-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Fhp85OZBW+QvNQYINxqvQdJna4+Nd/BkM5Niz7c6I+XcmSKC9SCSkpd2nOVFQG6H EAxIgHWlBxsu8Q3X47szzg== 0000902561-03-000525.txt : 20031114 0000902561-03-000525.hdr.sgml : 20031114 20031114131810 ACCESSION NUMBER: 0000902561-03-000525 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20030930 FILED AS OF DATE: 20031114 FILER: COMPANY DATA: COMPANY CONFORMED NAME: JORDAN INDUSTRIES INC CENTRAL INDEX KEY: 0000839484 STANDARD INDUSTRIAL CLASSIFICATION: COMMERCIAL PRINTING [2750] IRS NUMBER: 363598114 STATE OF INCORPORATION: IL FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 033-24317 FILM NUMBER: 031002516 BUSINESS ADDRESS: STREET 1: ARBORLAKE CENTRE STE 550 STREET 2: 1751 LAKE COOK RD CITY: DEERFIELD STATE: IL ZIP: 60015 BUSINESS PHONE: 8479455591 MAIL ADDRESS: STREET 1: 1751 LAKE COOK ROAD STREET 2: SUITE 550 CITY: DEERFIELD STATE: IL ZIP: 60015 10-Q 1 form10q.txt 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) EX-31 3 ex-311.txt CERTIF OF CHIEF EXEC OFFICER CERTIFICATE I, John W. Jordan II, certify that: 1) I have reviewed this quarterly report on Form 10-Q of Jordan Industries, Inc; 2) Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3) Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; 4) The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and we have: a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; b) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report and based on such evaluation; and c) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's last fiscal quarter in the case of an annual report) that has materially affected, or is reasonable likely to materially affect, the registrant's internal control over financial reporting; and 5) The registrant's other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function): a) All significant deficiencies and material weaknesses in the design or operation of internal controls over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls over financial reporting. Date: November 14, 2003 ------------------- /s/ John W. Jordan II ------------------------------ Name: John W. Jordan II Title: Chairman and CEO EX-31 4 ex-312.txt CERTIF OF CONTROLLER CERTIFICATE I, Lisa M. Ondrula, certify that: 1) I have reviewed this quarterly report on Form 10-Q of Jordan Industries, Inc; 2) Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3) Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; 4) The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and we have: a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; b) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report and based on such evaluation; and c) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's last fiscal quarter in the case of an annual report) that has materially affected, or is reasonable likely to materially affect, the registrant's internal control over financial reporting; and 5) The registrant's other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function): a) All significant deficiencies and material weaknesses in the design or operation of internal controls over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls over financial reporting. Date: November 14, 2003 ----------------- /s/ Lisa M. Ondrula -------------------------- Name: Lisa M. Ondrula Title: VP, Controller -----END PRIVACY-ENHANCED MESSAGE-----