Back to GetFilings.com
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For fiscal year ended December 31, 1998 Commission File Number 33-24317
JORDAN INDUSTRIES, INC.
(Exact name of registrant as specified in charter)
Illinois 36-3598114
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
ArborLake Center, Suite 550 60015
1751 Lake Cook Road (Zip Code)
Deerfield, Illinois
(Address of Principal Executive Offices)
Registrant's telephone number, including Area Code:
(847) 945-5591
Securities registered pursuant to Section 12(b) of the Act:
Name of Each Exchange
Title of Each Class on Which Registered
None N/A
Securities registered pursuant to Section 12(g) of the Act:
None
Indicated by checkmark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding twelve (12)
months (or for such shorter period that the registrant was
required to file such reports) and (2) has been subject to such
filing requirements for the past ninety (90) days.
Yes X No
The aggregate market value of voting stock held by non-
affiliates of the Registrant is not determinable as such shares
were privately placed and there is currently no public market for
such shares.
The number of shares outstanding of Registrant's Common
Stock as of March 31, 1999: 98,501.0004.
PART I
Item 1. BUSINESS
Jordan Industries, Inc. (the ACompany@) was organized to acquire
and operate a diverse group of businesses on a decentralized
basis, with a corporate staff providing strategic direction and
support. The Company is currently comprised of 30 businesses
which are divided into five strategic business units: (i)
Specialty Printing and Labeling, (ii) Consumer and Industrial
Products, (iii) Jordan Specialty Plastics (iv) Motors and Gears
and (v) Jordan Telecommunication Products. As of January 21,
1997, Welcome Home is no longer consolidated in the Company's
results of operations. (See note 3 to the financial statements.)
The Company believes that its businesses are characterized by
leading positions in niche industries, high operating margins,
strong management, minimal working capital and capital
expenditure requirements and low sensitivity to technological
change and economic cycles.
The Company=s business strategy is to enhance the growth and
profitability of each business unit, and to build upon the
strengths of those units through product line and other strategic
acquisitions. Key elements of this strategy have been the
consolidation and reorganization of acquired businesses,
increased focus on international markets, facilities expansion
and the acquisition of complementary product lines. When,
through such activities, the Company believes that critical mass
is attained in a particular industry segment, the related
companies are organized as a discreet business unit. For
example, the Company acquired Imperial in 1983 and made a series
of complementary acquisitions, which resulted in the formation of
Motors and Gears, Inc., a leading domestic manufacturer of
electric motors, gears, and motion control systems. Similarly,
the Company acquired Dura-Line in 1985, and expanded its presence
in the telecommunications industry through eleven complementary
acquisitions. The organization of these companies as Jordan
Telecommunication Products created a leading global supplier of
products and equipment serving the telecommunications industry.
Through the implementation of this strategy, the Company has
demonstrated significant and consistent growth in net sales. The
Company generated combined net sales of $943.6 million for the
year ended December 31, 1998 as compared to $358.6 million for
the year ended December 31, 1993, representing a compound annual
growth rate of 21.3%.
The following chart depicts the operating subsidiaries which
comprise the Company=s five strategic business units, together
with the net sales for each of the five groups for the year ended
December 31, 1998.
JORDAN INDUSTRIES, INC.
$943.6 Million of Net Sales
SPECIALTY PRINTING AND LABELING -Sales Promotion Associates
$120.2 Million of Net Sales -Pamco
-Valmark
-Seaboard
CONSUMER AND INDUSTRIAL PRODUCTS -DACCO
$166.0 Million of Net Sales -Cape Craftsmen
-Riverside
-Parsons
-Cho-Pat
-Dura-Line Retube
JORDAN SPECIALTY PLASTICS -Sate-Lite
$71.6 Million of Net Sales -Beemak
-Deflecto
-Rolite
JORDAN TELECOMMUNICATION PRODUCTS(1) -Dura-Line
$310.0 Million of Net Sales -Electronic Connectors
and Components
-Viewsonics
-Bond
-Northern
-LoDan
-Engineered Endeavors
-Telephone Services, Inc.
-K&S Sheet Metal
MOTORS AND GEARS(1) -Imperial
$275.8 Million of Net Sales -Gear
-Merkle-Korff
-FIR
-Electrical Design & Control
-Motion Control Engineering
-Advanced D.C. Motors
WELCOME HOME(2) -Welcome Home
(1) The subsidiaries comprising Jordan Telecommunication
Products and Motors and Gears are Non-Restricted
Subsidiaries, the common stock of which is owned by
stockholders and affiliates of the Company and management of
the respective companies. The Company=s ownership in these
subsidiaries is solely in the form of JTP Junior Preferred
Stock and M&G Junior Preferred Stock. See footnote 5 to the
financial statements.
(2) Welcome Home was deconsolidated as of January 21, 1997, the
date of its Chapter 11 bankruptcy filing. There are no
sales included in the 1998 consolidation related to Welcome
Home. See footnote 3 to the financial statements.
The Company=s operations were conducted through the following
business units as of December 31, 1998:
Specialty Printing and Labeling
The Specialty Printing and Labeling group manufactures and
markets (i) promotional and specialty advertising products for
corporate buyers, (ii) labels, tapes and printed graphic panel
overlays for electronics and other manufacturing companies and
(iii) printed folding cartons and boxes and other shipping
materials. The companies that are part of Specialty Printing and
Labeling have provided its customers with products and services
for an average of over 40 years. For the fiscal year ended
December 31, 1998, the Specialty Printing and Labeling group
generated net sales of $120.2 million. Each of the Specialty
Printing and Labeling subsidiaries is discussed below:
SPAI. The Company=s former subsidiaries, The Thos. D. Murphy Co.
(AMurphy@), which was founded in 1889, and Shaw-Barton, Inc.
(AShaw-Barton@), which was founded in 1940, merged to form
JII/SPAI in March 1989. One hundred percent of JII/SPAI=s assets
were sold by JII, on terms equivalent to those that would have
been obtained in an arm=s length transaction, to the Specialty
Printing and Labeling group in August 1995 and the company was
renamed Sales Promotion Associates, Inc. (ASPAI@). SPAI is a
producer and distributor of calendars for corporate buyers and is
a distributor of corporate recognition, promotion and specialty
advertising products.
SPAI=s net sales for fiscal 1998 were $62.2 million.
Approximately 60% of SPAI=s 1998 net sales were derived from
distributing a broad variety of corporate recognition products,
promotion and specialty advertising products. These products
include apparel, watches, crystal, luggage, writing instruments,
glassware, caps, cases, labels and other items that are printed
and identified with a particular corporate logo and/or corporate
advertising campaign. Approximately 30% of SPAI=s 1998 net sales
were derived from the sale of a broad variety of calendars,
including hanging, desktop and pocket calendars that are used
internally by corporate customers and distributed by them to
their clients and customers. High-quality artistic calendars are
also distributed. SPAI also manufactures and distributes
softcover school yearbooks for kindergarten through eighth grade.
SPAI assembles and finishes calendars that are printed both in-
house as well as by a number of outside printers. Facilities for
in-house manufacturing include a composing room, a camera room, a
calendar finishing department and a full press room. Print
stock, binding material, packaging and other materials are
supplied by a number of independent companies. Specialty
advertising products are purchased from more than 2,000
suppliers. Calendars and specialty advertising products are sold
through a 850-person sales force, most of whom are independent
contractors.
Management believes that SPAI has one of the largest domestic
sales forces in the industry. With this large sales force and a
broad range of calendars and corporate recognition products
available, management believes that SPAI is a strong competitor
in its market. This market is very fragmented and most of the
competition comes from smaller-scale producers and distributors.
Valmark. Valmark, which was founded in 1976 and purchased by the
Company in 1994, is a specialty printer and manufacturer of
pressure sensitive label products for the electronics Original
Equipment Manufacturer (AOEM@) market. Valmark=s products
include adhesive-backed labels, graphic panel overlays and
membrane switches, and radio frequency interference (ARFI@)
shielding devices. Approximately 33% of Valmark=s 1998 net sales
of $17.2 million were derived from the sale of membrane switches
and graphic panel overlays, 64% from labels and 3% from shielding
devices.
The specialty screen products sold in the electronics industry
continue to operate relatively free of foreign competition due to
the high level of communication and short time frame usually
required to produce orders. Currently, the majority of Valmark=s
customer base of approximately 1,200 is located in the Northern
California area.
Valmark sells to four primary markets: personal computers;
general electronics; turn-key services; and medical
instrumentation. Sales to the hospital and telecommunication
industries have experienced the most growth over recent years due
to Valmark=s graphic panel overlay capabilities.
Valmark is able to provide OEMs with a broader range of products
than many of its competitors. Valmark=s markets are very
competitive in terms of price and accordingly Valmark=s advantage
over its competitors is derived from its diverse product line and
excellent quality ratings.
Pamco. Pamco, which was founded in 1953 and purchased by the
Company in 1994, is a manufacturer and distributor of a wide
variety of printed tapes and labels. Pamco offers a range of
products from simple one and two-color labels, such as basic bar
codes and address labels, to seven-color, varnish-finished labels
for products such as video games and food packaging. One hundred
percent of Pamco=s products are made to customers= specifications
and approximately 90% of all sales were manufactured in-house in
1998. The remaining 10% of net sales were purchased printed
products and included business cards and stationary.
Pamco=s products are marketed by a team of eighteen sales
representatives who focus on procuring new accounts. Existing
accounts are serviced by nine customer service representatives
and five internal salespeople. Pamco=s customers represent
several different industries with the five largest customers
accounting for approximately 20% of 1998 net sales of $16.5
million.
Pamco competes in a highly fragmented industry. Pamco emphasizes
its impressive 24-hour turnaround and its ability to accommodate
rush orders that other printers cannot handle. Pamco's ability
to deliver a quality product with quick turn around is its key
competitive advantage.
Seaboard. Seaboard, which was founded in 1954 and purchased by
the Company in 1996, is a manufacturer of printed folding cartons
and boxes, insert packaging and blister pack cards.
Seaboard sells directly to a broad customer base, located
primarily east of the Mississippi River, operating in a variety
of industries including hardware, personal hygiene, toys,
automotive supplies, food and drugs. Seaboard=s top ten
customers accounted for approximately 37% of Seaboard=s 1998 net
sales of $24.3 million. Seaboard has exhibited consistent sales
growth and high profit margins and has gained a reputation for
exceeding industry standards primarily due to its excellent
operating capabilities. Seaboard has historically been highly
successful in buying and profitably integrating smaller
acquisitions.
Seaboard=s markets are very competitive in terms of price and,
accordingly, Seaboard=s advantage over its competitors is derived
from its high quality product and excellent service.
Consumer and Industrial Products
Consumer and Industrial Products serves many product segments.
It is the leading supplier of remanufactured torque converters to
the automotive aftermarket parts industry. In addition, Consumer
and Industrial Products manufactures and markets reflectors for
bicycles; publishes and markets Bibles, religious books and audio
materials; manufactures hot-formed titanium materials for the
aerospace and other industries; manufactures and imports gift
items; and manufactures orthopedic supports and pain reducing
medical devices. The companies which are part of Consumer and
Industrial Products have provided their customers with products
and services for an average of over 40 years. For the year ended
December 31, 1998, the Consumer and Industrial Products
subsidiaries generated combined net sales of $166.0 million.
Each of the Consumer and Industrial Products subsidiaries is
discussed below:
DACCO. DACCO is a producer of remanufactured torque converters,
as well as automotive transmission sub-systems and other related
products used by transmission repair shops. DACCO was founded in
1965 and acquired by the Company in 1988.
Approximately 75% of DACCO=s products are classified as Ahard@
products, which primarily consist of torque converters and
hydraulic pumps that have been rebuilt or remanufactured by
DACCO. The torque converter, which replaces a clutch in an
automatic transmission, transfers power from the engine to the
drive shaft. The hydraulic pump supplies oil to all the systems
in the transmission.
DACCO=s primary supply of used torque converters is its
customers. As a part of each sale, DACCO recovers the used
torque converter which is being replaced with its remanufactured
converter. DACCO also purchases used torque converters from
automobile salvage companies. Other hard parts, such as clutch
plates and fly wheels, are purchased from outside suppliers.
Approximately 25% of DACCO=s products are classified as Asoft@
products, such as sealing rings, bearings, washers, filter kits
and rubber components. Approximately 11,000 soft products are
purchased from a number of vendors and are re-sold in a broad
variety of packages, configurations and kits.
DACCO=s customers are automotive transmission parts distributors
and transmission repair shops and mechanics. DACCO has fifty
independent sales representatives who accounted for approximately
57% of DACCO=s net sales of $65.4 million in 1998. These sales
representatives sell nationwide to independent warehouse
distributors and to transmission repair shops. DACCO also owns
and operates thirty-five distribution centers which sell directly
to transmission shops. DACCO distribution centers average 4,000
square feet, cover a 50 to 100-mile selling radius and sell
approximately 41% hard products and 59% soft products. In 1998 no
single customer accounted for more than 2% of DACCO=s net sales.
The domestic market for DACCO=s hard products is fragmented and
DACCO=s competitors primarily consist of a number of small
regional and local rebuilders. DACCO believes that it competes
strongly against these rebuilders by offering a broader product
line, quality products, and lower prices, all of which are made
possible by DACCO=s size and economies of operation. However,
the market for soft products is highly competitive and several of
its competitors are larger than DACCO. DACCO competes in the
soft products market on the basis of its low prices due to volume
buying, its growing distribution network and its ability to offer
one-step procurement of a broad variety of both hard and soft
products.
Riverside. Riverside is a publisher of Bibles and a distributor
of Bibles, religious books and music recordings. Riverside was
founded in 1943 and acquired by the Company in 1988.
Approximately 75% of Riverside=s business consists of products
published by other companies. Riverside sells world-wide to more
than 12,000 wholesale, religious and trade book store customers,
utilizing an in-house telemarketing system, four independent
sales representative groups and printed sales media. In
addition, Riverside sells a small percentage of its products
through direct mail and to retail customers. No single customer
accounted for more than 5% of Riverside=s 1998 net sales of $58.6
million.
Riverside also provides Bible indexing, warehousing, inventory
and shipping services for domestic book publishers and music
producers. Riverside competes with larger firms, including the
Zondervan Corporation, The Thomas Nelson Company, and Ingram Book
Company, on the basis of price, product line and customer
service.
Parsons. Parsons is a diversified supplier of hot formed
titanium parts, precision machined parts and fabricated
components for the U.S. aerospace industry. Parsons was founded
in 1959 and acquired by the Company in 1988. Approximately 70%
of Parsons= 1998 net sales of $13.1 million came from sales to
The Boeing Company. Parsons employs precision machining,
welding/fabrication and sheet metal forming processes to
manufacture its products at its facilities in Parsons, Kansas.
Parsons continues to invest in its titanium hot forming
operation, which permits Parsons to participate in the aerospace
market for precision titanium components.
Parsons uses metals, including stainless steel, aluminum and
titanium, to fabricate its products. These materials are either
supplied by Parsons= customers or obtained from a number of
outside sources.
Parsons sells its products directly to a broad base of aerospace
and military customers, relying on longstanding associations and
Parsons= reputation for high quality products and service.
Cape Craftsmen. Founded in 1966 and purchased by the Company in
1996, Cape Craftsmen is a manufacturer and importer of gifts,
wooden furniture, framed art and other accessories. Cape
Craftsmen manufactures in North Carolina and imports from Mexico
and the Far East. Cape Craftsmen sells its products through one
in-house salesperson and forty independent sales representatives.
Approximately 64% of Cape Craftsmen=s net sales of $22.5 million
in 1998 were to Welcome Home, an affiliated entity. Cape
Craftsmen competes in a highly fragmented industry and has
therefore found it most effective to compete on the basis of
price with most wood manufacturers and importers. Cape Craftsmen
also strives to deliver better quality and service than its
competitors.
Cho-Pat. In September 1997, the Company purchased Cho-Pat, Inc.,
a leading designer and manufacturer of orthopedic supports and
patented preventative and pain reducing medical devices. Cho-Pat
currently produces nine different products primarily for
reduction of pain from injuries and the prevention of injuries
resulting from over use of the major joints. Cho-Pat's largest
selling product is the patented Cho-Pat knee strap, designed to
reduce the pain from patellar tendenitis in the knee. Cho-Pat
manufactures all of its products in-house. Cho-Pat sells its
products to professional, college and high school athletic
trainers, medical products distributors, and independent retail
drug and sporting goods stores. Cho-Pat had net sales of $1.5
million in 1998.
Dura-Line Retube ("Retube"). Retube, which was founded as a
product line of the JTP subsidiary Dura-Line in 1989, is a
leading designer, developer, manufacturer and distributor of
cross-linked polyethylene piping. Retube products are used in a
variety of industries including plumbing, manufactured housing,
retail and radiant heating. Retube was reclassified to Consumer
and Industrial Products in 1997 and had 1998 net sales of $4.9
million.
Jordan Specialty Plastics
Jordan Specialty Plastics serves a broad range of wholesale and
retail markets within the highly-fragmented specialty plastics
industry. The group designs, manufactures and sells (1) "take-
one" point of purchase brochure, folder and application display
holders, (2) modular storage systems ("Tilt-BinsTM"), (3) plastic
injection-molded hardware and office supply products, (4)
extruded vinyl chairmats, (5) safety reflectors for bicycle and
commercial truck manufacturers and (6) colorants to the
thermoplastics industry. The companies that are part of Jordan
Specialty Plastics have provided their customers with products
and services for an average of over 35 years. For the year ended
December 31, 1998, the Jordan Specialty Plastics subsidiaries
generated combined net sales of $71.6 million. Each of the
Jordan Specialty Plastics subsidiaries is discussed below.
Beemak Plastics. Beemak, which was founded in 1951 and acquired
by the Company in July 1989, is an integrated manufacturer of
specialty "take-one" point-of-purchase brochure, folder and
application display holders, and added modular storage systems
("Tilt-BinsTM") for storage and display of small items such as
fasteners and bolts. Beemak sells its proprietary holders and
displays, which accounted for approximately 66% of Beemak's
business in 1998, to approximately 21,000 customers around the
world. It sells its modular storage systems, which accounted for
approximately 34% of Beemak's business in 1998, to wholesale home
centers and hardware stores. In addition, Beemak produces a
small amount of custom injection-molded plastic parts for
customers on a contract manufacturing basis. Beemak's net sales
for 1998 were $9.4 million.
Beemak's products are both injection-molded and custom
fabricated. Beemak's molds are made by outside suppliers. The
manufacturing process consists primarily of the injection molding
of polystyrene plastic and the fabrication of plastic sheets.
Beemak also provides silk screening of decals and logos onto the
final product.
Beemak sells its products through a direct sales force,
independent representatives, an extensive on-going advertising
compaign and by reputation. Beemak sells to distributors, major
companies, and competitors which resell the product under a
different name. Beemak has been successful in providing
excellent service on orders of all sizes, especially small
orders.
The display holder industry is very fragmented, consisting of a
few other known holder and display firms and regionally-based
sheet fabrication shops. Beemak has benefited from the growth in
"direct" advertising budgets at major companies. Significant
advertising dollars are spent each year on direct-mail campaigns,
point-of-purchase displays and other forms of non-media
advertising. Beemak's modular storage systems compete in the
retail storage bin/hardware store market. Its main competition in
the market is Quantum.
Sate-Lite Manufacturing. Sate-Lite manufactures safety
reflectors for bicycle and commercial truck manufacturers, as
well as plastic parts for bicycle manufacturers and colorants for
the thermoplastics industry. Sate-Lite was founded in 1968 and
acquired by the Company in 1988. Bicycle reflectors and plastic
bicycle parts accounted for approximately 40% of Sate-Lite's net
sales in 1998. Sales of triangular flares and specialty
reflectors and lenses to commercial truck customers accounted for
approximately 36% of net sales in 1998. The remaining 24% of Sate-
Lite's 1998 net sales were derived primarily from the sale of
colorants to the thermoplastics industry. Sate-Lite's net sales
for 1998 were $13.8 million.
Sate-Lite's bicycle products are sold directly to a number of
OEMs. The three largest OEM customers for bicycle products are
the Huffy Corporation, Roadmaster and Tandem (China), which
accounted for approximately 17% of Sate-Lite's net sales in 1998.
The triangular flares and other truck reflector products are also
sold to a broad range of OEM customers. Colorants are sold
primarily to mid-western custom molded plastic parts
manufacturers. In 1998, Sate-Lite's ten largest customers
accounted for approximately 44% of net sales.
Sate-Lite's products are marketed on a nationwide basis by its
management. Sales to foreign customers are handled directly by
management and by independent trading companies on a commission
basis. Sate-Lite's export net sales accounted for approximately
17% of its total 1998 net sales. Export sales were principally
to China and Canada. The principal raw materials used in
manufacturing Sate-Lite's products are plastic resins, adhesives,
metal fasteners and color pigments. Sate-Lite obtains these
materials from several independent suppliers. In the fourth
quarter of 1998, Sate-Lite opened a facility in China. Sate-Lite
will be selling to Tandem, Giant, China Bike and other Chinese
bicycle manufacturers who have recently been increasing their
share of bicycles sold in the domestic market.
The markets for bicycle parts and thermoplastic colorants are
highly competitive. Sate-Lite competes in these markets by
offering innovative products and by relying on its established
reputation for producing high-quality plastic components and
colorants. Sate-Lite's principal competitors in the reflector
market consist of foreign manufacturers. Sate-Lite competes with
regional companies in the colorants market.
Deflecto Corporation. Founded in 1960 and acquired by the
Company in 1998, Deflecto designs, manufactures and markets
plastic injection-molded products for mass merchandisers, major
retailers and large wholesalers. Deflecto sells its products in
three product categories: hardware products, office supply
products and houseware products. Hardware products, which
comprised approximately 56% of Deflecto's net sales in 1998,
include heating and cooling air deflectors, clothes dryer vents
and ducts, kitchen vents and ducts, sheet metal pipes and elbows,
exhaust fittings and other widely-recognized products. Office
supply products, many of which have patents and trademarks,
represented approximately 36% of net sales in 1998 and include
such items as wall pockets, literature displays, file and chart
holders, business card holders and other top-branded office
supply products. The remaining sales were primarily from
houseware products such as bath towel holders, spice racks, paper
towel holders and other such items. Deflecto's net sales for
1998 were $45.2 million.
Deflecto manufactures approximately 90% of its products in-house,
with the remainder outsourced to other injection molders.
Deflecto efficiently manages the mix between manufactured and
outsourced product due to its ability to accurately project
pricing, cost and capacity constraints. This strategy enables
Deflecto to grow without being constrained by capacity issues.
Deflecto sells its products through an in-house salaried sales
force and the use of independent sales representatives. Deflecto
has the critical mass to command strong positions and
significant shelf space with the major mass merchandisers and
retailers. In the hardware products line, Deflecto sells to
major national retailers such as Ace Hardware, Wal-Mart, and Home
Depot, as well as to heating, ventilating and air conditioning
("HVAC") and appliance parts wholesalers. Deflecto sells its
office supply products line to major office supply retailers such
as Office Depot, Office Max and Staples, as well as national
wholesalers, such as United Wholesalers and S.P. Richards.
Houseware products are sold primarily to smaller customers,
although Deflecto does sell to Wal-Mart, K-mart and other retail
chains. Deflecto has established strong relationships with its
customers and is known for delivering high quality, well-packaged
products in a timely manner.
Competition in the hardware, office supplies and housewares
products businesses is increasing due to the consolidation of
companies serving the market. The increased competition has
prevented price increases and has forced manufacturers to improve
production efficiency, product quality and delivery. The Company
believes that Deflecto's mix of manufactured and outsourced
product, and its management of this process, allows it to
maintain high production efficiency, keeping costs down and
product quality high.
Rolite Plastics. Founded in 1978 and acquired by the Company in
1998, Rolite manufactures and sells extruded vinyl chairmats for
the office products industry.
During 1998, Rolite sold its products to plastics distributors,
approximately 33%, foreign-based office products companies,
approximately 29%, office products dealers, approximately 25%,
and office superstores, approximately 13%. Rolite produces three
types of standard-size chairmats, as well as custom-size
chairmats. Standard-size chairmats, which comprised
approximately 92% of 1998 net sales, consist of: (1) regular,
which is Rolite's largest seller, (2) anti-static, which reduces
static electricity and is prevalent for computer users, and (3)
glass clear, which is nearly 100% transparent. Rolite's emphasis
on technology helps to ensure excellent product quality, and all
of Rolite's products are backed by a lifetime warranty against
breakage. Rolite's net sales for 1998 were $3.2 million. Rolite
is a division of the Company's Deflecto subsidiary.
Rolite produces its products with a small staff of personnel.
Each shift consists of an extruder, a mixer who compounds the raw
materials, and two or three finishers who rout chairmats to their
finished shape and pack them for shipment.
Rolite's products are sold through nine independent
manufacturers' representatives who sell to over 600 dealers and
six regional wholesalers. Merchandising chairmats is difficult
given their bulky composition. To address this problem, Rolite
developed a freestanding merchandise display and a counter top
display that make the chairmats more accessible to customers
while consuming a small amount of retail space. These displays
are sold to dealers, who can then recoup the cost via discounts
on future chairmat purchases. In addition to the independent
sales representative network, Rolite's products will be sold as a
separate product line through Deflecto.
Rolite is one of four manufacturers of vinyl chairmats in the
United States and one of only seven worldwide. The estimated $80
million domestic market is dominated by Rubbermaid and Tenex;
however, Rolite believes that its superior product quality and
customer service, coupled with a lack of loyalty in the
marketplace among dealers, will enable it to gain market share.
Rolite has also been successful internationally, with over one-
third of sales going to customers outside the United States. The
poor quality of foreign manufacturers' products, coupled with
Rolite's price-competitiveness and customer service, represents
an opportunity to continue strong international growth.
Motors and Gears
Motors and Gears is a leading domestic manufacturer of specialty
purpose electric motors, gears and motion control systems,
serving a diverse customer base. Its products are used in a
broad range of applications, including vending machines,
refrigerator ice dispensers, commercial floor care equipment,
elevators, photocopy machines, and conveyor and automation
systems. The Motors and Gears subsidiaries have sold their brand
name products to their customers for over 70 years. For the year
ended December 31, 1998, Motors and Gears= subsidiaries generated
combined net sales of $275.8 million. Each of Motors and Gears=
subsidiaries is discussed below.
Motors and Gears has three primary products lines: sub-fractional
motors (approximately 38% of 1998 sales), fractional/integral
motors (approximately 40% of 1998 sales), and controls
(approximately 22% of 1998 sales).
Sub-fractional Motors
Merkle-Korff. Merkle-Korff was founded in 1911 and was
purchased, along with its wholly owned subsidiaries, Elmco
Industries, Inc. and Mercury Industries, Inc., by the Company=s
subsidiary, Motors & Gears Industries, Inc., in September 1995.
Merkle-Korff is a custom manufacturer of Alternating Current
(AAC@) and Direct Current (ADC@) sub-fractional horsepower motors
and gear motors used in refrigerators, freezers, dishwashers,
vending machines, business machines, pumps and compressors.
Approximately 67% of Merkle-Korff=s 1998 net sales of $103.1
million, were derived from the home appliance and vending
machine market. Merkle-Korff=s prominent customers include
General Electric Company, Vendo, Whirlpool Corporation and Dixie-
Narco, Inc. In 1998, the Company=s top 10 customers represented
approximately 60% of total sales.
Barber-Colman, founded in 1894, was purchased by Merkle-Korff in
1996 and renamed Colman Motor Products (AColman Motors@) in
January 1997. Colman Motors is a vertically integrated
manufacturer of both AC and DC sub-fractional horsepower motors
and gear motors. The Colman Motors= product line serves a wide
variety of applications, and they are used as components in such
products as vending machines, copiers, printers, ATM machines,
currency changers, X-ray machines, peristatic pumps, HVAC
activators, medical equipment and other products.
The majority of Colman Motors= products are sold directly to
OEMs; however, management has initiated an effort to direct small
orders to four distributors. Each of these distributors is fully
stocked with Colman Motors= standardized parts and equipment
using a computerized catalog system which facilitates the
efficient selection of products and components at the distributor
level.
Merkle-Korff experiences limited competition across its product
lines including Colman Motor Products. Competitors are generally
much smaller in terms of revenues but also produce a much more
limited product line.
Fractional/Integral Motors
Imperial. Imperial was founded in 1889 and acquired by the
Company in 1988. Imperial manufactures elevator motors, floor
care equipment motors and automatic hose reel motors under its
Imperial trade name, and floor care, silicone controlled
rectifier motors, and low voltage DC motors under its Scott trade
name. Scott was acquired by Imperial in 1988 and merged into
Imperial in early 1997. All of Imperial=s assets were sold on
arm=s length terms to Motors and Gears Industries, Inc. in
November 1996.
Imperial designs, manufactures and distributes specialty electric
motors for industrial and commercial use. It manufactures its
products with steel, magnets, copper wire, castings, and other
components supplied by a variety of firms. Its products, AC and
DC motors, generators and permanent magnet motors are sold
principally in the U.S. and Canada and to a limited extent in
Europe and Australia. Approximately 26% of Imperial=s 1998 net
sales of $34.1 million were derived from elevator motors, ranging
from 5 to 100 horsepower, sold to major domestic elevator
manufacturers. Approximately 74% of Imperial=s 1998 net sales
were derived from permanent magnet motors and parts sold
primarily to domestic manufacturers of floor care equipment.
Otis Elevator Company, Westinghouse Corporation and other leading
elevator manufacturers have in recent years discontinued internal
manufacturing of motors and have turned to Imperial and other
independent manufacturers to supply motors. Imperial's largest
customer accounted for approximately 9% of Imperial=s net sales
in 1998, and Imperial=s top ten customers accounted for
approximately 50% of total net sales. Imperial=s products are
marketed domestically by its management and one independent sales
representative and internationally by management.
In the elevator motor market, Imperial competes with several
firms of varying size. The other markets in which Imperial
competes are also highly competitive. However, the Company=s
management believes that Imperial is able to effectively compete
with these firms on the basis of product reliability, price and
customer service.
In December 1998, Imperial acquired Euclid Universal, Inc., a
designer and manufacturer of gear drives for special applications
where stock items will not fit or meet performance requirements.
Euclid's products include speed reducers, custom gearing, right
angle gearboxes and transaxles. Its customized products are used
in an array of industries, including materials handling,
healthcare, agriculture, floor care and food processing.
Euclid's technical expertise lies in the areas of worm, spur and
helical gearing.
Euclid maintains a flexible engineering and production process
that yields a rapid response in design, prototype and production.
All gearing is manufactured in-house to industry standards and
housings are made of high strength, heat treated aluminum alloy,
cast iron or steel. Euclid is able to produce food grade
finishes to its products, as well as hard coating for the
stringent wash down equipment requirements. The Company believes
that the addition of Euclid provides cross selling opportunities
with Imperial, Gear and Advanced DC Motors. Currently, Euclid is
working with Imperial to develop a transaxle product for the
floor care industry. The Company believes that the ability to
provide this product will enable Imperial to broaden its product
line and to defend its market share in the floor care industry.
Gear. Gear manufactures precision gears and gear boxes for OEMs
requiring high-precision commercial gears. Gear was founded in
1952 and acquired by Imperial in October 1988. All of Gear=s
assets were sold on arm=s-length terms to Motors and Gears
Industries, Inc. in November 1996. Gear manufactures precision
gears for both AC and DC electric motors in a variety of sizes.
The gears are sold primarily to the food, floor care machine and
aerospace industries and to other manufacturers of machines and
hydraulic pumps. Gear=s products are nationally advertised in
trade journals and are sold by one internal salesman and one
independent sales representative. Gear precision machines its
products from steel forgings and castings. Net sales for Gear in
1998 were $7.7 million.
The gear industry is very fragmented and competitive. Gear
competes primarily on the basis of quality. In addition, the
ability of Imperial and Gear to offer both electric motors and
gear boxes as a package, and to custom design these items for
customers, may allow both subsidiaries to gain greater market
penetration.
FIR. Founded in 1925 and acquired by the Company in June 1997,
FIR is a leading European manufacturer of AC and DC motors and
pumps for special-end applications such as pumps for commercial
dishwashers, motors for industrial sewing machines, motors for
industrial fans and ventilators, explosion-proof motors for
gasoline pumps and the oil industry, and asynchronous and
brushless motors for lift doors. With the exception of motors
for industrial sewing machines, FIR produces custom products only
after receiving specific customer orders. Motors for industrial
sewing machines, which comprised approximately 9% of FIR=s 1998
net sales of $42.1 million are fairly standardized and are
manufactured and stocked based on internal forecasts.
FIR sells both directly to customers and through two non-
exclusive independent sales representatives located in France and
Germany. The Company enjoys long-term relationships with its
customers, some of which have been customers for over 20 years.
The successful development of long-term customer relationships is
a direct result of FIR=s reputation for high-quality products and
on-time delivery. Within FIR=s customer base of over 450, no
single customer accounts for more than 5% of 1998 sales. FIR=s
top ten customers in 1998 accounted for approximately 32% of
total sales.
FIR has many competitors across a very fragmented European motor
market. However, FIR has distinguished itself by providing
highly engineered custom products for small markets. FIR
provides Motors and Gears with a strong foundation upon which to
expand its overseas market. Through FIR, Motors and Gears will
have access to established European markets, including Italy,
Germany, France, Spain and Great Britain, as well as emerging
Eastern European markets such as Poland, the Czech Republic, and
Russia. Through its European market presence and established
brand name, the Company believes FIR will enable Motors and Gears
to further develop leadership positions within market niches and
expand globally.
Advanced DC Motors. Founded in 1989 and purchased by Motors and
Gears in 1998, Advanced DC Motors is a designer and manufacturer
of DC permanent magnet motors and starters (generators) which
range from 4.5 inches to 9 inches in size. Advanced DC Motors
sells special purpose custom designed motors for use in electric
lift trucks, power sweepers, electric utility vehicles, golf
carts, electric boats and other niche products. Advanced DC
Motors also manufactures and sells commutators, which are motor
components used to reverse the direction of electric current in
motors, as well as special purpose production equipment. Special
purpose motors comprised approximately 95% of Advanced DC Motors'
net sales in 1998, while commutators and production equipment
accounted for approximately 5%. Advanced DC Motors' net sales
for 1998 were $27.2 million.
Advanced DC Motors is a fully-integrated manufacturer, with
nearly 100% of its products manufactured to custom specifications
developed through direct engineer-to-engineer design. Advanced
DC Motors is capable of producing high-volume orders, none of
which are for stock. As a result, Advanced DC Motors carries
virtually no finished goods inventory. Advanced DC Motors has
several production facilities, each specializing in some aspect
of its business, such as motor production, commutator production
for internal and external use, manufacturing of production
equipment for internal and some external use, production of field
coils and armature coils used primarily for internal production
and research and development of electronic control products.
Advanced DC Motors also has a warehouse facility in Germany used
to service its European customers.
Advanced DC Motors primarily sells directly to its customers,
OEMs, through its executive team due to the technical nature of
the sale. Advanced DC Motors uses one independent
representative. It also sells to distributors who serve the on-
road electric vehicle market. Advanced DC Motors' largest
customer accounted for 28% of sales and the top five customers
accounted for 72% in 1998.
Controls
ED&C. ED&C was founded in 1958 and acquired by Motors and Gears
in October 1997. It is a full-service electrical engineering
company which designs, engineers and manufactures electrical
control systems and panels for material handling systems and
other like applications. ED&C provides comprehensive design,
build and support services to produce electronic control panels
which regulate the speed and movement of conveyor systems used in
a variety of automotive plants and other industrial applications.
ED&C had net sales in 1998 of $10.3 million.
ED&C provides its customers with two distinct types of
product/service. The first type consists of designing,
programming, manufacturing, and commissioning the control system.
These types of orders, which represented approximately 65% of
1998 orders, are value-added to the customer and therefore earn
higher margins. The second type of product/service consists of
manufacturing only, in which the customer provides ED&C with
control panel designs and specifications and ED&C manufactures
and assembles the product. These projects comprised
approximately 35% of 1998 orders.
ED&C obtains the majority of its revenues through repeat
business, referrals from its current customer base, and requests
for proposals brought to ED&C due to its reputation for high
quality design. Approximately 98% of 1998 net sales were to the
automobile industry. Auto manufacturers have very stringent
requirements regarding their material handling systems, and ED&C
has gained significant expertise from servicing these demanding
automotive OEMs. This expertise provides ED&C with a competitive
advantage in less technically demanding markets. The company's
largest customer accounted for approximately 35% of revenues in
1998, while the top five customers accounted for approximately
70% in 1998.
Motion Control. Motion Control was founded in 1983 and acquired
by Motors and Gears in December 1997. Motion Control is a
manufacturer of electronic motion and logic control products for
elevator markets and specifically the elevator modernization
market. Motion Control designs, engineers and assembles custom
microprocessor-based control systems primarily used in
modernizing and upgrading existing cable traction and hydraulic
elevators (approximately 90% of 1998 net sales), and also
provides systems for elevators installed in new building
construction (approximately 10% of 1998 net sales). Motion
Control fits closely with Motors and Gears' Imperial subsidiary,
which supplies motor products to the elevator industry. The
addition of Motion Control enables Motors and Gears to provide
the elevator industry with a complete value-added motor and
control package. Motion Control had 1998 net sales of $51.3
million.
Motion Control's production process consists primarily of
assembling electronic components in a cabinet and testing the
final product. Virtually all component parts, such as personal
computer boards, switches, resistors, drivers, transformers, wire
and cabinets are supplied through a network of wholesalers and
distributors, none of which Motion Control is reliant on. Motion
Control's production process is designed to accommodate
flexibility and efficiency in a custom-production environment.
Motion Control's engineers design most of Motion Control's
products in a modular format to accommodate customization.
Motion Control sells through a direct sales force to major
elevator manufacturers (approximately 32% of 1998 sales), large
and small independent contractors (approximately 62% of 1998
sales), and international companies (approximately 6% of 1998
sales). Motion Control's sales and marketing staff of
approximately twenty consists of eight sales representatives,
seven of whom cover the domestic market and one Australia-based
employee who serves the Australian market and all international
customers. Motion Control also engages in marketing and
promotional activities such as presentations at trade shows and
industry conventions; development of brochures; articles and
advertisements in trade magazines; direct mailings to customers;
and a quarterly newsletter distributed to over 3,000 existing and
potential customers.
Elevator modernization projects represent Motion Control's
primary market. Motion Control focuses on the high-end domestic
elevator modernization market, a niche which represents
approximately 5% of the entire worldwide elevator control market.
Elevator modernization primarily involves cosmetic, structural,
or performance enhancements to an existing elevator system.
While an elevator may last 30-40 years, its controls are
typically replaced two-to-three times during its life. Further,
while the worldwide elevator market is growing at approximately
4% annually, the elevator modernization niche is growing
approximately 20% annually. This growth is expected to continue
as new electronic control technology is developed. Motion
Control's technology is also transferrable to other non-elevator
motion control and drive markets, such as factory automation,
commercial equipment and appliances.
Jordan Telecommunication Products
Jordan Telecommunication Products (AJTP@) is a leading supplier
of infrastructure products and equipment, (approximately 50% of
1998 sales), electronic connectors and components, (approximately
15% of 1998 sales), and custom cable assemblies and accessories
(approximately 35% of 1998 sales) to the telecommunications
industry. It has provided its customers with products and
services for an average of over 20 years. For the fiscal year
ended December 31, 1998, Jordan Telecommunication Products
generated combined net sales of $310.0 million, including sales
of $16.1 million for Diversified Wire and Cable which was sold in
July 1998.
Infrastructure Products and Equipment
Dura-Line. Dura-Line is a manufacturer and supplier of
AInnerduct@ pipe through which fiber optic cable is installed and
housed. Dura-Line sells this product to major telecommunications
companies throughout the world. Dura-Line also manufactures
flexible polyethylene water and natural gas pipe. Dura-Line was
founded in 1974, and acquired by the Company in 1985.
Approximately 96% of Dura-Line=s 1998 net sales of $91.5 million
came from sales of its Innerduct product. Dura-Line sells
Innerduct to major telecommunications companies, such as SPT
Telecom, GTE, Bell South and Pacific Telesis, each of which
accounted for less than 12% of Dura-Line=s net sales in 1998.
Innerduct is marketed worldwide by Dura-Line=s management, ten
manufacturing representatives and forty in-house sales
representatives. Dura-Line negotiates long-term contracts with
major telecommunications companies for its Innerduct product
line.
The cable conduit market is highly competitive. In the United
States, Dura-Line faces competition from a wide range of
companies including national, international and regional
suppliers of cable conduit. In addition to other independent
manufacturers of cable conduit outside of the United States, Dura-
Line=s competitors include manufacturers that produce pipe and
tubing for other uses, such as gas and water transportation.
Competition within the industry is based primarily on quality,
price, production capacity, field support, technical
capabilities, service and reputation.
In addition, approximately 4% of Dura-Line=s 1998 net sales came
from the sale of polyethylene water and natural gas pipe to a
variety of hardware stores, contractors, plumbing supply firms
and distributors. Dura-Line markets its water and natural gas
pipe products through sixty manufacturing representatives in the
Southern and Eastern United States. The water and natural gas
pipe market is very competitive. Dura-Line competes on the basis
of quality and price with a number of regional and local firms.
Dura-Line=s products are manufactured through the plastic
extrusion process. Dura-Line procures raw plastic for extrusion
from a number of independent suppliers. In March 1989, Dura-Line
opened a new manufacturing facility in the United Kingdom to
manufacture products for sale to British Telecom and other
foreign customers. Approximately 44% of Dura-Line=s 1998 net
sales were foreign sales. In late 1990, Dura-Line purchased a
facility in Reno, Nevada. This facility opened in early 1991 and
has increased Dura-Line=s annual capacity by approximately 50%.
In 1993, Dura-Line entered into joint venture agreements in the
Czech Republic and Israel to service Eastern Europe and the
Middle East more effectively. In early and late 1995, Dura-Line
opened subsidiaries in Mexico and China to manufacture and supply
High Density Polyethylene ("HDPE"), plastic conduit systems to
Central and South American markets as well as China and other
Asian markets. Dura-Line owns 100% of the equity in both
subsidiaries. In August 1996, Dura-Line incorporated a
subsidiary in India under a joint venture agreement in which Dura-
Line has the controlling interest. The subsidiary was
established to manufacture and supply HDPE plastic conduit
systems to India and neighboring countries. In 1997, Dura-Line
opened facilities in Malaysia and Spain to supply HDPE plastic
conduit systems in those markets. Dura-Line opened a facility in
Pryor, Oklahoma in 1998 to supply HDPE plastic conduit systems in
support of its contracts as part of Level 3's nationwide buyout
as well as to increase general domestic capacity.
Viewsonics. Viewsonics was founded in 1974 and purchased by the
Company in 1996. Viewsonics designs, manufactures and markets
branded cable television (ACATV@), electronic network components,
and electronic security components mainly for the Adrop@ or home
connection portion of the CATV infrastructure. Viewsonics
develops, warehouses and sells its products out of its Florida
facility. Viewsonics sources approximately 80% of its products
from China, approximately 50% of which are manufactured in
Viewsonics= Shanghai facility, and the remaining 50% of which are
manufactured by subcontractors. Viewsonics has also developed
manufacturing capabilities in St. Petersburg, Russia. The
overseas procurement has allowed Viewsonics to lower production
costs and it has also positioned Viewsonics to exploit the
overseas CATV component markets as they develop.
Viewsonics sells approximately 50% of its products to multisystem
operations including companies such as Time/Warner, Cencast,
Continental Cablevision, and TCI. Viewsonics also sells to a
network of distributors, six of whom account for the majority of
the other 50% of 1998 sales. In 1998, Viewsonics generated net
sales of $14.2 million. Competition in the industry is focused
on quality, service, engineering support and price.
Northern. Northern was founded in 1985 and was purchased by the
Company in 1996. Northern designs, manufactures and markets power
conditioning and power protection equipment for primarily
telecommunication applications, such as cellular and Personal
Communication System (APCS@) networks. Northern also offers a
variety of products including voltage regulators, uninterruptible
power supplies, isolation transformers, and grounding devices to
protect any power-critical application.
Northern sells directly through its own highly technical in-house
sales force of 23 employees, who are supported by seven
application engineers and four product development engineers.
Northern sells to such large telecom OEMs as Sprint, Motorola,
Lucent, Ericsson and Nokia. Northern=s largest customer
accounted for approximately 50% of net sales in 1998 of $26.4
million and its 10 largest customers accounted for approximately
76% of net sales in 1998.
Engineered Endeavors (AEEI@). EEI was founded in 1987 and
acquired by the Company in September 1997. EEI designs complete
cellular and PCS towers, manufactures monopole antenna mount
platforms, custom bill and clock towers, and accessories. EEI
also distributes ancillary products used in the construction of
cellular and PCS towers. Approximately 51% of its 1998 net sales
were PCS towers, while approximately 24% were from cellular
towers. The remaining 25% were from packagers and others. EEI's
net sales in 1998 were $18.4 million.
EEI's manufacturing facility links a computer aided design
drawing system directly to the production lines where the antenna
support, monopole and ancillary equipment is manufactured. Once
manufactured, the products are shipped to a New Orleans
subcontractor where they are galvanized, packaged and shipped
directly to the telecommunication tower construction site.
EEI uses a direct sales force consisting of one lead salesman,
six computer aided design engineers and five structural
engineers. It also uses one manufacturers' representative. EEI's
largest customer is Nextel Communications, Inc., which comprised
approximately 16% of revenues in 1998. Other top customers
include Airtouch Cellular, Bell South PCS, Southwestern Bell,
Sprint, AT&T Wireless and Alltell. Its sales are primarily to
the domestic market.
The market for communications towers is expected to continue to
grow for the next several years, and EEI provides
Telecommunication Products with an entrance into that market. It
also complements Telecommunication Products' Northern subsidiary,
which specializes in surge protection devices for cellular and
personal communications systems. EEI`s competition is primarily
regional, with Valmont, Fort Worth Tower, Summit Manufacturing,
Piro and UNR Roan being its main competitors. EEI will also
benefit from Telecommunication Products' strong international
presence.
Electronic Connectors and Components
Effective December 1998, Telecommunication Products reorganized
the operations of its subsidiaries, Johnson Components, AIM
Electronics, Cambridge Products and Vitelec Electronics. The
reorganization consisted of centralizing manufacturing, sales and
marketing, and headquarters operations at Johnson's Waseca,
Minnesota facility. AIM Electronics' Sunrise Florida facility
and Vitelec's Bordon, England facility are still used for
assembly, distribution and sales operations. Electronic
Connectors and Components still sells and markets its products
under the Johnson Components, AIM Electronics, Cambridge Products
and Vitelec Electronics tradenames.
Electronic Connectors and Components is a leading designer,
developer, manufacturer and distributor of standard, sub-
miniature and micro-miniature radio frequency and other
connectors and related products for use in cable assemblies,
mobile communications, voice/date communications, testing
instruments, computers, security equipment and other
applications. Electronic Connectors and Components has a
reputation for delivering high-quality products with a high
degree of service and expedited delivery. Of its 1998 net sales
of $43.0 million, radio frequency connectors/adaptors represented
approximately 59%, voice/data products accounted for
approximately 15%, cable assemblies comprised approximately 9%,
and electronic hardware and other electronic components were
responsible for approximately 17%.
Electronic Connectors and Components manufactures, assembles and
distributes its products in a timely and cost-effective manner
worldwide. Its manufactured radio frequency connectors
(including sub-miniature and micro-miniature) are made 98% from
brass bar and rod stock. The brass bar is machined to
specification and then plated. Manufactured hardware and other
electronic components are produced from various metals as well as
injection-molded parts, and often require manual assembly.
Electronic Connectors and Components' efficient, fully-integrated
manufacturing system and warehouse operations allow approximately
26% of its manufactured product orders to be shipped within 24
hours. The industry's average lead time is six to eight weeks.
The assembly operations import materials from Taiwan, Hong Kong
and the United Kingdom. The operations are fully automated and
have excellent order processing and warehouse systems. These
systems allow Electronic Connectors and Components to ship
assembled products within 24 hours of receipt of an order 90% of
the time, on average.
Electronic Connectors and Components' products are sold to OEMs
(approximately 18% of 1998 sales) and general line distributors
(approximately 82% of 1998 sales). Its OEM customers include
Hewlett-Packard, Nokia, Motorola, Ericsson and Tandy. Electronic
Connectors and Components sells its products through a direct
sales force of 11 and a coordinated effort with over 100
manufacturing representatives belonging to over 20 independent
representative organizations. Sales to North America and South
America are coordinated out of Electronic Connectors and
Components' headquarters, while European sales are managed by a
United Kingdom-based sales manager. International sales
comprised approximately 23% of 1998 revenues. Electronic
Connectors and Components' customer base is large and diverse,
and no one customer accounted for more than 5% of sales. The top
ten customers accounted for approximately 18% of sales in 1998.
The electronic connector and components industry is highly
fragmented with over 1,500 manufacturers competing worldwide.
Electronic Connectors and Components competes with different
suppliers in each of the various categories of the overall
market, as well as with large national suppliers such as
Amphenol, M-A/COM (a division of AMP), Radiall and Pan-Pacific.
Electronic Connectors and Components focuses on the customer
niche that values high quality products with a quick turnaround
time and superior customer service.
Custom Cable Assemblies and Accessories
Bond. Bond was founded in 1988 and the Company acquired 80% of
the outstanding shares of Bond in 1996. Bond designs, engineers
and manufactures high-quality custom electronic cables and
connector sub-assemblies for computer-related and
telecommunications customers. All of Bond=s products are custom-
made and are specifically designed to meet customer needs. Bond
has three fully integrated, independent manufacturing facilities.
Bond has rapidly become an industry leader due to its commitment
to high quality and competitively priced products offered in
conjunction with outstanding and dependable service.
Bond has established two separate, very profitable sales agencies
in Northern and Southern California to represent them. Bond is
continuing to actively solicit new strategic customers located
throughout the United States via an independent sales
representative network. In 1998, Bond=s single-largest customer
accounted for approximately 31% of its net sales of $13.9 million
and the top five customers accounted for approximately 53%.
K&S Sheet Metal. In January 1998, Bond Technologies purchased
K&S Sheet Metal, a manufacturer of precision metal electronic
enclosures and box-build assemblies for electronic OEMs. Box-
build assemblies consist of precision metal enclosures outfitted
with power supplies, fans, cable assemblies and other electronic
and mechanical components. One-hundred percent of K&S Sheet
Metal's products are customized according to customer
specifications. Approximately 96% of K&S Sheet Metal's 1998
revenues were derived from the sale of precision metal
enclosures, while the remaining 4% were derived from box-build
assemblies. K&S Sheet Metal's net sales for 1998 were $12.0
million.
K&S Sheet Metal has carved a niche as a supplier of short to
medium run complicated boxes where it can demand a premium price
for good product quality and service. It sells direct to many of
the largest data storage, computer and telecommunication product
OEMs in Southern California. Its top five customers are Kingston
Technologies Corporation, MGE-UPS Systems, Gateway 2000, OLEC and
Cherokee International.
LoDan. LoDan, founded in 1967 and acquired by the Company in May
1997, designs, engineers, manufactures, and distributes high-
quality, custom electronic cable assemblies, sub assemblies, and
electro-mechanical assemblies to OEMs in the data and
telecommunications segments of the electronics industry. LoDan
manufactures approximately 49% of the products it sells in-house
at an ISO-9001 certified manufacturing facility, with the
remaining 51% being distributed products. For fiscal 1998,
LoDan=s net sales were $28.8 million.
The acquisition of LoDan has bolstered the presence of Jordan
Telecommunication Products in the custom cable assembly business.
LoDan=s customer base, which compliments that of Bond, was built
based on providing innovative solutions to customers= needs.
LoDan's largest customer, Cisco Systems (approximately 43% of
1998 sales), is the world=s pre-eminent networking company and
provides LoDan with access to international markets. LoDan=s
products are sold through internal and external sales forces.
Bond and LoDan supply the custom cable assembly market which
encounters competition from a broad range of companies, several
of which are much larger and have greater financial resources
than either Bond or LoDan. In addition to other independent
manufacturers of cable assemblies, offshore manufacturers compete
in this market, primarily on the basis of price. Competition
within the industry is based on quality, production, capacity,
breadth of product line, engineering support capability, price,
local support capability, systems support and financial strength.
Telephone Services, Inc. (ATSI@). In October 1997, the Company
acquired 70% of TSI. TSI designs, manufactures and distributes
custom cable assemblies (approximately 82% of 1998 sales),
terminal strips and terminal blocks (approximately 8% of 1998
sales) and other connecting devices (approximately 10% of 1998
sales) primarily to the telephone operating companies and major
telecommunication manufacturers. TSI has established a reputation
for high-quality products, on time-delivery and dependable
service. Its 1998 net sales were $45.7 million.
TSI designs its products on an engineer-to-engineer basis for
specific telecommunication applications. Its manufacturing
equipment consists of numerous crimping and stripping devices
used to manufacture cable assemblies and test equipment for
quality control purposes. Its manufacturing process is extremely
efficient, enabling it to finish prototype and pre-production
assemblies within one week. After pre-production, general
production lead times average one to three weeks. TSI`s technical
expertise and efficient production process have enabled it to
establish strong relationships with many of the largest
telecommunication companies.
TSI manufactures cable assemblies for approximately 100
telecommunication OEMs. It sells its products through a direct
sale force of eight regional salespeople who are supported
internally by a staff of engineering and technical application
engineers. The direct salesperson also functions as an
application engineer and interacts directly with the customer's
design engineers. TSI's largest customer is Pacific Bell, which
represented approximately 24% of revenues in 1998. The other
four which made up the top five customers in 1998 are Tekontrol,
approximately 17%, GTE, approximately 15%, Sprint, approximately
9%, and A.D.C., approximately 6%. Other top customers include
Southwestern Bell, Nynex, World Com and M.F.S.
The cable assembly business is highly fragmented, but is
experiencing strong growth as telecommunication companies
continue to outsource this subcomponent. TSI's competition is
regional by product line, and cable assembly competitors include
M.M.I., Varitronics and Telect, while terminal block competitors
include Thomas & Betts and Lucent Technologies.
A key component of TSI's growth is through acquisitions of
smaller companies with product line and/or customer synergies.
As part of this strategy, in July 1998, TSI acquired Opto-Tech
Industries, Inc., a manufacturer of a variety of filters,
attenuaters and other miscellaneous equipment for the
telecommunications industry. Most of Opto-Tech's sales are to
Regional Bell Operating Companies. Opto-Tech Industries is a good
fit for TSI because of their overlapping customer base. Opto-
Tech's operations have been fully integrated into those of TSI.
Backlog
As of December 31, 1998, the Company had a backlog of
approximately $134.4 million, compared with $109.6 million as of
December 31, 1997. The backlog in 1998 is primarily due to
titanium hot formed sales at Parsons, motor sales at Merkle-
Korff, and cable assembly sales at LoDan. Management believes
that the backlog may not be indicative of future sales.
Seasonality
The Company=s aggregate business has a certain degree of
seasonality. SPAI=s and Riverside=s sales are somewhat stronger
toward year-end due to the nature of their products. Calendars
at SPAI have an annual cycle while Bibles and religious books at
Riverside are popular as holiday gifts.
Research and Development
As a general matter, the Company operates businesses that do not
require substantial capital or research and development
expenditures. However, development efforts are targeted at
certain subsidiaries as market opportunities are identified.
None of these subsidiaries= development efforts require
substantial resources from the Company.
Patents, Trademarks, Copyrights and Licenses
The Company relies on a combination of patent, copyright,
trademark and trade secret laws and contractual agreements to
protect its proprietary technology and know how. The Company
owns and uses trademarks and brandnames to identify itself as a
source of certain goods and services including the DURA-LINE and
SILICORE trademarks, both of which are registered in the United
States and various foreign countries, and the VIEWSONICS
brandname, in which the Company has common law rights. The
Company=s SILICORE technology includes a patented solid co-
extruded polymer lubricant lining that uses a silicone-based
lubricant which is marketed and sold under the SILICORE
trademark. There can be no assurance that the Company will be
granted additional patents or that the Company=s patents either
will be upheld as valid if ever challenged or will prevent the
development of competitive products. The Company=s U.S. patent
with respect to the SILICORE lubricant lining expires in 2007.
The Company has not sought foreign patents for most of its
technologies, including technologies which have been patented in
the United States, such as the SILICORE lubricant lining, which
may adversely affect the Company=s ability to protect its
technologies and products in foreign countries. The Company
protects its confidential, proprietary information as trade
secrets.
Except for the SILICORE polymer pipe products, certain of the
Company=s CATV components and its fiber optic connector
technology, the Company=s products are generally not protected by
virtue of any proprietary rights such as patents. There can be
no assurance that the steps taken by the Company to protect its
proprietary rights will be adequate to prevent misappropriation
of its technology and know-how or that the Company=s competitors
will not independently develop technologies that are
substantially equivalent to or superior to the Company=s
technology. In addition, the laws of some foreign countries do
not protect the Company=s proprietary rights to the same extent
as do the laws of the United States. In the Company=s opinion,
the loss of any intellectual property asset, would not have a
material adverse effect on the conduct of the Company=s business.
The Company is also subject to the risk of adverse claims and
litigation alleging infringement of the proprietary rights of
others. From time to time, the Company has received notice of
infringement claims from other parties. Although the Company
does not believe it infringes the valid proprietary rights of
others, there can be no assurance against future infringement
claims by third parties with respect to the Company=s current or
future products. The resolution of any such infringement claims
may require the Company to enter into license arrangements or
result in protracted and costly litigation, regardless of the
merits of such claims.
Employees
As of December 31, 1998, the Company and its subsidiaries
employed approximately 7,092 people. Approximately 1,189 of
these employees were members of various labor unions. The
Company has not experienced any work stoppages in the past five
years as a result of labor disruptions. The Company believes
that its subsidiaries= relations with their respective employees
are good.
Environmental Regulations
The Company is subject to numerous U.S. and foreign federal,
state, provincial, and local laws and regulations relating to the
storage, handling, emission and discharge of materials into the
environment, including the U.S. Comprehensive Environmental
Response, Compensation and Liability Act (ACERCLA@), the Clean
Water Act, the Clean Air Act, the Emergency Planning and
Community Right-To-Know Act and the Resource Conservation and
Recovery Act. Under CERCLA and analogous state laws, a current
or previous owner or operator of real property may be liable for
the cost of removal or remediation of hazardous or toxic
substances on, under, or in such property. Such laws frequently
impose cleanup liability regardless of whether the owner or
operator knew of or was responsible for the presence of such
hazardous or toxic substances and regardless of whether the
release or disposal of such substances was legal at the time it
occurred. Regulations of particular significance to the
Company=s ongoing operations include those pertaining to handling
and disposal of solid and hazardous waste, discharge of process
wastewater and stormwater and release of hazardous chemicals.
The Company believes it is in substantial compliance with such
laws and regulations.
The Company generally conducts a Phase I environmental survey on
each acquisition candidate prior to purchasing the company to
assess the potential for the presence of hazardous or toxic
substances that may lead to cleanup liability with respect to
such properties. The Company does not currently anticipate any
material adverse effect on its results of operations, financial
condition or competitive position as a result of compliance with
federal, state, provincial, local or foreign environmental laws
or regulations. However, some risk of environmental liability
and other costs is inherent in the nature of the Company=s
business, and there can be no assurance that material
environmental costs will not arise. Moreover, it is possible
that future developments such as the obligation to investigate or
clean up hazardous or toxic substances at the Company=s property
for which indemnification is not available, could lead to
material costs of environmental compliance and cleanup by the
Company.
Barber-Colman Motors, a product line of the Company and formerly
a wholly-owned subsidiary of the Company, leases property that
has been the subject of remedial investigation and corrective
action following the removal of a small, underground waste oil
tank in 1994. Contaminated soils have been removed up to the
edge of the foundation of an overlying structure and down to
bedrock. The Wisconsin Department of Natural Resources has
advised the Company that no further action is necessary at this
time. In connection with the acquisition of Barber-Colman, the
Company obtained indemnification from the former owner of Barber-
Colman Motors for environmental liability resulting from its
prior operations.
FIR, a wholly-owned subsidiary of the Company, owns property in
Casalmaggiore, Italy that is the subject of investigation and
remediation under the review of government authorities for soils
and groundwater contaminated by historic waste handling
practices. In connection with the acquisition of FIR, the
Company obtained indemnification from the former owners for this
investigation and remediation.
In October 1997 the Tennessee Department of Environmental Control
("DEC") requested information from Dacco about a contaminated
spring adjacent to its Cookeville, Tennessee property. The
spring is reportedly contaminated with materials which Dacco does
not believe it ever used at the facility, and Dacco therefore
does not believe that it caused the contamination or that it will
be responsible for the cleanup. In September 1998 the DEC
informed Dacco that the spring requires further investigation,
and that Dacco's Cookeville property meets the criteria for
designation as a state Superfund cleanup site. The DEC has
subsequently agreed to examine the potential liability of other
companies in the area before pursuing Dacco for cleanup costs.
While the Company does not believe that Dacco will be liable for
the cost of any further investigation or cleanup, there can be no
assurance that the DEC will not attempt to impose such liability,
or that, if the DEC is successful in doing so, that such
liability would not be material.
Item 2. Properties
The Company leases approximately 31,700 square feet of office
space for its headquarters in Illinois. The principal properties
of each subsidiary of the Company at December 31, 1998, and the
location, the primary use, the capacity, and ownership status
thereof, are set forth in the table below:
SQUARE OWNED/
COMPANY LOCATION USE FEET LEASED
Advanced DC Dewitt, NY Manufacturing/Administration 49,600 Owned
Syracuse, NY Manufacturing 45,000 Leased
Carrollton, TX Manufacturing/Administration 29,000 Leased
Dewitt, NY Manufacturing 18,500 Leased
Eternoz, France Manufacturing/Administration 10,000 Leased
Putzbrunn,Germany Warehouse 1,200 Leased
Palo Alto, CA Research and Development 1,000 Leased
Beemak Rancho Dominguez, CA Manufacturing/Administration110,000 Leased
Bond Anaheim, CA Manufacturing/Administration 22,000 Leased
Huntington Beach, CA Manufacturing/Administration 150,000 Leased
Austin, TX Manufacturing/Administration 13,000 Leased
Cape Craftsmen Elizabethtown,NC Manufacturing 230,200 Leased
Wilmington, NC Administration 8,500 Leased
Cho-Pat Hainesport, NJ Manufacturing/Administration 7,000 Leased
DACCO Cookeville, TN Administration/Manufacturing 140,000 Owned
Huntland, TN Manufacturing 65,000 Owned
Rancho Cucamonga, CA Administration/Manufacturing 40,00 Owned
Deflecto Indianapolis, IN Manufacturing/Administration 200,000 Owned
Indianapolis, IN Manufacturing 38,100 Leased
Indianapolis, IN Manufacturing 25,600 Leased
St. Catherines,Ont.Manufacturing 30,000 Owned
St. Catherines,Ont.Manufacturing 30,000 Leased
Dura-Line Beranang, Melaysia Manufacturing/Administration 64,000 Leased
Ciudad Real, Spain Manufacturing/Administration 3,000 Leased
Goa, India Manufacturing/Administration 48,000 Owned
Grimsby, U.K. Manufacturing/Administration 35,000 Owned
Knoxville, TN Administration 10,000 Leased
Mexico City, Mexico Sales Office/Administration 2,000 Leased
Middlesboro, KY Manufacturing/Administration 80,000 Owned
New Delhi, India Sales Office/Administration 2,000 Leased
Pryor, OK Manufacturing/Administration 33,750 Owned
Queretaro, Mexico Manufacturing/Administration 43,000 Leased
Sao Paolo, Brazil Sales 600 Leased
Shanghai, China Manufacturing/Administration 50,000 Owned
Shanghai, China Sales Office/Administration 1,000 Leased
Sparks, NV Manufacturing 35,000 Owned
Tel Aviv, Israel Manufacturing/Administration 10,000 Leased
Zlin, Czech Republic Manufacturing/Administration 40,000 Owned
ED&C Troy, MI Manufacturing/Administration 29,400 Leased
EEI Mentor, OH Manufacturing/Administration 48,000 Leased
Belle Chasse, LA Warehouse 195,000 Leased
Elec Connectors
& Components Bordan, U.K. Dist/Admn/Assembly 16,500 Owned
Sunrise, FL Dist/Admn/Assembly 28,000 Leased
Waseca, MN Manufacturing/Administration 70,000 Sub-Leased
Paris, France Sales 1,000 Leased
FIR Casalmaggiore,ItalyManufacturing/Administration 100,000 Owned
Varano, Italy Manufacturing 30,000 Owned
Bedonia, Italy Manufacturing 8,000 Owned
Reggio Emilia, Italy Manufacturing 35,000 Leased
Reggio Emilia, Italy Manufacturing 30,000 Leased
Genova, Italy Manufacturing 33,000 Leased
Gear Grand Rapids, MI Manufacturing/Administration 39,000 Owned
Imperial Akron, OH Manufacturing/Administration 43,000 Owned
Stow, OH Administration 7,000 Leased
Middleport, OH Manufacturing 85,000 Owned
Cuyahoga Falls, OH Manufacturing 63,000 Leased
Alamogorda, NM Manufacturing 15,000 Leased
Bedford, OH Manufacturing/Administration 25,000 Leased
LoDan San Carlos, CA Manufacturing/Administration 22,500 Leased
San Carlos, CA Manufacturing 13,500 Leased
Merkle-Korff Des Plaines, IL Manufacturing/Administration 38,000 Leased
Des Plaines, IL Manufacturing/Administration 45,000 Leased
Richland Center, WI Manufacturing/Administration 45,000 Leased
Darlington, WI Manufacturing 68,000 Leased
Des Plaines, IL Manufacturing/Administration 112,000 Leased
Motion Control Rancho Cordova,CA Manufacturing/Administration 40,000 Leased
Northern Liberty Lake, WA Manufacturing/Administration 22,600 Leased
Pamco Des Plaines, IL Manufacturing/Administration 24,500 Owned
Parsons Parsons, KS Manufacturing/Administration 97,500 Owned
Riverside Iowa Falls, IA Distribution/Administration 65,900 Leased
Sparks, NV Distribution/Administration 35,000 Leased
Rolite Midvale, OH Manufacturing/Administration 20,500 Owned
Sate-Lite Niles, IL Manufacturing/Administration 120,000 Leased
Shunde, China Manufacturing/Administration 9,282Sub-Leased
Seaboard Fitchburg, MA Administration/Manufacturing 260,000 Owned
Miami, FL Manufacturing 90,000 Owned
Brentwood, NY Manufacturing 35,000 Leased
Red Oak, IA Manufacturing/Administration 136,500 Owned
Coshocton, OH Manufacturing/Administration 240,000 Leased
(Four buildings)
TSI Grand Prairie, TX Manufacturing/Administration 15,000 Leased
Shasta Lake City, CA Manufacturing 5,000 Leased
Riverview, FL Manufacturing 75,000 Leased
Tampa, FL Manufacturing 20,000 Leased
Valmark Fremont, CA Manufacturing/Administration 46,000 Leased
Fremont, CA Manufacturing/Administration 15,000 Leased
Viewsonics Boca Raton, FL Administration/Distribution/
Research and Development 14,500 Leased
Shanghai, China Manufacturing/Administration 25,000 Leased
St. Petersburg, Russia Manufacturing/Administration 10,000 Leased
DACCO also owns or leases thirty-five distribution centers, which
average 4,000 square feet in size. DACCO maintains five
distribution centers in Tennessee, four distribution centers in
Florida, two distribution centers in each of Illinois, Arizona,
Michigan, Texas, Alabama, California, Ohio, and Virginia, and the
remaining distribution centers are located in Pennsylvania,
Indiana, Minnesota, Missouri, Nebraska, West Virginia, Oklahoma,
South Carolina, Nevada, and Kentucky.
Merkle-Korff=s facilities are leased from the chairman of Merkle-
Korff and Northern=s Liberty Lake, Washington, facility is
leased from a general partnership consisting of the former
owners. The Company believes that the terms of these leases are
comparable to those which would have been obtained by the Company
had these leases been entered into with an unaffiliated third
party.
The Company also has sales representatives in field offices in
Florida, Illinois, Ohio, Oregon, Virginia and internationally in
Brazil, Bulgaria, Germany, Malaysia, Romania, Russia and
Slovakia.
To the extent that any of the Company's existing leases expire in
1999, the Company believes that it will be able to renegotiate
them on acceptable terms. The Company believes that its existing
leased facilities are adequate for the operations of the Company
and its subsidiaries.
Item 3. LEGAL PROCEEDINGS
On January 21, 1997, Welcome Home filed for Chapter 11 bankruptcy
protection. As a result of the Chapter 11 filing, the results of
Welcome Home are not consolidated with the Company=s results for
periods subsequent to January 21, 1997.
The Company=s subsidiaries are parties to various other legal
actions arising in the normal course of their business. The
Company believes that the disposition of such actions
individually or in the aggregate will not have a material adverse
effect on the consolidated financial position of the Company.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders
during the fiscal year ended December 31, 1998.
PART II
Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
(a) The only authorized, issued and outstanding class of capital
stock of the Company is Common Stock. There is no
established public trading market for the Company's Common
Stock.
(b) At December 31, 1998, there were 19 holders of record of the
Company's Common Stock.
(c) The Company has not declared any cash dividends on its
Common Stock since the Company's formation in May, 1988.
The Indenture (the "Indenture"), dated as of September 9,
1997, by and between the Company and First Bank National
Association, as Trustee, with respect to the 10 3/8% Senior
Notes and the 11 3/4% Senior Subordinated Discount
Debentures contain restrictions on the Company's ability to
declare or pay dividends on its capital stock. The
Indenture prohibits the declaration or payment of any
dividends or the making of any distribution by the Company
or any Restricted Subsidiary (as defined in the Indenture)
other than dividends or distributions payable in stock of
the Company or a Subsidiary and other than dividends or
distributions payable to the Company.
Item 6. SELECTED FINANCIAL DATA
The following table presents selected operating, balance
sheet and other data of the Company and its subsidiaries as of
and for the five years ended December 31, 1998. The financial
data of the Company and its subsidiaries as of and for the years
ended December 31, 1994 through 1998 were derived from the
consolidated financial statements of the Company and its
subsidiaries.
Year Ended December 31,
(dollars in thousands)
1998 1997 1996 1995 1994
Operating data:(1)
Net sales..................$943,607$ 707,112$601,567$507,311$424,391
Cost of sales, excluding
depreciation.............. 601,385 446,580 375,745 320,653 262,730
Gross profit, excluding
depreciation.............. 342,222 260,532 225,822 186,658 161,661
Selling, general and
administrative expense.... 193,426 148,921 150,951 121,371 97,428
Operating income .......... 91,696 55,444 13,392 32,360 42,944
Interest expense........... 109,705 82,455 63,340 46,974 40,887
Interest income ........... (2,178) (2,713) (2,538) (2,841) (1,471)
Income (loss) before income
taxes, minority interest,
equity in investee,
and extraordinary item.... (22,550) (6,173) (47,410) (11,773)27,689
Income (loss) before extra-
ordinary items (2)....... (31,407)(14,260) (51,884) (7,470)23,741
Net income (loss) (2) $(31,586)$(45,618)$(55,690)$(7,470)$23,741
Balance sheet data (at end of period):
Cash and cash equivalents $ 23,008 $ 52,500 $ 32,797 $ 41,253 $56,386
Working capital........... 189,065 176,508 123,479 115,387 123,395
Total assets..............1,043,888 930,231 681,885 532,384 398,474
Long-term debt (less
current portion).........1,059,419 921,871 687,936 513,690 380,966
Net capital deficiency(3).$(208,144)$(175,285)$(130,281)$(74,479)
$(66,867)
(1) The Company has acquired a diversified group of operating
companies over the five year period which significantly
affects the comparability of the information shown above.
(2) Net income in 1994 includes a gain from the sale of a
partial interest in Welcome Home of $24,161. Net loss in
1995 includes $6,929 of restructuring and non-recurring
charges related to Welcome Home. Net loss in 1996 includes
compensation expense related to a stock appreciation right
and other compensation agreements of $9,822, the loss on
the purchase of an affiliate, $4,488, and restructuring
charges related to Welcome Home, $8,106, and other non-
recurring charges, $4,136. Net loss in 1997 includes
compensation expense related to a stock appreciation right
and other compensation agreements of $15,871, a gain on the
sale of a subsidiary of $17,081, the recording of equity in
the loss of an investee of $3,386, and an extraordinary loss
of $31,358 related to the Company=s refinancing. Net loss
in 1998 includes a loss on the sale of a subsidiary of
$6,299 and a loss on foreign translation of $3,020.
(3) No cash dividends on the Company's Common Stock have been
declared or paid.
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
OPERATIONS AND FINANCIAL CONDITION
Historical Results of Operations
Summarized below are the historical net sales, operating
income and operating margin (as defined below) for each of the
Company's business groups for the fiscal years ended December 31,
1998, 1997 and 1996. This discussion should be read in
conjunction with the historical consolidated financial statements
and the related notes thereto contained elsewhere in this Annual
Report.
In 1996, Dura-Line was moved from the Consumer and Industrial
Products segment to the Telecommunication Products segment. In
1997, the Retube product line of Dura-Line was moved from the
Telecommunication Products segment to the Consumer and Industrial
Products segment. In 1998 Sate-Lite and Beemak were reclassified
from the Consumer and Industrial Products segment to the Jordan
Specialty Plastics segment. Prior period results were also
realigned into these new groups in order to provide accurate
comparisons between periods.
Year ended December 31,
1998 1997 1996__
(dollars in thousands)
Net Sales:
Specialty Printing & Labeling.. $120,160 $119,346 $109,587
Jordan Specialty Plastics...... 71,568 24,038 20,120
Motors and Gears............... 275,833 148,669 117,571
Telecommunication Products(4).. 310,028 257,010 131,592
Welcome Home(3)................ - 2,456 81,855
Consumer and Industrial Products(4) 166,018 155,593 140,842
Total ..................... $943,607 $707,112 $601,567
Operating Income (1):
Specialty Printing & Labeling.. 8,259 8,540 5,540
Jordan Specialty Plastics...... 4,654 2,490 (592)
Motors and Gears............... 42,324 27,684 23,229
Telecommunication Products(4).. 30,791 13,258 13,828
Welcome Home(3)................ - (1,107) (15,975)
Consumer and Industrial Products(4) 17,105 16,012 13,222
Total .................... $103,133 $66,877 $39,252
Operating Margin (2):
Specialty Printing & Labeling.. 6.9% 7.2% 5.1%
Jordan Specialty Plastics...... 6.5% 10.4% (2.9)%
Motors and Gears............... 15.3% 18.6% 19.8%
Telecommunication Products(4).. 9.9% 5.2% 10.5%
Welcome Home(3)................ - (45.1)% (19.5)%
Consumer and Industrial Products(4)10.3% 10.3% 9.4%
Combined (1)................... 10.9% 9.5% 6.5%
(1) Before corporate overhead of $11,437 and $11,433, for the
years ended December 31, 1998 and 1997, respectively. The
Telecommunication Products operating income includes expense
of $15,871 related to compensation agreements in 1997. The
operating income for the year ended December 31, 1996 is
before corporate overhead of $17,500, the write-off of
$4,488 in notes receivable resulting from the Cape Craftsmen
acquisition and the charge of $3,872 for a compensation
agreement. Telecommunication Products= operating income
includes the AIM and Cambridge SARA expense of $3,411 for
the year ended December 31, 1996.
(2) Operating margin is operating income divided by net sales.
(3) For the period from January 1, 1997 to January 21, 1997, the
date of the Chapter 11 filing (See Footnote 3 to the
financial statements).
(4) Jordan Telecommunication Products includes Diversified Wire
and Cable for the period from January 1, 1998 to July 8,
1998. Consumer and Industrial Products includes Hudson for
the period from January 1, 1997 to May 15, 1997, and Paw
Print for the period from January 1, 1997 to July 25, 1997.
(See Footnote 15 to the financial statements).
Specialty Printing & Labeling. As of December 31, 1998, the
Specialty Printing and Labeling group consisted of SPAI, Valmark, Pamco,
and Seaboard.
1998 Compared to 1997. Net sales increased $0.8 million or
0.7% and operating income decreased $0.3 million or 3.3%. Sales
increased primarily due to higher sales of ad specialty products
and calendars at SPAI, $1.5 million and $0.2 million,
respectively, increased sales of graphic panel overlays and
membrane switches at Valmark, $1.3 million, and higher sales of
labels at Pamco, $0.4 million. Partially offsetting these
increases were lower sales of school annuals at SPAI, $0.2
million, decreased sales of labels and shielding devices at
Valmark, $0.6 million and $1.0 million, respectively, and lower
sales of folding boxes at Seaboard, $0.8 million. The increased
ad specialty sales at SPAI were due to management's focus on the
higher growth corporate program business, while decreased sales
of shielding devices at Valmark reflect a major customer's
decision to reduce production of laptop computers that require
the shields.
Operating income decreased due to lower operating income at SPAI,
Pamco, and Seaboard, $0.1 million, $0.3 million, and $0.7
million, respectively. Partially offsetting these decreases was
increased operating income at Valmark, $0.5 million, and
decreased corporate expenses, $0.3 million. The decreased
operating income at SPAI was due to the hiring of additional
salespeople to focus on continued growth in the corporate program
ad specialty segment, and the lower operating income at Seaboard
was due to pricing pressure in the packaging industry. The
improved operating income at Valmark is due to Valmark
negotiating more favorable pricing with customers, while the
decreased corporate expenses are due to lower bank fees as bank
debt was repaid in 1997. Operating margin remained consistent
with 1997.
1997 Compared to 1996. Net sales increased $9.8 million or
8.9% and operating income increased $3.0 million or 54.2%. Sales
increased due to higher sales of ad specialty products at SPAI,
$2.2 million, increased sales of labels and graphic panel
overlays and membrane switches at Valmark, $1.0 million and $0.6
million, respectively, higher sales of labels at Pamco, $0.3
million, and increased sales of folding boxes at Seaboard, $7.3
million, due to the acquisition of Seaboard in May 1996.
Partially offsetting these increases were decreased sales of
calendars and school annuals at SPAI, $0.1 million and $0.2
million, respectively, and lower sales of shielding devices at
Valmark, $1.3 million.
Operating income increased due to higher operating income at
SPAI, $0.6 million, increased operating income at Valmark, $0.1
million, and higher operating income at Seaboard, $2.6 million.
Partially offsetting these increases was decreased operating
income at Pamco, $0.3 million. The higher operating income at
SPAI was due to lower selling, general, and administrative costs,
primarily medical insurance and commissions, while the increase
at Valmark was due to higher sales and lower operating costs.
The decrease in operating income at Pamco was attributed to lower
gross profit stemming from decreased sales of custom-made labels.
Operating margin increased 2.1%, from 5.1% in 1996 to 7.2% in
1997, primarily due to higher sales and lower operating costs as
discussed above.
Jordan Specialty Plastics. As of December 31, 1998, the Jordan
Specialty Plastics group consisted of Sate-Lite, Beemak, Deflecto
and Rolite.
1998 Compared to 1997. Net sales increased $47.5 million
or 197.7% and operating income increased $2.2 million or 86.9%.
Net sales increased primarily due to the acquisitions of Deflecto
and Rolite in February 1998. Deflecto contributed sales in 1998
of $45.2 million while Rolite contributed sales of $3.2 million.
In addition, sales of warning triangles and colorants increased
at Sate-Lite, $0.2 million and $0.3 million, respectively.
Partially offsetting these increases were lower sales of bike
reflectors and custom molded products at Sate-Lite, $0.2 million
and $0.4 million, respectively, and decreased sales of molded and
fabricated product at Beemak, $0.6 million and $0.2 million,
respectively.
Operating income increased primarily due to the acquisitions of
Deflecto and Rolite, as discussed above. These companies
contributed operating income in 1998 of $5.3 million and $0.6
million, respectively. Partially offsetting these increases was
lower operating income at Sate-Lite and Beemak, $2.0 million and
$1.5 million, respectively. In addition, corporate overhead of
$0.2 million was incurred in 1998 related to the formation of the
Jordan Specialty Plastics group. Operating income decreased at
Sate-Lite due to operating expenses incurred related to the
expansion of manufacturing operations into China and operating
income at Beemak decreased due to lower absorption of fixed
operating expenses at a lower sales level, as well as additional
costs associated with Beemak's expansion into a larger facility.
Operating margin decreased 3.9%, from 10.4% in 1997 to 6.5% in
1998, due to the reasons mentioned above.
1997 Compared to 1996. Net sales increased $3.9 million of
19.5%. The increase in net sales was partially due to the
acquisition of Arnon-Caine by Beemak in January 1997. Arnon-
Caine contributed net sales of $3.9 million in 1997. Further
contributing to the increase in 1997 net sales were increased
sales of bicycle reflectors and custom molded products at Sate-
Lite, $0.5 million and $0.2 million, respectively. Partially
offsetting these increases were decreased sales of plastic
injection molded products of Beemak, $0.7 million. The increase
in bicycle reflector sales at Sate-Lite was primarily due to the
extension of sales of bicycle reflectors into Asian markets.
Operating income increased $3.1 million or 520.6%. The increase
in operating income was partially due to the acquisition of Arnon-
Caine which contributed operating income of $1.4 million in 1997.
In addition, operating income increased at Sate-Lite and Beemak
(excluding Arnon-Caine), $1.1 million and $0.6 million,
respectively. The increase in operating income was primarily due
to higher gross profit at Sate-Lite stemming from increased sales
of custom molded product and decreased operating expenses at
Beemak due to a focused cost cutting program.
Operating margin increased to 10.4% in 1997 from (2.9)% in 1996
due to the reasons mentioned above.
Motors and Gears. As of December 31, 1998, the Motors and
Gears group consisted of Imperial, Gear, Merkle-Korff, FIR, ED&C,
Motion Control, and Advanced DC. Effective January 1997, Barber-
Colman became a fully integrated division of Merkle-Korff.
Motors and Gears operates in three separate business segments;
sub-fractional motors, fractional/integral motors, and controls.
Motors and Gears entered the controls business segment through
the acquisitions of ED&C and Motion Control during 1997.
1998 Compared to 1997. Net sales increased $127.2 million
or 85.5% and operating income increased $14.6 million or 52.9%.
The increase in net sales was primarily due to the 1998
acquisition of Advanced DC and the 1997 acquisitions of FIR,
ED&C, and Motion Control. These companies contributed net sales
in 1998 of $27.2 million, $42.1 million, $10.3 million, and $51.3
million, respectively, compared to net sales in 1997 of $14.8
million, $1.8 million, and $1.2 million for FIR, ED&C, and Motion
Control, respectively. Sales of sub-fractional motors increased
13.0% in 1998 due to continued strength in the vending and
appliance markets and sales of fractional/integral motors
increased 6.6% in 1998 (excluding acquisitions) reflecting market
share gains in the floor care market and stronger sales in the
elevator market. Partially offsetting these increases, were
decreased sales of gears and gearboxes, 8.4%, due to a weaker
floor care market after stronger than expected sales in 1997.
Operating income increased primarily due to the increased sales
discussed above. Advanced DC, FIR, and Motion Control
contributed operating income in 1998 of $5.2 million, $5.9
million, and $6.9 million, respectively, compared to operating
income in 1997 of $1.6 million and $0.1 million for FIR and
Motion Control, respectively. Partially offsetting these
increases were additional selling, general, and administrative
expenses as well as higher depreciation and amortization arising
from the 1998 and 1997 acquisitions. Operating margin decreased
3.3%, from 18.6% in 1997 to 15.3% in 1998, due to these
additional operating expenses.
1997 Compared to 1996. Net sales increased $31.1 million
or 26.5% and operating income increased $4.5 million or 19.2%.
Sales increased partially due to the acquisitions of FIR in June
1997, ED&C in October 1997, and Motion Control in December 1997.
These companies contributed $14.8 million, $1.8 million, and $1.2
million, respectively, in 1997, or 57.2% of the total increase in
net sales. In addition, net sales increased due to an 18.2%
increase in sales of sub-fractional motors at Merkle-Korff and a
24.0% increase in sales of planetary gears at Gear. Partially
offsetting these increases was a 6.6% decrease in sales of
fractional/integral motors at Imperial. The sales increases were
primarily due to strong sales of sub-fractional motors in the
vending and appliance markets and strong sales of planetary gears
in the floor care market. The decrease in net sales of
fractional/integral motors was primarily due to unusually strong
sales in the first half of 1996 resulting from the high backlog
of orders accumulated in the fourth quarter of 1995.
The increase in operating income was primarily due to the
increase in sales of sub-fractional motors and planetary gears as
discussed above. Partially offsetting these increases were
slightly decreased gross margins in the fractional/integral
motors group due to FIR operating at slightly lower gross margins
than the rest of the group, and increased operating expenses
attributed to the acquisitions of Barber-Colman in 1996, and FIR,
ED&C and Motion Control in 1997. Operating margin decreased 1.2%
from 19.8% in 1996 to 18.6% in 1997, due to the decreased gross
margins and increased operating expenses discussed above.
Telecommunication Products. As of December 31, 1998, the
Telecommunication Products group consisted of Dura-Line,
Electronic Connectors and Components, Viewsonics, Bond, K & S
Sheet Metal, Northern, LoDan, EEI and TSI. Due to the similarity
of many of the Telecommunication Products subsidiaries= product
lines, management evaluates, oversees and manages the companies
based on three product group segments: Infrastructure Products
and Equipment which includes Dura-Line, Viewsonics, Northern and
EEI; Electronic Connectors and Components; and Custom Cable
Assemblies and Specialty Wire and Cable which includes Bond, K &
S Sheet Metal, LoDan and TSI.
1998 Compared to 1997. Net sales increased $53.0 million or
20.6% and operating income increased $17.5 million or 132.2%.
The increase in sales was due to the 1998 acquisition of K&S
Sheet Metal and the 1997 acquisitions of TSI, LoDan, and EEI.
These companies contributed net sales in 1998 of $12.0 million,
$45.7 million, $28.8 million, and $17.3 million, respectively,
compared to net sales in 1997 of $4.4 million, $14.7 million, and
$7.5 million for TSI, LoDan, and EEI, respectively. Partially
offsetting these increases were decreased sales at Diversified of
$15.2 million due to the divestiture of that company in July
1998. In addition, sales decreased due to a slowdown of business
at Bond and in the Connectors group.
Operating income increased primarily due to a $15.9 million Stock
Appreciation Rights ("SAR") expense incurred in April 1997
related to the Company's acquisition of Dura-Line in 1988.
Excluding the effects of the SAR expense, operating income in
1998 increased $5.3 million or 18.2%. This increase was due to
the acquisition of K&S Sheet Metal in 1998 and TSI and LoDan in
1997, as mentioned above. These companies contributed operating
income in 1998 of $2.8 million, $7.5 million, and $3.1 million,
respectively, compared to operating income in 1997 of $0.1
million and $1.0 million for TSI and LoDan, respectively.
Partially offsetting these increases was decreased operating
income at Diversified, $0.8 million, due to the sale of that
company in 1998. Operating income also decreased in the
Connectors group due to the initial costs incurred of
centralizing manufacturing, sales and marketing, and headquarters
at Johnson Components' facility in Minnesota. In addition,
corporate expenses increased due to a full year of overhead in
1998 compared to five months in 1997, as Telecommunication
Products was formed in August 1997.
Operating margin increased 4.7%, from 5.2% in 1997 to 9.9% in
1998, primarily due to the reduction of SAR expense in 1998.
Excluding SAR expense, operating margin would have been 11.3% in
1997. The decrease in operating margin excluding SAR expense is
due to the reasons mentioned above.
1997 Compared to 1996. Net sales increased $125.4 million
or 95.3% and operating income decreased $0.6 million or 4.1%.
The increase in net sales was primarily due to the acquisitions
of Johnson, Diversified, Viewsonics, Vitelec, and Bond in 1996
and Northern, LoDan, EEI and TSI in 1997. These companies
contributed net sales of $19.8 million, $31.3 million, $12.4
million, $5.4 million, $21.8 million, $23.3 million, $14.7
million, $7.5 million, and $4.4 million, respectively, in 1997
compared to net sales in 1996 of $16.9 million for Johnson, $13.9
million for Diversified, $5.1 million for Viewsonics, $2.4
million for Vitelec, and $3.6 million for Bond. In addition, net
sales increased $26.7 million due to higher sales of
infrastructure products and equipment, particularly cable
conduit. This increase was primarily due to higher international
sales resulting from the addition of new manufacturing facilities
in Mexico and China.
Operating income decreased primarily due to a SAR expense of
$15.9 million in 1997 related to the acquisition of Dura-Line in
1988, and additional corporate expenses and management fees due
to the new acquisitions mentioned above. Operating income at
Dura-Line, excluding SAR, increased $2.2 million in 1997
primarily due to higher sales of cable conduit in Europe,
particularly in the Czech Republic. Partially offsetting this
decrease is operating income contributed by the 1996 and 1997
acquisitions. These companies contributed operating income in
1997 of $3.6 million, $1.4 million, $3.7 million, $1.0 million,
$2.7 million, $4.3 million, $1.1 million, $1.0 million and $0.1
million, respectively, compared to operating income in 1996 of
$2.9 million for Johnson, $0.7 million for Diversified, $0.5
million for Vitelec, and $0.3 million for Bond. In addition,
operating income at AIM increased $2.3 million due to Stock
Appreciation Rights (ASAR@) expense of $3.4 million in 1996.
Operating income at Aim, excluding SAR expense, decreased $1.1
million in 1997 primarily due to lower domestic sales and gross
profits.
Operating margin decreased 5.3%, from 10.5% in 1996 to 5.2% in
1997. Excluding the SAR expenses, operating margins would have
decreased 1.8%, from 13.1% in 1996 to 11.3% in 1997. The
decrease in operating margin was primarily due to international
market development costs in 1997 not incurred in 1996 and lower
operating margins at AIM.
Welcome Home. (See note 3 to the Consolidated Financial
Statements.)
1998 Compared to 1997. Net sales decreased $2.5 million or
100.0%, and the operating loss decreased $1.1 million or 100.0%.
Due to Welcome Home filing Chapter 11 bankruptcy on January 21,
1997, the results of operations of Welcome Home are not included
in the consolidated results of the Company at December 31, 1998.
1997 Compared to 1996. Net sales decreased $79.4 million or
97.0%, while the operating loss decreased $14.9 million or 93.1%.
These fluctuations are the direct result of Welcome Home=s
Chapter 11 bankruptcy filing on January 21, 1997 (see note 3 to
the financial statements). As a result of the filing, the
Company no longer has the ability to control the operations and
financial affairs of Welcome Home. Accordingly, the results of
operations of Welcome Home from January 21, 1997 to December 31,
1997, are not included in the consolidated results of the
Company. Since January 21, 1997 the Company has accounted for
its investment in Welcome Home under the equity method of
accounting.
Consumer and Industrial Products. As of December 31, 1998,
the Consumer and Industrial Products group consisted of DACCO,
Riverside, Parsons, Cape, Cho-Pat and Dura-Line Retube.
1998 Compared to 1997. Net sales increased $10.4 million or
6.7% and operating income increased $1.1 million or 6.8%. Net
sales increased primarily due to increased sales of rebuilt
converters at Dacco, $4.2 million, higher sales of Bibles, books,
videos, music and gifts at Riverside, $0.5 million, $3.9 million,
$0.9 million, $0.9 million, and $0.4 million, respectively,
increased sales of wooden furniture and other accessories at
Cape, $9.7 million, higher sales of orthopedic supports and other
pain-reducing devices at Cho-Pat, $1.1 million, and increased
sales of plastic pipe at Dura-Line Retube, $3.4 million.
Partially offsetting these increases were decreased sales of
audio tapes at Riverside, $0.5 million, lower sales of aircraft
parts at Parsons, $1.9 million, and decreased sales at Hudson and
Paw Print, $6.7 million and $5.5 million, respectively, due to
the divestitures of those companies in May and July 1997. Sales
increased at Dacco due to additional market share and the
addition of eight retail stores in 1998, and sales increased at
Cape due to management's success at broadening Cape's customer
base. Cho-Pat, which was purchased in September 1997,
contributed sales of $0.4 million in 1997 compared to sales of
$1.5 million in 1998.
Operating income increased due to higher operating income at
Dacco, Parsons, Cape, Cho-Pat, and Dura-Line Retube, $1.5
million, $0.3 million, $2.5 million, $0.2 million, and $0.3
million, respectively. Partially offsetting these increases was
decreased operating income at Hudson and Paw Print, $2.2 million
and $1.5 million, respectively, due to the divestitures of those
companies, as mentioned above. The increased operating income at
Cape is due to increased sales of higher gross margin product,
primarily wooden furniture, the increased operating income at Cho-
Pat is due to the acquisition of the company in September 1997,
and decreased operating income at Parsons is due to the lower
absorption of fixed overhead due to lower sales of aircraft
parts. Operating margin remained consistent with 1997.
1997 Compared to 1996. Net sales increased $14.8 million
or 10.5%. The increase in net sales was partially due to the
acquisitions of Cape and Paw Print in July and November 1996,
respectively, and Cho-Pat in September 1997. These companies
contributed net sales of $12.8 million, $5.5 million and $0.4
million, respectively, in 1997 compared to net sales in 1996 of
$1.3 million for Cape and $1.6 million for Paw Print. Further
contributing to the rise in 1997 net sales were increased sales
of soft parts and scrap at Dacco, $0.6 million and $0.2 million,
respectively, higher sales of Bibles, books, audio tapes, and
music at Riverside, $0.9 million, $1.4 million, $1.0 million and
$0.8 million respectively, increased sales of aircraft parts at
Parsons, $7.6 million, and higher sales of plastic pipe at Dura-
Line Retube, $0.2 million. Partially offsetting these increases
were decreased sales of rebuilt converters at Dacco, $1.8
million, lower contract distribution sales at Riverside, $3.1
million, and lower sales at Hudson, $8.8 million, due to the sale
of that company. The sales increases were primarily due to the
increased focus on sales of soft parts through an expanded line
of retail stores at Dacco, the resolution of computer system
problems at Riverside which negatively impacted the fourth
quarter of 1996 and strong sales of aircraft parts to Boeing at
Parsons. The decrease in net sales of rebuilt converters at
Dacco was primarily due to good weather in the Northeastern part
of the United States, while the lower sales to contract
distribution customers at Riverside were due to less focus on the
lower margin contract distribution business and more focus on the
higher margin publishing and distribution business.
Operating income increased $2.8 million or 21.1%. The increase
in operating income was partially due to the acquisitions of Cape
and Paw Print. These companies contributed $0.4 million and $1.5
million, respectively, in 1997, compared to operating income in
1996 of ($0.3) million for Cape. In addition, the increase was
due to higher operating income at Riverside, $0.9 million, and
Parsons $2.7 million. These increases were partially offset by
decreased operating income at Dacco, $2.3 million and Hudson,
$0.7 million, due to the divestiture of that company. The
increase in operating income was primarily due to improved
product mix at Riverside and increased gross profit at Parsons
due to higher sales of titanium hot formed products. The
offsetting decrease to operating income at Dacco was primarily
due to lower sales and slightly higher material prices.
Operating margin increased to 10.3% in 1997 from 9.4% in 1996,
due to the reasons mentioned above.
Consolidated Operating Results. (see Consolidated
Statements of Operations).
1998 Compared to 1997. Net sales increased $236.5 or 33.5%
and operating income increased $36.3 million or 65.4%. The
increase in sales was primarily due to the 1998 acquisitions of
Deflecto and Rolite in the Jordan Specialty Plastics group,
Advanced DC in the Motors and Gears group, and K&S Sheet Metal in
the Telecommunication Products group. Sales also increased due
to a full year of sales from the following companies which were
acquired in 1997: Arnon-Caine in the Jordan Specialty Plastics
group, FIR, ED&C, and Motion Control in the Motors and Gears
group, TSI, LoDan, and EEI in the Telecommunication Products
group, and Cho-Pat in the Consumer and Industrial Products group.
In addition, sales increased due to higher sales of ad specialty
products and calendars at SPAI, increased sales of membrane
switches at Valmark, higher sales of warning triangles and
colorants at Sate-Lite, higher sales of sub-fractional motors at
Merkle-Korff, increased sales of fractional/integral motors at
Imperial, higher sales of books at Riverside, and increased sales
of wooden furniture at Cape. Partially offsetting these
increases were decreased sales of shielding devices at Valmark,
lower sales of folding boxes at Seaboard, decreased sales of
plastic injection-molded products at Beemak, lower sales of gears
and gearboxes at Gear, and lower sales of aircraft parts at
Parsons. In addition, sales decreased due to the divestiture in
1998 of Diversified in the Telecommunication Products group and
the divestitures in 1997 of Hudson and Paw Print in the Consumer
and Industrial Products group.
Operating income increased primarily due to the 1998
acquisitions, a full year of operations at the companies acquired
in 1997, more favorable pricing at Valmark, decreased corporate
expenses in the Specialty Printing and Labeling group, a
reduction in SARs as the Dura-Line SAR was expensed in 1997, and
increased sales of higher gross margin product at Cape.
Partially offsetting these increases was decreased operating
income due to the addition of salespeople to promote the ad
specialty segment at SPAI, increased operating expenses related
to the expansion of Sate-Lite manufacturing into China, higher
depreciation and amortization related to the 1998 and 1997
acquisitions, and initial expenses incurred to combine the
manufacturing and sales and marketing functions of the Connector
companies. In addition, the divestitures of Diversified, Hudson,
and Paw Print reduced operating income. Operating margin
increased 1.9%, from 7.8% in 1997 to 9.7% in 1998 due to the
reasons mentioned above.
Interest expense increased $27.3 million or 33.1% due to the
Company's refinancing in July 1997, the tack-on bond offering at
Motors and Gears done in December 1997, and higher outstanding
revolver balances in 1998 due to financing of the 1998
acquisitions.
1997 Compared to 1996. Net sales increased $105.5 million
or 17.6%, and operating income increased $42.1 million or 314.0%.
The increase in sales was primarily due to the 1997 acquisitions
of Arnon-Caine in the Jordan Specialty Plastics group, FIR, ED&C,
and Motion Control in the Motors and Gears group, Northern,
LoDan, EEI, and TSI in the Telecommunication Products group, and
Cho-Pat in the Consumer and Industrial Products group. Sales
also increased from the benefit of a full year of sales at
Seaboard in the Specialty Printing and Labeling group, Barber-
Colman in the Motors and Gears group, Johnson, Diversified,
Viewsonics, Vitelec, and Bond in the Telecommunication Products
group, and Cape in the Consumer and Industrial Products group.
In addition, sales increased due to higher sales of ad specialty
products at SPAI, increased sales of sub-fractional motors at
Merkle-Korff, higher sales of planetary gears at Gear, increased
sales of cable conduit at Dura-Line, and increased sales of
titanium aircraft parts at Parsons. Partially offsetting these
increases, were lower sales of shielding devices at Valmark,
decreased sales of fractional/integral motors at Imperial, and
lower sales at Welcome Home due to its deconsolidation from the
Company=s financial statements.
Operating income increased primarily due to the 1997
acquisitions, a full year of operations at the companies acquired
in 1996, lower medical and commissions expenses at SPAI,
increased gross profits at Sate-Lite from sales of custom molded
products, lower compensation expenses at AIM as their SAR was
expensed in 1996, and higher gross profits at Parsons. In
addition, operating income increased due to the deconsolidation
of Welcome Home. Partially offsetting these increases were
decreased gross profits at Pamco stemming from lower sales of
custom labels, decreased gross profits at FIR, increased
operating expenses attributed to the Motors and Gears
acquisitions, higher operating expenses at Dura-Line stemming
from the SAR expense, lower sales and slightly higher material
prices at DACCO, and decreased operating income at Hudson due to
the divestiture of the company in May of 1997. Consolidated
operating margin increased 5.6%, from 2.2% in 1996 to 7.8% in
1997 due to the above factors.
Interest expense increased $19.1 million or 30.2% primarily due
to the increase in long-term debt stemming from the Company=s
refinancing in July 1997.
Liquidity and Capital Resources
The Company had approximately $189.1 million of working
capital at the end of 1998 compared to approximately $176.5
million at the end of 1997. The increase in working capital from
1997 to 1998 was primarily due to higher receivables, inventory,
and other current assets of $26.4 million, $15.7 million, and
$5.0 million. The increase in working capital can also be
attributed to lower accrued expenses and current portion of long-
term debt of $1.8 million and $3.4 million, respectively. These
increases in working capital are partially offset by higher
accounts payable of $12.0 million.
The Company has acquired businesses through leveraged
buyouts, and as a result has significant debt in relation to
total capitalization. See ABusiness@. Most of this acquisition
debt was initially financed through the issuance of bonds which
were subsequently refinanced in 1997. See Note 5 to the
Consolidated Financial Statements.
In connection with each acquisition of a subsidiary, the
subsidiary entered into intercompany notes, and intercompany
management and tax sharing agreements, which permit the
subsidiaries, including the majority-owned subsidiaries,
substantial flexibility in moving funds from the subsidiaries to
the Company.
Management expects continued growth in net sales and
operating income in 1999. Capital spending levels in 1999 are
anticipated to be consistent with 1998 levels and, along with
working capital requirements, will be financed internally from
operating cash flow. Operating margins and operating cash flow
are expected to be favorably impacted by ongoing cost reduction
programs, improved efficiencies and sales growth. Management
believes that the Company=s cash on hand and anticipated funds
from operations will be sufficient to cover its working capital,
capital expenditures, debt service requirements and other fixed
charge obligations for at least the next 12 months.
The Company is, and expects to continue to be, in compliance
with the provisions of its Indentures.
None of the subsidiaries require significant amounts of
capital spending to sustain their current operations or to
achieve projected growth.
Net cash provided by operating activities for the year ended
December 31, 1998 was $29.4 million, compared to $17.5 million
provided from operating activities during the same period in
1997. The increase is primarily attributed to increased operating
income resulting from the Company's recent acquisitions and is
partially offset by increases in working capital requirements.
Net cash used in investing activities for the year ended December
31, 1998 was $140.5 million, compared to $180.6 million used in
investing activities during the same period in 1997. The
decrease is due primarily to a reduction in both the number of
acquisitions and the aggregate purchase price of these
acquisitions in 1998. Partially offsetting this decrease are
higher capital expenditures in 1998 as well as new investment in
an affiliate.
Net cash provided by financing activities for the year ended
December 31, 1998 was $79.1 million, compared to $184.7 million
provided from financing activities during the same period in
1997. The decrease is primarily due to debt issuances from the
Company, Motors and Gears, Inc., and Jordan Telecommunication
Products, Inc. and the Jordan Telecommunication Products, Inc.
preferred stock issuance which were completed in 1997. Partially
offsetting these decreases were increased borrowings under
revolving credit facilities in order to finance the 1998
acquisitions, and reductions in the repayment of long-term debt.
On March 22, 1999, the Company completed a $155.0 million "tack-
on" bond offering at a 10 3/8% coupon. The bonds were sold at
96.62% of par and mature on August 1, 2007. The proceeds of
$149.8 million were used to acquire Alma Products ($86.3 purchase
price), pay certain transaction costs and repay indebtedness
under a Revolving Credit Agreement.
The Company is party to various credit agreements under which the
Company is able to borrow up to $260 million to fund
acquisitions, provide working capital and for other general
corporate purposes. The credit agreements provide for revolving
lines of credit of $260 million that mature at various dates
through 2002. The agreements are secured by a first priority
security interest in substantially all of the Company's assets.
As of March 31, 1999, the Company had approximately $130.8
million of available funds under these arrangements.
Impact of Inflation
General inflation has had only a minor effect on the
operations of the Company and its internal and external sources
for liquidity and working capital, as the Company has been able
to increase prices to reflect cost increases, and expects to be
able to do so in the future.
Year 2000
The Company has assembled an internal project team that is
addressing the issue of computer programs and embedded computer
chips being unable to distinguish between the year 1900 and the
year 2000. The project team has developed and is in the process
of implementing a three-step plan intended to result in the
Company's operations continuing with no or minimal interruption
through the Year 2000.
For purposes of this discussion, "Year 2000 compatible" means
that the computer hardware, software or device in question will
function in 2000 without modification or adjustment or will
function in 2000 with a one-time manual adjustment. However,
there can be no assurance that any such Year 2000 compatible
hardware, software or device will function properly when
interacting with any Year 2000 noncompatible hardware, software
or device.
Process Overview
The first step in the Company's plan is to inventory all of its
computer hardware and software and all of its devices having
embedded computer technology. The Year 2000 project team is
focusing on five areas: (i) business systems; (ii) production
(e.g., desk top computers); (iii) financial management (e.g.,
banking software, postage equipment and time clocks); (iv)
facilities (e.g., heating and air conditioning systems,
elevators, telephones, and fire and security systems); and (v)
significant vendors and customers. The inventory was complete as
of December 31, 1998.
In the second step, the project team is determining whether each
inventoried system, device, customer or vendor is Year 2000
compatible. In the third step, those that are not compatible
will be upgraded or replaced.
Business systems. The Company's subsidiaries are in the process
of assessing whether their business systems are Year 2000
compatible and what remediation may be required to make them
compatible.
Production, financial management and facilities. Once they have
been inventoried, each device and each piece of hardware and non-
business system software (a "Non-System Item") that can be tested
by the Company is being tested for the Year 2000 compatibility.
In the case of any Non-System Items that cannot be tested, the
vendor is being asked for a certification regarding
compatibility. Each Non-System Item that is noncompatible will
be either upgraded or replaced. A portion of the Non-System
Items that have been inventoried to date have been tested or
certified by the vendor. The Company expects substantially all
of its Non-System Items will have been tested or certified and
upgraded or replaced by the end of the third quarter of 1999.
Customers and vendors. The project team has just begun the
process of contacting each of the Company's significant customers
and vendors and requesting that they apprise the Company of the
status of their year 2000 compliance programs. There can be no
assurance as to when this process will be completed.
Costs
The total costs associated with the Company becoming Year 2000
compatible is not expected to be material to its financial
position. The estimate of the cost to upgrade or replace Non-
System Items is very preliminary and the Company expects to
develop a more definitive estimate once the inventory has been
completed and the testing/certification process is further along.
Risks
The failure to correct a material Year 2000 problem could result
in an interruption in or failure of certain normal business
activities or operations of the Company. Such failures could
have a material adverse effect on the Company. Due to the
general uncertainty inherent in the Year 2000 problem, resulting
in part from the uncertainty of Year 2000 compliance by the
Company's significant customers and vendors, the Company is
unable to determine at this time whether the consequences of Year
2000 noncompliance will have a material adverse effect on the
Company, although its Year 2000 project is expected to
significantly reduce that uncertainty.
The Company believes that the areas that present the greatest
risk to the Company are (i) disruption of the Company's business
due to Year 2000 noncompatibility of one of its critical business
systems and (ii) disruption of the business of certain of its
significant customers and vendors due to their noncompliance. At
this time, the Company believes that all of its business systems
will be Year 2000 compatible before the end of 1999. Whether
disruption of a customer's or vendor's business due to
noncompliance will have a material adverse effect on the Company
will depend on several factors including the nature and duration
of the disruption, the significance of the customer or vendor
and, in the case of vendors, the availability of alternate
sources for the vendor's products. The Company is in the process
of developing a contingency plan to address any material Year
2000 noncompliance issues and expects to have the plan completed
by the end of 1999.
Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISKS
The Company's debt obligations are primarily fixed-rate in nature
and, as such, are not sensitive to changes in interest rates. At
December 31, 1998, the Company has $164.0 million of variable
rate debt outstanding. A one percentage point increase in
interest rates would increase the amount of annual interest paid
by approximately $1.6 million. The Company does not believe that
its market risk financial instruments on December 31, 1998 would
have a material effect on future operations or cash flows.
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Page No.
Reports of Independent Auditors .................. 41
Consolidated Balance Sheets as of December 31,
1998 and 1997................................. 46
Consolidated Statements of Operations for the
years ended December 31, 1998, 1997 and 1996.. 47
Consolidated Statements of Changes in
Shareholders' Equity (Net Capital Deficiency)
for the years ended December 31, 1998, 1997
and 1996...................................... 48
Consolidated Statements of Cash Flows for the
years ended December 31, 1998 1997 and 1996... 49
Notes to Consolidated Financial Statements........ 51
Report of Independent Auditors
The Board of Directors and Shareholders
Jordan Industries, Inc.
We have audited the accompanying consolidated balance sheets of
Jordan Industries, Inc. as of December 31, 1998 and 1997, and the
related consolidated statements of operations, shareholders=
equity (net capital deficiency), and cash flows for each of the
three years in the period ended December 31, 1998. Our audits
also included the financial statement schedule listed in the
index at Item 14 (a). These financial statements and schedule
are the responsibility of the Company=s management. Our
responsibility is to express an opinion on these financial
statements and the schedule based on our audits. We did not
audit the financial statements of certain subsidiaries whose
statements reflect total assets constituting 15% and 19% as of
December 31, 1998 and 1997, respectively, and net sales
constituting 12%, 10%, and 3% for each of the three years in the
period ended December 31, 1998, of the related consolidated
totals. Those statements were audited by other auditors whose
reports have been furnished to us, and our opinion, insofar as it
relates to data included for these subsidiaries, is based solely
on the reports of the other auditors.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that our
audits and the reports of other auditors provide a reasonable
basis for our opinion.
In our opinion, based on our audits and the reports of other
auditors, the financial statements referred to above present
fairly, in all material respects, the consolidated financial
position of Jordan Industries, Inc. at December 31, 1998 and
1997, and the consolidated results of its operations and its cash
flows for each of the three years in the period ended December
31, 1998, in conformity with generally accepted accounting
principles. Also, in our opinion, the related financial
statement schedule, when considered in relation to the basic
financial statements taken as a whole, presents fairly in all
material respects the information set forth therein.
ERNST & YOUNG LLP
Chicago, Illinois
March 31, 1999
Independent Auditors= Report
Board of Directors
Diversified Wire & Cable, Inc.
Troy, Michigan
We have audited the balance sheets of Diversified Wire & Cable,
Inc. as of December 31, 1997 and 1996 and the related statements
of operations, changes in stockholders= equity and cash flows for
the year ended December 31, 1997 and for the period June 25, 1996
(Commencement of Operations) through December 31, 1996,
respectively, (not separately presented herein). These financial
statements are the responsibility of the Company=s management.
Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting
the amounts and disclosure in the financial statements. An audit
also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.
In our opinion the financial statements referred to above present
fairly, in all material respects, the financial position of
Diversified Wire & Cable, Inc. as of December 31, 1997 and 1996,
and the results of its operations, the changes in stockholders=
equity and its cash flows for the year ended December 31, 1997
and for the period June 25, 1996 through December 31, 1996,
respectively, in conformity with generally accepted accounting
principles.
Mellen, Smith & Pivoz,
P.C.
Bingham Farms, Michigan
January 22, 1998
INDEPENDENT AUDITOR=S REPORT
To the Board of Directors of
Fir Group
We have audited the consolidated balance sheet of Fir Group
(the ACompany@) composed of FIR Elettromeccanica S.p.A., CIME
S.P.A., Selin Sistemi S.p.A., TEA S.r.1. and Nuova BETA S.r.1. as
of October 31, 1998 and 1997, and the related consolidated
statements of income, retained earnings, and cash flows for the
year and for the five months then ended. These financial
statements are the responsibility of the Company=s management.
Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally
accepted auditing standards. Those standards require that we
plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material
misstatements. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our
opinion.
In our opinion, the consolidated financial statements
referred to above present fairly, in all material respects, the
financial position of the Company as of October 31, 1998 and
1997, and the results of its operations and its cash flows for
the year and for the five months then ended, in conformity with
generally accepted accounting principles.
COOPERS & LYBRAND S.p.A.
Milan, 27 February 1999
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of
Motion Control Engineering, Inc.:
We have audited the balance sheets of MOTION CONTROL ENGINEERING,
INC. (a California corporation and a wholly-owned subsidiary of
Motors & Gears, Inc.) as of December 31, 1998 and 1997, and the
related statements of income, shareholders= equity and cash flows
for the year ended December 31, 1998 and for the 13 days ended
December 31, 1997. These financial statements are the
responsibility of the Company=s management. Our responsibility
is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether
the financial statements are free from material misstatement. An
audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the financial position
of Motion Control Engineering, Inc. as of December 31, 1998 and
1997, and the results of its operations and its cash flows for
the year ended December 31, 1998 and for the 13 days ended
December 31, 1997 in conformity with generally accepted
accounting principles.
ARTHUR ANDERSEN LLP
Sacramento, California
February 9, 1999
Independent Auditors= Report
To the Board of Directors and Stockholders
Northern Technologies Holdings, Inc.
We have audited the balance sheet of Northern Technologies
Holdings, Inc. as of December 31, 1998 and 1997 and the related
consolidated statements of income, stockholder=s equity, and cash
flows for the years then ended. These consolidated financial
statements are the responsibility of the Company=s management.
Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting
the amounts and disclosure in the financial statements. An audit
also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to
above present fairly, in all material respects, the financial
position of Northern Technologies Holdings, Inc. as of December
31, 1998 and 1997, and the results of its operations and cash
flows for the year then ended in conformity with generally
accepted accounting principles.
Moss Adams LLP
Spokane, Washington
January 22, 1999
JORDAN INDUSTRIES, INC.
CONSOLIDATED BALANCE SHEETS
(dollars in thousands)
December 31,
1998 1997
ASSETS
Current assets:
Cash and cash equivalents $23,008 $52,500
Accounts receivable, net of allowance
of $4,493 and $3,645 in 1998 and 1997,
respectively 160,586 134,177
Inventories 139,720 124,000
Prepaid expenses and other current assets 17,724 12,706
Total current assets 341,038 323,383
Property, plant and equipment, net 139,578 105,070
Investments in and advances to affiliates 1,722 1,722
Goodwill, net 491,510 433,294
Other assets 70,040 66,762
Total Assets $1,043,888 $930,231
LIABILITIES AND SHAREHOLDERS' EQUITY
(NET CAPITAL DEFICIENCY)
Current liabilities:
Notes payable $737 $2,650
Accounts payable 70,798 58,781
Accrued liabilities 68,722 70,473
Advance deposits 5,580 5,424
Current portion of long-term debt 6,136 9,547
Total current liabilities 151,973 146,875
Long-term debt 1,059,419 921,871
Other noncurrent liabilities 12,762 13,403
Deferred income taxes 1,444 1,444
Minority interest 785 88
Preferred stock 25,649 21,835
Shareholders' equity (net capital deficiency):
Common stock $.01 par value:
authorized - 100,000 shares
issued and outstanding - 98,501 shares
in 1998 and 1997 1 1
Additional paid-in capital 2,116 2,116
Accumulated other comprehensive income 2,038 (504)
Accumulated deficit (212,299) (176,898)
Total shareholders' equity (net capital
deficiency) (208,144) (175,285)
Total Liabilities and Shareholders' Equity
(Net Capital Deficiency) $1,043,888 $930,231
See accompanying notes.
JORDAN INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(dollars in thousands)
Year ended December 31,
1998 1997 1996
Net sales $943,607 $707,112 $601,567
Cost of sales, excluding depreciation 601,385 446,580 375,745
Selling, general and administrative expense 193,426 148,921 150,951
Depreciation 23,180 19,612 18,939
Amortization of goodwill and other intangibles 21,867 15,709 11,499
Stock appreciation right and compensation
agreements - 15,871 9,822
Loss on purchase of an affiliated company - - 4,488
Management fees and other 9,033 4,975 4,489
Loss on foreign currency transactions 3,020 - -
Restructuring charges - - 8,106
Other non-recurring charges - - 4,136
Operating income 91,696 55,444 13,392
Other (income) and expenses:
Interest expense 109,705 82,455 63,340
Interest income (2,178) (2,713) (2,538)
Loss (gain) on sale of subsidiaries 6,299 (17,081) -
Other 420 (1,044) -
Total other expenses 114,246 61,617 60,802
Loss before income taxes, minority
interest, equity in investee and
extraordinary item (22,550) (6,173) (47,410)
Provision for income taxes 8,162 6,575 4,415
Loss before minority interest, equity in
investee and extraordinary items (30,712) (12,748) (51,825)
Minority interest 695 (1,874) 59
Equity in losses of investee - 3,386 -
Loss before extraordinary items (31,407) (14,260) (51,884)
Extraordinary loss 179 31,358 3,806
Net loss $(31,586) $(45,618) $(55,690)
See accompanying notes.
JORDAN INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(NET CAPITAL DEFICIENCY)
(dollars in thousands)
Common Stock Accumu-
Note lated other
Additional Receivable Compre- Accumu-
Number of Paid-in from hensive lated
Shares Amount Capital Officer income Deficit Total
Balance at January 1, 1996
93,501 $1 $1,097 $- $(778) $(76,674) $(76,354)
Common stock
issuance 1,500 - 1,460 (1,460) - - -
Cumulative
translation
adjustment - - - - 1,763 - 1,763
Net Loss - - - - - - (55,690) (55,690)
Comprehensive
income - - - - - - (53,927)
Balance at December 31, 1996
95,001 1 2,557 (1,460) 985 (132,364) (130,281)
Purchase
of common
stock (1,500) - (1,460) 1,460 - - -
Issuance of
common stock 5,000 - 1,019 - - - 1,019
Sales of
subsidiary
to Related
party - - - - - 1,084 1,084
Cumulative
translation
adjustment - - - - (1,489) - (1,489)
Net Loss - - - - - (45,618) (45,618)
Comprehensive
income - - - - - - (47,107)
Balance at December 31, 1997
98,501 1 2,116 - (504) (176,898) (175,285)
Non-cash
dividends to
third parties - - - - - (3,815) (3,815)
Cumulative
translation
adjustment - - - - 2,542 - 2,542
Net loss - - - - - (31,586) (31,586)
Comprehensive
income - - - - - - (29,044)
Balance at December 31, 1998
98,501 $1 $2,116 $- $2,038 $(212,299) $(208,144)
See accompanying notes.
JORDAN INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(dollars in thousands)
Year Ended December 31,
1998 1997 1996
Cash flows from operating activities:
Net loss $(31,586)$(45,618)$(55,690)
Adjustments to reconcile net loss
to net cash provided by operating
activities:
Restructuring charges - - 8,106
Amortization of deferred financing
costs 4,451 3,622 3,001
Depreciation and amortization 45,047 35,321 30,438
Provision for deferred income taxes - - 2,184
Equity in losses of investee - 3,386 -
Loss (gain) on sale of subsidiary 6,299 (17,081) -
Loss on acquisition of affiliated
company - - 4,488
Minority interest 696 (1,874) 59
Extraordinary loss 179 31,358 3,806
Non-cash interest 26,303 18,456 11,987
Changes in operating assets and
liabilities (net of acquisitions):
Accounts receivable (16,025) (15,942) 13,894
Inventories (4,241) (5,695) 796
Prepaid expenses and other current
assets (4,441) 796 (851)
Non-current assets (4,024) (602) (1,071)
Accounts payable, accrued liabilities,
and other current liabilities 6,526 3,713 2,560
Advance deposits 156 3,524 69
Non-current liabilities 378 3,799 (526)
Other (335) 345 (146)
Net cash provided by operating activities 29,383 17,508 23,104
Cash flows from investing activities:
Capital expenditures, net of dispositions (21,477) (14,179) (17,395)
Notes receivable from affiliates - - (5,263)
Acquisitions of subsidiaries (129,065) (229,807)(150,360)
Net cash acquired in purchase of subsidiaries 2,292 4,972 5,869
Acquisitions of minority interests and other - - (81)
Net proceeds from sale of subsidiary 15,000 45,954 -
Redemption of investment in affiliate - 12,500 -
Investment in affiliate (7,285) - -
Net cash used in investing activities (140,535) (180,560)(167,230)
(Continued on following page.)
See accompanying notes.
JORDAN INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(dollars in thousands)
(continued)
Year Ended December 31,
1998 1997 1996
Cash flows from financing activities:
Proceeds of debt issuance - SPL Holdings,
Inc. $ - $ - $ 13,000
Proceeds of debt issuance - MK Holdings,
Inc. - - 20,000
Proceeds of debt issuance - JII, Inc. - 120,000 -
Proceeds from preferred stock issuance -
Jordan Telecommunications Products, Inc. - 25,000 -
Proceeds of debt issuance - Motors and
Gears, Inc. - 105,692 170,000
Proceeds of debt issuance -
Jordan Telecommunications, Inc. - 273,545 -
Proceeds from revolving credit facilities,
net 96,000 21,500 40,909
Payment of financing costs - (29,514) (11,858)
Repayment of long-term debt (19,192) (331,560) (98,143)
Other borrowing 2,310 - 2,107
Net cash provided by financing
activities 79,118 184,663 136,015
Foreign currency translation 2,542 (1,908) (345)
Net increase (decrease) in cash and cash
equivalents (29,492) 19,703 (8,456)
Cash and cash equivalents at beginning
of year 52,500 32,797 41,253
Cash and cash equivalents at end of year $ 23,008 $ 52,500 $32,797
Supplemental disclosures of cash flow
information:
Cash paid during the year for:
Interest $ 74,715 $ 56,957 $45,563
Income taxes, net $ 3,714 $ 4,617 $ 2,603
Noncash investing activities:
Capital leases $ 15,489 $ 2,318 $ 5,543
See accompanying notes.
Note 1 - Organization
Jordan Industries, Inc. (the Company), an Illinois
corporation, was formed by Chicago Group Holdings, Inc. on
May 26, 1988 for the purpose of combining into one
corporation certain companies in which partners and
affiliates of The Jordan Company (the Jordan Group)
acquired ownership interests through leveraged buy-outs.
Chicago Group Holdings, Inc. was formed on February 8,
1988 and had no operations. The Company was merged with
Chicago Group Holdings, Inc. on May 31, 1988 with the
Company being the surviving company.
The Company's business is divided into five groups. The
Specialty Printing and Labeling group consists of Sales
Promotion Associates, Inc. (ASPAI@), Valmark Industries,
Inc. (AValmark@), Pamco Printed Tape and Label Co., Inc.
(APamco@) and Seaboard Folding Box, Inc. (ASeaboard@).
The Jordan Specialty Plastics group consists of Beemak
Plastics Inc. (ABeemakA), Sate-Lite Manufacturing Company
(ASate-LiteA), Deflecto Corporation (ADeflectoA), and
Rolite Plastics (ARoliteA). The Motors and Gears group
consists of The Imperial Electric Company (AImperial@) and
its subsidiaries, Gear Research, Inc. (AGear@) and Euclid
Universal Corporation ("Euclid"), Merkle-Korff Industries,
Inc. (AMerkle-Korff@), FIR Group Companies (AFIR@),
Electrical Design & Control (AED&C@), Motion Control
Engineering (AMotion Control@)and Advanced D.C. Motors
(AAdvanced DCA). The Telecommunication Products Group
consists of Dura-Line Corporation (ADura-Line@),
Electronic Connectors and Components (AConnectorsA),
Viewsonics, Inc. (AViewsonics@), Bond Holdings, Inc.
(ABond@), LoDan West, Inc. (ALoDan@), Northern
Technologies, Inc. (ANorthern@), Engineered Endeavors,
Inc. (AEEI@) Telephone Services, Inc. (ATSI@)and K&S Sheet
Metal (AK&SA). Welcome Home, Inc. (AWelcome Home@) is
managed on a stand-alone basis and is no longer
consolidated in the Company=s results of operations. (See
note 3). The remaining businesses comprise the Company=s
Consumer and Industrial Products group. This group
consists of DACCO, Incorporated (ADACCO@), Riverside Book
and Bible House, Inc. (ARiverside@), Parsons Precision
Products, Inc. (AParsons@), Cape Craftsmen, Inc. (ACape@),
Cho-Pat Inc. (ACho-Pat@) and Dura-Line Retube (ARetube@).
All of the foregoing corporations are collectively
referred to herein as the "Subsidiaries," and individually
as a "Subsidiary."
Note 2 - Significant accounting policies
Principles of consolidation
The consolidated financial statements include the accounts
of the Company and subsidiaries. All significant
intercompany balances and transactions have been
eliminated. Operations of FIR are included for the period
ended two months prior to the Company=s year end to ensure
timely preparation of the consolidated financial
statements.
Cash and cash equivalents
The Company considers all highly liquid investments
purchased with an initial maturity of three months or less
to be cash equivalents.
Inventories
Inventories are stated at the lower of cost or market.
Inventories are primarily valued at either average or
first-in, first-out (FIFO) cost.
Depreciation and amortization
Property, plant and equipment - Depreciation and
amortization of property, plant and equipment is
calculated using estimated useful lives, or over the lives
of the underlying leases, if less, using the straight-line
method.
The useful lives of plant and equipment for the purpose of
computing book depreciation are as follows:
Machinery and equipment 3-10 years
Buildings and improvements 7-35 years
Furniture & fixtures 5-10 years
Goodwill - Goodwill is being amortized on the straight-
line basis over periods ranging from 15 to 40 years.
Goodwill at December 31, 1998 and 1997 is net of
accumulated amortization of $47,651, and $32,380,
respectively. The Company evaluates the recoverability of
long-lived assets by measuring the carrying amount of the
assets against the estimated undiscounted future cash
flows associated with them. At the time such evaluations
indicate that the future undiscounted cash flows of
certain long-lived assets are not sufficient to recover
the carrying value of such assets, the assets are adjusted
to their fair values. Based on these evaluations, there
were no material adjustments to the carrying value of long-
lived assets in 1998 or 1997.
Other assets
Patents are amortized over the remainder of their legal
lives, which approximate their useful lives, on the
straight-line basis. Deferred financing costs amounting
to $34,201 and $38,568, net of accumulated amortization of
$14,533 and $9,939 at December 31, 1998 and 1997,
respectively, are amortized over the terms of the loans
or, if shorter, the period such loans are expected to be
outstanding. Non-compete covenants and customer lists
amounting to $10,314 and $12,121, net of accumulated
amortization of $51,487 and $47,632 at December 31, 1998
and 1997, respectively, are amortized on the straight-line
basis over their estimated useful lives, ranging from
three to ten years.
Income taxes
Deferred tax assets and liabilities are determined based
on differences between the financial reporting and tax
basis of assets and liabilities and are measured using the
enacted tax rates and laws that are expected to be in
effect when the differences reverse. The Company has not
provided for U.S. Federal and State Income Taxes on
undistributed earnings of foreign subsidiaries to the
extent the undistributed earnings are considered to be
permanently reinvested.
Revenue recognition
Revenues are primarily recognized when products are
shipped to customers.
Use of estimates
The preparation of financial statements in conformity with
generally accepted accounting principles requires
management to make estimates and assumptions that
affect the amounts reported in the financial statements
and accompanying notes. Actual results could differ from
those estimates.
Reclassification
Certain amounts in prior years financial statements have
been reclassified to conform with the presentation in
1998.
Realignment of segment reporting
In 1996, Dura-Line was moved from the Consumer and
Industrial Products segment to the Telecommunication
Products segment. In 1997, the Retube product line of
Dura-Line was moved from the Telecommunication Products
segment to the Consumer and Industrial Products segment.
In 1998 Sate-Lite and Beemak were reclassified from the
Consumer and Industrial Products segment to the Jordan
Specialty Plastics segment. Prior period results were
also realigned into these new groups in order to provide
accurate comparisons between periods.
New pronouncements
The Company has adopted Financial Accounting Standards
Board's ("FASB") Statement of Financial Accounting
Standards ("SFAS") No. 130 ("Statement 130"), Reporting
Comprehensive Income. Statement 130 establishes new rules
for the reporting and display of comprehensive income and
its components; however the adoption of this Statement had
no impact on the Company's net income or shareholders'
equity. Statement 130 requires the Company's foreign
currency translation adjustments, which prior to adoption
were reported separately in shareholders' equity, to be
included in other comprehensive income. Prior year
financial statements have been reclassified to conform to
the requirements of Statement 130.
The Company has adopted SFAS No. 131, Disclosure about
Segments of an Enterprise and Related Information
("Statement 131"). Statement 131 supersedes FASB
Statement No. 14, Financial Reporting for Segments of a
Business Enterprise. Statement 131 establishes standards
for the way that public business enterprises report
information about operating segments in annual financial
statements and requires that those enterprises report
selected information about operating segments in interim
financial reports. It also establishes standards for
related disclosures about products and services,
geographic areas, and major customers. The adoption of
Statement 131 is solely a reporting requirement and
therefore did not have an effect on the Company's
financial position or results of operations.
In June 1998, the FASB issued SFAS No. 133, Accounting for
Derivative Instruments and Hedging Activities ("Statement
133"), which is required to be adopted in fiscal years
beginning after June 15, 1999. Statement 133 requires all
derivatives to be recognized in the balance sheet as
either assets or liabilities at fair value. Derivatives
that are not hedges must be adjusted to fair value through
income. In addition, all hedging relationships must be
designated, reassessed and documented pursuant to the
provisions of Statement 133. Management believes the
adoption of this Statement will not have a material effect
on the Company.
Concentration of credit risk
Financial instruments which potentially subject the
Company to concentration
of credit risk consist principally of cash and cash
equivalents and accounts receivable. The Company places
cash and cash equivalents with high quality financial
institutions, and is restricted by its revolving credit
facilities as to its investment instruments.
Concentration of credit risk relating to accounts
receivable is limited due to the large number of customers
from many different industries and locations. The Company
believes that its allowance for doubtful accounts is
adequate to cover potential credit risk.
Foreign currency translation
In accordance with SFAS No. 52, Foreign Currency
Translation, assets and liabilities of the Company's
foreign operations are translated from foreign currencies
into U.S. dollars at year-end rates while income and
expenses are translated at the weighted-average exchange
rates for the year. Gains or losses resulting from the
translations of foreign currency financial statements are
deferred and classified as a separate component of
shareholders' equity. Gains or losses resulting from the
remeasurement of financial statements of foreign entities
located in highly inflationary economies have been
included in the determination of net income or loss in the
current period. The Company recognized a $3,020 charge in
1998 related to remeasurement of the financial statements
of Dura-Line's Mexican operations as of December 31, 1998.
Note 3 - Welcome Home Chapter 11 Filing
On January 21, 1997, Welcome Home filed a voluntary
petition for relief under Chapter 11 (AChapter 11") of
title 11 of the United States code in the United States
Bankruptcy Court for the Southern District of New York
(ABankruptcy Court@). In Chapter 11, Welcome Home has
continued to manage its affairs and operate its business
as a debtor-in-possession. 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. 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.
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.
As a result of Welcome Home=s Chapter 11 filing, the
Company no longer has the ability to control the
operations and financial affairs of Welcome Home.
Accordingly, the Company no longer consolidates Welcome
Home in its financial statements from January 21, 1997,
the date of the filing. For the period ended January 21,
1997, the Company recorded a net loss of $1,195 related to
Welcome Home.
The operating results of Welcome Home included in the
consolidated results of the Company over the last three
years are as follows:
Year Ended December 31,
1998 1997 1996
Net sales $ - $ 2,456 81,855
Operating loss - $ (1,107) $(15,975)
Loss before income
taxes - $ (1,195) $(18,154)
From January 21, 1997, the Company accounted for its
investment in Welcome Home under the equity method of
accounting and recognized a $3,386 loss on its investment.
In 1998, Cape=s sales to Welcome Home were $14,420, or 64%
of Cape=s total sales for the year. The Company=s
receivable outstanding related to these sales was $1,965
at December 31, 1998.
Note 4 - Restructuring charges
In the fourth quarter of 1995, Welcome Home adopted a
restructuring plan which continued through 1996. The
major elements of the plan included a change in Welcome
Home=s merchandising strategy and the liquidation of
merchandise which was not consistent with that strategy,
closure of unprofitable stores, and strengthening the
company=s executive management team and information
systems as necessary to successfully implement the above
strategies.
Restructuring charges incurred in 1996 were primarily due
to store closings. In the fourth quarter of 1996, Welcome
Home recorded restructuring charges of $8,106, of which
$872 related to employee contracts, $4,266 related to
leases and inventory, and $2,968 related to its investment
in furniture, fixtures, and leasehold improvements.
Note 5 - Financial Recapitalization and Business
Repositioning Plan (AThe Plan@)
Motors and Gears Holdings, Inc., along with its wholly-
owned subsidiary, Motors and Gears, Inc. (AM&G@), were
formed in September 1995 to combine a group of companies
engaged in the manufacture and sale of fractional and sub-
fractional motors and gear motors primarily to customers
located throughout the United States.
At the end of 1996, M&G was comprised of Merkle-Korff and
its wholly-owned subsidiary, Barber-Colman, and Imperial
and its wholly-owned subsidiaries, Scott and Gear. All of
the outstanding shares of Merkle-Korff were purchased by
M&G in September 1995 and the net assets of Barber-Colman
were purchased by Merkle-Korff in March 1996. Barber-
Colman was legally merged into Merkle-Korff as of January
1, 1997 and now operates as a division of Merkle-Korff.
The net assets of Imperial, Scott and Gear were purchased
by M&G, from the Company, at an arms length basis on
November 7, 1996, with the proceeds from a debt offering.
The purchase price was $75,656, which included the
repayment of $6,008 in Imperial liabilities owed to the
Company, and a contingent payment payable pursuant to a
contingent earnout agreement. Under the terms of the
contingent earnout agreement, 50% of Imperial, Scott and
Gear=s cumulative earnings before interest, taxes,
depreciation and amortization, as defined, exceeding
$50,000 during the five fiscal years ended December 31,
1996, through December 31, 2000, will be paid to the
Company. Payments, if any, under the contingent earnout
agreement will be determined and made on April 30, 2001.
As a result of this sale to M&G, the Company recognized
approximately $62,700 of deferred gain at the time of sale
for U.S. Federal income tax purposes, as adjusted for the
value of the earnout, once finally determined. A portion
of this deferred gain is reported as the M&G group reports
depreciation and amortization over approximately 15 years
on the step-up in basis of those purchased assets. As
long as M&G remains in the Company's affiliated group, the
gain reported and the depreciation on the step-up in basis
should exactly offset each other. Upon any future
deconsolidation of M&G from the Company's affiliated group
for U.S. Federal income tax purposes, any unreported gain
would be fully reported and subject to tax.
On May 16, 1997, the Company participated in a
recapitalization of M&G. In connection with the
recapitalization, M&G issued 16,250 shares of M&G common
stock (representing approximately 82.5% of the outstanding
shares of M&G common stock) to certain stockholders and
affiliates of the Company and M&G management for a total
consideration of $2,200 (of which $1,110 was paid in cash
and $1,090 was paid through the delivery of 8.0% zero
coupon notes due 2007). As a result of the
Recapitalization, certain of the Company's affiliates and
M&G management own substantially all of the M&G common
stock and the Company's investment in M&G is represented
solely by the Cumulative Preferred Stock of M&G (the "M&G
Junior Preferred Stock"). The M&G Junior Preferred Stock
represents 82.5% of M&G=s stockholder voting rights and
80% of M&G=s net income or loss is accretable to the
Junior Preferred Stock. The Company has obtained an
independent opinion as to the fairness, from a financial
point of view, of the recapitalization to the Company and
its public bondholders. The Company continues to
consolidate M&G and its subsidiaries, for financial
reporting purposes, as subsidiaries of the Company. The
M&G Junior Preferred Stock discontinues its participation
in M&G's earnings on the fifth anniversary of issuance.
This financial consolidation and a continuing Company
investment in M&G will be discontinued upon the redemption
of the M&G Junior Preferred Stock, or at such time as the
M&G Junior Preferred Stock ceases to represent at least a
majority of the voting power and a majority share in the
earnings of the relevant company. As long as the M&G
Junior Preferred Stock is outstanding, the Company expects
the vote test to be satisfied. The M&G Junior Preferred
Stock is mandatorily redeemable upon certain events and is
redeemable at the option of M&G, in whole or in part, at
any time.
The Company also expects to continue to include the
subsidiaries of M&G in its consolidated group for U.S.
Federal income tax purposes. This consolidation would be
discontinued, however, upon the redemption of the M&G
Junior Preferred Stock, which could result in recognition
by the Company of substantial income tax liabilities
arising out of the recapitalization. If such
deconsolidation had occurred at December 31, 1998, the
Company believes that the amount of taxable income to the
Company attributable to M&G would have been approximately
$51,200 (or approximately $20,480 of tax liabilities,
assuming a 40.0% combined Federal, state and local income
tax rate). The Company currently expects to offset these
tax liabilities arising from deconsolidation by using net
operating loss
carryforwards (approximately $131,600 at December 31,
1998), and to pay any remaining liability with redemption
proceeds from the M&G Junior Preferred Stock.
Deconsolidation would also occur with respect to M&G if
the M&G Junior Preferred Stock ceased to represent at
least 80.0% of the voting power and 80.0% of the combined
stock value of the outstanding M&G Junior Preferred Stock
and common stock of M&G. As long as the M&G Junior
Preferred Stock is outstanding, the Company expects the
vote test to be satisfied. The value test depends on the
relative values of the M&G Junior Preferred Stock and
common stock of M&G. It is likely that by the fifth
anniversary of their issuances, the M&G Junior Preferred
Stock would cease to represent 80.0% of the relevant total
combined stock value. It is entirely possible, however,
that the 80.0% value test could fail well prior to the
fifth anniversary after issuance. In the event that
deconsolidation for U.S. Federal income tax purposes
occurs without a redemption of the M&G Junior Preferred
Stock, the tax liabilities discussed above would be
incurred without the Company receiving the proceeds of the
redemption.
On July 25, 1997, the Company recapitalized its investment
in Jordan Telecommunication Products, Inc. ("JTP") and JTP
acquired the Company=s telecommunications and data
communications products business from the Company for
total consideration of approximately $294,027, consisting
of $264,027 in cash, $10,000 of assumed indebtedness and
preferred stock, and the issuance to the Company of
$20,000 aggregate liquidation preference of JTP Junior
Preferred Stock. The Company=s stockholders and
affiliates and JTP management invested in and acquired the
JTP common stock. As a result of the recapitalization,
certain of the Company's affiliates and JTP management own
substantially all of the JTP common stock. The Company's
investment in JTP is represented solely by the JTP Junior
Preferred Stock. The JTP Junior Preferred Stock
represents 95% of JTP=s stockholder voting rights and 95%
of JTP=s net income or loss is accretable to the Junior
Preferred Stock. The Company has obtained an independent
opinion as to the fairness, from a financial point of
view, of the recapitalization to the Company and its
public bondholders.
The Company continues to consolidate JTP and its
subsidiaries, for financial reporting purposes, as
subsidiaries of the Company. The JTP Junior Preferred
Stock discontinues its participation in JTP's earnings on
the fifth anniversary of issuance. This financial
consolidation and any continuing Company investment in JTP
will be discontinued upon the redemption of the JTP Junior
Preferred Stock, or at such time as the JTP Junior
Preferred Stock ceases to represent at least a majority of
the voting power and a majority share in the earnings of
the relevant company. As long as the JTP Junior Preferred
Stock is outstanding, the Company expects the vote test to
be satisfied. The JTP Junior Preferred Stock is
mandatorily redeemable upon certain events and is
redeemable at the option of JTP, in whole or in part, at
any time.
The Company also expects to continue to include the
subsidiaries of JTP in its consolidated group for U.S.
Federal income tax purposes. This consolidation would be
discontinued, however, upon the redemption of the JTP
Junior Preferred Stock, which could result in recognition
by the Company of substantial income tax liabilities
arising out of the recapitalization. If such
deconsolidation had occurred at December 31, 1998, the
Company believes that the amount of taxable income to the
Company attributed to JTP would have been approximately
$110,400 (or approximately $44,160 of tax liabilities,
assuming a 40.0% combined Federal, state and local income
tax rate). The Company currently expects to offset these
tax liabilities arising from deconsolidation by using net
operating loss carryforwards (approximately $131,600 at
December 31, 1998), and to pay any remaining liability
with redemption proceeds from the JTP Junior Preferred
Stock. Deconsolidation for federal income tax purposes
would also occur with respect to JTP if the JTP Junior
Preferred Stock ceased to represent at least 80.0% of the
voting power and 80.0% of the combined stock value of the
outstanding JTP Junior Preferred Stock and common stock.
It is likely that by the fifth anniversary of their
issuances, the JTP Junior Preferred Stock would cease to
represent 80.0% of the relevant total combined stock
value. It is entirely possible, however, that the 80.0%
value test could fail well prior to the fifth anniversary
after issuance. In the event that deconsolidation for
federal income tax purposes occurs without a redemption of
the JTP Junior Preferred Stock, the tax liabilities
discussed above would be incurred without the Company
receiving the proceeds of a redemption.
JTP financed the cash portion of this total consideration
through JTP=s private placement of $190,000 of JTP Senior
Notes due 2007, $85,000 of cash proceeds of JTP Senior
Discount Debentures due 2007, and $25,000 of JTP Senior
Preferred Stock due 2009.
In conjunction with the recapitalization of JTP, the
Company privately placed $120,000 of the Company=s Senior
Notes due 2007, and used the net proceeds from this
private placement, as well as the net proceeds received by
the Company in connection with the JTP recapitalization,
to repay approximately $78,000 of bank borrowings by the
Company=s subsidiaries under their credit agreements and
repurchase $271,600 of the Company=s 10d% Senior Notes due
2003 pursuant to a tender offer and related consent
solicitation. The Company also conducted a consent
solicitation with regard to its 11:% Senior Subordinated
Discount Debentures due 2009 in order to conform their
covenant structure to those in the Company=s Senior Notes
due 2007.
Note 6 - Inventories
Inventories consist of: Dec. 31, Dec. 31,
1998 1997
Raw materials $59,350 $ 45,324
Work-in-process 17,098 15,897
Finished goods 63,272 62,779
$139,720 $124,000
Note 7 - Property, plant and equipment
Property, plant and equipment, at cost, consists of:
Dec. 31, Dec. 31,
1998 1997
Land $8,282 $ 7,488
Machinery and equipment 162,437 126,265
Buildings and improvements 39,350 34,360
Furniture and fixtures 45,312 34,418
$255,381 $202,531
Accumulated depreciation
and amortization (115,803) (97,461)
$139,578 $105,070
Note 8 - Investment in affiliate
On July 2, 1997, the Company received from Fannie May
Holdings, Inc. (AFannie May@), $14,348 in exchange for its
investments of: $5,500 aggregate principal amount of
Subordinated Notes and $7,000 aggregate principal amount
of participation in outstanding term loans of Archibald
Candy Corporation, a wholly-owned subsidiary of Fannie
May. The amount received also included $1,573 of accrued
interest and a $275 premium on the above Subordinated
Notes and term loans. On July 7, 1997, the Company
received $3,013 as a return of the $3,000 certificate of
deposit held by the Company as security for an obligation
to purchase additional participation in the above-
mentioned term loans, plus $13 of accrued interest
thereon.
The Company holds 75.6133 shares of Class A PIK Preferred
Stock of Fannie May at face value of $1,571. The Company
also holds 151.28 shares of common stock of Fannie May
(representing 15.1% of the outstanding common stock of
Fannie May on a fully diluted basis) at $151.
Fannie May=s Chief Executive Officer is Mr. Quinn, and its
stockholders include
Mr. Jordan, Mr. Quinn, Mr. Zalaznick, and Mr. Boucher, who
are directors and stockholders of the Company, as well as
other partners, principals and associates of The Jordan
Company, who are also stockholders of the Company. Fannie
May, which is also known as AFannie May Candies@, is a
manufacturer and marketer of kitchen-fresh, high-end boxed
chocolates through its 337 company-owned retail stores and
through specialty sales channels. Its products are
marketed under both the AFannie May Candy@ and AFanny
Farmer Candy@ names.
Note 9 - Accrued liabilities
Accrued liabilities consist of: Dec. 31, Dec. 31,
1998 1997
Accrued vacation $ 2,803 $2,559
Accrued income taxes 4,284 3,609
Accrued other taxes 2,448 1,454
Accrued commissions 2,529 2,797
Accrued interest payable 19,523 18,175
Accrued payroll and payroll taxes 5,334 4,344
Accrued stock appreciation rights
and preferred stock payments 4,823 8,051
Insurance reserve 2,789 2,461
Accrued management fees - 3,125
Accrued deferred financing fees 4,091 3,455
Accrued other expenses 20,098 20,443
$68,722 $70,473
Note 10 - Operating leases
Certain subsidiaries lease land, buildings, and equipment
under noncancellable operating leases.
Total minimum rental commitments under non-cancellable
operating leases at December 31, 1998 are:
1999 $10,276
2000 9,019
2001 7,466
2002 6,236
2003 4,747
Thereafter 12,929
$50,673
Rental expense amounted to $12,172, $7,996 and $14,808 for
1998, 1997 and 1996, respectively. Rental expense
increased in 1998 due to the acquisitions in 1997 and
1998. Rental expense decreased in 1997 primarily due to
the exclusion in 1997 of rental expense incurred at
Welcome Home, as the Company no longer consolidates
Welcome Home in its financial statements (see note 3).
Rental expense at Welcome Home was $8,650 in 1996.
Note 11 - Benefit plans
In January 1993 the Company established the Jordan
Industries, Inc. 401(k) Savings Plan ("the Plan"), a
defined-contribution plan. The Plan covers substantially
all employees of the Company. Contributions to the Plan
are discretionary and totaled $1,870, $1,119 and $450 in
1998, 1997 and 1996, respectively.
Note 12 - Debt
Long-term debt consists of: Dec. 31, Dec. 31,
1998 1997
Revolving Credit Facilities (A) $164,000 $68,000
Notes payable (B) 2,738 3,388
Subordinated promissory notes (C) 33,500 26,500
Capital lease obligations (D) 30,333 24,660
Bank Term Loans (E) 4,439 1,229
Senior Notes (F) 582,724 586,475
Senior Subordinated Discount
Debentures (F) 247,821 221,166
1,065,555 931,418
Less current portion 6,136 9,547
$1,059,419 $921,871
Aggregate maturities of long-term debt at December 31,
1998 are as follows:
1999 $ 6,136
2000 20,042
2001 9,579
2002 10,705
2003 12,944
Thereafter $1,006,149
$1,065,555
A At December 31, 1998, the Company had
borrowings outstanding on lines of credit
totaling $164,000.
On July 25, 1997, the Company amended and
restated its revolving credit facility with
BankBoston, N.A. (Formerly the First National
Bank of Boston) and other banks, decreasing the
facility from $85,000 to $75,000. Interest on
borrowings is at BankBoston=s base rate plus an
applicable margin or, at the Company=s option,
the rate at which BankBoston=s eurodollar
lending office is offered dollar deposits
(Eurodollar Rate) plus an applicable margin
(8.25% and 7.0%, respectively, at December 31,
1998). The facility, which matures on June 29,
2002, is used for working capital and
acquisitions. At December 31, 1998, Jordan
Industries, Inc. had outstanding borrowings of
$50,000(no outstanding borrowings at December
31, 1997). The facility is secured by
substantially all of the assets of the
Restricted Subsidiaries. The Company must
comply with certain financial covenants as
specified in the revolver agreement, and at
December 31, 1998, the Company is in compliance
with such covenants.
On July 25, 1997, JTP entered into a revolving
credit agreement with certain parties thereto,
and BankBoston, N.A., as agent, under which JTP
is able to borrow up to approximately $110,000
in the form of a revolving credit facility over
a term of five years. Interest on borrowings is
at BankBoston=s base rate plus an applicable
margin or, at the Company=s option, the rate at
which BankBoston=s eurodollar lending office is
offered dollar deposits (Eurodollar Rate) plus
an applicable margin (7.84% and 8.06%,
respectively, at December 31, 1998). The credit
agreement is secured by a first priority
security interest in substantially all of JTP=s
assets, including a pledge of all of the stock
of JTP=s subsidiaries. JTP had $73,000 of
outstanding borrowings and a $2,319 standby
letter of credit under this credit agreement at
December 31, 1998. JTP had $34,681 of
additional borrowings available under the
revolving credit agreement at December 31, 1998.
Unused commitments are subject to an
availability fee equal to 0.5% per annum.
Motors and Gears, Inc. has available a long-term
line of credit from Bankers Trust Company in the
amount of $75,000. Outstanding borrowings carry
a floating note of Libor plus 2.5% (8.125% at
December 31, 1998) or base rate plus 1.5% (9.0%
at December 31, 1998). M&G had $41,000 of
outstanding borrowings under this credit
agreement at December 31, 1998.
SPL was obligated under a Revolving Credit
Facility which provided for borrowings of up to
$27,000. The facility bore interest at the
Libor rate plus 2.75% payable on a 30, 60, or 90
day basis and was secured by all of the assets
of SPL. All outstanding borrowings under this
facility were repaid during 1997 and the
facility was terminated in conjunction with the
Company=s issuance of $120,000 of Senior Notes.
B Notes payable are due in monthly or
quarterly installments and bear interest at
rates ranging from 3.0% to 17.0%. Certain
assets of the subsidiaries are pledged as
collateral for the loans.
C Subordinated promissory notes payable are
due to minority interest shareholders and former
shareholders of certain subsidiaries in annual
installments through 2004, and bear interest
ranging from 8% to 9%. The loans are unsecured.
D Interest rates on capital leases range from
8.3% to 14.5% and mature in installments through
2001.
The future minimum lease payments as of December
31, 1998 under capital leases consist of the
following:
1999 $6,434
2000 12,482
2001 4,307
2002 3,620
2003 9,531
Thereafter 852
Total $37,226
Less amount representing interest 6,893
Present value of future minimum lease
payments $30,333
The present value of the future minimum lease
payments approximates the book value of
property, plant and equipment under capital
leases at December 31, 1998.
E Bank term loans in 1998 consist of a
mortgage on the Pamco facility, which bears
interest at 8.2% and is due in monthly
installments through 2003. The mortgage is
secured by the Pamco facility. There is also a
mortgage on the Deflecto facility which bears
interest at .25% below prime rate and is due in
2028.
Bank term loans consisted of certain
indebtedness at SPL as of December 31, 1996.
All outstanding borrowings under these
agreements were repaid in 1997 in connection
with the Company=s issuance of $120,000 of
Senior Notes and the recapitalization of JTP.
In conjunction with this transaction, the
Company recorded an extraordinary loss of $2,538
relating to the write-off of deferred financing
fees and the premium assessed on the new issue.
F In July of 1993, the Company issued
$275,000 10 3/8% Senior Notes (ASenior Notes@)
due 2003. These notes bore interest at a rate
of 10 3/8% per annum, payable semi-annually in
cash on February 1 and August 1 of each year.
During 1997, $271,545 of the principal balance,
plus all accrued interest thereon, was repaid in
connection with the Company=s issuance of
$120,000 new Senior Notes and the
recapitalization of
JTP. In conjunction with this transaction, the
Company recorded an extraordinary loss of
$19,232 relating to the write-off of deferred
financing fees and the related prepayment
penalty. The remaining $3,455 of outstanding
Senior Notes was repaid in 1998.
The Company recorded an extraordinary loss of
$179 related to the prepayment penalty.
In July 1993 the Company issued $133,075 11 3/4%
Senior Subordinated Discount Debentures,
("Discount Debentures") due 2005. The Discount
Debentures were issued at a substantial discount
from this principal amount. The interest on the
Discount Debentures would have been payable in
cash semi-annually on February 1 and August 1 of
each year beginning in 1999.
In April of 1997, the Company refinanced
substantially all of the $133,075 aggregate
principal amount of its Discount Debentures and
issued $214,036 aggregate principal amount of 11
3/4% Senior Subordinated Discount Debentures due
2009 (A2009 Debentures@). The 2009 Debentures
were issued at a substantial discount from the
principal amount. The interest on the 2009
Debentures will be payable in cash semi-annually
on April 1 and October 1 of each year beginning
October 1, 2002. In conjunction with this
transaction, the Company recorded an
extraordinary loss of $8,898 relating to the
write-off of deferred financing fees and the
accreted premium on the new issue.
The 2009 Debentures are redeemable for 105.875%
of the accreted value from April 1, 2002 to
March 31, 2003, 102.937% from April 1, 2003 to
March 31, 2004 and 100% from April 1, 2004 and
thereafter plus any accrued and unpaid interest
from April 1, 2002 to the redemption date if
such redemption occurs after April 1, 2002.
The fair value of the 2009 Debentures was
$132,700 at December 31, 1998. The fair value
was calculated using the 2009 Debentures=
December 31, 1998 market price multiplied by the
face amount. The 2009 Debentures are not
secured by the assets of the Company.
In July 1997, the Company issued $120,000 10
3/8% Senior Notes due 2007 (A2007 Seniors@).
These notes bear interest at a rate of 10 3/8%
per annum, payable semi-annually in cash on
February 1 and August 1 of each year.
The 2007 Seniors are redeemable for 105.188% of
the principal amount from August 1, 2002 to July
31, 2003, 102.594% from August 1, 2003 to July
31, 2004, and 100% from August 1, 2004 and
thereafter plus any accrued and unpaid interest
to the date of redemption.
The fair value of the 2007 Seniors was $122,400
at December 31, 1998. The fair value was
calculated using the Senior Notes= December 31,
1998 market price multiplied by the face amount.
The 2007 Seniors are not secured by the assets
of the Company.
On July 25, 1997, a majority owned subsidiary of
the Company,
Jordan Telecommunications Products (AJTP@)
issued and sold $190,000 principal amount of
9.875% Senior Notes due August 1, 2007 (AJTP
Senior Notes@) and $120,000 principal amount at
maturity ($85,034 initial accreted value) of
11.75% Senior Discount Notes due August
1, 2007 (AJTP Senior Discount Notes@). The JTP
Senior Notes bear interest at a rate of 9.875%
per annum, payable semi-annually in cash in
arrears on February 1 and August 1 of each year,
commencing on February 1, 1998. The JTP Senior
Discount Notes will accrete at a rate of 11.75%,
compounded semi-annually, to par by August 1,
2000. Commencing August 1, 2000, the JTP Senior
Discount Notes bear interest at a rate of 11.75%
per annum, payable semi-annually in cash in
arrears on February 1 and August 1 of each year.
The JTP Senior Notes are redeemable for
104.9375% of the principal amount from August 1,
2002 to July 31, 2003, 102.4688% from August 1,
2003 to July 31, 2004, and 100% on or after
August 1, 2004, plus any accrued and unpaid
interest to the date of redemption.
The JTP Senior Discount Notes are redeemable for
105.8750% of the accreted value from August 1,
2002 to July 31, 2003, 102.9375% from August 1,
2003 to July 31, 2004, and 100% on or after
August 1, 2004, plus any accrued and unpaid
interest from August 1, 2000 to the redemption
date, if such redemption occurs after August 1,
2000.
The fair value of the JTP Senior Notes and JTP
Senior Discount Notes was $188,724 and $92,400,
respectively, at December 31, 1998. The fair
values were calculated by multiplying the face
amount by the market prices of each security at
December 31, 1998.
The Company incurred approximately $16,093 of
costs related to the issuance and sale of the
JTP Senior Notes, JTP Senior Discount Notes, and
the JTP Senior Preferred Stock Units, $9,885 of
which was allocated to deferred financing fees
and $6,208 of which was allocated to
stockholders= equity.
On November 7, 1996, a majority owned subsidiary
of the Company, Motors and Gears Holdings, Inc.,
through its wholly-owned subsidiary, Motors and
Gears Inc., issued $170,000 aggregate principal
amount of 10 3/4% Senior Notes (AM&G Senior
Notes@). Interest on the M&G Senior Notes is
payable in arrears on May 15 and November 15.
On December 10, 1997, Motors and Gears issued
$100,000 aggregate principal amount of 10 3/4%
Senior Notes (AC Notes@). Interest on the Notes
is payable in arrears on May 15 and November 15
of each year. The C Notes were issued at a
premium of 4.5% which is being amortized over
the remaining term of the Notes.
In conjunction with the consummation of the C
Note offering, the Company used a portion of the
net proceeds to repay existing
indebtedness under the new credit agreement,
acquire Motion Control, provide additional
working capital and pay fees and expenses
incurred in connection with the offering.
On January 9, 1998, Motors and Gears completed
an exchange offer under which $270,000 of 10
3/4% Series D Senior Notes (AD Notes@) were
exchanged for the $170,000 of Senior Notes and
the $100,000
of Senior Notes. The terms of the new Motors
and Gears Notes are substantially identical to
the terms of the old Motors and Gears Notes.
The fair value of the M&G Senior Notes at
December 31, 1998, was $275,400. The fair value
was calculated using the M&G Senior Notes=
December 31, 1998 market price multiplied by the
face amount. The M&G Senior Notes are not
secured by the assets of Motors and Gears, Inc.,
Motors and Gears Holdings, Inc., or the Company.
The Indentures relating to the Senior Notes, the Discount
Debentures, the 2007 Seniors and the 2009 Debentures
restrict the ability of the Company to incur additional
indebtedness at its restricted subsidiaries. The
Indentures also restrict: the payment of dividends, the
repurchase of stock and the making of certain other
restricted payments; restrictions that can be imposed on
dividend payments to the Company by its subsidiaries;
significant acquisitions; and certain mergers or
consolidations. The Indentures also require the Company
to redeem the Senior Notes, the Discount Debentures, the
2007 Seniors and the 2009 Debentures upon a change of
control and to offer to purchase a specified percentage of
the Senior Notes, the Discount Debentures, the 2007
Seniors and the 2009 Debentures if the Company fails to
maintain a minimum level of capital funds (as defined).
The indentures governing the JTP Senior Notes and the JTP
Senior Discount Notes contain certain covenants which
limit JTP=s ability to (i) incur additional indebtedness;
(ii) make restricted payments (including dividends); (iii)
enter into certain transactions with affiliates; (iv)
create certain liens; (v) sell certain assets; and (vi)
merge, consolidate or sell substantially all of JTP=s
assets.
The Indenture governing the Motors and Gears Senior Notes
contains certain covenants which, among other things,
restricts the ability of Motors and Gears to incur
additional indebtedness, to pay dividends or make other
restricted payments, engage in transaction with
affiliates, to complete certain mergers or consolidations,
or to enter into certain guarantees of indebtedness.
The Company is, and expects to continue to be, in
compliance with the provisions of these Indentures.
Included in interest expense is $4,594, $3,622 and $3,001
of amortization of
debt issuance costs for the years ended December 31, 1998,
1997 and 1996, respectively.
Note 13 - Income taxes
The provision for income taxes consists of the following:
Year Ended December 31,
1998 1997 1996
Current:
Federal $1,049 $ - $ -
Foreign 5,732 2,818 1,753
State and local 1,176 3,757 478
7,957 6,575 2,231
Deferred 205 - 2,184
Total $ 8,162 $6,575 $4,415
Deferred income taxes consist of:
Dec 31, Dec. 31,
1998 1997
Deferred tax liabilities:
Intangibles $ 6,966 $ 4,393
Tax over book depreciation 8,016 7,260
Basis in subsidiary 798 798
LIFO reserve - 83
Intercompany tax gain 14,435 7,289
Other 600 531
Total deferred tax liabilities 30,815 20,354
Deferred tax assets:
NOL carryforwards 50,806 37,482
Stock Appreciation Rights
Agreements 2,264 3,772
Accrued interest on discount debentures 13,510 13,510
Pension obligation 601 444
Vacation accrual 1,109 891
Uniform capitalization of inventory 2,147 1,501
Investment in partnership 282 -
Allowance for doubtful accounts 1,257 1,125
Foreign NOL=s 3,230 2,132
Deferred financing fees 742 814
Intangibles 1,573 1,242
Tax asset basis over book basis at
subsidiary 14,435 7,289
Other 2,755 484
Total deferred tax assets 94,711 70,686
Valuation allowance for deferred
tax assets (65,340) (51,776)
Net deferred tax assets 29,371 18,910
Net deferred tax liabilities 1,444 1,444
The increase in the valuation allowance during 1998 and
1997 was $13,564 and $13,212, respectively.
The provision (benefit) for income taxes differs from the
amount of income tax benefit computed by applying the
United States federal income tax rate to
(loss) income before income taxes, including the
extraordinary loss. A reconciliation of the differences
is as follows:
Year
ended
December 31,
1998
1997 _1996_
Computed statutory tax benefit $(7,667)
$(12,760)
$(17,413)
Increase (decrease) resulting from:
Foreign subsidiary losses (655) 1,906
1,465
Amortization of goodwill
1,873
1,404
903
Disallowed meals and entertainment 265
295 645
State and local tax 1,176
772 478
Increase in valuation allowance 13,564
14,368
18,548
Other items, net (394)
590 (211)
Provision (benefit) for income taxes $8,162 $
6,575 $ 4,415
As of December 31, 1998, the consolidated loss carry
forwards are approximately $131,600 and $104,000 for
regular tax and alternative minimum tax purposes,
respectively, and expire in various years through 2012.
Note 14 - Payment of Stock Appreciation Rights
In March 1992, the former shareholders of a wholly-owned
subsidiary, were granted Stock Appreciation Rights
(ASARs@) exercisable in full or in part on the occurrence
of the disposition by voting power and/or value of the
capital stock of the subsidiary. The value of the SARs
was based on the ultimate sales price of the stock or
assets of the subsidiary, and is essentially 15.0% of the
ultimate sales price of the stock or assets sold, less
$15,625.
On April 10, 1997, the Company paid the former
shareholders pursuant to an agreement (AThe 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 required 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 has a remaining liability of $4,960 at December
31, 1998.
In connection with the Company=s acquisitions of AIM and
Cambridge in 1989, the seller of these companies was
granted SARs. The formula used to value these rights was
calculated by determining 20% of a multiple of average
cash flow of these companies for the two years preceding
the date when these rights were exercised, less the
indebtedness of these companies. The seller passed away
during the third quarter of 1996 and the seller=s estate
exercised these rights. The 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.
Note 15 - Sale of Subsidiaries
On July 9, 1998, 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.
On May 15, 1997, the Company sold its subsidiary, Hudson
Lock, Inc. (AHudson@), for approximately $39,100. Hudson
is a leading designer, manufacturer, and marketer of
highly engineered medium-security custom and specialty
locks for original equipment manufacturer customers. A
gain of $17,081 was recorded in 1997 relating to this
sale.
On July 31, 1997, the Company sold its subsidiary, Paw
Print Mailing List Services, Inc. (APaw Print@), for
approximately $12,500 to an affiliate. Paw Print is a
value-added provider of direct mail services.
Note 16 - Related party transactions
The principals, partners, officers, employees and
affiliates of The Jordan Company (the "Jordan Group") own
substantially all of the common stock of the Company.
In February 1988, the Company entered into an employment
agreement with its President and Chief Operating Officer
which provides for annual compensation, including base
salary and bonus, of not less than $350. The agreement
also provides for severance payments in the event of
termination for reasons other than cause, voluntary
termination, disability or death; disability payments,
under certain conditions, in the event of termination due
to disability; and a lump sum payment of $1,000 in the
event of death. The Company maintains a $5,000 "key man"
life insurance policy on its president under which the
Company is the beneficiary.
An individual who is a shareholder, Director, General
Counsel and Secretary for the Company is also a partner in
a law firm used by the Company. The firm was paid $1,078,
$1,812 and $1,462 in fees and expenses in 1998, 1997 and
1996, respectively. The rates charged to the Company were
at arms-length.
On July 25, 1997, a previous agreement with TJC Management
Corporation (ATJC@) was amended and restated. Under the
new agreement, the Company pays TJC a $750 quarterly fee.
Under these agreements the Company accrued fees to TJC of
$3,000, $2,955 and $2,530 in 1998, 1997 and 1996,
respectively.
On July 25, 1997, a previous agreement with TJC was
amended and restated. Under the new agreement, the
Company pays TJC an investment banking fee of up to 1%,
based on the aggregate consideration paid, for its
assistance in acquisitions undertaken by the Company or
its subsidiaries, and a financial consulting fee not to
exceed 0.5% of the aggregate debt and equity financing
that is arranged by the Jordan Company, plus the
reimbursement of out-of-pocket and other expenses. The
Company paid $3,000, $5,075, and $2,610 in 1998, 1997, and
1996, respectively, to the Jordan Company for their fees
in relation to acquisition and refinancing activities.
On June 23, 1998, the Company made approximately $0.8
million of unsecured advances to JIR, Inc., JIR Broadcast,
Inc. and JIR Paging, Inc. Each of these company's Chief
Executive Officer is Mr. Quinn, and its stockholders
include Messrs. Jordan, Quinn, Zalaznick and Boucher, who
are our directors and stockholders, as well as other
partners, principals and associates of The Jordan Company
who are also the Company's stockholders. These companies
are engaged in the development of businesses in Russia,
including the broadcast and paging sectors.
In November 1998, the Company, through Motors and Gears,
invested $5,600 in Class A Preferred Stock and $1,700 in
Class B Preferred Stock of JZ International, Ltd. The
Company expects to make an additional $5,000 of
investments in JZ International's Class A Preferred Stock.
JZ International's Chief Executive Officer is David W.
Zalaznick, and its stockholders include Messrs. Jordan,
Quinn, Zalaznick and Boucher, who are the Company's
directors and stockholders, as well as other partners,
principals and associates. JZ International is a merchant
bank located in London, England that is focused on making
European and other international investments. The Company
is accounting for the investment under the cost method.
At December 31, 1998, the cost of the investment
approximates market value.
During 1998, the Company made approximately $1.4 million
of unsecured advances to CBD Networks, Inc. The Company
expects to form a new, Nonrestricted Subsidiary to acquire
all or substantially all of the business and assets of CBD
Networks in the near future, pursuant to which we will
invest $3.5 million in a five-year unsecured note, bearing
interest at 10% per annum, and a warrant, exercisable for
10% of the issued and outstanding common stock of CBD
Networks. The Company expects that substantially all of
the issued and outstanding common stock of the company
that acquires the business of CBD Networks will be owned
by The Company's Stockholders and the management of CBD
Networks. CBD Networks is a provider of Internet access
for approximately 10,000 customers.
During 1998 the Company made approximately $1.0 million of
unsecured advances to Healthcare Products Holdings, Inc.
Healthcare Products Holdings' Chief Executive Officer is
Thomas Quinn, and its stockholders include Messrs. Jordan,
Quinn, Zalaznick and Boucher, who are the Company's
directors and stockholders, as well as other partners,
principals and associates of the Jordan Company who are
also the Company's stockholders.
Note 17 - Capital stock
Under the terms of a restricted common stock agreement
with certain shareholders and members of management, the
Company has the right, under certain circumstances, for a
specified period of time to reacquire shares from certain
shareholders and management at their original cost.
Starting in 1993
or within 60 days of termination, the Company's right to
repurchase may be nullified if $1,800, in the aggregate,
is paid to the Company by management.
On January 20, 1989, the Company, in exchange for three
thousand five hundred dollars, sold warrants to acquire
3,500 shares of its common stock to Mezzanine Capital &
Income Trust 2001, PLC ("MCIT"), which has been renamed JZ
Equity Partners PLC ("JZEP"), a publicly traded U.K.
investment trust, in
which principal stockholders of the Company also hold
capital and income shares. These warrants were sold in
conjunction with MCIT's purchase of $7,000 of Senior
Subordinated Notes. Each Warrant entitles the holder to
purchase one share of the Company's common stock at a
price of $4.00 (dollars) at any time, subject to certain
events, prior to January 20, 1999. These warrants were
exercised in 1997.
On April 3, 1997, the Company issued an additional 1,500
shares of stock for $135 cash to an employee. An
independent appraiser valued the common stock at $1,005,
therefore a charge of $870 has increased the Company=s
loss before income taxes, minority interest, equity in
investee and extraordinary items.
Note 18 - Preferred Stock
In May 1997, Motors and Gears Holdings, Inc., a majority-
owned subsidiary of the Company, issued $1,500 of senior,
non-voting 8.0% cumulative preferred stock to its minority
shareholders.
On July 25, 1997, JTP issued and sold twenty-five thousand
units, each consisting of (i) $1 aggregate liquidation
preference of 13.25% Senior Exchangeable Preferred Stock
due August 1, 2009 (AJTP Senior Preferred Stock@), and
(ii) one share of JTP Common Stock.
Holders of the JTP Senior Preferred Stock are entitled to
receive dividends at a rate of 13.25% per annum of the
liquidation preference. All dividends are cumulative,
whether or not earned or declared, and are payable on
February 1, May 1, August 1, and November 1 of each year.
On or before August 1, 2002, JTP may, at its option, pay
dividends in cash or in additional shares of JTP Senior
Preferred Stock having an aggregate liquidation preference
equal to the amount of such dividends. After August 1,
2002, dividends may be paid only in cash. On November 1,
1997, JTP issued 889.3836 of additional shares of JTP
Senior Preferred Stock, as payment of dividends through
that date.
The JTP Senior Preferred Stock has no voting rights and is
mandatorily redeemable on August 1, 2009.
Note 19 - Business segment information
The Company's business operations are classified into five
business segments: Specialty Printing and Labeling, Jordan
Specialty Plastics, Motors and Gears, Telecommunication
Products, and Consumer and Industrial Products. As of
January 21, 1997, Welcome Home is no longer consolidated
in the Company=s results of operations and is therefore no
longer considered a separate business segment. (See note
3)
Specialty Printing and Labeling includes production and
distribution of calendars and distribution of corporate
recognition, promotion, and specialty advertising products
by SPAI; manufacture of pressure sensitive label products
for the electronics OEM market by Valmark; manufacture of
a wide variety of printed tape and labels by Pamco; and
manufacture of printed folding cartons and boxes, insert
packaging and blister pack cards at Seaboard.
Jordan Specialty Plastics includes the manufacturing of
point-of-purchase
advertising displays by Beemak; manufacture and marketing
of safety reflectors, lamp components, bicycle reflector
kits, colorants and emergency warning triangles by Sate-
Lite; design, manufacture, and marketing of plastic
injection-molded products for mass merchandisers, major
retailers, and large wholesalers by Deflecto; and
manufacture of extruded vinyl chairmats for the office
products industry by Rolite.
Motors and Gears includes the manufacture of specialty
purpose electric motors for both industrial and commercial
use by Imperial; precision gears and gear boxes by Gear;
AC and DC gears and gear motors and sub-fractional AC and
DC motors and gear motors for both industrial and
commercial use by Merkle-Korff and FIR; and electronic
motion control systems for use in industrial and
commercial processes such as conveyor systems, packaging
systems, elevators and automated assembly operations by
ED&C and Motion Control.
Telecommunication Products includes the manufacture and
distribution of silicon pre-lubricated plenum and other
configurations of Innerduct, a proprietary plastic pipe
used in the installation of fiber optic cable, and rigid
polyethylene pipe used for transporting potable water by
Dura-Line; electronic connectors, switches, RF coaxial
connectors and electronic hardware by Connectors; cable TV
electronic network components and electronic security
components by Viewsonics; custom electronic cables and
connectors for high technology, computer related
applications by Bond; custom electronic cable assemblies,
sub-assemblies and electro-mechanical assemblies for the
data and telecommunications markets by LoDan; design and
installation of cellular personal communications systems
and radio/broadcasting towers by EEI; custom cable
assemblies and other correcting devices by TSI; and power
conditioning and power protection equipment by Northern.
Vitelec is an importer, packager, and master distributor
of over 400 RF connectors and other electronic components.
Consumer and Industrial Products includes the
remanufacturing of transmission sub-systems for the U.S.
automotive aftermarket by DACCO; the publishing of Bibles
and the distribution of Bibles, religious books, and
recorded music by Riverside; precision machined titanium
hot formed parts used by the aerospace industry by
Parsons; decorative home furnishing accessories by Cape;
manufacture of plastic pipe by Dura-Line Retube; and
manufacture of orthopedic supports and pain reducing
medical devices at Cho-Pat.
Measurement of Segment Operating Income and Segment Assets
The Company evaluates performance and allocates resources
based on operating income. The accounting policies of the
reportable segments are the same as those described in
Note 2 - Significant Accounting Policies.
Inter-segment sales exist between Cape and Welcome Home, a
specialty retailer of decorative home furnishings, and a
former subsidiary of the Company (see note 3). These
sales were eliminated in consolidation prior to January
22, 1997, and were not presented in segment disclosures.
No single customer accounts for 10% or more of segment or
consolidated net sales.
Operating income by business segment is defined as net
sales less operating costs and expenses, excluding
interest and corporate expenses.
Identifiable assets are those used by each segment in its
operations. Corporate assets consist primarily of cash
and cash equivalents, equipment, notes receivable from
affiliates and deferred debt issuance costs.
Factors Used to Identify the Enterprise's Reportable
Segments
The Company's reportable segments are business units that
offer different products. The reportable segments are
each managed separately because they manufacture and
distribute distinct products with different production
processes.
Summary financial information by business segment is as
follows:
Year ended
December
31,
1998 1997
1996
Net sales:
Specialty Printing & Labeling $120,160 $119,346
$109,587
Jordan Specialty Plastics 71,568 24,038
20,120
Motors and Gears 275,833 148,669
117,571
Telecommunications Products 310,028 257,010
131,592
Welcome Home - 2,456
81,855
Consumer and Industrial Products 166,018 155,593
140,842
Total $943,607 $707,112
$601,567
Operating income:
Specialty Printing & Labeling $ 8,259 $
8,540 $ 5,540
Jordan Specialty Plastics 4,654
2,490 (592)
Motors and Gears 42,324 27,684
23,229
Telecommunication Products 30,791
13,258 13,828
Welcome Home - ( 1,107)
(15,975)
Consumer and Industrial Products 17,105
16,012 13,222
Total business segment operating
income 103,133 66,877
39,252
Corporate expenses (11,437) (11,433)
(25,860)
Total consolidated operating
income $91,696 $55,444
$ 13,392
Depreciation and amortization
(including the amortization of
goodwill and intangibles):
Specialty Printing & Labeling $ 4,949 $
5,284 $ 4,800
Jordan Specialty Plastics 4,693
2,291 2,245
Motors and Gears 12,727
9,015 7,078
Telecommunication Products 14,885
10,938 7,204
Welcome Home - 119
2,096
Consumer and Industrial Products 3,550
4,168 3,540
Total business segment
depreciation and amortization 40,804
31,815 26,963
Corporate 4,243
3,506 3,475
Total consolidated depreciation
and amortization $45,047
$35,321 $30,438
Capital expenditures:
Specialty Printing & Labeling $ 1,886 $
1,906 $ 2,801
Jordan Specialty Plastics 3,607
1,172 804
Motors and Gears 5,175
1,649 1,407
Telecommunication Products 9,848
9,864 6,872
Welcome Home - -
1,638
Consumer and Industrial Products 1,667 1,354
966
Corporate 2,542
1,346 2,652
Total consolidated capital
expenditures $24,725 $17,291
$17,140
Dec 31, Dec 31, Dec 31,
1998 1997 1996
Identifiable assets:
Specialty Printing & Labeling $101,916
$104,979 $107,056
Jordan Specialty Plastics 88,142
21,707 15,669
Motors and Gears 389,997
336,558 173,565
Telecommunication Products 326,424
328,509 175,796
Welcome Home -
- - - 26,263
Consumer and Industrial Products 98,932
106,243 129,682
Total identifiable business
segment assets 1,005,411
897,996 628,031
Corporate assets 38,477
32,235 53,854
Total consolidated identifiable
assets $1,043,888
$930,231 $681,885
Summary financial information by geographic area is as
follows:
Year ended
December
31,
1998
199
7
199
6
Net sales to unaffiliated customers:
United States $ 840,461 $
630,418 $ 565,937
Foreign
103
,14
6
76,
694
35,
630
Total $943,607
$707,112 $601,567
Identifiable assets:
United States $ 112,700$ 82,942$ 97,022
Foreign 26,878 22,128 14,018
Total $ 139,578$ 105,070$ 111,040
Note 20 - Acquisitions and formation of subsidiaries
On January 20, 1998, Jordan Telecommunication Products,
Inc. ("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
enclosures for electronic original equipment
manufacturers. K&S is located in Huntington
Beach, California.
The purchase price of $15,930, including estimated costs
incurred directly related to the transaction, has been
preliminarily 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 $14,000 of
borrowings from JTP's revolving credit agreement and
$1,500 of a subordinated seller note.
On February 9, 1998, the Company completed the formation
of Jordan Specialty Plastics, Inc. ("JSP"). JSP was
formed as a Restricted Subsidiary under the Company's
Indenture. The Company sold the stock of Beemak and Sate-
Lite to JSP for $11,500 of Preferred Stock, which will
accrete at plus or minus 97.5% of the cumulative JSP net
income or net loss, as the case may be, through the
earlier of an Early Redemption Event (as defined) or the
end of year five. The Company will also keep its
intercompany notes with Sate-Lite ($1.2 million at January
31, 1998) and Beemak ($9.8 million at January 31, 1998).
The Company has sold these subsidiaries in order to
establish them as more independent, stand-alone, industry-
focused companies, and to allow the Company's stockholders
and employees to invest directly in JSP.
On February 11, 1998, JSP purchased all of the common
stock of Deflecto Corporation ("Deflecto"). Deflecto
designs, manufactures and markets plastic injection molded
products such as office supplies, hardware products and
houseware products.
The purchase price of $43,000, including costs directly
related to the transaction, was 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 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 $55,500. 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; other long-term assets and liabilities of
$54; and resulted in an excess purchase price over net
identifiable assets of $41,456. 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, though 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 $5,150 of borrowings from
JTP's revolving credit agreement 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, plant, 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.
On January 8, 1997, Beemak purchased the net assets of
Arnon-Caine, Inc. (AACI@), a designer and distributor of
modular storage systems primarily for sale to wholesale
home centers and hardware stores. ACI subcontracts its
production to third party injection molders located
primarily in Southern California, which use materials and
machines similar to those used by Beemak. By early 1998,
Beemak will serve as ACI=s primary supplier.
The purchase price of $4,600, including costs incurred
directly related to the acquisition, was allocated to
working capital of $300, property, plant and equipment of
$82, and excess purchase price over net identifiable
assets of $4,218. The acquisition was financed with cash.
On May 30, 1997, JTP purchased the assets of LoDan West,
Inc. ("LoDan"), which designs, engineers and manufactures
high-quality custom electronic cable assemblies, sub-
assemblies and electro-mechanical assemblies for original
equipment manufacturers in the data and telecommunications
markets of the electronics industry.
The purchase price of $17,000, including estimated costs
incurred directly related to the transaction, was
allocated to working capital of $5,066, property, plant
and equipment of $783, non-competition agreement of $250,
noncurrent assets of $41, and resulted in an excess
purchase price over net identifiable assets of $10,860.
The acquisition was financed with cash and a $1,500
subordinated seller note.
On June 12, 1997, Motors and Gears Industries, Inc.,
through its newly formed wholly-owned subsidiary, FIR
Group Holdings, Inc. and its wholly-owned subsidiaries,
Motors and Gears Amsterdam, B.V. and FIR Group Holdings
Italia, SrL, purchased all of the common stock of the FIR
Group Companies, consisting of CIME S.p.A., SELIN S.p.A.,
and FIR S.p.A. The FIR Group Companies are manufacturers
of electric motors and pumps for niche applications such
as pumps for catering dishwashers, motors for industrial
sewing machines, and motors for industrial fans and
ventilators.
The purchase price of $50,496, including costs directly
related to the transaction, was preliminarily allocated to
working capital of $16,562, property, plant, and equipment
of $4,918, other long term assets and liabilities of
($3,442), and resulted in an excess of purchase price over
net identifiable assets of $32,458. The cash was provided
from borrowings under the Motors and Gears Industries,
Inc. Credit Agreement established on November 7, 1996
among Motors and Gears Industries, Inc., various banks,
and Bankers Trust Company, as agent.
On September 2, 1997 JTP purchased the assets of
Engineered Endeavors Inc. (AEEI@). EEI designs,
manufactures and installs custom cellular personal
communication systems and radio/broadcasting towers.
The purchase price of $41,500, including estimated costs
incurred directly related to the transaction, was
allocated to working capital of $2,068 property, plant,
and equipment of $799, non-competition agreement of
$2,500, other long-term assets of $14, and resulted in an
excess purchase price over net identifiable assets of
$36,119. The acquisition was financed with $21,500 of
cash and $20,000 of borrowings under the JTP credit
facility.
On September 11, 1997 the Company purchased the net assets
of Cho-Pat, Inc. (ACho-Pat@). Cho-Pat is a leading
designer and manufacturer of orthopedic supports and
patented preventative and pain reducing medical devices.
Cho-Pat currently produces nine different products
primarily for reduction of pain from injuries and the
prevention of injuries resulting from overuse of the major
joints.
The purchase price of $1,200, including estimated costs
incurred directly related to the transaction, was
allocated to working capital of $17, property, plant and
equipment of $23, and other long-term assets of $34 which
resulted in an excess purchase price over net identifiable
assets of $1,126. The acquisition was financed with cash.
On October 27, 1997 Motors and Gears Industries, Inc.
(AMotors and Gears@) acquired all of the outstanding stock
of Electronic Design and Control Company (AED&C@). ED&C
is a full service electrical engineering company which
designs, engineers and manufactures electrical control
systems and panels for material handling systems and other
like applications. ED&C provides comprehensive design,
build and support services to produce electronic control
panels which regulates the speed of movement of conveyor
systems used in a variety of automotive plants and other
industrial applications.
The purchase price of $20,000, including costs incurred
directly related to the transaction, has been
preliminarily allocated to working capital of
$3,514, property, plant, and equipment of $132, covenants
not to compete of $120, and resulted in an excess purchase
price over net identifiable assets of $16,234. The
acquisition was financed through a $16,000 borrowing on
the Motors and Gears line of credit and a $4,000
subordinated seller note.
On October 31, 1997 JTP purchased the stock of Telephone
Services, Inc. of Florida (ATSI@). TSI designs,
manufactures and provides custom cable assemblies,
terminal strips and terminal blocks and other connecting
devices primarily to the telephone operating companies and
major telecommunication manufacturers.
The purchase price of $53,303, including estimated costs
incurred directly related to the transaction, has been
preliminarily allocated to working capital of $3,864,
property, plant, and equipment of $1,528, non-compete
agreement of $2,000, and non current assets of $107,
resulting in an excess purchase price over net
identifiable assets of $45,804. The acquisition was
financed with a $48,000 borrowing under the JTP credit
facility, a $5,000 subordinated seller note and the
assumption of a $303 deferred purchase agreement.
On December 10, 1997, Motors and Gears Industries, Inc.,
through its newly formed wholly-owned subsidiary, Motion
Holdings, Inc., purchased all of the common stock of
Motion Control Engineering, Inc. (AMCE@). MCE is the
leading independent supplier of electronic motion and
logic control products to the elevator industry.
The purchase price of $53,600, including costs directly
related to the transaction, was preliminarily allocated to
working capital of $10,071, property and equipment of
$1,428, non-competes and other of $1,005, and resulted in
an excess of purchase price over net identifiable assets
of $41,108. The cash was provided from the issuance of
$100 million of 10 3/4% bonds by Motors and Gears, Inc.
Unaudited pro forma information with respect to the
Company as if the 1998 acquisitions had occurred on
January 1, 1998 and 1997 and as if the 1997 acquisitions
had occurred on January 1, 1997, is as follows:
Year Ended December 31,
1998 1997
(un
aud
ite
d)
(dollars in millions)
Net sales $ 955,483 $
902,244
Net (loss) income before
extraordinary items (18,139)
2,471
Net (loss) income $ (27,034) $
(30,314)
Note 21 - Compensation Agreements
Effective October 1, 1996, the Company voluntarily agreed
to pay to an executive $3,876 in view of his contributions
to the Company, including identifying and analyzing
acquisition candidates for the Company and providing
strategic advice to the Board of Directors of the Company.
The Company accrued for this compensation agreement in
1996. The Company paid the executive $860 during 1998,
$867 during 1997, and $1,300 during 1996, with the
remaining $905 payable in two equal semi-annual
installments payable on April 1, and October 1, 1999.
Note 22 - 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 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 $3,100 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 and can pay a minimum of $0 and
a maximum of $2,000 for the year ended July 31, 1997 and
$3,000 for the year ending July 31, 1998. On January 2,
1998, the Company paid $1,388 for the plan year ended July
31, 1997. At December 31, 1998, $1,081 was accrued for
the plan year ended July 31, 1998.
The Company also has a contingent purchase price agreement
relating to its acquisition of Motion Control on December
18, 1997. The terms of the Company=s Motion Control
acquisition agreement provides for additional
consideration to be paid if the acquired entity=s results
of operations exceed certain targeted levels. Targeted
levels are set substantially above the historical
experience of the acquired entity at the time of
acquisition. The agreement becomes exercisable in 2003
and payments, if any, under the contingent agreement will
be placed in a trust and paid out in cash in equal annual
installments over a four year period.
In addition, the Company has an agreement to make an
additional purchase price payment of up to $4,000 to the
former owners of TSI if certain earnings projections are
met on or before March 1, 1999. At December 31, 1998,
$3,742 was accrued related to this agreement.
Note 23 - Contingencies
The Company is subject to legal proceedings and claims
which arise in the ordinary course of its business. The
Company believes that the final disposition of such
matters will not have a material adverse effect on the
financial position or results of operations of the
Company.
Note 24 - Subsequent Events
On March 22, 1999, the Company completed a $155,000 "tack-
on" bond offering at a 10 3/8% coupon. The bonds were
sold at 96.62% of par and mature on August 1, 2007. The
net cash to the Company was $149,761.
On the same day, the Company purchased Alma Products
("Alma") for $86,300. Alma is comprised of three primary
business segments: (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. As a premium remanufacturer of torque
converters, Alma has earned ISO-9002 status and supplies
Ford with 100% and Chrysler with approximately 70% of
their remanufactured torque converter requirements. The
purchase price of $86,300 is made up of cash of $84,000
and the assumption of $2,300 in long-term liabilities
related to retiree healthcare benefits, and has not been
allocated at this time.
The Company also used the proceeds from the offering
described above to pay down its Revolving Credit Facility.
As of March 31, 1999, the Company has no borrowings
outstanding under its $75,000 Revolving Credit Facility.
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 $17,000, which does not include
related transaction costs, has not been allocated at this
time. The acquisition was financed with four-month
promissory notes for $9,937 and borrowings from JTP's
revolving credit agreement of $7,063.
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
The following sets forth the names and ages of each of the
Company=s directors and executive officers and the
positions they hold at the Company:
Name Age Position with the
Company
John W. Jordan II 51 Chairman
of the Board of
Directors and Chief
Executive Officer.
Thomas H. Quinn 51
Director, President and
Chief Operating
Officer.
Joseph S. Steinberg 55 Director.
David Z. Zalaznick 43 Director.
Jonathan F. Boucher 42 Director,
Vice President &
Assistant
Secretary
G. Robert Fisher 59
Director, General
Counsel and Secretary.
Each of the directors and executive officers of the
Company will serve until the next annual meeting of the
stockholders or until their death, resignation or removal,
whichever is earlier. Directors are elected annually and
executive officers hold office for such terms as may be
determined by the Company=s board of directors (the ABoard
of Directors@).
Set forth below is a brief description of the business
experience of each director and executive officers of the
Company.
Mr. Jordan has served as Chairman of the Board of
Directors and Chief executive Officer of the Company since
1988. Mr. Jordan is a managing partner of The Jordan
Company, a private merchant banking firm which he founded
in 1982. Mr. Jordan is also a director of American Safety
Razor Company, AmeriKing, Inc., Carmike Cinemas, Inc.,
Archibald Candy Corporation, GFSI Inc., GFSI Holdings,
Inc., Rockshox, Inc., and Apparel Ventures, Inc., as well
as other privately held companies. In December 1996, Mr.
Jordan resigned as a Director and Officer of Welcome Home.
In January 1997, Welcome Home filed a voluntary petition
for bankruptcy.
Mr. Quinn has served as a director, President and
Chief Operating Officer of the Company since 1988. From
November 1985 to December 1987, Mr. Quinn was Group Vice
President and a corporate officer of Baxter International
(ABaxter@). From September 1970 to November 1985, Mr.
Quinn was employed by American Hospital Supply Corporation
(AAmerican Hospital@), where he was a Group Vice President
and a corporate officer when American Hospital was
acquired by Baxter. Mr. Quinn is also the Chairman of the
Board and Chief Executive Officer of American Safety Razor
Company, Archibald Candy Corporation and AmeriKing, Inc.,
as well as a director of Welcome Home and other privately
held companies. In January 1997, Welcome Home filed a
voluntary petition for bankruptcy.
Mr. Steinberg has served as a director of the Company
since 1988. Since 1979, Mr. Steinberg has been the
President and a director of Leucadia National Corporation,
a bank holding company. He is also a Trustee of New York
University.
Mr. Zalaznick has served as a director of the Company since
June 1997. Since 1982, Mr. Zalaznick has been a managing partner
of The Jordan Company. Mr. Zalaznick is also a director of
Carmike Cinemas, Inc., AmeriKing, Inc., American Safety Razor
Company, Marisa Christina, Inc. and Apparel Ventures, Inc., as
well as other privately held companies.
Mr. Boucher has served as a Vice President, Assistant
Secretary and a director of the Company since 1988. Since 1983,
Mr. Boucher has been a partner of The Jordan Company. Mr.
Boucher is also a director of American Safety Razor Company, as
well as other privately held companies. In December 1996, Mr.
Boucher resigned as a director and officer of Welcome Home. In
January 1997, Welcome Home filed a voluntary petition for
bankruptcy.
Mr. Fisher has served as a director, General Counsel and
Secretary since 1988. Since February 1999, Mr. Fisher has been a
member of the law firm of Sonnenschein, Nath & Rosenthal, a firm
that represents the Company in various legal matters. From June
1995 until February 1999, Mr. Fisher was a member of the law firm
of Bryan Cave LLP. For the prior 27 years, Mr. Fisher was a
member of the law firm of Smith, Gill, Fisher & Butts, P.C.,
which combined with Bryan Cave LLP in June 1995.
Item 11. EXECUTIVE COMPENSATION
The following table shows the cash compensation paid by the
Company, for the three years ended December 31, 1998, for
services in all capacities to the President and Chief Operating
Officer of the Company.
Summary
Compensation Table(1)
Annual
Compensation
Name and Principal Position Year Salary
Bonus Other Compensation
John W. Jordan II, Chief 1998
Executive Officer(2) 1997 - -
-
1996 - -
-
Thomas H. Quinn, 1998 600,000
1,402,950 36,685
President and Chief 1997
500,000 2,392,524
870,000(3)
Operating Officer 1996
500,000 1,850,750
-
(1) The aggregate number of shares of restricted Common Stock
held by the Company=s executive officers and directors at
December 31, 1997 was 5,000 shares, consisting of 4,000
shares held by Mr. Quinn and 1,000 shares held by Mr.
Boucher. The value of the restricted shares is not able to
be calculated because there is no market price for shares of
the Company=s unrestricted Common Stock. Dividends will be
paid on the restricted shares to the same extent paid on
unrestricted shares. See AManagement-Restricted Stock
Agreements.@
(2) Mr. Jordan derived his compensation from the Jordan Company
and JZCC for his services to the Company and its
subsidiaries. He received no compensation from the Company
or its subsidiaries for his services as Chief Executive
Officer.
(3) The difference between the amount paid for 1,500 shares of
common stock and the related market value of the stock.
Employment Agreement. Mr. Quinn has an employment agreement
with the Company which provides for his employment as President
and Chief Operating Officer of the Company. The employment
agreement can be terminated at any time by the Company. His base
salary is $600,000 per year, and he is provided with a guaranteed
bonus of $100,000 per year, which amounts are inclusive of any
compensation, fees, salary, bonuses or other payments to Mr.
Quinn by any of the subsidiaries or affiliates of The Jordan
Company. Under the employment agreement, if Mr. Quinn=s
employment is terminated for reasons other than voluntary
termination, cause, disability or death, he will be paid a
severance payment equal to the greater of $350,000 or the sum of
his most recent base annual salary plus $100,000. If employment
is terminated for reasons of cause or voluntary termination, no
severance payment is made. The Company maintains a $5.0 million
Akey man@ life insurance policy on Mr. Quinn under which the
Company is the beneficiary.
Restricted Stock Agreements. The Company is a party to
restricted stock agreements, dated as of February 25, 1988, with
each of Messrs. Quinn and Boucher, pursuant to which they were
issued shares of Common Stock which, for purposes of such
restricted stock agreements, were classified as AGroup 1 Shares@
or AGroup 2 Shares@. Messrs. Quinn and Boucher were issued 3,500
and 1,870.7676 Group 1 shares, respectively, and 4,000 and 1,000
Group 2 Shares, respectively at $4.00 per share. The Group 1
Shares are not subject to repurchase or contractual restrictions
on transfer pursuant to the Restricted Stock Agreements. The
Group 2 Shares are subject to repurchase at cost, in the event
that Messrs. Quinn or Boucher ceases to be employed (as a
partner, officer or employee) by the Company, The Jordan Company,
Jordan/Zalaznick Capital Company (AJZCC@), or any reconstitution
thereof conducting similar business activities in which they are
a partner, officer or employee. If such person ceases to be so
employed prior to January 1, 2003, the Group 2 Shares can also be
repurchased at cost, unless such person releases and terminates
such repurchase option by making a payment of $300.00 per share
to the Company. Certain adjustments to the foregoing occur in
the event of the death or disability of any of the partners of
The Jordan Company or JZCC, the death or disability of such
person, or the sale of the Company. On January 1, 1992, the
Company issued Messrs. Quinn and Boucher 600 and 533.8386 shares,
respectively, at $107.00 per share, pursuant to similar
Restricted Stock Agreements, dated as of January 1, 1992, under
which such shares were effectively treated as AGroup 1 Shares@.
On December 31, 1992, the Company issued an additional 400 shares
to Mr. Quinn for $107.00 per share pursuant to similar Restricted
Stock Agreements, under which such shares were effectively
treated as AGroup 1 Shares@. The purchase price per share was
based upon an independent appraiser=s valuation of the shares of
Common Stock at the time of their issuance. In June 1997, the
Company issued an additional 1,500 shares to Mr. Quinn for
approximately $86.67 per share pursuant to a similar Restricted
Stock Agreement, under which such shares were effectively treated
as AGroup 1 Shares@. These shares were issued by the Company to
provide a long-term incentive to the recipients to advance the
Company=s business and financial interest.
Director's Compensation. The Company compensates its
directors quarterly, at the rate of $20,000 per year for each
director. The Indenture permits director fees of up to $250,000
per year in the aggregate. In addition, the Company reimburses
directors for their travel and other expenses incurred in
connection with attending Board meetings (and committees thereof)
and otherwise performing their duties as directors of the
Company.
Item 12. PRINCIPAL STOCKHOLDERS
The following table furnishes information, as of March 31, 1999,
as to the beneficial ownership of the Company=s Common Stock by
(i) each person known by the Company to beneficially own more
than 5% of the outstanding shares of Common Stock (ii) each
director and executive officer of the Company, and (iii) all
officers and directors of the Company as a group.
Amount of Beneficial
Ownership
Number of
Percentage
Shares Owned(1)
Executive Officers and Directors
John W. Jordan II (2)(3)(4)
41,820.908
7
42.5%
David W. Zalaznick(3)(5)(6)
19,965.000
0
20.3%
Thomas H. Quinn(7)
10,000.000
0
10.2%
Leucadia Investors, Inc.(3)
9,969.9999
10.1%
Jonathan F. Boucher(8)
5,533.8386
5.6%
G. Robert Fisher(4)(9)
624.3496
0.6%
Joseph S. Steinberg(10)
0.0000
0.0%
All directors and officers as a group
(5 persons)(3)
87,914.096
8
89.3%
(1) Calculated pursuant to Rule 13d-3(d) under the Exchange Act.
Under Rule 13d-3(d), shares not outstanding which are
subject to options, warrants, rights or conversion
privileges exercisable within 60 days are deemed outstanding
for the purpose of calculating the number and percentage
owned by such person, but not deemed outstanding for the
purpose of calculating the percentage owned by each other
person listed. As of December 31, 1997, there were
98,501.0004 shares of Common Stock issued and outstanding.
(2) Includes 1 share held personally and 41,819.9087 shares held
by John W. Jordan II Revocable Trust. Does not include
309.2933 shares held by Daly Jordan O=Brien, the sister of
Mr. Jordan, 309.2933 shares held by Elizabeth O=Brien
Jordan, the mother of Mr. Jordan, or 309.2933 shares held by
George Cook Jordan, Jr., the brother of Mr. Jordan.
(3) Does not include 100 shares held by The Jordan Zalaznick
Capital Company (AJZCC@) or 3,500 shares of Common stock
held by Mezzanine Capital & Income Trust 2001 PLC (AMCIT@),
a publicly traded U.K. investment trust advised by an
Affiliate of The Jordan Company (controlled by Messrs.
Jordan and Zalaznick). Mr. Jordan, Mr. Zalaznick and
Leucadia, Inc. are the sole partners of JZCC. Mr. Jordan
and Mr. Zalaznick own and manage the advisor to MCIT.
(4) Does not include 3,248.3332 shares held by The Jordan Family
Trust, of which John W. Jordan II, George Cook Jordan, Jr.
and G. Robert Fisher are the trustees
(5) Does not include 82.1697 shares held by Bruce Zalaznick, the
brother of Mr. Zalaznick.
(6) Excludes 2,541.4237 shares that are held by John W. Jordan
II Revocable Trust, but which may be purchased by Mr.
Zalaznick, and must be purchased by Mr. Zalaznick, under
certain circumstances, pursuant to an agreement, dated as of
October 27, 1988, between Mr. Jordan and Mr. Zalaznick.
(7) Includes 4,000 shares which are treated as AGroup 2 Shares@
pursuant to the terms of a Restricted Stock Agreement
between Mr. Quinn and the Company. See AManagement-
Restricted Stock Agreements@.
(8) Includes 1,000 shares which are treated as AGroup 2 Shares@
pursuant to the terms of a Restricted Stock Agreement
between Mr. Boucher and the Company. See AManagement-
Restricted Stock Agreements@.
(9) Includes 624.3496 shares held by G. Robert Fisher, as
Trustee of the G. Robert Fisher Irrevocable Gift Trust,
U.T.I., dated December 26, 1990.
(10) Excludes 9,969.9999 shares held by Leucadia Investors, Inc.,
of which Joseph S. Steinberg is President and a director.
Stockholder Agreement. Each holder of outstanding shares of
Common Stock of the Company is a party to a Stockholder
Agreement, dated as of June 1, 1998 (the AStockholder
Agreement@), by and among the Company and such stockholders. The
Stockholder Agreement subjects the transfer of shares of Common
Stock by such stockholders to a right of first refusal in favor
of the Company and Aco-sale@ rights in favor of the other
stockholders, subject to certain restrictions. Under certain
circumstances, stockholders holding 60% or more of the
outstanding shares of Common Stock, on a fully diluted basis,
have certain rights to require the other stockholders to sell
their shares of Common Stock.
Item 13. CERTAIN TRANSACTIONS
Employment Agreements; Stock Transactions. On February 25, 1988,
the Company entered into an employment agreement with Thomas H.
Quinn, pursuant to which Mr. Quinn became the President and Chief
Operating Officer of the Company, effective January 1, 1988. See
AManagement-Employment Agreement.@
In November 1996, the Company issued Mr. Quinn 1,500 shares of
Common Stock for $146,000 cash and a promissory note of
$1,314,000. In June 1997, the Company and Mr. Quinn reversed the
November 1996 transaction such that the Company canceled all debt
owed and returned all consideration paid by Mr. Quinn and Mr.
Quinn returned the Common Stock to the Company. In June of 1997,
the Company issued an additional 1,500 shares to Mr. Quinn for
approximately $86.67 per share. See AManagement-Restricted Stock
Agreements@.
Fannie May. On May 15, 1995, the Company purchased from Fannie
May $7.5 million aggregate principal amount of Subordinated Notes
and 75.6133 shares of junior Class A PIK Preferred Stock Fannie
May at face value for $9.1 million. Also, in 1995, the Company
acquired 151.28 shares of common stock of Fannie May
(representing 15.1% of the outstanding common stock of Fannie May
on a fully-diluted basis) for $151,000. These shares of common
stock were purchased from the John W. Jordan II Revocable Trust,
which purchased them in July 1995 for $151,000. On June 28,
1995, the Company purchased from The First National Bank of
Chicago $7.0 million aggregate principal amount of participations
in term loans of a wholly-owned subsidiary of Fannie May for $7.0
million, and agreed to purchase up to an additional $3.0 million
aggregate principal amount of such participations, depending upon
the financial performance of Fannie May. The additional $3.0
million obligation is secured by a pledge from the Company of a
$3.0 million certificate of deposit purchased by the Company. On
July 29, 1996, Mr. Jordan purchased $2.0 million of Fannie May
Subordinated Notes from the Company at face value plus accrued
interest. Fannie May=s Chief Executive Officer is Mr. Quinn, and
its stockholders include Messrs. Jordan, Quinn, Zalaznick and
Boucher, who are directors and stockholders of the Company, as
well as other partners, principals and associates of The Jordan
Company who are also stockholders of the Company. Fannie May,
which is also known as AFannie May Candies@, is a manufacturer
and marketer of kitchen-fresh, high-end boxed chocolates through
its 337 company-owned retail stores and through third party
retail and non-retail sales channels. Its products are marketed
under both the AFannie May@ and AFanny Farmer@ brand names.
On July 2, 1997, the Company received from Fannie May, $14.3
million in exchange for the above investments held by the
Company. The amount received also included $1.6 million of
accrued interest and premium on the above Subordinated Notes and
term loans. On July 7, 1997, the Company received $3.0 million
as a return of the certificate of deposit held by the Company as
security for an obligation to purchase additional participation
in the above-mentioned term loans.
JIR. On June 23, 1998, the Company made approximately $0.8
million of unsecured advances to JIR, Inc., JIR Broadcast, Inc.
and JIR Paging, Inc. Each of these company's Chief Executive
Officer is Mr. Quinn, and its stockholders include Messrs.
Jordan, Quinn, Zalaznick and Boucher, who are our directors and
stockholders, as well as other partners, principals and
associates of The Jordan Company who are also the Company's
stockholders. These companies are engaged in the development of
businesses in Russia, including the broadcast and paging sectors.
JZ International, LTD. In November, 1998 M&G invested $5.6
million in the Class A Preferred Stock and $1.7 million in Class
B Preferred Stock of JZ International, Ltd. Motors and Gears
expects to make an additional $5.0 million of investments in JZ
International's Class A Preferred Stock. JZ International's
Chief Executive Officer is David W. Zalaznick, and its
stockholders include Messrs. Jordan, Quinn, Zalaznick and
Boucher, who are the Company's directors and stockholders, as
well as other partners, principles and associates of the Jordan
Company who are also the Company's stockholders. JZ
International is a merchant bank located in London, England that
is focused on making European and other international
investments.
CBD Networks, Inc. During 1998, the Company made approximately
$1.4 million of unsecured advances to CBD Networks, Inc. The
Company expects to form a new, Nonrestricted Subsidiary to
acquire all or substantially all of the business and assets of
CBD Networks in the near future, pursuant to which we will invest
$3.5 million in a five-year unsecured note, bearing interest at
10% per annum, and a warrant, exercisable for 10% of the issued
and outstanding common stock of CBD Networks. The Company
expects that substantially all of the issued and outstanding
common stock of the company that acquires the business of CBD
Networks will be owned by The Company's Stockholders and the
management of CBD Networks. CBD Networks is a provider of
Internet access for approximately 10,000 customers.
Healthcare Products Holdings, Inc. During 1998 the Company made
approximately $1.0 million of unsecured advances to Healthcare
Products Holdings, Inc. Healthcare Products Holdings' Chief
Executive Officer is Thomas Quinn, and its stockholders include
Messrs. Jordan, Quinn, Zalaznick and Boucher, who are the
Company's directors and stockholders, as well as other partners,
principals and associates of the Jordan Company who are also the
Company's stockholders.
Cape Craftsmen. On July 29, 1996, the Company acquired the stock
of Cape Craftsmen, Inc. (ACape Craftsmen@) from the Jordan
Company and JZCC in exchange for $12.1 million of notes
receivable from Cape Craftsmen. Since the Company and Cape
Craftsmen have common ownership, the net assets of Cape Craftsmen
were recorded at the historical basis, $7.6 million, and resulted
in a non-cash loss of $4.5 million.
Legal Counsel. Mr. G. Robert Fisher, a director of, and the
general counsel and secretary to, the Company, is also a partner
of Sonnenschein Nath & Rosenthal, and was a partner of Bryan Cave
LLP, and a partner of, Smith, Gill, Fisher & Butts which merged
into Bryan Cave LLP. Mr. Fisher and his law firm have
represented the Company and The Jordan Company in the past, and
expect to continue representing them in the future. In 1998,
Bryan Cave LLP was paid approximately $1.1 million in fees and
expenses by the Company.
SAR Payments. In connection with acquiring the Company=s
subsidiaries, the sellers of the subsidiaries, who usually
included the subsidiary=s management, often receive seller notes,
stock, stock appreciation rights (ASARs@) and special bonus plans
in respect of those subsidiaries. In April 1997, the Company
paid and purchased SARs and related interests at three companies.
At Dura-Line, the Company paid $15.4 million to purchase Dura-
Line SARs from the president and chief financial officer of Dura-
Line (of which $9.4 million was paid in April 1997, $1.0 million
was paid in March 1998, and $5.0 million is payable in annual
installments through 2002), and redeemed $1.9 million of Dura-
Line preferred stock held by the president and chief financial
officer of Dura-Line in April 1998. At AIM and Cambridge, the
Company paid $6.2 million to purchase AIM and Cambridge SARs
(based upon 20% of AIM=s and Cambridge=s appreciation from 1989
to 1996) from the estate of the former president of AIM and
Cambridge. Each of these payments and purchases in respect of
the SARs was expensed for financial reporting purposes.
Sale of Paw Print. As part of the Plan, the Company sold the
stock of Paw Print on July 31, 1997 for approximately $10.0
million of net cash proceeds (and the assumption by the purchaser
of approximately $2.5 million of indebtedness) to a newly-formed
company, which is organized and owned by the Jordan Group, but is
not a subsidiary of the Company. The Company purchased Paw Print
on November 8, 1996, for a purchase price of $9.25 million and a
$2.5 million subordinated seller note. See ARecapitalization and
Repositioning Plan@.
Directors and Officers Indemnification. The Company has entered
into indemnification agreements with each member of the Board of
Directors whereby the Company has agreed, subject to certain
exceptions, to indemnify and hold harmless each director from
liabilities incurred as of a result of such person=s status as a
director of the Company. See AManagement-Directors and Executive
officers of the Company@.
Future Arrangements. The Company has adopted a policy that
future transactions between the Company and its officers,
directors and other affiliates (including the Motors and Gears
and the Jordan Telecommunication Products subsidiaries) must (i)
be approved by a majority of the members of the Board of
Directors and by a majority of the disinterested members of the
Board of Directors and (ii) be on terms no less favorable to the
Company than could be obtained from unaffiliated third parties.
PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULE AND REPORTS ON
FORM 8-K
(a) Documents filed as part of this report:
(1) Financial Statements
Reference is made to the Index to Consolidated Financial
Statements appearing at Item 8, which Index is incorporated
herein by reference.
(2) Financial Statement Schedule
The following financial statement schedule for the years
ended December 31, 1998, 1997 and 1996 is submitted
herewith:
Item
Page Number
Schedule II - Valuation and qualifying accounts
All other schedules for which provision is made in the
applicable accounting regulations of the Securities and Exchange
Commission are not required under the related instructions, are
not applicable and therefore have been omitted, or the
information has been included in the consolidated financial
statements.
(3) Exhibits
An index to the exhibits required to be listed under this
Item 14(a)(3) follows the "Signatures" section hereof and is
incorporated herein by reference.
(b) Reports on Form 8-K
None.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the registrant has duly caused
this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
JORDAN INDUSTRIES, INC.
By /s/ John W. Jordan II
John W. Jordan II
Dated: March 31, 1999 Chief Executive
Officer
Pursuant to the requirements of the Securities Exchange Act
of 1934, this report has been signed below by the following
persons on behalf of the registrant and in the capacities and on
the dates indicated.
By /s/ John W. Jordan II
John W. Jordan II
Chairman of the Board
of Directors
Dated: March 31, 1999 and Chief Executive
Officer
By /s/ Thomas H. Quinn
Thomas H. Quinn
Director, President
and Chief
Dated: March 31, 1999 Operating Officer
By /s/ Jonathan F.
Boucher
Jonathan F. Boucher
Director, Vice
President, and
Assistant Secretary
Dated: March 31, 1999 (Principal Financial
Officer)
By /s/ G. Robert Fisher
G. Robert Fisher
Director, General
Counsel and
Dated: March 31, 1999 Secretary
By /s/ David W.
Zalaznick
David W. Zalaznick
Dated: March 31, 1999 Director
By /s/ Joseph S.
Steinberg
Joseph S. Steinberg
Dated: March 31, 1999 Director
By /s/ Thomas C.
Spielberger
Thomas C. Spielberger
Dated: March 31, 1999 Sr. Vice President,
Finance
And Accounting
Schedule II
JORDAN INDUSTRIES, INC.
VALUATION AND QUALIFYING ACCOUNTS
(dollars in thousands)
Uncollect-
ible
Additions balances
Balance at charged to written off
Balance at
beginning of costs and net of
end of
period expenses recoveries Other
period
December 31, 1996:
Allowance for doubt-
ful accounts 1,306 1,343 (731) 765
2,683
Valuation allowance
for deferred tax
assets 21,466 18,548 - -
40,014
December 31, 1997:
Allowance for doubt-
ful accounts 2,683 2,091 (1,170) 41
3,645
Valuation allowance
for deferred tax
assets
40,014
13,212
-
(1,450)
51,776
December 31, 1998
Allowance for doubt-
ful accounts 3,645 3,166
(2,341)
23
4,493
Valuation allowance
for deferred tax
Assets
51,776
13,564
- -
65,340
EXHIBIT INDEX
2(a)4 -- Agreement and Plan of
Merger between the Thos. D. Murphy
Company and Shaw-Barton, Inc.
3(a)1 -- Articles of Incorporation
of the Registrants.
3(b)1 -- By-Laws of the
Registrant.
4(a)3 -- Indenture, dated as of
December 15, 1989, between the
Registrant and First Bank National
Association, Trustee, relating to
the Registrant's Notes.
10(a)1,2 -- Intercompany Notes, dated June
1, 1988, by and among the
Registrant and the Subsidiaries.
10(b)1,2 -- Intercompany Management
Agreement, dated June 1, 1988, by
and among the Registrant and the
Subsidiaries.
10(c)1,2 -- Intercompany Tax Sharing
Agreement, dated June 1, 1988, by
and among the Registrant and the
Subsidiaries.
10(d)1 -- Management Consulting
Agreement, dated as of June 1,
1988, between the Registrant and
The Jordan Company.
10(e)3 -- First Amendment to Management
Consulting Agreement, dated as of
January 3, 1989, between the
Registrant and The Jordan Company.
10(f)7 -- Amended and Restated
Management Consulting Agreement,
dated September 30, 1990, between
the Company and The Jordan Company.
10(g)1 -- Stockholders Agreement, dated
as of June 1, 1988, by and among
the Registrant's holders of Common
Stock.
10(h)1 -- Employment Agreement, dated as
of February 25, 1988, between the
Registrant and Thomas H. Quinn.
10(i)1 C Restricted Stock Agreement,
dated February 25, 1988, between
the Registrant and Jonathan F.
Boucher.
10(j)1 -- Restricted Stock Agreement,
dated February 25, 1988, between
the Registrant and John R. Lowden.
10(k)1 -- Restricted Stock Agreement,
dated February 25, 1988, between
the Registrant and Thomas H. Quinn.
10(l)1 -- Stock Purchase Agreement,
dated June 1, 1988, between
Leucadia Investors, Inc. and John
W. Jordan, II.
10(m)1 -- Zero Coupon Note, dated June
1, 1988, issued by John W. Jordan,
II to Leucadia Investors, Inc.
10(n)1 -- Pledge, Security and
Assignment Agreement, dated June 1,
1988 by John W. Jordan, II.
10(o)5 -- Revolving Credit and Term Loan
Agreement, dated August 18, 1989,
between the Company and The First
National Bank of Boston.
10(p)7 -- Second Amendment to Revolving
Credit Agreement, dated September
1, 1990 between the Company and The
First National Bank of Boston.
10(q)5 -- Supplemental Indenture No. 2,
dated as of August 18, 1989,
between the Company and the First
Bank National Association, as
Trustee.
10(r)8 -- Supplemental Indenture No. 3,
dated as of December 15, 1990,
between the Company and the First
Bank National Association, as
Trustee.
10(s)5 -- Guaranty, dated as of August
18, 1989, from DACCO, Incorporated
in favor of First Bank National
Association, as Trustee. The
Company has also entered into
similar guarantees with other
Restricted subsidiaries and will
furnish the above guarantees upon
request.
10(t)9 -- Amended and Restated Revolving
Credit Agreement dated December 10,
1991 between the Company and The
First National Bank of Boston.
10(u)(10) -- Revolving Credit Agreement
dated as of June 29, 1994 among
JII, Inc., a wholly-owned
subsidiary of the Company, and The
First National Bank of Boston and
certain other Banks.
22 -- Subsidiaries of the
Registrant.
286 -- Phantom Share Plan.
9911 -- Other Exhibits - None
1 Incorporated by reference to the Company's Registration
Statement on Form S-1 (No. 33-24317).
2 The Company has entered into Intercompany Notes,
Intercompany Management Agreements and Intercompany Tax
Sharing Agreements with Riverside, AIM, Cambridge, Beemak,
Hudson, Scott and Gear which are identical in all material
respects with the notes and agreement incorporated by
reference in this Report. Copies of such additional notes
and agreements have therefore not been included as exhibits
to this filing, in accordance with Instruction 2 to Item 601
of Regulation S-K.
3 Incorporated by reference to the Company's 1988 Form 10-K.
4 Incorporated by reference to the Company's 1989 First
Quarter Form 10-Q.
5 Incorporated by reference to the Company's Second Quarter
Report on Form 10-Q Amendment No. 1, filed September 19,
1989.
6 Incorporated by reference to the Company's 1989 Form 10-K.
7 Incorporated by reference to the Company's 1990 Third
Quarter Form 10-Q.
8 Incorporated by reference to the Company's 1990 Form 10-K.
9 Incorporated by reference to the Company's Form 8-K filed
December 16, 1991.
10 Incorporated by reference to the Company's 1994 Second
Quarter Form
10-Q.
11 Incorporated by reference to the Company=s 1995 Form 10-K.