SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
- ----------------------
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For quarter ended June 30, 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
August 13, 1999: 98,501.0004.
<PAGE>
Part I. Page No.
Financial Information
Condensed Consolidated Balance Sheets
at June 30, 1999, and December 31, 1998 3
Condensed Consolidated Statements of Operations
for the Three Months Ended June 30, 1999 and 1998
and the Six Months Ended June 30, 1999 and 1998 4
Condensed Consolidated Statements of Cash Flows
for the Six Months Ended June 30, 1999 and 1998 5
Notes to Condensed Consolidated Financial Statements 6
Management's Discussion and Analysis of Financial
Condition and Results of Operations 15
Part II.
Other Information 24
Signatures 25
<PAGE>
June 30, December 31,
1999 1998
(unaudited)
ASSETS
Current Assets:
Cash and cash equivalents $ 30,159 $ 23,008
Accounts receivable, net 193,338 160,586
Inventories 169,262 139,720
Prepaid expenses and other current assets 25,634 17,724
Total Current Assets 418,393 341,038
Property, plant and equipment, net 151,245 139,578
Investments in affiliates 1,722 1,722
Goodwill, net 559,758 491,510
Other assets 87,701 70,040
Total Assets $ 1,218,819 $ 1,043,888
LIABILITIES AND NET CAPITAL DEFICIENCY
Current Liabilities:
Notes payable $ 9,461 $ 737
Accounts payable 88,197 70,798
Accrued liabilities 74,939 68,722
Advance deposits 6,265 5,580
Current portion of long-term debt 5,281 6,136
Total Current Liabilities 184,143 151,973
Long-term debt 1,209,059 1,059,419
Other non-current liabilities 13,173 12,762
Deferred income taxes 1,444 1,444
Minority interest 1,725 785
Preferred stock 27,731 25,649
Net Capital Deficiency:
Common stock 1 1
Additional paid-in capital 2,116 2,116
Accumulated other comprehensive
(loss) income (5,140) 2,038
Accumulated deficit (215,433) (212,299)
Total Net Capital Deficiency (218,456) (208,144)
Total Liabilities and Net Capital
Deficiency $ 1,218,819 $ 1,043,888
See accompanying notes to condensed consolidated financial statements.
<PAGE>
THREE MONTHS ENDED SIX MONTHS ENDED
June 30, June 30,
1999 1998 1999 1998
Net sales $ 307,679 $ 245,516 $ 546,988 $ 453,218
Cost of sales, excluding
depreciation 196,499 154,449 350,792 288,156
Selling, general and administra-
tive expenses, excluding deprecia-
tion 54,519 45,851 102,007 89,315
Depreciation 7,927 5,862 14,927 11,226
Amortization of goodwill and other
intangibles 6,310 5,411 11,810 10,431
Management fees and other 1,895 2,297 2,757 4,068
Operating income 40,529 31,646 64,695 50,022
Other (income) expenses:
Interest expense 31,951 27,248 60,543 53,559
Interest income (362) (634) (600) (1,432)
Other (978) 5,045 56 5,048
Total other expenses, net 30,611 31,659 59,999 57,175
Income (loss) before income taxes,
minority interest, and
extraordinary items 9,918 (13) 4,696 (7,153)
Provision (benefit) for income taxes 1,247 (561) 4,171 1,561
Income (loss) before minority
interest and extraordinary items 8,671 548 525 (8,714)
Minority interest 828 70 1,356 219
Income (loss) before extraordinary
items 7,843 478 (831) (8,933)
Extraordinary items - - 193 -
Net income (loss) $ 7,843 $ 478 $ (1,024) $ (8,933)
See accompanying notes to the condensed consolidated financial statements.
<PAGE>
SIX MONTHS ENDED
June 30,
1999 1998
Cash flows from operating activities:
Net loss $ (1,024) $ (8,933)
Adjustments to reconcile net loss to net
cash provided by (used in) operating activities:
Depreciation and amortization 26,737 21,657
Amortization of deferred financing fees 2,681 2,273
Minority interest 940 219
Non-cash interest 14,581 12,951
Loss on sale of subsidiary - 5,000
Changes in operating assets and
Liabilities net of effects from
Acquisitions:
Increase in current assets (27,404) (32,703)
Increase in current liabilities 10,837 9,566
(Increase) decrease in non-current assets (5,607) 1,212
Decrease in non-current liabilities (2,318) (3,113)
Net cash provided by operating activities 19,423 8,129
Cash flows from investing activities:
Capital expenditures, net (7,803) (9,872)
Acquisition of subsidiaries (109,003) (114,044)
Additional purchase price payments and
SAR payments (8,735) (9,913)
Net cash acquired in purchase of subsidiaries 1,971 2,222
Other (526) -
Net cash used in investing activities (124,096) (131,607)
Cash flows from financing activities:
(Repayment of) proceeds from
revolving credit facilities, net (17,500) 99,500
Repayment of long-term debt (5,619) (6,554)
Proceeds from debt issuance - Jordan
Industries, Inc. 149,761 -
Payment of financing costs (12,475) -
Other borrowing 540 1,898
Other - 51
Net cash provided by financing activities 114,707 94,895
Foreign currency translation (2,883) 656
Net increase in cash and cash equivalents 7,151 (27,927)
Cash and cash equivalents at beginning of period 23,008 52,500
Cash and cash equivalents at end of period $ 30,159 $ 24,573
See accompanying notes to condensed consolidated financial statements.
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:
June 30, December 31,
1999 1998
Raw materials $ 77,486 $ 59,350
Work-in-process 20,081 17,098
Finished goods 71,695 63,272
$ 169,262 $ 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 June 30, 1999 and
December 31, 1998 are as follows:
June 30, December 31,
1999 1998
Deferred tax liabilities:
Intangibles $ 5,111 $ 6,966
Tax over book depreciation 7,207 8,016
Basis in subsidiary 798 798
Intercompany tax gain 14,435 14,435
Other 270 600
Total deferred tax liabilities $ 27,821 $ 30,815
Deferred tax assets:
NOL carryforwards $ 34,123 $ 50,806
Accrued interest on discount debentures 13,510 13,510
Stock Appreciation Rights Agreements 1,865 2,264
Pension obligation 601 601
Vacation accrual 1,211 1,109
Uniform capitalization of inventory 2,255 2,147
Investment in partnership 282 282
Allowance for doubtful accounts 1,362 1,257
Foreign NOL's 3,411 3,230
Deferred financing fees 622 742
Intangibles 1,477 1,573
Tax asset basis over book basis at
Subsidiary 14,435 14,435
Other 1,826 2,755
Total deferred tax assets 76,980 94,711
Valuation allowance for deferred
tax assets (50,603) (65,340)
Net deferred tax assets 26,377 29,371
Net deferred tax liabilities $ 1,444 $ 1,444
D. Comprehensive Income
Total comprehensive income (loss) for the quarters ended June 30, 1999 and
1998 and the six months ended June 30, 1999 and 1998 is as follows:
Three Months Ended Six Months Ended
June 30, June 30,
1999 1998 1999 1998
Net income (loss) $ 7,843 $ 478 $ (1,024) $ (8,933)
Foreign currency translation
adjustment (4,213) 913 (7,178) (1,987)
Comprehensive income (loss) $ 3,630 $ 1,391 $(8,202) $(10,920)
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.
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 PCS site maintenance services. The purchase price of
$537, 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 $377.
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 the 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 April 2, 1999, the Company purchased the net assets of Protech Systems,
Inc. ("Protech") for $12,500. Protech is an information technology consulting
company that provides software application development and customization. The
purchase price has been preliminarily allocated to working capital of $2,095,
property and equipment of $213, and non-current liabilities of $(641),
resulting in an excess purchase price over identifiable assets of $10,833.
The acquisition was financed with cash from the Company's credit line and a
$500 subordinated seller note.
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.
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 Company's 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.
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:
Six Months Ended
June 30,
1999 1998
Net sales $ 574,608 $ 528,524
Net income before taxes 7,454 2,436
Net (loss) $ (1,538) $ (2,639)
G. Welcome Home Chapter 11 Filing
On January 21, 1997, Welcome Home filed a voluntary petition for relief under
Chapter 11 ("Chapter 11") of title 11 of the United States code in the United
States Bankruptcy Court for the Southern District of New York ("Bankruptcy
Court"). In Chapter 11, Welcome Home continued to manage its affairs and
operate it business as a debtor-in-possession while it developed a
reorganization plan that restructured its operations and allowed it to emerge
from Chapter 11.
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.
In July 1999, Welcome Home emerged from Chapter 11. The Company owns
approximately 90% of the outstanding common stock of Welcome Home. In
addition, the Company paid consideration to creditors of approximately $1,100.
For the second quarter and first six months of 1999, Cape Craftsmen ("Cape"),a
consolidated subsidiary of the Company, had sales to Welcome Home of $3,302
and $6,036, representing 57.5% and 53.4%, respectively, of Cape's total second
quarter and first six month sales. The Company's receivable outstanding
related to these sales was $2,603 on June 30, 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 which was paid 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.
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 June 30, 1999, $1,081 was accrued for
the final 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 had an agreement to make additional purchase price payments and
bonus payments to the former owners of TSI if certain earnings projections
were met as of October 31, 1998. At December 31, 1998, $5,600 was accrued
related to this agreement, which 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 June 30, 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
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 May 1, 1999 and February 1, 1999 JTP issued 984.7213 shares and
985.0173 shares, respectively, of Senior Preferred Stock as payment of
dividends. On August 1, 1999, the Company issued 1050.8012 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 $6,257 notional amount of foreign currency forward
exchange contracts outstanding at June 30,1999 and 1998, respectively.
L. Subsequent Events
On July 30, 1999, the Company purchased the net assets of Teleflow, Inc.
("Teleflow") for $3,500. Teleflow is a manufacturer of plastic air
conditioning registers and flexible air ducts. 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.
<PAGE>
THREE MONTHS ENDED SIX MONTHS ENDED
June 30, June 30,
1999 1998 1999 1998
Net Sales:
Specialty Printing and Labeling $ 31,737 $ 31,710 $ 52,549 $ 55,446
Jordan Specialty Plastics 20,428 19,016 39,998 32,828
Motors and Gears 77,903 71,700 154,394 130,267
Telecommunication Products 112,261 82,109 187,960 154,210
Consumer and Industrial Products 65,350 40,981 112,087 80,467
Total $ 307,679 $ 245,516 $ 546,988 $ 453,218
Operating Income:
Specialty Printing and Labeling $ 4,022 $ 3,426 $ 3,211 $ 3,553
Jordan Specialty Plastics 789 2,097 1,463 3,861
Motors and Gears 13,581 12,038 26,635 21,029
Telecommunication Products 14,581 9,015 21,934 15,122
Consumer and Industrial Products 8,236 5,228 13,557 8,344
Total (a) $ 41,209 $ 31,804 $ 66,800 $ 51,909
Operating Margin (b):
Specialty Printing and Labeling 12.7% 10.8% 6.1% 6.4%
Jordan Specialty Plastics 3.9 11.0 3.7 11.8
Motors and Gears 17.4 16.8 17.3 16.1
Telecommunication Products 13.0 11.0 11.7 9.8
Consumer and Industrial Products 12.6 12.8 12.1 10.4
Consolidated (a) 13.4 13.0 12.2 11.5
(a) The total does not include corporate overhead of $680 and $158 for the
three months ended June 30, 1999 and 1998, respectively, and $2,105 and $1,887
for the six months ended June 30, 1999 and 1998, respectively.
(b) Operating margin is operating income divided by net sales.
<PAGE>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 quarters and six
months ended June 30, 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 June 30, 1999, the Specialty
Printing and Labeling group consisted of SPAI, Valmark, Pamco, and Seaboard.
Net sales for the second quarter of 1999 were comparable to the same period in
1998. Sales of calendars, school annuals, and ad specialty products at SPAI
increased $0.5 million, $0.2 million, and $0.4 million, respectively, sales of
screen print and membrane switches at Valmark increased $0.1 million and $0.3
million, respectively, and sales of labels at Pamco increased, $0.4 million.
Partially offsetting these increases were decreased sales of folding boxes at
Seaboard, $1.9 million. Net sales for the first six months of 1999 decreased
$2.9 million, or 5.2%, when compared to the first six months of 1998. This
decrease was primarily due to lower sales of calendars at SPAI, $0.3 million,
decreased sales of rollstock at Valmark, $0.5 million, and lower sales of
folding boxes at Seaboard, $3.4 million. Partially offsetting these decreases
were higher sales of school annuals and ad specialty products at SPAI, $0.1
million and $0.2 million, respectively, increased sales of screen print and
membrane switches at Valmark, $0.1 million and $0.3 million, respectively, and
higher sales of labels at Pamco, $0.6 million. The decreased 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. The increased
sales at Pamco are due to Pamco effectively diversifying its customer base.
Operating income for the second quarter of 1999 increased $0.6 million, or
17.4%, when compared to the same period in 1998. Second quarter operating
income increased at SPAI, $0.5 million, Valmark, $0.3 million, and Pamco, $0.6
million. Partially offsetting these increases was decreased operating income
at Seaboard, $0.6 million, and increased corporate expenses of $0.2 million.
Operating income for the first six months of 1999 decreased $0.3 million, or
9.6%, when compared to the first six months of 1998. This decrease was due to
lower operating income at Seaboard, $1.1 million, partially offset by higher
operating income at SPAI, $0.1 million, Valmark, $0.2 million, and Pamco, $0.5
million. The decreased operating income at Seaboard was due to lower
absorption of fixed overhead resulting from decreased sales, as discussed
above. The increased operating income at Pamco was due to higher gross
margins stemming from higher sales and more efficient costing.
Operating margins for the second quarter of 1999 increased from 10.8% in 1998
to 12.7% in 1999, and remained consistent for the first six months of 1999
when compared with the first six months of 1998. The increased margin in the
second quarter is primarily due to SPAI's more efficient scheduling program
and the higher sales at Valmark and Pamco.
Jordan Specialty Plastics. As of June 30, 1999, the Jordan Specialty
Plastics group consisted of Beemak, Sate-Lite, Deflecto, and Rolite.
Net sales for the second quarter of 1999 increased $1.4 million, or 7.4%,
compared to the same period in 1998. Second quarter net sales increased primari
ly due to higher sales of colorants and miscellaneous bike and truck parts at
Sate-Lite, $0.6 million. In addition, second quarter net sales increased due
to higher sales of office products and hardware at Deflecto, $0.5 million and
$0.7 million, respectively, and increased sales of vinyl chairmats at Rolite,
$0.1 million. Partially offsetting these increases were decreased sales at
Beemak, $0.5 million. Net sales for the first six months of 1999 increased
$7.2 million, or 21.8%, compared to the first half of 1998. Net sales
increased primarily due to higher sales of colorants at Sate-Lite, $0.6
million, and the benefit of a full six months of Deflecto and Rolite sales in
1999. Deflecto and Rolite contributed $25.5 million and $2.2 million,
respectively, in the first half of 1999 compared to $19.2 million and $1.2
million, respectively, during the same period in 1998. Partially offsetting
these increases were lower sales at Beemak, $0.7 million.
Operating income for the second quarter and first half of 1999 decreased $1.3
million, or 62.4%, and $2.4 million, or 62.1%, respectively, compared with the
same periods in 1998. These decreases are primarily due to increased
operating expenses incurred at Sate-Lite related to the expansion of
manufacturing operations into China. The China facility produced sales of
$0.3 million during the second quarter and first half of 1999. In addition,
operating income decreased due to a year to date decrease in office products
sales at Deflecto, which is Deflecto's highest gross margin product line.
Operating margins for the second quarter and first six month of 1999 decreased
from 11.0% in 1998 to 3.9% in 1999 and decreased from 11.8% in 1998 to 3.7% in
1999, respectively, due to the reasons mentioned above.
Motors and Gears. As of June 30, 1999, the Motors and Gears group
consisted of Imperial, Gear, Merkle-Korff, Fir, ED&C, Motion Control, and
Advanced DC.
Net sales for the second quarter and first half of 1999 increased $6.2 million
or 8.7%, and $24.1 million or 18.5%, respectively, over the same periods in
1998. The strong sales growth was primarily driven by the acquisitions of
Advanced DC and Euclid in 1998 which resulted in $6.6 million of growth in the
second quarter and $20.7 million for the first half of 1999. Subfractional
motor sales experienced a slight decrease in the second quarter of 1999 as
compared to 1998 due to market softness in the vending machine industry, while
1999 year to date subfractional motor sales increased $1.7 million over 1998
primarily from increased sales in the appliance market. Sales of
fractional/integral motors excluding 1998 acquisitions were relatively flat
for the second quarter of 1999 and increased $1.1 million for the first half
of 1999 as compared to 1998. Sales of electronic motion control systems for
the second quarter and first half of 1999, increased $0.9 million and $1.0
million, respectively, over the same periods in 1998. The increase in
electronic motion control systems sales was mainly attributed to continued
strength in the elevator modernization market.
Operating income for the second quarter and first half of 1999 increased $1.5
million or 12.8% and $5.6 million or 26.7%, respectively, over the same
periods in 1998. The increase in operating income was primarily the result of
the increased sales described above, improved gross margins due to the 1998
acquisitions, and improved operating margins on subfractional motor sales.
Operating margins for the second quarter and first half of 1999 increased from
16.8% in 1998 to 17.4% in 1999 and from 16.1% in 1998 to 17.3% in 1999,
respectively. Increased operating income resulting from the increased sales
and improved margins described above was partially offset by increased
corporate expenses.
Telecommunication Products. As of June 30, 1999, the Telecommunication
Products group consisted of Dura-Line, Connectors, Viewsonics, Bond, Northern,
LoDan, EEI, and TSI.
Net sales for the second quarter of 1999 increased $30.2 million, or 36.7%,
compared with the second quarter of 1998. Second quarter net sales increased
primarily due to the March 31, 1999 acquisition of Integral, greater demand
for cable conduit products, and increased demand for data networking products
and central office data and fiber cables. Partially offsetting these
increases were lower tower sales, decreased radio frequency connector sales,
and lower sales in the specialty wire and cable segment due to the divestiture
of Diversified Wire and Cable in July 1998. Tower sales decreased due to a
temporary delay in the PCS build-out and connector sales decreased due to
general industry softness. Net sales for the first half of 1999 increased
$33.8 million, or 21.9%, compared to the first six months of 1998. Increased
sales due to the acquisition of Integral and strong demand for cable conduit
products accounted for $45.3 million of the change, while higher sales due to
strong demand for data networking products and central office data and fiber
cables accounted for $14.3 million of the increase. Partially offsetting
these increases were lower sales of towers and connectors due to the reasons
mentioned above, and decreased sales due to the divestiture of Diversified
Wire and Cable.
Operating income for the second quarter and first half of 1999 increased $5.6
million, or 61.7%, and $6.8 million, or 45.1%, respectively, compared with the
same periods in 1998. The increased operating income is primarily due to the
acquisition of Integral, increased sales of cable conduit products, and higher
absorption of overhead due to the sales increase in the custom cable
assemblies segment. In addition, operating income increased due to a
favorable product mix of data networking products and central office data and
fiber cables. Partially offsetting these increases was lower operating income
due to reduced industry pricing on monopoles, lower sales of towers and
connectors, and the sale of Diversified Wire and Cable, as mentioned above.
Operating margins for the second quarter and first six months of 1999
increased from 11.0% in 1998 to 13.0% in 1999, and from 9.8% in 1998 to 11.7%
in 1999, respectively, due to the reasons mentioned above.
Consumer and Industrial Products. As of June 30, 1999, the Consumer and
Industrial Products group consisted of Dacco, Riverside, Parsons, Cape,
Cho-Pat, Alma, and Protech.
Net sales for the second quarter of 1999 increased $24.4 million, or 59.5%,
compared with the second quarter of 1998. This increase was primarily due to
the 1999 acquisitions of Alma and Protech which contributed $23.6 million and
$2.2 million, respectively during the second quarter of 1999. In addition,
sales increased due to higher sales of rebuilt converters at Dacco, $0.6
million, and higher sales of home accessories at Cape, $0.5 million.
Partially offsetting these increases, were decreased sales of Bibles and Bible
accessories at Riverside, $0.7 million, lower sales of titanium aircraft parts
at Parsons, $0.4 million, lower sales of framed art at Cape, $0.2 million, and
decreased sales of plastic pipe at Dura-Line Retube, $1.2 million, due to the
divestiture of the company in March 1999. Net sales for the first six months
of 1999 increased $31.6 million, or 39.3%, compared to the first half of
1998. This increase was primarily due to the acquisitions of Alma and Protech
mentioned above, which contributed $27.5 million and $2.2 million,
respectively, in the first half of 1999. In addition, sales of rebuilt
converters at Dacco increased $2.5 million, sales of books, videos, music, and
contract distribution products at Riverside increased $0.3 million, $0.2
million, $0.2 million, and $0.5 million, respectively, sales of home
accessories at Cape increased $1.1 million, and sales of orthopedic supports
at Cho-Pat increased, $0.2 million. Partially offsetting these increases were
decreased sales of Bibles and Bible accessories at Riverside, $1.3 million,
lower sales of titanium aircraft parts at Parsons, $0.7 million, and lower
sales of plastic pipe at Dura-Line Retube, $1.1 million, due to the sale of
the company.
Operating income for the second quarter of 1999 increased $3.0 million, or
57.5%, compared with the second quarter of 1998. This increase was primarily
due to the acquisition of Alma and Protech which contributed operating income
of $3.4 million and $0.3 million, respectively. Partially offsetting these
increases, was decreased operating income at Dacco, Parsons, and Cape, $0.3
million, $0.1 million, and $0.3 million, respectively. Operating income for
the first half of 1999 increased $5.2 million, or 62.4%, compared with the
first six months of 1998. This increase was also due to the acquisitions of
Alma and Protech, $4.3 million and $0.3 million, respectively, as well as
increased operating income at Dacco, Riverside, and Cape, $0.5 million, $0.1
million, and $0.3 million, respectively. Partially offsetting these increases
was lower operating income at Parsons, $0.3 million. The increase in
operating income at Dacco was due to higher absorption of overhead resulting
from increased sales, and the increase in operating income at Cape was due to
the higher sales of Cape's highest gross margin product line, home
accessories. The decrease in operating income at Parsons was due to lower
absorption of fixed expenses due to the lower sales of aircraft parts.
Operating margins for the second quarter and first six months of 1999 remained
relatively consistent and increased from 10.4% in 1998 to 12.1% in 1999,
respectively, due to the reasons mentioned above.
Consolidated Results: (See Condensed Consolidated Statements of
Operations.)
Consolidated net sales for the second quarter and first six months of 1999
increased $62.2 million, or 25.3%, and $93.8 million, or 20.7%, respectively,
over the same periods in 1998. The increases are primarily due to the 1999
acquisitions of Integral in Telecommunication Products and Alma and Protech in
Consumer and Industrial Products. In addition, sales increased due to the
benefit of a full six months of sales from the 1998 acquisitions of Deflecto
and Rolite in Jordan Specialty Plastics and Advanced DC and Euclid in Motors
and Gears. Sales also increased due to higher sales of ad specialty products,
school annuals, screen print, membrane switches, and labels in Specialty
Printing and Labeling, increased sales of colorants in Jordan Specialty
Plastics, higher sales of subfractional motors and motion control systems in
Motors and Gears, increased sales of cable conduit products, data networking
products, and central office data and fiber cables in Telecommunication
Products, and increased sales of rebuilt converters, books, videos, music,
contract distribution products, home accessories, and orthopedic supports in
Consumer and Industrial Products. Partially offsetting these increases were
decreased sales of calendars, rollstock, and folding boxes in Specialty
Printing and Labeling, lower sales of injection molded product in Jordan
Specialty Plastics, lower sales of towers and connectors in Telecommunication
Products, and decreased sales of Bibles, Bible accessories, and titanium
aircraft parts in Consumer and Industrial Products. In addition, sales
decreased due to the divestiture of Diversified Wire and Cable in
Telecommunication Products and Dura-Line Retube in Consumer and Industrial
Products.
Consolidated operating income for the second quarter and first six months of
1999 increased $8.9 million, or 28.1%, and $14.7 million, or 29.3%,
respectively, over the same periods in 1998. The increases are primarily due
to the 1999 and 1998 acquisitions, as discussed above. In addition, operating
income increased due to more efficient costing in Specialty Printing and
Labeling, improved margins on subfractional motor sales in Motors and Gears,
higher absorption of overhead in Telecommunication Products, and increased
sales of high gross margin product in Consumer and Industrial Products.
Partially offsetting these increases was decreased operating income due to
lower absorption of fixed overhead in Specialty Printing and Labeling,
increased expenses incurred for facility expansion and lower sales of high
gross margin product in Jordan Specialty Plastics, and reduced pricing on
monopoles and lower sales of towers and connectors in Telecommunication
Products. In addition, operating income decreased due to the divestitures
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 $233.7 million of working capital at June 30,
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 $32.8 million,
$29.5 million, and $7.4 million, respectively. The increase in working
capital can also be attributed to lower current portion of long-term debt of
$0.9 million. These increases in working capital are partially offset by
higher accounts payable and accrued expenses of $17.4 million and $4.2
million, respectively.
Operating activities. Net cash provided by operating activities for the six
months ended June 30, 1999 was $19.4 million compared to net cash provided by
operating activities of $8.1 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 half of 1998.
Investing activities. Net cash used in investing activities for the six
months ended June 30, 1999 was $124.1 million compared to net cash used in
investing activities of $131.6 million during the same period in 1998. The
decrease is primarily due to less cash paid for acquisition of subsidiaries as
well as the decrease in capital expenditures and contingent purchase price
payments made in the two periods.
Financing activities. Net cash provided by financing activities for the six
months ended June 30, 1999 was $114.7 million compared to net cash provided by
financing activities of $94.9 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 received responses from its significant
suppliers and continues to monitor their compliance.
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 September 30, 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 October 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
$4.75 million and is being funded through operating cash flows and capital
leases. To date, the Company has incurred approximately $3.75 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.
<PAGE>
PAGE 30
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 31
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
JORDAN INDUSTRIES, INC.
August 13, 1999 By: /s/ Thomas C. Spielberger
Thomas C. Spielberger
Senior Vice President,
Finance and Accounting
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