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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-----------------------
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For quarter ended September 30, 2003 Commission File Number 33-24317
JORDAN INDUSTRIES, INC.
(Exact name of registrant as specified in charter)
Illinois 36-3598114
(State or other jurisdiction of (I.R.S. Employer
Incorporation or organization) Identification No.)
ArborLake Centre, Suite 550 60015
1751 Lake Cook Road (Zip Code)
Deerfield, Illinois
(address of Principal Executive Offices)
Registrant's telephone number, including Area Code:
(847) 945-5591
Former name, former address and former fiscal year, if changed since last
report: Not applicable.
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding twelve (12) months (or for such shorter period that
the registrant was required to file such reports) and (2) has been subject to
such filing requirements for the past ninety (90) days.
Yes X No
------- -------
Indicate by check mark whether the registrant is an accelerated filer
(as defined in Rule 12 b-2 of the Exchange Act).
Yes No X
------- -------
The number of shares outstanding of Registrant's Common Stock as of
November 14, 2003: 98,501.0004.
2
JORDAN INDUSTRIES, INC.
INDEX
Part I. Page No.
- ------- --------
Condensed Consolidated Balance Sheets at September 30, 2003
(Unaudited) and December 31, 2002 3
Condensed Consolidated Statements of Operations for the
Three Months Ended September 30, 2003 and 2002 (Unaudited)
and the Nine Months Ended September 30, 2003 and 2002 (Unaudited) 4
Condensed Consolidated Statements of Cash Flows for
the Nine Months Ended September 30, 2003 and 2002 (Unaudited) 5
Notes to Condensed Consolidated Financial Statements (Unaudited) 6
Management's Discussion and Analysis of
Financial Condition and Results of Operations 9
Part II.
- --------
Other Information 15
Signatures 16
Exhibit Index 17
Officer Certificates 18
3
JORDAN INDUSTRIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(ALL DOLLAR AMOUNTS IN THOUSANDS)
September 30, December 31,
2003 2002
--------- --------
(unaudited)
ASSETS
Current Assets:
Cash and cash equivalents $23,502 $20,109
Accounts receivable, net 120,359 109,101
Inventories 135,974 130,453
Income tax receivable 3,745 3,745
Prepaid expenses and other current assets 25,811 25,857
-------- --------
Total Current Assets 309,391 289,265
Property, plant and equipment, net 94,463 101,907
Investments in and advances to affiliates 45,924 42,353
Goodwill, net 248,531 245,351
Other assets 26,505 30,368
-------- --------
Total Assets $724,814 $709,244
======== ========
LIABILITIES AND SHAREHOLDER'S EQUITY (NET
CAPITAL DEFICIENCY)
Current Liabilities:
Accounts payable $61,342 $58,631
Accrued liabilities 81,989 78,582
Advance deposits 1,135 1,420
Current portion of long-term debt 16,564 34,893
-------- --------
Total Current Liabilities 161,030 173,526
Long-term debt, less current portion 741,670 715,516
Other non-current liabilities 14,804 14,484
Deferred income taxes 10,400 2,904
Minority interest 450 278
Preferred stock 2,485 2,342
Shareholder's Equity (net capital deficiency):
Common stock $.01 par value: 100,000 shares
authorized and 98,501 shares issued and
outstanding 1 1
Additional paid-in capital 2,116 2,116
Accumulated other comprehensive loss (3,018) (11,877)
Accumulated deficit (205,124) (190,046)
--------- ---------
Total Shareholder's Equity (net capital
deficiency) (206,025) (199,806)
--------- ---------
Total Liabilities and Shareholder's
Equity (net capital deficiency) $724,814 $709,244
======== ========
See accompanying notes to condensed consolidated financial statements.
4
JORDAN INDUSTRIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(ALL DOLLAR AMOUNTS IN THOUSANDS)
THREE MONTHS ENDED NINE MONTHS ENDED
September 30, September 30,
-------------------- --------------------
2003 2002 2003 2002
------ ------ ------ ------
Net sales $183,180 $186,942 $541,567 $544,074
Cost of sales, excluding
122,633 119,949 357,808 346,636
depreciation
Selling, general and
administrative expenses,
excluding depreciation 43,377 44,239 126,549 128,914
Depreciation 5,596 5,599 16,883 16,426
Amortization of other intangibles 36 397 134 1,181
Management fees and other 31 165 331 8,601
-------- --------- -------- --------
Operating income 11,507 16,593 39,862 42,316
Other (income) expenses:
Interest expense 20,906 20,752 62,381 66,916
Interest income (204) (798) (717) (964)
Loss (gain) on extinguishment of
long-term debt - 161 - (87,646)
Gain on deconsolidation of
liquidated subsidiary - (1,888) - (1,888)
Gain on sale of subsidiaries (7,709) - (7,709) -
Other 565 331 (8,063) (5,840)
-------- --------- -------- --------
13,558 18,558 45,892 (29,422)
-------- --------- -------- --------
(Loss) income before income taxes,
minority interest, and cumulative
effect of change in accounting
principle (2,051) (1,965) (6,030) 71,738
Provision (benefit) for income taxes 2,479 (580) 8,732 29,718
-------- --------- -------- --------
(Loss) income before minority
interest and cumulative effect of
change in accounting principle (4,530) (1,385) (14,762) 42,020
Minority interest 100 91 172 197
-------- --------- -------- --------
(Loss) income before cumulative
effect of change in accounting
principle (4,630) (1,476) (14,934) 41,823
-------- --------- -------- --------
Cumulative effect of change in
accounting principle, net of tax - - - 87,065
-------- --------- -------- --------
Net loss $(4,630) $(1,476) $(14,934) $(45,242)
======== ========= ======== ========
See accompanying notes to condensed consolidated financial statements.
5
JORDAN INDUSTRIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(ALL DOLLAR AMOUNTS IN THOUSANDS)
NINE MONTHS ENDED
September 30,
---------------------------
2003 2002
-------- --------
Cash flows from operating activities:
Net loss $(14,934) $(45,242)
Adjustments to reconcile net loss to net
cash (used in) provided by operating activities:
Cumulative effect of accounting change - 87,065
Gain on extinguishment of long-term debt - (87,646)
Gain on deconsolidation of liquidated subsidiary - (1,888)
Gain on sale of subsidiaries (7,709) -
Depreciation and amortization 17,017 17,607
Amortization of deferred financing fees 4,641 4,652
Minority interest 172 197
Non-cash interest 36 5,887
Gain on disposal of fixed assets (3,780) -
Other (4,579) (4,640)
Changes in operating assets and liabilities:
(Increase) decrease in current assets (18,253) 26
Increase in current liabilities 6,064 36,816
Increase in non-current assets (3,641) (3,017)
Increase in non-current liabilities 7,816 2,749
-------- --------
Net cash (used in) provided by operating
activities (17,150) 12,566
Cash flows from investing activities:
Proceeds from sale of fixed assets 3,893 2,170
Capital expenditures (8,081) (10,420)
Acquisitions of subsidiaries - (9,503)
Net proceeds from sale of subsidiaries 10,078 -
Additional purchase price payments (750) (1,002)
Net cash acquired in purchase of subsidiaries - 788
Other - (204)
-------- --------
Net cash provided by (used in) investing
activities 5,140 (18,171)
Cash flows from financing activities:
Proceeds from revolving credit facilities, net 21,285 21,449
Proceeds from issuance of long-term debt - Kinetek - 20,456
Repayment of long-term debt (13,676) (7,416)
Repurchase of Series A Debentures - (31,354)
Proceeds from other borrowings 2,244 2,766
-------- --------
Net cash provided by financing
activities 9,853 5,901
Effect of exchange rate changes on cash 5,550 2,088
-------- --------
Net increase in cash and cash equivalents 3,393 2,384
Cash and cash equivalents at beginning of period 20,109 26,050
-------- --------
Cash and cash equivalents at end of period $23,502 $28,434
======== ========
See accompanying notes to condensed consolidated financial statements.
6
JORDAN INDUSTRIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(ALL DOLLAR AMOUNTS IN THOUSANDS)
A. Organization
The unaudited condensed consolidated financial statements, which reflect all
adjustments that management believes necessary to present fairly the results
of interim operations and are of a normal recurring nature, should be read in
conjunction with the Notes to the Consolidated Financial Statements (including
the Summary of Significant Accounting Policies) included in the Company's
audited consolidated financial statements for the year ended December 31,
2002, which are included in the Company's Annual Report filed on Form 10-K for
such year (the "2002 10-K"). Results of operations for the interim periods are
not necessarily indicative of annual results of operations.
B. Adoption of New Accounting Standards
The Company adopted Statement of Financial Accounting Standards ("SFAS") No.
142, Goodwill and Other Intangible Assets, on January 1, 2002, and recorded a
non-cash pretax goodwill impairment charge of $108,595 ($87,065 after-tax),
which was recorded as a cumulative effect of a change in accounting principle
in the Company's condensed consolidated statements of operations.
The Company adopted SFAS No. 145, Rescission of FASB Statements No. 4, 44, and
64, Amendment of FASB Statement No. 13, and Technical Corrections, on
January 1, 2003. As a result of the adoption of SFAS No. 145, the gain
recognized on the early extinguishment of debt in the second quarter of 2002,
which was previously reported as an extraordinary item, has been reclassified
and is now shown in other (income) expenses in the condensed consolidated
statements of operations.
C. Inventories
Inventories are summarized as follows:
September 30, December 31,
2003 2002
------------ ------------
Raw materials $51,374 $ 52,450
Work-in-process 25,597 20,417
Finished goods 59,003 57,586
------- --------
$135,974 $130,453
======== ========
D. Comprehensive (Loss) Income
Total comprehensive (loss) income for the quarters and nine months ended
September 30, 2003 and 2002 is as follows:
Three Months ended Nine Months ended
September 30, September 30,
------------------------ -------------------
2003 2002 2003 2002
------- -------- ------ ------
Net loss $(4,630) $(1,476) $(14,934) $(45,242)
Foreign currency translation 1,143 3,806 8,859 4,521
-------- -------- --------- ---------
Comprehensive (loss) income $(3,487) $ 2,330 $ (6,075) $(40,721)
======== ======== ========= =========
7
JORDAN INDUSTRIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(ALL DOLLAR AMOUNTS IN THOUSANDS)
E. Sale of Subsidiaries
On September 19, 2003, the Company sold the net assets of the School Annual
division of JII Promotions, Inc. ("JII Promotions") to a third party for cash
proceeds, net of fees, of $9,400. The School Annual division manufactures and
distributes color and black and white soft-cover yearbooks for kindergarten
through eighth grade. The Company recognized a gain of $8,190 related to the
sale of this division. JII Promotions is a part of the Specialty Printing and
Labeling segment.
On September 8, 2003 the Company sold the net assets of the Midwest Color
division of Sate-Lite Corporation, ("Sate-Lite") to a third party for cash
proceeds, net of fees, of $678. The Midwest Color division manufactures
colorants for the termoplastics industry. The Company recognized a loss of
$481 related to the sale of this division. Sate-Lite is a part of the Jordan
Specialty Plastics segment.
F. Additional Purchase Price Agreements
The Company had a deferred purchase price agreement relating to its
acquisition of Yearntree in December 1999. The agreement was based on
Yearntree achieving certain agreed upon cumulative net income before interest
and taxes for the 24 months beginning January 1, 2000 and ending December 31,
2001. On March 8, 2002, the Company paid $574 related to the above agreement,
which was recorded as an increase to goodwill.
The Company also has a deferred purchase price agreement relating to its
acquisition of Teleflow in July 1999. The agreement is based upon Teleflow
achieving certain agreed upon earnings before interest, taxes, depreciation,
and amortization for each year through the year ended December 31, 2003. The
Company paid $750, $328 and $260 related to this agreement in April 2003, 2002
and 2001, respectively. These payments were recorded as an increase to
goodwill.
The Company has a contingent purchase price agreement relating to its
acquisition of Deflecto in 1998. The agreement 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 agreement is payable 120 days
after the transaction. Additional consideration, if any, will be recorded as
an addition to goodwill.
Kinetek has a contingent purchase price agreement relating to its acquisition
of Motion Control on December 18, 1997. The terms of this agreement provide
for additional consideration to be paid to the sellers. The agreement is
exercisable at the sellers' option during a five year period beginning in
2003. When exercised, the additional consideration will be based on Motion
Control's operating results over the two preceding fiscal years. Payments, if
any, under the contingent agreement will be placed in a trust and paid out in
cash over a four-year period, in annual installments according to a schedule,
which is included in the agreement. Additional consideration, if any, will be
recorded as an addition to goodwill.
G. Business Segment Information
See "Management's Discussion and Analysis of Financial Condition and Results
of Operations" for the Company's business segment disclosures. There have been
no changes from the Company's December 31, 2002 consolidated financial
statements with respect to segmentation or the measurement of segment profit
or loss.
8
JORDAN INDUSTRIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(ALL DOLLAR AMOUNTS IN THOUSANDS)
H. Income taxes
The provision for income taxes for the nine months ended September 30, 2003
and 2002 differs from the amount of income tax (benefit) provision computed by
applying the United States federal income tax rate to income (loss) before
income taxes, minority interest, and cumulative effect of change in accounting
principle. A reconciliation of the differences is as follows:
Nine Months ended Nine Months ended
September 30, 2003 September 30, 2002
-------------------- --------------------
Computed statutory tax (benefit)
provision $(2,110) $25,108
Increase (decrease) resulting from:
Increase in valuation allowance 8,821 -
Disallowed meals and entertainment 299 72
State and local tax and other 1,722 4,538
------- -------
Provision for income taxes $8,732 $29,718
======= =======
The tax provision also includes a charge of approximately $4,194 for the
period ending September 30, 2003 to increase the valuation allowance related
to deferred tax assets. As a result of the adoption of Statement of Financial
Accounting Standards No. 142, "Goodwill and Other Intangible Assets", and
discontinuing amortization of goodwill for book purposes, the reversal of the
temporary difference related to goodwill amortization for income tax purposes
is indefinite and can no longer be utilized to offset deferred tax assets.
I. Settlement of Litigation
In June 2003, the Company reached a settlement with the former shareholders of
ED&C, a subsidiary of Kinetek, in which the Company received $1,150 in cash,
and long-term debt of $3,850 plus accrued interest of $693, was extinguished.
The settlement is included in other (income) expenses in the Company's
condensed consolidated statements of operations.
9
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(UNAUDITED)
(ALL DOLLAR AMOUNTS IN THOUSANDS)
The following discussion should be read in conjunction with Management's
Discussion and Analysis of Financial Condition and Results of Operations
contained in the 2002 10-K and the financial statements and the related notes
thereto.
Results of Operations
Summarized below are the net sales, operating income (loss) and operating
margins (as defined) for each of the Company's business segments for the
quarters and nine month periods ended September 30, 2003 and 2002. This
discussion reviews the following segment data and certain of the consolidated
financial data for the Company.
Three Months Ended Nine Months Ended
September 30, September 30,
-------------------- ----------------------
2003 2002 2003 2002
-------- -------- -------- --------
Net Sales:
Specialty Printing and Labeling $ 24,608 $ 25,732 $ 72,483 $ 73,747
Jordan Specialty Plastics 30,455 28,778 87,529 81,388
Jordan Auto Aftermarket 37,643 40,742 118,845 124,644
Kinetek 72,655 74,463 215,847 216,904
Consumer and Industrial Products 17,819 17,227 46,863 47,391
-------- -------- -------- --------
Total $183,180 $186,942 $541,567 $544,074
======== ======== ======== ========
Operating Income (Loss):
Specialty Printing and Labeling $ 1,030 $ 819 $ 3,439 $ 2,816
Jordan Specialty Plastics 1,898 2,469 5,419 6,779
Jordan Auto Aftermarket 1,062 6,006 9,221 17,643
Kinetek 7,183 11,450 24,558 33,029
Consumer and Industrial Products 1,054 191 100 (1,696)
-------- -------- -------- --------
Total(a) $12,227 $20,935 $42,737 $58,571
======== ======== ======== ========
Operating Margin(b)
Specialty Printing and Labeling 4.2% 3.2% 4.7% 3.8%
Jordan Specialty Plastics 6.2% 8.6% 6.2% 8.3%
Jordan Auto Aftermarket 2.8% 14.7% 7.8% 14.2%
Kinetek 9.9% 15.4% 11.4% 15.2%
Consumer and Industrial Products 5.9% 1.1% 0.2% (3.6)%
Total 6.7% 11.2% 7.9% 10.8%
- ---------------------
(a) Before corporate overhead of $720 and $4,342 for the three months ended
September 30, 2003 and 2002, respectively, and $2,875 and $16,255 for the nine
months ended September 30, 2003 and 2002, respectively.
(b) Operating margin is operating income (loss) divided by net sales.
10
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(UNAUDITED)
(ALL DOLLAR AMOUNTS IN THOUSANDS)
Specialty Printing and Labeling. As of September 30, 2003, the
Specialty Printing and Labeling group ("SPL") consisted of JII Promotions,
Valmark, Pamco, and Seaboard.
Net sales for the three months ended September 30, 2003 decreased $1.1
million, or 4.4%, from the same period in 2002. This decrease was primarily
due to lower sales of folding boxes at Seaboard, $0.9 million, decreased sales
of ad specialties at JII Promotions, $0.4 million, and lower sales of
screen-printed products and rollstock at Valmark, $0.2 million each. Partially
offsetting these decreases were higher sales of membrane switches at Valmark,
$0.3 million, increased sales of labels at Pamco, $0.2 million, and higher
sales of calendars at JII Promotions, $0.1 million. Net sales for the nine
months ended September 30, 2003 decreased $1.3 million, or 1.7%, from the same
period in 2002. This decrease was primarily due to lower sales of folding
boxes at Seaboard, $1.8 million, decreased sales of calendars at JII
Promotions, $0.3 million, and lower sales of screen-printed products and
rollstock at Valmark, $0.8 million and $0.4 million, respectively. Partially
offsetting these decreases were higher sales of labels at Pamco, $0.9 million,
increased sales of ad specialties at JII Promotions, $0.8 million, and higher
sales of membrane switches at Valmark, $0.3 million.
Operating income for the three months ended September 30, 2003 increased $0.2
million, or 25.8%, from the same period in 2002. Operating income increased at
JII Promotions and Valmark, $0.2 million and $0.4 million, respectively, while
operating income decreased at Seaboard, $0.4 million. Operating income for the
nine months ended September 30, 2003 increased $0.6 million, or 22.1%, over
the same period in 2002. This increase was primarily due to higher operating
income at Valmark and Pamco, $0.6 million and $0.2 million, respectively, as
well as lower corporate expenses, $0.1 million. Partially offsetting these
increases was lower operating income at JII Promotions and Seaboard, $0.1
million and $0.2 million, respectively. Operating income increases were the
result of various cost cutting measures and increased sales at Pamco as
described above. Decreased operating income is due to unfavorable absorption
of fixed costs at Seaboard due to lower sales levels discussed above.
Jordan Specialty Plastics. As of September 30, 2003, the Jordan
Specialty Plastics group ("JSP") consisted of Beemak, Sate-Lite, and Deflecto.
Net sales for the three months ended September 30, 2003 increased $1.7
million, or 5.8%, over the same period in 2002. This increase was primarily
due to higher sales of hardware products at Deflecto, $2.4 million, and
increased sales of plastic hospital supplies at Sate-Lite, $0.5 million.
Partially offsetting these increases were lower sales of plastic injection
molded products at Beemak, $0.2 million, decreased sales of Tilt bins and
thermoplastic colorant at Sate-Lite, $0.5 million and $0.3 million,
respectively, and lower sales of office products at Deflecto, $0.2 million.
Net sales for the nine months ended September 30, 2003 increased $6.1 million,
or 7.6%, over the same period in 2002. This increase was primarily due to
higher sales of hardware and office products at Deflecto, $6.0 million and
$1.7 million, respectively, and plastic hospital supplies at Sate-Lite, $1.3
million. Partially offsetting these increases were lower sales of Tilt Bins,
thermoplastic colorants and truck reflectors at Sate-Lite, $1.3 million, $0.7
million, and $0.3 million, respectively, and decreased sales of
plastic-injection molded products at Beemak, $0.6 million.
Operating income for the three months ended September 30, 2003 decreased $0.6
million, or 23.1%, from the same period in 2002. This decrease was primarily
due to lower operating income at Deflecto and Beemak, $0.5 million and $0.3
million, respectively. Partially offsetting these decreases was higher
operating income at Sate-Lite, $0.2 million. Operating income for the nine
11
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(UNAUDITED)
(ALL DOLLAR AMOUNTS IN THOUSANDS)
months ended September 30, 2003 decreased $1.4 million, or 20.1%, from the
same period in 2002. This decrease was primarily due to lower operating income
at Deflecto, $1.3 million, and Beemak, $0.8 million. Partially offsetting
these decreases was higher operating income at Sate-Lite, $0.7 million.
Operating income decreased at Deflecto and Beemak due to increased raw
materials pricing including resins and acrylic, while Sate-Lite benefited from
previously implemented headcount reductions and other cost saving strategies.
Jordan Auto Aftermarket. As of September 30, 2003, the Jordan Auto
Aftermarket group ("JAAI") consisted of Dacco, Alma and Atco.
Net sales for the three months ended September 30, 2003 decreased $3.1
million, or 7.6%, from the same period in 2002. This decrease was primarily
due to lower sales of remanufactured torque converters and other soft parts at
Dacco and decreased sales of drive trains at Alma. Partially offsetting these
decreases were higher sales of air conditioning compressors at Alma and driers
and accumulators and air conditioning hose assemblies at Atco. Net sales for
the nine months ended September 30, 2003 decreased $5.8 million, or 4.7%, from
the same period in 2002. This decrease was primarily due to lower sales of
remanufactured torque converters and other hard and soft parts at Dacco and
decreased sales of drive trains at Alma. Partially offsetting these decreases
were higher sales of air conditioning compressors at Alma and driers and
accumulators and air conditioning hose assemblies at Atco.
Operating income for the three months ended September 30, 2003 decreased $4.9
million, or 82.3%, from the same period in 2002. This decrease was due to
lower operating income at Dacco and Alma. Operating income for the nine months
ended September 30, 2003 decreased $8.4 million, or 47.7%, from the same
period in 2002. This decrease was also due to lower operating income at Dacco
and Alma primarily due to the decrease in sales discussed above, but was
partially offset by higher operating income at Atco and decreased corporate
expenses.
Kinetek. As of September 30, 2003, the Kinetek group consisted of
Imperial, Gear, Merkle-Korff, FIR, ED&C, Motion Control, Advanced DC and
DeSheng.
Net sales for the three months ended September 30, 2003 decreased $1.8
million, or 2.4%, from the same period in 2002. Net sales of subfractional
motors decreased 8.7%, driven by protracted weakness in the bottle and can
vending market and reduced demand for refrigeration motors. In addition, net
sales of fractional/integral motors decreased 4.9% due to lower sales of DC
products used in material handling and golf car applications and decreased
demand for DC products used in the floor care end market. Partially offsetting
these decreases were higher sales in the controls segment, which increased
7.6% in the third quarter, due to an improved elevator modernization market
and market share gains in automotive conveyor controls. Net sales for the nine
months ended September 30, 2003 decreased $1.1 million, or 0.5%, from the same
period in 2002. This decrease was due to lower sales of subfractional motors,
1.8%, and decreased sales of fractional/integral motors, 1.2%. Partially
offsetting these decreases were higher sales of controls, 3.0%.
Operating income for the three months ended September 30, 2003 decreased $4.3
million, or 37.3%, from the same period in 2002. This decrease was primarily
due to lower operating income in the motor segment, which decreased 14.4%, as
well as lower operating income in the controls segment, which declined 24.4%.
Operating income for the nine months ended September 30, 2003 decreased $8.5
million, or 25.7%, from the same period in 2002. This decrease was due to
lower operating income in the motors segment, which declined 11.4%, and lower
operating income in the controls segment, which declined 9.4%. The decreases
in operating income were primarily due to research and development costs
related to new product introductions and increased corporate expenses.
12
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(UNAUDITED)
(ALL DOLLAR AMOUNTS IN THOUSANDS)
Consumer and Industrial Products. As of September 30, 2003, the
Consumer and Industrial Products group consisted of Cape, Welcome Home,
Cho-Pat, and GramTel.
Net sales for the three months ended September 30, 2003 increased $0.6
million, or 3.4%, over the same period in 2002. This increase was primarily
due to higher retail sales at Welcome Home, $0.8 million, and increased sales
of data storage and disaster recovery services at GramTel, $0.2 million.
Partially offsetting these increases were lower sales due to the divestiture
of ISMI in December 2002, $0.3 million, and the shutdown of Online Environs in
September 2002, $0.1 million. Net sales for the nine months ended September
30, 2003 decreased $0.5 million, or 1.1%, from the same period in 2002. This
decrease was primarily due to the divestiture of ISMI, $1.1 million, the
shutdown of Online Environs, $0.4 million, and lower sales of orthopedic
supports at Cho-Pat, $0.1 million. Partially offsetting these decreases were
higher sales of home accessories at Cape, $0.6 million, and increased sales of
data storage and disaster recovery services at GramTel, $0.5 million.
Operating income for the three months ended September 30, 2003 increased $0.9
million over the same period in 2002. This increase was primarily due to
decreased operating loss at Welcome Home, $0.4 million, higher operating
income at GramTel, $0.1 million, and the shutdown of Online Environs, which
generated an operating loss of $0.4 million during the third quarter of 2002.
Operating loss for the nine months ended September 30, 2003 decreased $1.8
million. This decrease in operating loss was primarily due to lower operating
loss at Welcome Home, $0.5 million, increased operating income at GramTel,
$0.3 million, the divestiture of ISMI, $0.3 million, and the shutdown of
Online Environs, $0.7 million.
Consolidated Results: (See Condensed Consolidated Statement of Operations).
Net sales for the three months ended September 30, 2003 decreased $3.8
million, or 2.1%, from the same period in 2002. This decrease was primarily
due to lower sales of folding boxes at Seaboard, ad specialties at JII
Promotions, Tilt Bins and thermoplastic colorants at Sate-Lite, remanufactured
torque converters at Dacco, drive trains at Alma, and subfractional and
fractional/integral motors at Kinetek. In addition, net sales decreased due to
the divestiture of ISMI in December 2002 and the shutdown of Online Environs
in September 2002. Partially offsetting these decreases were higher sales of
membrane switches at Valmark, hardware products at Deflecto, plastic hospital
supplies at Sate-Lite, air conditioning compressors at Alma, controls at
Kinetek, and retail sales at Welcome Home. Net sales for the nine months ended
September 30, 2003 decreased $2.5 million, or 0.5%, from the same period in
2002. This decrease was primarily due to lower sales of folding boxes at
Seaboard, screen-printed products and rollstock at Valmark, Tilt Bins and
thermoplastic colorants at Sate-Lite, plastic-injection molded products at
Beemak, remanufactured torque converters at Dacco, drive trains at Alma, and
subfractional and fractional/integral motors at Kinetek. In addition, net
sales decreased due to the divestiture of ISMI and shutdown of Online
Environs, as mentioned above. Partially offsetting these decreases were higher
sales of labels at Pamco, ad specialties at JII Promotions, hardware and
office products at Deflecto, air conditioning compressors at Alma, driers and
accumulators and air conditioning hose assemblies at Atco, controls at
Kinetek, and retail sales at Welcome Home.
13
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(UNAUDITED)
(ALL DOLLAR AMOUNTS IN THOUSANDS)
Operating income for the three months ended September 30, 2003 decreased $5.1
million, or 30.7%, from the same period in 2002. Operating income for the nine
months ended September 30, 2003 decreased $2.5 million, or 5.8%, from the same
period in 2002. These decreases were primarily due to lower sales levels at
certain subsidiaries, increased raw materials pricing at JSP, and research and
development costs at Kinetek. Partially offsetting these increases was higher
operating income due to various cost cutting measures at SPL and Sate-Lite as
well as reduced corporate expenses. In addition, the divestiture of ISMI and
the shutdown of Online Environs helped to improve operating income.
Liquidity and Capital Resources.
In general, the Company requires liquidity for working capital, capital
expenditures, interest, taxes, debt repayment and its acquisition strategy. Of
primary importance are the Company's working capital requirements, which
increase whenever the Company experiences strong incremental demand or
geographical expansion.
The Company had approximately $148.4 million of working capital at September
30, 2003 compared to approximately $115.7 million at the end of 2002.
Operating activities. Net cash used in operating activities for the nine
months ended September 30, 2003 was $17.2 million compared to net cash
provided by operating activities of $12.6 million for the same period in 2002.
The increase in cash used is primarily due to working capital variances
compared to 2002.
Investing activities. Net cash provided by investing activities for the nine
months ended September 30, 2003 was $5.1 million compared to net cash used in
investing activities of $18.2 million for the same period in 2002. The
increase in cash provided by investing activities is primarily due to the
divestitures of the School Annual division of JII Promotions and the Midwest
Color division of Sate-Lite in the third quarter of 2003. In addition, net
cash provided by investing activities is higher in comparison to 2002 due to
the acquisition of a subsidiary at Kinetek in the second quarter of 2002.
Financing activities. Net cash provided by financing activities for the nine
months ended September 30, 2003 was $9.9 million compared to net cash provided
by financing activities of $5.9 million for the same period in 2002. The
increase in cash provided by financing activities is primarily due to the
repurchase of the Company's Series A Debentures in the second quarter of 2002,
partially offset by the issuance of long-term debt at Kinetek in the second
quarter of 2002 and the increased repayment of long-term debt in 2003.
The Company is party to two credit agreements under which the Company is able
to borrow up to $145.0 million to fund acquisitions, provide working capital
and for other general corporate purposes. The credit agreements mature in 2005
and 2006. The agreements are secured by a first priority security interest in
substantially all of the Company's assets. As of November 14, 2003, the
Company had approximately $25.1 million of available funds under these
arrangements.
The Company may, from time to time, use cash, including cash generated from
borrowings under its credit agreement, to purchase either its 11 3/4% Senior
Subordinated Discount Debentures due 2009 or its 10 3/8% Senior Notes due
2007, or any combination thereof, through open market purchases, privately
negotiated purchases or exchanges, tender offers, redemptions or otherwise,
and may, from time to time, pursue various refinancing or financial
14
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(UNAUDITED)
(ALL DOLLAR AMOUNTS IN THOUSANDS)
restructurings, including pursuant to current solicitations and waivers
involving those securities, in each case, without public announcement or prior
notice to the holders thereof, and if initiated or commenced, such purchases
or offers to purchase may be discontinued at any time.
The Company's aggregate business has a certain degree of seasonality. JII
Promotions and Welcome Home's sales are somewhat stronger toward year-end due
to the nature of their products. Calendars at JII Promotions have an annual
cycle and home furnishings and accessories at Welcome Home are popular holiday
gifts.
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 September 30, 2003,
the Company had $58.5 million of variable rate debt outstanding. A
one-percentage point increase in interest rates would increase the annual
amount of interest paid by approximately $0.6 million. The Company does not
believe that its market risk financial instruments on September 30, 2003 would
have a material effect on future operations or cash flows.
The Company is exposed to market risk from changes in foreign currency
exchange rates, including fluctuations in the functional currency of foreign
operations. The functional currency of operations outside the United States is
the respective local currency. Foreign currency translation effects are
included in accumulated other comprehensive income in shareholder's equity.
Controls and Procedures
Pursuant to Section 302 of the Sarbanes-Oxley Act and Rule 13a-15 of the
Securities Exchange Act of 1934 ("Exchange Act") promulgated thereunder, our
chief executive officer and controller have evaluated the effectiveness of our
disclosure controls and procedures as of the end of the period covered by this
report (the "Evaluation Date") with the Securities and Exchange Commission
("SEC"). Based on such evaluation, our chief executive officer and controller
have concluded that our disclosure controls and procedures were effective as
of the Evaluation Date to ensure that information required to be disclosed in
reports that we file or submit under the Exchange Act is recorded, processed,
summarized and reported within the time periods specified in SEC rules and
forms. There have been no changes in our internal controls over financial
reporting during the period covered by this report that were identified in
connection with the evaluation referred to above that have materially
affected, or are reasonably likely to materially affect, our internal control
over financial reporting.
15
OTHER INFORMATION
Item 1. Legal Proceedings
-----------------
None
Item 2. Changes in Securities
---------------------
None
Item 3. Defaults upon Senior Securities
-------------------------------
None
Item 4. Submission of Matters to a Vote of Security Holders
---------------------------------------------------
None
Item 5. Other Information
-----------------
None
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
(a) A list of exhibits filed with
this report is contained on the
Exhibit Index immediately preceding
such exhibits and is incorporated
herein by reference
16
SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
JORDAN INDUSTRIES, INC.
November 14, 2003 By: /s/ Lisa M. Ondrula
----------------------
Lisa M. Ondrula
Vice President,
Controller
17
EXHIBIT INDEX
Exhibit
Number Description
31.1 Certificate of Chief Executive Officer pursuant to
Rule 13a-14 (a) or Rule 15d-14 (a)
31.2 Certificate of Controller pursuant to Rule 13a-14 (a)
or Rule 15d-14 (a)