operating income increased primarily due to the acquisitions discussed above.
In addition, operating income increased due to increased absorption of fixed
expenses at higher sales levels and increased sales of higher gross margin
products. Partially offsetting these increases was decreased operating income
due to expenses incurred to expand Sate-Lite manufacturing into China,
increased corporate expenses incurred to restructure the Connector segment of
the Jordan Telecommunication group and lower absorption of overhead at
companies with lower sales such as, SPAI, Seaboard, Beemak, and Parsons.
Operating income also decreased due to the divestiture of Diversified Wire &
Cable as discussed above.
Operating margin increased from 8.9% in 1998 to 10.1% in 1999 primarily due to
the higher sales levels and increased absorption of fixed overhead mentioned
above.
The effective tax rate in 1999 is higher than 1998 due to the increase in taxes
at the foreign subsidiaries.
Liquidity and Capital Resources.
In general, the Company requires liquidity for working capital, capital
expenditures, interest, taxes, debt repayment and its acquisition strategy.
Of primary importance are the Company's working capital requirements, which
increase whenever the Company experiences strong incremental demand or
geographical expansion. The Company expects to satisfy its liquidity
requirements through a combination of funds generated from operating
activities and the funds available under its revolving credit facilities.
The Company had approximately $219.5 million of working capital at March 31,
1999 compared to approximately $189.1 million at the end of 1998. The
increase in working capital during the first quarter of 1999 was primarily due
to higher receivables, inventory, and other current assets of $10.1 million,
$29.8 million, and $2.6 million, respectively. The increase in working
capital can also be attributed to lower current portion of long-term debt of
$1.2 million. These increases in working capital are partially offset by
higher accounts payable of $15.0 million.
Operating activities. Net cash provided by operating activities for the three
months ended March 31, 1999 was $23.4 million, compared to net cash used in
operating activities of $3.5 million during the same period in 1998. The
increase in cash was primarily due to increased operating income resulting
from the Company's recent acquisitions and changes in working capital
compared to the first quarter of 1998.
Investing activities. Net cash used in investing activities for the three
months ended March 31, 1999 was $103.5 million, compared to net cash used in
investing activities of $59.1 million during the same period in 1998. This
increase is primarily due to the acquisitions of Alma and Integral in the
first quarter of 1999. In addition, the Company made contingent purchase
price payments totaling $8.9 million to the previous shareholders of
Dura-Line, TSI, and Advanced DC during the first three months of 1999.
<PAGE>
PAGE 19
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(UNAUDITED)
(ALL DOLLAR AMOUNTS IN THOUSANDS)
Financing activities. Net cash provided by financing activities for the three
months ended March 31, 1999 was $99.7 million, compared to net cash provided
by financing activities of $64.4 million during the same period in 1998. This
increase is primarily due to the net proceeds of $149.8 million from the
Jordan Industries, Inc. senior debt issuance. Partially offsetting this
increase was the repayment of the Company's revolving credit facility and the
payment of financing costs resulting from this debt issuance.
The Company expects its principal sources of liquidity to be from its
operating activities and funding from its revolving lines of credit. The
Company further expects that these sources will enable it to meet its
long-term cash requirements for working capital, capital expenditures,
interest, taxes, and debt repayment for at least the next twelve months.
Year 2000 Disclosure
Introduction. The Year 2000 issue is the result of computer programs being
written using two digits rather than four to define the applicable year. Any
of the Company's computer programs or hardware that have date-sensitive
software or embedded chips may recognize a date using "00" as the year 1900
rather than the year 2000. This could result in a system failure or
miscalculations causing disruptions of operations, including, among other
things, a temporary inability to process transactions, send invoices, or
engage in similar normal business activities.
State of Readiness. The Company has determined that it will be required to
modify or replace significant portions of its software and certain hardware so
that those systems will properly utilize dates beyond December 31, 1999. The
Company presently believes that with modifications or replacements of existing
software and certain hardware, the Year 2000 issue can be mitigated. However,
if such modifications and replacements are not made, or are not completed
timely, the Year 2000 issue could have a material impact on the operations of
the Company.
The Company's plan to resolve the Year 2000 issue involves the following four
phases: assessment, remediation, testing and implementation. The Company has
assembled an internal project team that is in the process of assessing all
systems that could be significantly affected by the Year 2000 issue. Results
of this assessment indicated that some of the Company's significant
information technology systems could be affected. The assessment also
indicated that software and hardware (embedded chips) used in production and
manufacturing systems (hereafter also referred to as operating equipment) may
also be at risk. In addition, based on a review of its product lines, the
Company has determined that most of the products it has sold and will continue
to sell do not require remediation to be Year 2000 compliant. Accordingly,
the Company does not believe that the Year 2000 issue presents a material
exposure as it relates to the Company's products. The internal project team
is contacting each of the Company's significant customers and suppliers and
requesting that they apprise the Company of the status of their Year 2000
compliance programs. The Company has targeted the beginning of the second
quarter of 1999 as the date for receiving substantially all supplier
responses. There can be no assurance as to when this process will be
completed.
<PAGE>
PAGE 20
MANAGEMENT'S DISCUSSION OF ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(UNAUDITED)
(ALL DOLLAR AMOUNTS IN THOUSANDS)
For its information technology exposures, to date the Company has completed a
majority of the remediation phase and expects to complete software
modification and replacement no later than July 31, 1999. Once software is
modified or replaced for a system, the Company begins testing and
implementation. The testing and implementation phases for all significant
systems are expected to be completed by September 30, 1999. The four phases
of the Company's Year 2000 program in relation to operating equipment is
on-going and expected to be completed by December 31, 1999.
Cost. The Company will utilize both internal and external resources to modify
or replace, test, and implement the software and operating equipment for Year
2000 modifications. The total cost of the Year 2000 project is estimated at
$4.0 million and is being funded through operating cash flows and capital
leases. To date, the Company has incurred approximately $2.8 million related
to all phases of the Year 2000 project. The majority of these costs have been
capitalized as they relate to new software and equipment.
Risks. Management of the Company believes it has an effective program in
place to resolve the Year 2000 issue in a timely manner. As noted above, the
Company has not yet completed all necessary phases of the Year 2000 program.
In the event that the Company does not complete any additional phases, the
Company could be materially adversely affected. In addition, disruptions in
the economy generally resulting from the Year 2000 issue could also materially
adversely affect the Company. The amount of potential liability and lost
revenue cannot be reasonably estimated at this time.
Contingency Plan. The Company is in the process of developing a contingency
plan in the event it does not complete all phases of the Year 2000 program.
The company expects to have the contingency plan completed by the end of
1999.
<PAGE>
PAGE 21
OTHER INFORMATION
Item 1. Legal Proceedings
None
Item 2. Changes in Securities
None
Item 3. Defaults upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
Form 8K/A filed on May 2, 1999 for the purchase of
Alma Products.
27. EDGAR Financial Data Schedule
<PAGE>
PAGE 22
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
JORDAN INDUSTRIES, INC.
May 13, 1999 By: /s/ Thomas C. Spielberger
Thomas C. Spielberger
Senior Vice President,
Finance and Accounting
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