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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 June 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
August 13, 2003: 98,501.0004.
2
JORDAN INDUSTRIES, INC.
INDEX
Part I. Page No.
- ------ -------
Condensed Consolidated Balance Sheets at June 30, 2003
(Unaudited) and December 31, 2002 3
Condensed Consolidated Statements of Operations for the
Three Months Ended June 30, 2003 and 2002 (Unaudited)
and the Six Months Ended June 30, 2003 and 2002 (Unaudited) 4
Condensed Consolidated Statements of Cash Flows for
the Six Months Ended June 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
Officer Certificates 17
3
JORDAN INDUSTRIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(ALL DOLLAR AMOUNTS IN THOUSANDS)
June 30, December 31,
2003 2002
-------- ------------
(unaudited)
ASSETS
Current Assets:
Cash and cash equivalents $21,936 $20,109
Accounts receivable, net 120,516 109,101
Inventories 144,786 130,453
Income tax receivable - 3,745
Prepaid expenses and other current assets 27,574 25,857
-------- --------
Total Current Assets 314,812 289,265
Property, plant and equipment, net 98,302 101,907
Investments in and advances to affiliates 46,198 42,353
Goodwill, net 248,004 245,351
Other assets 27,553 30,368
-------- --------
Total Assets $734,869 $709,244
======== ========
LIABILITIES AND SHAREHOLDER'S EQUITY (NET
CAPITAL DEFICIENCY)
Current Liabilities:
Accounts payable $69,722 $58,631
Accrued liabilities 75,202 78,582
Advance deposits 1,840 1,420
Current portion of long-term debt 16,680 34,893
-------- --------
Total Current Liabilities 163,444 173,526
Long-term debt, less current portion 748,065 715,516
Other non-current liabilities 14,925 14,484
Deferred income taxes 8,137 2,904
Minority interest 350 278
Preferred stock 2,437 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 (4,161) (11,877)
Accumulated deficit (200,445) (190,046)
-------- --------
Total Shareholder's Equity (net capital
deficiency) (202,489) (199,806)
-------- --------
Total Liabilities and Shareholder's
Equity (net capital deficiency) $734,869 $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 SIX MONTHS ENDED
June 30, June 30,
--------------- ------------------
2003 2002 2003 2002
------ ------ ------ ------
Net sales $188,680 $191,640 $358,387 $357,132
Cost of sales, excluding
123,420 121,558 235,175 226,687
depreciation
Selling, general and
administrative expenses,
excluding depreciation 42,782 43,251 83,172 84,675
Depreciation 5,689 5,482 11,287 10,827
Amortization of goodwill
and other intangibles 37 489 98 784
Management fees and other 546 7,823 300 8,436
-------- -------- -------- --------
Operating income 16,206 13,037 28,355 25,723
Other (income) expenses:
Interest expense 20,722 22,981 41,475 46,164
Interest income (246) (80) (513) (166)
Gain on extinguishment of
long-term debt - (87,807) - (87,807)
Other (5,235) (6,240) (8,628) (6,171)
-------- -------- -------- --------
15,241 (71,146) 32,334 (47,980)
-------- -------- -------- --------
Income (loss) before income taxes,
minority interest, and cumulative
effect of change in accounting
principle 965 84,183 (3,979) 73,703
Provision for income taxes 3,237 31,683 6,253 30,298
-------- -------- -------- --------
Income (loss) before minority
interest and cumulative effect of
change in accounting principle (2,272) 52,500 (10,232) 43,405
Minority interest 133 61 72 106
-------- -------- -------- --------
Income (loss) before cumulative
effect of change in accounting
principle (2,405) 52,439 (10,304) 43,299
-------- ------- --------- --------
Cumulative effect of change in
accounting principle, net of tax - - - 87,065
-------- -------- -------- --------
Net income (loss) $(2,405) $52,439 $(10,304) $(43,766)
======== ======== ======== ========
See accompanying notes to condensed consolidated financial statements.
5
JORDAN INDUSTRIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(ALL DOLLAR AMOUNTS IN THOUSANDS)
SIX MONTHS ENDED
June 30,
2003 2002
------ ------
Cash flows from operating activities:
Net loss $(10,304) $(43,766)
Adjustments to reconcile net loss to net
cash used in operating activities:
Cumulative effect of accounting change - 87,065
Gain on extinguishment of long-term debt - (87,807)
Depreciation and amortization 11,385 11,611
Amortization of deferred financing fees 3,092 3,187
Minority interest 72 106
Non-cash interest 28 6,162
Gain on disposal of fixed assets (3,774) -
Other (4,468) (4,640)
Changes in operating assets and liabilities:
Increase in current assets (23,720) (14,003)
Increase in current liabilities 8,824 37,719
Increase in non-current assets (3,765) (2,007)
Increase in non-current liabilities 5,674 1,253
--------- --------
Net cash used in operating activities (16,956) (5,120)
Cash flows from investing activities:
Proceeds from sale of fixed assets 3,861 1,790
Capital expenditures (6,436) (6,633)
Acquisitions of subsidiaries - (9,503)
Additional purchase price payments (750) (1,002)
Net cash acquired in purchase of subsidiaries - 788
Other - 57
--------- --------
Net cash used in investing activities (3,325) (14,503)
Cash flows from financing activities:
Proceeds from revolving credit facilities, net 28,635 31,851
Proceeds from issuance of long-term debt - Kinetek - 20,456
Repayment of long-term debt (11,886) (4,515)
Repurchase of Series A Debentures - (31,193)
Proceeds from other borrowings 266 -
Other - -
--------- --------
Net cash provided by financing
activities 17,015 16,599
Effect of exchange rate changes on cash 5,093 1,115
--------- --------
Net increase (decrease) in cash and cash equivalents 1,827 (1,909)
Cash and cash equivalents at beginning of period 20,109 26,050
--------- --------
Cash and cash equivalents at end of period $21,936 $24,141
========= ========
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 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:
June 30, December 31,
2003 2002
------------ ------------
Raw materials $ 52,052 $ 52,450
Work-in-process 27,472 20,417
Finished goods 65,262 57,586
-------- --------
$144,786 $130,453
======== ========
D. Comprehensive Income (Loss)
- -------------------------------
Total comprehensive income (loss) for the quarters and six months ended
June 30, 2003 and 2002 is as follows:
Three Months ended Six Months ended
June 30, June 30,
-------------------- -------------------
2003 2002 2003 2002
------- -------- ------ ------
Net income (loss) $(2,405) $52,439 $(10,304) $(43,766)
Foreign currency translation 2,044 3,166 7,716 715
------ ------- -------- ---------
Comprehensive income (loss) $ (361) $55,605 $ (2,588) $(43,051)
======== ======= ========= =========
7
JORDAN INDUSTRIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(ALL DOLLAR AMOUNTS IN THOUSANDS)
E. 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.
F. 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.
G. Income taxes
- ----------------
The provision for income taxes for the six months ended June 30, 2003 and 2002
differs from the amount of income tax (benefit) provision computed by applying
the United States federal income tax rate to loss before income taxes,
minority interest, and cumulative effect of change in accounting principle. A
reconciliation of the differences is as follows:
Six Months ended Six Months ended
June 30, 2003 June 30, 2002
------------- -------------
Computed statutory tax (benefit)
provision $(1,393) $25,796
Increase (decrease) resulting from:
Increase in valuation allowance 5,649 -
Disallowed meals and entertainment 299 442
State and local tax and other 1,698 4,060
------- -------
Provision for income taxes $ 6,253 $30,298
======= =======
8
JORDAN INDUSTRIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(ALL DOLLAR AMOUNTS IN THOUSANDS)
The tax provision also includes a charge of approximately $2,796 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.
H. Settlement of Litigation
- ----------------------------
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 six month periods ended June 30, 2003 and 2002. This discussion
reviews the following segment data and certain of the consolidated financial
data for the Company.
THREE MONTHS ENDED SIX MONTHS ENDED
June 30, June 30,
--------------- ------------------
2003 2002 2003 2002
------ ------ ------ ------
Net Sales:
Specialty Printing and Labeling $ 27,634 $ 28,241 $ 47,875 $ 48,015
Jordan Specialty Plastics 29,209 27,437 57,074 52,610
Jordan Auto Aftermarket 44,580 45,722 81,202 83,902
Kinetek 71,940 74,243 143,192 142,441
Consumer and Industrial Products 15,317 15,997 29,044 30,164
-------- -------- -------- --------
Total $188,680 $191,640 $358,387 $357,132
======== ======== ======== ========
Operating Income (Loss):
Specialty Printing and Labeling $2,827 $2,971 $2,409 $1,997
Jordan Specialty Plastics 1,766 2,440 3,521 4,310
Jordan Auto Aftermarket 4,807 6,381 8,159 11,637
Kinetek 8,567 11,864 17,375 21,579
Consumer and Industrial Products 15 (753) (954) (1,887)
-------- -------- -------- --------
Total(a) $ 17,982 $22,903 $30,510 $37,636
======== ======== ======== ========
Operating Margin(b)
Specialty Printing and Labeling 10.2% 10.5% 5.0% 4.2%
Jordan Specialty Plastics 6.1% 8.9% 6.2% 8.2%
Jordan Auto Aftermarket 10.8% 14.0% 10.1% 13.9%
Kinetek 11.9% 16.0% 12.1% 15.2%
Consumer and Industrial Products 0.1% (4.7)% (3.3)% (6.3)%
Total 9.5% 12.0% 8.5% 10.5%
_________________
(a) Before corporate overhead of $1,776 and $9,866 for the three months ended
June 30, 2003 and 2002, respectively, and $2,155 and $11,913 for the six
months ended June 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 June 30, 2003, the Specialty
Printing and Labeling group ("SPL") consisted of JII Promotions, Valmark,
Pamco, and Seaboard.
Net sales for the three months ended June 30, 2003 decreased $0.6 million, or
2.2%, from the same period in 2002. This decrease was primarily due to lower
sales of calendars at JII Promotions, $0.6 million, decreased sales of
screen-printed products, rollstock, and membrane switches at Valmark, $0.4
million, $0.2 million, and $0.1 million, respectively, and lower sales of
folding boxes at Seaboard, $0.6 million. Partially offsetting these decreases
were higher sales of ad specialties at JII Promotions, $0.9 million and
increased sales of labels at Pamco, $0.4 million. Net sales for the six months
ended June 30, 2003 decreased $0.1 million, or 0.3%, from the same period in
2002. This decrease was primarily due to lower sales of calendars at JII
Promotions, $0.4 million, screen-printed products and rollstock at Valmark,
$0.7 million and $0.3 million, and lower sales of folding boxes at Seaboard,
$0.8 million. Partially offsetting these decreases were higher sales of ad
specialties and school annuals at JII Promotions, $1.2 million and $0.1
million, respectively, higher sales of membrane switches at Valmark, $0.1
million, and increased sales of labels at Pamco, $0.7 million.
Operating income for the three months ended June 30, 2003 decreased $0.1
million, or 4.9%, from the same period in 2002. Operating income decreased at
JII Promotions, $0.4 million, while operating income increased at Valmark and
Seaboard, $0.1 million each. In addition, corporate expenses decreased $0.1
million during the second quarter. Operating income for the six months ended
June 30, 2003 increased $0.4 million, or 20.6%, over the same period in 2002.
This increase was due to higher operating income at Valmark, $0.3 million, and
Pamco and Seaboard, $0.2 million each. Operating income also increased due to
lower corporate expenses, $0.1 million. Partially offsetting these increases
was lower operating income at JII Promotions, $0.4 million. Operating income
increases were the result of various cost cutting measures and efficiency
initiatives, while the operating income decrease at JII Promotions was due to
shifts in production schedules to more effectively use manufacturing resources
during the year.
Jordan Specialty Plastics. As of June 30, 2003, the Jordan Specialty
Plastics group ("JSP") consisted of Beemak, Sate-Lite, and Deflecto.
Net sales for the three months ended June 30, 2003 increased $1.8 million, or
6.5%, over the same period in 2002. This increase was primarily due to higher
sales of hardware and office products at Deflecto, $1.7 million and $0.4
million, respectively, increased sales of plastic hospital supplies at
Sate-Lite, $0.4 million, and higher sales of fabricated products at Beemak,
$0.1 million. Partially offsetting these increases were lower sales of Tilt
Bins and thermoplastic colorants at Sate-Lite, $0.4 million each. Net sales
for the six months ended June 30, 2003 increased $4.5 million, or 8.5%, over
the same period in 2002. This increase was primarily due to higher sales of
hardware and office products at Deflecto, $3.6 million and $1.9 million,
respectively, and increased sales of plastic hospital supplies at Sate-Lite,
$0.8 million. Partially offsetting these increases were lower sales of truck
and auto reflectors, Tilt Bins and thermoplastic colorants at Sate-Lite, $0.3
million, $0.8 million, and $0.4 million, respectively, and decreased sales of
injection-molded products at Beemak, $0.3 million.
Operating income for the three months ended June 30, 2003 decreased $0.7
million, or 27.6%, from the same period in 2002. Operating income decreased at
Deflecto and Beemak, $0.6 million and $0.2 million, respectively, while
operating income increased at Sate-Lite, $0.1 million. Operating income
11
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(UNAUDITED)
(ALL DOLLAR AMOUNTS IN THOUSANDS)
for the six months ended June 30, 2003 decreased $0.8 million, or 18.3%, from
the same period in 2002. This decrease was due to lower operating income at
Deflecto and Beemak, $0.8 million and $0.5 million, respectively. Partially
offsetting these decreases was higher operating income at Sate-Lite, $0.5
million. Decreased operating income was the direct result of increased raw
materials pricing including resins and acrylic. Increased operating income at
Sate-Lite was the result of favorable overhead absorption on higher sales, as
well as the implementation of various cost cutting measures and headcount
reductions.
Jordan Auto Aftermarket. As of June 30, 2003, the Jordan Auto
Aftermarket group ("JAAI") consisted of Dacco, Alma and Atco.
Net sales for the three months ended June 30, 2003 decreased $1.1 million, or
2.5%, 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 driers and accumulators and steel fittings at Atco and
increased sales of air conditioning compressors at Alma. Net sales for the six
months ended June 30, 2003 decreased $2.7 million, or 3.2%, from the same
period in 2002. Similarly to the quarter, this decrease was primarily due to
lower sales of torque converters and other soft parts at Dacco and drive
trains at Alma. Higher sales of air conditioning compressors at Alma and
driers and accumulators and steel fittings at Atco helped to offset these
decreases.
Operating income for the three months ended June 30, 2003 decreased $1.6
million, or 24.7%, from the same period in 2002. This decrease was due to
lower operating income at both Dacco and Alma. Operating income for the six
months ended June 30, 2003 decreased $3.5 million, or 29.9%, from the same
period in 2002. This decrease was also due to lower operating income at Dacco
and Alma, but was partially offset by higher operating income at Atco and
decreased corporate expenses. Operating income decreased due to lower sales at
Dacco as mentioned above, as well as increased pricing pressures due to the
overall weak economy.
Kinetek. As of June 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 June 30, 2003 decreased $2.3 million, or
3.1%, from the same period in 2002. Subfractional motor sales decreased 6.8%,
driven by protracted weakness in the bottle and can vending market and reduced
demand for refrigeration appliance motors. Sales of fractional/integral motors
also decreased 2.9% in the second quarter due to lower sales of DC products
used in material handling and golf car applications. Partially offsetting
these decreased were higher sales in the controls segment, which increased
0.4% in the second quarter of 2003. This increase was the result of an
improved elevator modernization market and market share gained in the
automotive conveyer industry. Net sales for the six months ended June 30, 2003
increased $0.8 million, or 0.5%, over the same period in 2002. This increase
was due to higher sales of fractional/integral motors, 0.9%, and increased
sales of controls, 0.6%.
Operating income for the three months ended June 30, 2003 decreased $3.3
million, or 27.8%, from the same period in 2002. This was primarily due to
lower operating income in the motors segment, which decreased 16.4%, while
operating income in the controls segment decreased 5.9%. Operating income for
the six months ended June 30, 2003 decreased $4.2 million, or 19.5%, from the
same period in 2002. This decrease was due to lower operating income in
12
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(UNAUDITED)
(ALL DOLLAR AMOUNTS IN THOUSANDS)
both the motors and controls segments, 9.9% and 0.7%, respectively. The
decreases in operating income were primarily due to research and development
costs related to new product introductions and increased corporate expenses.
Consumer and Industrial Products. As of June 30, 2003, the Consumer and
Industrial Products group consisted of Cape, Welcome Home, Cho-Pat, and
GramTel.
Net sales for the three months ended June 30, 2003 decreased $0.7 million, or
4.3%, from the same period in 2002. This decrease was primarily due to lower
sales of home accessories at Cape, $0.1 million, decreased retail sales at
Welcome Home, $0.1 million, the divestiture of ISMI in December 2002, $0.4
million, and the shutdown of Online Environs in September 2002, $0.2 million.
Partially offsetting these decreases were higher sales of data storage and
disaster recovery services at GramTel, $0.1 million. Net sales for the six
months ended June 30, 2003 decreased $1.1 million, or 3.7%, from the same
period in 2002. These decreases were primarily due to lower retail sales at
Welcome Home, $0.2 million, decreased sales of orthopedic supports at Cho-Pat,
$0.1 million, the divestiture of ISMI, $0.8 million, and the shutdown of
Online Environs, $0.3 million. Partially offsetting these decreases were
higher sales at GramTel, $0.3 million.
Operating loss for the three months ended June 30, 2003 decreased $0.8 million
from the same period in 2002. This decrease is primarily due to higher
operating income at Cape, $0.2 million, and lower operating losses at Welcome
Home and GramTel, $0.1 million each. In addition, operating loss decreased due
to the divestiture of ISMI, $0.3 million, and the shutdown of Online Environs,
$0.2 million, both of which generated an operating loss in the second quarter
of 2002. Partially offsetting these decreases in operating loss was lower
operating income at Cho-Pat, $0.1 million. Operating loss for the six months
ended June 30, 2003 decreased $0.9 million, or 49.4%, from the same period in
2002. This decrease was primarily due to higher operating income at Cape, $0.1
million, lower operating losses at Welcome Home and GramTel, $0.1 million and
$0.2 million, respectively, as well as the divestiture of ISMI, $0.2 million,
and the shutdown of Online Environs, $0.3 million.
Consolidated Results: (See Condensed Consolidated Statement of Operations).
Net sales for the three months ended June 30, 2003 decreased $3.0 million, or
1.5%, from the same period in 2002. This decrease was primarily due to lower
sales of calendars at JII Promotions, folding boxes at Seaboard, Tilt Bins and
thermoplastic colorants at Sate-Lite, remanufactured torque converters at
Dacco, drive trains at Alma and motor sales at Kinetek. In addition, 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 ad specialties at JII Promotions, labels at Pamco, hardware
and office products at Deflecto, driers and accumulators and steel fittings at
Atco, controls at Kinetek and data storage and disaster recovery services at
GramTel. Net sales for the six months ended June 30, 2003 increased $1.3
million, or 0.4%, over the same period in 2002. This increase was primarily
due to higher sales of ad specialties at JII Promotions, labels at Pamco,
hardware and office products at Deflecto, plastic hospital supplies at
Sate-Lite, air conditioning compressors at Alma, fractional/integral motors
and controls at Kinetek, and data storage and recovery services at GramTel.
Partially offsetting these increases were lower sales of screen-printed
products at Valmark, folding boxes at Seaboard, Tilt Bins and thermoplastic
colorants at Sate-Lite, torque converters at Dacco, and drive trains at Alma.
Sales also decreased due to the divestiture of ISMI and the shutdown of Online
Environs, as mentioned above.
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 June 30, 2003 increased $3.2
million, or 24.3%, over the same period in 2002. Operating income for the six
months ended June 30, 2003 increased $2.6 million, or 10.2%, over the same
period in 2002. These increases were primarily due to cost cutting and
efficiency initiatives 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. Partially offsetting these
increases was lower operating income resulting from increased raw materials
pricing at JSP, pricing pressures at JAAI, and research and development costs
at Kinetek.
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 $152.5 million of working capital at June 30,
2003 compared to approximately $115.7 million at the end of 2002.
Operating activities. Net cash used in operating activities for the six months
ended June 30, 2003 was $17.0 million compared to net cash used in operating
activities of $5.1 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 used in investing activities for the six months
ended June 30, 2003 was $3.3 million compared to net cash used in investing
activities of $14.5 million for the same period in 2002. The decrease in cash
used in investing activities is primarily 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 six
months ended June 30, 2003 was $17.0 million compared to net cash provided by
financing activities of $16.6 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 August 13, 2003, the Company
had approximately $28.6 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
restructurings, including pursuant to current solicitations
14
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(UNAUDITED)
(ALL DOLLAR AMOUNTS IN THOUSANDS)
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 June 30, 2003, the
Company had $65.9 million of variable rate debt outstanding. A one-percentage
point increase in interest rates would increase the annual amount of interest
paid by approximately $0.7 million. The Company does not believe that its
market risk financial instruments on June 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 chief financial officer 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. Based on such evaluation, our chief executive officer and
chief financial officer 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.
August 13, 2003 By: /s/ Thomas C. Spielberger
-------------------------
Thomas C. Spielberger
Senior Vice President,
Chief Financial Officer
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 Chief Financial Officer pursuant to
Rule 13a-14 (a) or Rule 15d-14 (a)