Back to GetFilings.com

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF

THE SECURITIES EXCHANGE ACT OF 1934

For fiscal year ended December 31, 1999 Commission File Number 33-24317

Illinois 36-3598114

(state or other jurisdiction of (I.R.S. Employer

incorporation or organization) Identification No.)

Arbor Lake Center, Suite 550 60015

1751 Lake Cook Road (Zip Code)

Deerfield, Illinois

(Address of Principal Executive Offices)

Name of Each Exchange

Title of Each Class on Which Registered

None N/A

Indicated by checkmark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding twelve (12) months (or for such shorter period that the registrant was required to file such reports)and (2) has been subject to such filing requirements for the past ninety (90) days.

Yes X No

The aggregate market value of voting stock held by non-affiliates of the registrant is not determinable as such shares were privately placed and there is no public market for such shares.

The number of shares outstanding of Registrant's Common Stock as of March 23, 2000: 98,501.0004.

Item 1. BUSINESS

Jordan Industries, Inc. ("the Company") was organized to acquire and operate a diverse group of businesses on a decentralized basis, with a corporate staff providing strategic direction and support. The Company is currently comprised of 22 businesses which are divided into six strategic business units: (i) Specialty Printing and Labeling, (ii) Consumer and Industrial Products, (iii) Jordan Specialty Plastics, (iv) Jordan Auto Aftermarket, (v) Capita Technologies and (vi) Motors and Gears. As of July 21, 1999, Welcome Home is consolidated in the Company's results of operations and is included in the Consumer and Industrial Products business unit. (See Note 3 to the financial statements.) As a result of the sale of the Jordan Telecommunication Products segment on January 18, 2000, the financial information of that segment has been reported as discontinued operations.

The Company believes that its businesses are characterized by leading positions in niche industries, high operating margins, strong management, minimal working capital and capital expenditure requirements and low sensitivity to technological change and economic cycles.

The Company's business strategy is to enhance the growth and profitability of each business unit, and to build upon the strengths of those units through product line and other strategic acquisitions. Key elements of this strategy have been the consolidation and reorganization of acquired businesses, increased focus on international markets, facilities expansion and the acquisition of complementary product lines. When, through such activities, the Company believes that critical mass is attained in a particular industry segment, the related companies are organized as a discreet business unit. For example, the Company acquired Imperial in 1983 and made a series of complimentary acquisitions, which resulted in the formation of Motors and Gears, Inc., a leading domestic manufacturer of electric motors, gears, and motion control systems.

Through the implementation of this strategy, the Company has demonstrated significant and consistent growth in net sales. The Company generated consolidated net sales of $776.9 million for the year ended December 31, 1999 as compared to $408.5 million for the year ended December 31, 1995, representing a compound annual growth rate of 17.3%.

The following chart depicts the operating subsidiaries which comprise the Company's six strategic business units, together with the net sales for each of the six groups for the year ended December 31, 1999.

(1) On January 21, 1997 Welcome Home filed for Chapter 11 bankruptcy protection. As a result of the Chapter 11 filing, the results of Welcome Home were not consolidated with the Company's results for the period between January 21, 1997 and July 21, 1999, the date Welcome Home emerged from bankruptcy. The results of Welcome Home are consolidated with the Company's results from the date of emergence through December 31, 1999 as the Company regained operational and financial control of Welcome Home.

(2) The subsidiaries comprising Motors and Gears are Non-Restricted Subsidiaries, the common stock of which is owned by stockholders and affiliates of the Company and management of the respective companies. The Company's ownership in these subsidiaries is solely in the form of M&G Junior Preferred Stock. See footnote 5 to the financial statements.

The Company's operations were conducted through the following business units as of December 31, 1999:

Specialty Printing and Labeling

The Specialty Printing and Labeling Group manufactures and markets (i) promotional and specialty advertising products for corporate buyers, (ii) labels, tapes, and printed graphic panel overlays for electronics and other manufacturing companies and (iii) printed folding cartons and boxes and other shipping materials. The companies that are part of Specialty Printing and Labeling have provided its customers with products and services for an average of over 40 years. For the fiscal year ended December 31, 1999, the Specialty Printing and Labeling group generated net sales of $117.7 million. Each of the Specialty Printing and Labeling subsidiaries is discussed below:

SPAI. The Company's former subsidiaries, The Thos. D. Murphy Co., which was founded in 1889, and Shaw-Barton, Inc., which was founded in 1940, merged to form JII/SPAI in March 1989. One hundred percent of JII/SPAI's assets were sold by JII, on terms equivalent to those that would have been obtained in an arm's length transaction, to the Specialty Printing and Labeling group in August 1995 and the company was renamed Sales Promotion Associates, Inc. ("SPAI"). SPAI is a producer and distributor of calendars for corporate buyers and soft-cover yearbooks for kindergarten through eighth grade, as well as a distributor of corporate recognition, promotion and specialty advertising products.

SPAI's net sales for fiscal 1999 were $60.8 million. Approximately 61% of SPAI's 1999 net sales were derived from distributing a broad variety of corporate recognition products, promotion and specialty advertising products. These products include apparel, watches, crystal, luggage, writing instruments, glassware, caps, cases, labels and other items that are printed and identified with a particular corporate logo and/or corporate advertising campaign. Approximately 28% of SPAI's 1999 net sales were derived from the sales of a broad variety of calendars, including hanging, desktop and pocket calendars that are used internally by corporate customers and distributed by them to their clients and customers. High-quality artistic calendars are also distributed. In addition, SPAI also manufactures and distributes soft-cover school yearbooks for kindergarten through eighth grade, which accounted for approximately 11% of 1999 net sales.

SPAI distributes calendars that are manufactured in-house as well as by a number of outside suppliers. Facilities for in-house manufacturing include a composing room, a camera room, a calendar finishing department and a full press room. Print stock, binding material, packaging and other materials are supplied by a number of independent companies. Specialty advertising products are purchased from more than 950 suppliers. Calendars and specialty advertising products are sold through a 750-person sales force, most of whom are independent contractors.

Management believes that SPAI has one of the largest domestic sales forces in the industry. With this large sales force and broad range of calendars and corporate recognition products available, management believes that SPAI is a strong competitor in its market. This market is very fragmented and most of the competition comes from smaller-scale producers and distributors.

Valmark. Valmark, which was founded in 1976 and purchased by the Company in 1994, is a specialty printer and manufacturer of pressure sensitive label products for the electronics Original Equipment Manufacturer ("OEM") market. Valmark's products include adhesive-backed labels, graphic panel overlays and membrane switches, and radio frequency interference ("RFI") shielding devices. Approximately 30% of Valmark's 1999 net sales of $19.4 million were derived from the sale of membrane switches and graphic panel overlays, 69% from labels and 3% from shielding devices.

The specialty screen print products sold in the electronics industry continue to operate relatively free of foreign competition due to the high level of communication and short time frame usually required to produce orders. Currently, the majority of Valmark's customer base of approximately 1,200 is located in the Northern California area.

Valmark sells to four primary markets: personal computers; general electronics; turn-key services; and medical instrumentation. Sales to the hospital and telecommunication industries have experienced the most growth over recent years due to Valmark's graphic panel overlay capabilities.

Valmark is able to provide OEM's with a broader range of products than many of its competitors. Valmark's markets are very competitive in terms of price and accordingly, Valmark's advantage over its competitors is derived from its diverse product line and excellent quality ratings.

Pamco. Pamco, which was founded in 1953 and purchased by the Company in 1994, is a manufacturer and distributor of a wide variety of printed tapes and labels. Pamco offers a range of products from simple one and two-color labels, such as basic bar code and address labels, to eight-color, laminated, embossed, and hot stamped labels for products such as video games and food packaging. Over 90% of Pamco's products are made to customer specifications and approximately 90% of all sales were manufactured in-house in 1999. The remaining 10% of net sales were purchased printed products and included business cards and stationary.

Pamco's products are marketed by a team of nine sales representatives who procure new accounts and service existing accounts. Existing accounts are serviced by nine customer service representatives and five internal salespeople. Pamco's customers represent several different industries with the five largest customers accounting for approximately 28% of 1999 net sales of $17.3 million.

Pamco competes in a highly fragmented industry. Pamco emphasizes its impressive 24-hour turnaround and its ability to accommodate rush orders that other printers cannot handle. Pamco's ability to deliver a quality product with quick turn around is its key competitive advantage.

Seaboard. Seaboard, which was founded in 1954 and purchased by the Company in 1996, is a manufacturer of printed folding cartons and boxes, insert packaging and blister pack cards.

Seaboard sells directly to a broad customer base, located primarily east of the Mississippi River, operating in a variety of industries including hardware, personal hygiene, toys, automotive supplies, food and drugs. Seaboard's top ten customers accounted for approximately 45% of Seaboard's 1999 net sales of $20.2 million. Seaboard has exhibited consistent sales growth and high profit margins and has gained a reputation for exceeding industry standards primarily due to its excellent operating capabilities. Seaboard has historically been highly successful in buying and profitably integrating smaller acquisitions.

Seaboard's markets are very competitive in terms of price and accordingly, Seaboard's advantage over its competitors is derived from its high quality products and excellent service.

Consumer and Industrial Products

Consumer and Industrial Products serves many product segments. It publishes and markets Bibles, religious books and audio materials; manufactures and imports gift items; and manufactures orthopedic supports and pain reducing medical devices. The companies which are part of Consumer and Industrial Products have provided their customers with products services for an average of over 40 years. For the year ended December 31, 1999, the Consumer and Industrial Products subsidiaries generated combined net sales of $122.9 million. Each of the Consumer and Industrial Products subsidiaries is discussed below:

Riverside. Riverside is a publisher of Bibles and a distributor of Bibles, religious books and music recordings. Riverside was founded in 1943 and acquired by the Company in 1988. Approximately 77% of Riverside's business consists of products published by other companies. Riverside sells world-wide to more than 10,000 wholesale, religious and trade book store customers, utilizing an in-house telemarketing system, five independent sales representative groups, printed sales media and an internet website. In addition, Riverside sells a small percentage of its products through direct mail and to retail customers. No single customer accounted for more than 4% of Riverside's 1999 net sales of $56.7 million.

Riverside also provides Bible indexing, warehousing, inventory and shipping services for domestic book publishers and music producers. Riverside competes with larger firms, including the Zondervan Corporation, The Thomas Nelson Company, and Ingram Book Company, on the basis of price, product lines and customer service.

Cape Craftsmen. Founded in 1966 and purchased by the Company in 1996, Cape Craftsmen is a manufacturer and importer of gifts, wooden furniture, framed art and other accessories. Cape Craftsmen manufactures in North Carolina and imports from Mexico and the Far East. Cape Craftsmen sells its products through one in-house sales person and 44 independent sales representatives. Net sales in 1999 were $17.2 million, excluding sales to Welcome Home, a related party, of $9.8 million. Cape Craftsmen competes in a highly fragmented industry and has therefore found it most effective to compete on the basis of price with most wood manufacturers and importers. Cape Craftsmen also strives to deliver better quality and service than its competitors.

Welcome Home. Welcome Home is a specialty retailer of gifts and decorative home furnishings and accessories in North America. Welcome Home began operations in the mid 1970's and was acquired by the Company in 1991. It currently operates 119 stores located in factory outlet centers in 36 states. Welcome Home offers a broad product line of 1,500 to 2,500 items consisting of 12 basic groups, including decorative home textiles, framed art, furniture, candles, lighting, fragrance, decorative accessories, decorative garden, music, special opportunity merchandise and seasonal products.

Competition is highly intense among specialty retailers, traditional department stores and mass merchant discounters in outlet malls and other high traffic retail locations. Welcome Home competes principally on the basis of product assortment, convenience, customer service, price and the attractiveness of its stores. Welcome Home had net sales of $35.3 million in the last six months of 1999.

Cho-Pat. In September 1997, the Company purchased Cho-Pat, Inc., a leading designer and manufacturer of orthopedic supports and patented preventative and pain reducing medical devices. Cho-Pat currently produces eighteen different products primarily for reduction of pain from injuries and the prevention of injuries resulting from over use of the major joints. Cho-Pat's largest selling product is the patented Cho-Pat knee strap, designed to reduce the pain from patellar tendinitis in the knee. Cho-Pat manufactures all of its products in-house. Cho-Pat sells its products to professional, college and high school athletic trainers, medical product distributors, and independent retail drug and sporting goods stores. Cho-Pat had net sales of $1.7 million in 1999.

Jordan Specialty Plastics

Jordan Specialty Plastics serves a broad range of wholesale and retail markets within the highly-fragmented specialty plastics industry. The group designs, manufactures and sells (1) "take-one" point of purchase brochure, folder and application display holders, (2) modular storage systems ("Tilt-Bins"), (3) plastic injection-molded hardware and office supply products, (4) extruded vinyl chairmats, (5) safety reflectors for bicycles and commercial truck manufacturers and (6) colorants to the thermoplastics industry. The companies that are part of Jordan Specialty Plastics have provided their customers with products and services for an average of over 35 years. For the year ended December 31, 1999, the Jordan Specialty Plastics subsidiaries generated combined net sales of $86.3 million. Each of the Jordan Specialty Plastics subsidiaries is discussed below:

Beemak Plastics. Beemak, which was founded in 1951 and acquired by the Company in July 1989, is an integrated manufacturer of specialty "take-one" point-of-purchase brochure, folder and application display holders, and added modular storage systems ("Tilt-Bins") for storage and display of small items such as fasteners and bolts. Beemak sells its proprietary holders and displays, which accounted for approximately 66% of Beemak's business in 1999, to approximately 5,000 customers around the world. It sells its modular storage systems, which accounted for approximately 34% of Beemak's business in 1999 to wholesale home centers and hardware stores. In addition, Beemak produces a small amount of custom injection-molded plastic parts for customers on a contract manufacturing basis. Beemak's net sales for 1999 were $8.3 million.

Beemak's products are both injection-molded and custom fabricated. Beemak's molds are made by outside suppliers. The manufacturing process consists primarily of the injection-molding of polystyrene plastic and the fabrication of plastic sheets. Beemak also provides silk screening of decals and logos onto the final product.

Beemak sells its products through a direct sales force, independent representatives, an extensive on-going advertising campaign and by reputation. Beemak sells to distributors, major companies, and competitors which resell the product under a different name. Beemak has been successful in providing excellent service on orders of all sizes, especially small orders.

The display holder industry is very fragmented, consisting of a few other known holder and display firms and regionally-based sheet fabrication shops. Beemak has benefitted from the growth in "direct" advertising budgets at major companies. Significant advertising dollars are spent each year on direct-mail campaigns, point-of-purchase displays and other forms of non-media advertising. Beemak's modular storage systems compete in the retail storage bin/hardware store market. Its main competitor in the market is Quantum.

Sate-Lite Manufacturing. Sate-Lite manufactures safety reflectors for bicycles and commercial truck manufacturers, as well as plastic parts for bicycle manufacturers and colorants for the thermoplastics industry. Sate-Lite was founded in 1968 and acquired by the Company in 1988. Bicycle reflectors and plastic bicycle parts accounted for approximately 29% of Sate-Lite's net sales in 1999. Sales of triangular flares and specialty reflectors and lenses to commercial truck customers accounted for approximately 32% of net sales in 1999. Sales of colorants to the thermoplastics industry accounted for approximately 26% of net sales in 1999. The remaining 13% of 1999 net sales were derived from other miscellaneous plastic injection molded products. Sate-lite's net sales for 1999 were $14.7 million.

Sate-Lite's bicycle products are sold directly to a number of OEM's. The three largest OEM customers for bicycle products are Trek, Murray and Tandem (China), which accounted for approximately 11% of Sate-Lite's net sales in 1999. Triangular flares and other truck reflector products are also sold to a broad range of OEM customers. Colorants are sold primarily to mid-western custom molded plastics parts manufacturers. In 1999, Sate-Lite's ten largest customers accounted for approximately 35% of net sales.

Sate-Lite's products are marketed on a nationwide basis by its management. Sales to foreign customers are handled directly by management and by independent trading companies on a commission basis. Sate-Lite's export net sales accounted for approximately 16% of its total 1999 net sales. Export sales were principally to China and Canada. The principal raw materials used in manufacturing Sate-Lite's products are plastic resins, adhesives, metal fasteners, and color pigments. Sate-Lite obtains these materials from several independent suppliers. In the fourth quarter of 1998, Sate-Lite opened a facility in China. Sate-Lite sells to Tandem, Giant, China Bike and other Chinese bicycle manufacturers who have recently been increasing their share of bicycles sold in the domestic market.

The markets for bicycle parts and thermoplastic colorants are highly competitive. Sate-Lite competes in these markets by offering innovative products and by relying on its established reputation for producing high-quality plastic components and colorants. Sate-Lite's principal competitors in the reflector market consist of foreign manufacturers. Sate-Lite competes with regional companies in the colorants markets.

Deflecto Corporation. Founded in 1960 and acquired by the Company in 1998, Deflecto designs, manufactures and markets plastic injection-molded products for mass merchandisers, major retailers and large wholesalers. Deflecto sells its products in three product categories: hardware products, office supply products and houseware products. Hardware products, which comprised approximately 58% of Deflecto's net sales in 1999, include heating and cooling air deflectors, clothes dryer vents and ducts, kitchen vents and ducts, sheet metal pipes and elbows, exhaust fittings, heating ventilation and air conditioning registers and other widely-recognized products. Office supply products, many of which have patents and trademarks, represented approximately 36% of net sales in 1999 and include such items as wall pockets, literature displays, file and chart holders, business card holders, chairmats and other top-branded office supply products. The remaining 6% of sales were primarily from houseware products such as bath towel holders, spice racks, paper towel holders and other such items. Deflecto's net sales for 1999 were $63.3 million.

Deflecto manufactures approximately 80% of its products in-house, with the remainder outsourced to other injection molders. Deflecto efficiently manages the mix of manufactured and outsourced product due to its ability to accurately project pricing, cost and capacity constraints. This strategy enables Deflecto to grow without being constrained by capacity issues.

Deflecto sells its products through an in-house salaried sales force and the use of independent sales representatives. Deflecto has critical mass to command strong positions and significant shelf space with the major mass merchandisers and retailers. In the hardware products line, Deflecto sells to major national retailers such as Ace Hardware, Wal-Mart, and Home Depot, as well as to heating, ventilating and air conditioning ("HVAC") and appliance parts wholesalers. Deflecto sells its office supply products line to major office supply retailers such as Office Depot, Office Max and Staples, as well as to national wholesalers, such as United Wholesalers and S.P. Richards. Houseware products are sold primarily to smaller customers, although Deflecto does sell to Wal-Mart, K-mart and other retail chains. Deflecto has established strong relationships with its customers and is known for delivering high quality, well packaged products in a timely manner.

Competition in the hardware, office supplies and houseware products businesses is increasing due to the consolidation of companies serving the market. The increased competition has prevented price increases and has forced manufacturers to improve production efficiency, product quality and delivery. The Company believes that Deflecto's mix of manufactured and outsourced product, and its management of this process, allows it to maintain high production efficiency, keeping costs down and product quality high.

Jordan Auto Aftermarket.

Jordan Auto Aftermarket is the leading supplier of remanufactured torque converters to the automotive aftermarket parts industry. In addition, it produces newly manufactured torque converters, air conditioning compressors, and clutch and disc assemblies for major automotive and equipment OEM's. For the year ended December 31, 1999, the Jordan Auto Aftermarket subsidiaries generated combined net sales of $131.9 million. Each of the Jordan Auto Aftermarket subsidiaries is discussed below.

DACCO. DACCO is a producer of remanufactured torque converters, as well as automotive transmission sub-systems and other related products used by transmission repair shops. DACCO was founded in 1965 and acquired by the Company in 1988.

Approximately 72% of DACCO's products are classified as "hard" products, which primarily consist of torque converters and hydraulic pumps that have been rebuilt or remanufactured by DACCO. The torque converter, which replaces the clutch in an automatic transmission, transfers power from the engine to the drive shaft. The hydraulic pump supplies oil to all the systems in the transmission.

Approximately 28% of DACCO's products are classified as "soft" products, such as sealing rings, bearings, washers, filter kits and rubber components. Soft products are purchased from a number of vendors and are resold in a broad variety of packages, configurations and kits.

DACCO's customers are automotive transmission parts distributors and transmission repair shops and mechanics. DACCO has 50 independent sales representatives who accounted for approximately 71% of DACCO's net sales of $69.0 million in 1999. These sales representatives sell nationwide to independent warehouse distributors and to transmission repair shops. DACCO also owns and operates 35 distribution centers which sell directly to transmission shops. DACCO's distribution centers average 5,400 square feet, cover a 50-100 mile selling radius and sell approximately 42% Dacco hard products and 58% soft parts. In 1999 no single customer accounted for more than 2% of DACCO's net sales.

The domestic market for DACCO's hard products is fragmented and DACCO's competitors primarily consist of a number of small regional and local re-builders. DACCO believes that it competes strongly against these re-builders by offering a broader product line, quality products, and lower prices, all of which are made possible by DACCO's size and economies of operation. However, the market for soft products is highly competitive and several of its competitors are larger than DACCO. DACCO competes in the soft products market on the basis of its low prices due to volume buying, its growing distribution network and its ability to offer one-step procurement of a broad variety of both hard and soft products.

Alma. Founded in 1944 and acquired by the Company in March 1999, Alma uses a combination of remanufacturing and new production to produce torque convertors, air conditioning compressors, and clutch and disc assemblies for major automotive and equipment OEMs such as Ford, Chrysler, GM, John Deere, Caterpillar, and Case, as well as numerous other direct aftermarket customers. Net sales were $62.9 million during the nine month period ended December 31, 1999.

Alma manufactures its products to customers specifications, and its engineering department works closely with the customer's engineers to ensure that specifications are met. Torque converters (approximately 45% of 1999 net sales) are remanufactured and sold to major automotive OEMs such as Ford and Chrysler, typically for warranty replacement. Alma does not sell torque converters in the independent aftermarket, which is the primary market for Dacco's torque convertors. Air conditioning compressors (approximately 38% of 1999 net sales) are both remanufactured and produced new for the automotive aftermarket. Alma's compressors are sold to the service arms of major automotive manufacturers such as Ford, Chrysler, GM, John Deere, and Caterpillar. Alma supplies the majority of the compressors purchased by these customers in the aftermarket. Clutch and disc assemblies (approximately 17% of 1999 net sales) are both remanufactured and produced new and are sold primarily to repackagers who then resell the products to automotive parts distributors. Alma has long-term contracts with several customers, and has developed strong relationships with all of its major customers. Alma was selected by Ford to remanufacture, distribute, and fully merchandise Ford's first two Ford Quality Renewal programs for torque convertors and clutch and disc assemblies. The use of Alma remanufactured Ford Quality Renewal products in new vehicle warranty repair is indicative of Alma's engineering, manufacturing, and quality expertise. Approximately 43% of Alma's 1999 sales were to Ford and approximately 17% were to Chrysler.

Alma's market is somewhat captive in that any supplier selling to the major automotive and equipment OEMs must adhere to the same quality standards with which Alma complies. Alma's primary competitors in the torque convertor market are Dynamic and Aftermarket Technologies, while Four Seasons is the primary competitor in the air conditioning compressor market. Alma competes based on quality, price, and customer service.

Capita Technologies

Capita Technologies provides information technology services to many industry trades. The group provides software application development and customization services, software implementation consulting, and business-to-business e-commerce consulting. For the year ended December 31, 1999 Capita Technologies generated net sales of $10.2 million. Each of the Capita Technologies subsidiaries is discussed below.

Protech. Protech was founded in 1995 and acquired by the Company in April, 1999. Protech is a rapidly growing information technology consulting company that provides software application development and customization. A customer needs software application development consulting when it installs a new software package in order to help the new software "fit" with and speak to existing software packages. Protech also provides programmer training services in order to help its customer become self-sufficient with respect to its new software package.

Protech focuses on Enterprise Resource Management ("ERM") software packages. ERM software is the software upon which a company manages and runs all of its operations. This type of system would monitor production, manage inventory and potentially share information with the customers general ledger system. A typical Protech consulting project involves installing, customizing and integrating an ERM system by providing consultants familiar with database programming as well as the operations of a manufacturing company. The typical project lasts 6-18 months.

Approximately 50% of Protech's business comes from direct requests either through the internet or as a response to trade show presence and trade publication advertising. The remaining 50% of Protech's business is generated by references from existing clients and software application houses. Protech's 1999 net sales since its acquisition were $5.9 million.

Garg. Garg was founded in 1993 and acquired by the Company in August 1999. Garg is a technology consulting company that provides business-to-business e-commerce and large mission critical client-server software application development. Garg also provides application-hosting services in order to eliminate the customer's need to become self-sufficient with respect to the ever-changing software technology environment. Garg has built a reputation for delivering solutions to the most complex problems and for building e-commerce systems that represent the backbone of a customer's supply chain.

Garg has four sales and marketing professionals who maintain relationships with existing and prospective customers as well as with the sales force of its business partners such as IBM, Sun Microsystems, and Sybase. Approximately 50% of Garg's business comes from direct requests through these and other business partners. The remaining 50% of Garg's business is generated by word of mouth and referrals from existing customers. Garg's 1999 net sales since its acquisition were $4.3 million.

Motors and Gears

Motors and Gears is a leading domestic manufacturer of speciality purpose electric motors, gears and motion control systems, serving a diverse customer base. Its products are used in a broad range of applications, including vending machines, refrigerator ice dispensers, commercial floor care equipment, elevators, photocopy machines, and conveyor and automation systems.

Motors and Gears operates in the business of electric motors ("motors") which includes the subsidiaries Imperial, Gear, Merkle-Korff, Fir, and Advanced D.C. Motors; and electronic motion control systems("controls") which includes the subsidiaries Electrical Design & Control and Motion Control Engineering. For the year ended December 31, 1999 Motors and Gears generated net sales of $307.9 million.

Electric Motors

Electric motors are devices that convert electric power into rotating mechanical energy. The amount of energy delivered is determined by the level of input power supplied to the electric motor and the size of the motor itself. An electric motor can be powered by alternating current ("AC") or direct current ("DC"). AC power is generally supplied by power companies directly to homes, offices and industrial sites whereas DC power is supplied either through the use of batteries or by converting AC power to DC power. Both AC motors and DC motors can be used to power most applications; the determination is made by the consideration of power source availability, speed variability requirements, torque considerations, and noise constraints.

The power output of electric motors is measured in horsepower. Motors are produced in power outputs that range from less than one horsepower up to thousands of horsepower.

SubFractional Motors. Motors & Gears' subfractional horsepower products are comprised of motors and gearmotors which power applications up to 30 watts (1/25 horsepower). These small, "fist-sized" AC and DC motors are used in light duty applications such as snack and beverage vending machines, refrigerator ice dispensers and photocopy machines.

Fractional/Integral Motors. Motors & Gears' fractional/integral horsepower products are comprised of AC and DC motors and gearmotors having power ranges from 1/8 to 100 horsepower. Primary end markets for these motors include commercial floor care equipment, commercial dishwashers, commercial sewing machines, industrial ventilation equipment, golf carts, lift trucks and elevators.

Gears and Gearboxes. Gears and gearboxes are mechanical components used to transmit mechanical energy form one source to another source. They are normally used to change the speed and torque characteristics of a power source such as an electric motor. Gears and gearboxes come in various configurations such as helical gears, bevel gears, worm gears, planetary gearboxes, and right-angle gearboxes. For certain applications, an electric motor and a gearbox are combined to create a gearmotor.

Motors & Gears' precision gear and gearbox products are produced in sizes of up to 16 inches in diameter and in various customized configurations such as pump, bevel, worm and helical gears. Primary end markets for these products include original equipment manufacturers ("OEM's") of motors, commercial floor care equipment, aerospace and food processing product equipment.

Electronic Motion Control Systems

Electronic motion control systems are assemblies of electronic and electromechanical components that are configured in such a manner that the systems have the capability to control various commercial or industrial processes such as conveyor systems, packaging systems, elevators and automated assembly operations. The components utilized in a motion control system are typically electric motor drives (electronic controls that vary the speed and torque characteristics of electric motors), programmable logic controls ("PLCs"), transformers, capacitors, switches and various types of software. The majority of the Company's motion control products control automated conveyor systems used in automotive manufacturing and elevators.

Motors & Gears' motion control systems are used primarily in automated conveyor systems used in the automotive industry and the elevator modernization market. The systems typically control several components such as electric motors, hydraulic or pneumatic valves, actuators and switches that are required for the conveyor or elevator systems to function properly.

The electric motor and electronic motion control systems markets are highly fragmented with a multitude of manufacturing companies servicing numerous markets. Motor manufacturers range from small local producers serving a specific application or end user, to high volume manufacturers offering general-purpose "off the shelf" motors to a wide variety of end users. While there are numerous manufacturers of gears and gearboxes that service a wide variety of industries and applications, the Company competes in niche markets.

Motors & Gears' motion control systems business competes primarily within the automated conveyor system controls market and sells to conveyor manufacturers that serve the automotive manufacturing industry and the elevator modernization market. These niche markets consist of four to five major competitors.

The principal competitive factors in the electric motor and electronic motion control systems markets include price, quality and service. Major manufacturers include General Electric, Baldor Electric Company, Emerson Electric Company and Reliance Electric Company; however, the Company generally competes with smaller, specialized manufacturers. While many of the major motor manufacturers have substantially greater assets and financial resources, the Company believes that its leading position in certain niche markets, its high-quality products and its value-added custom applications are adequate to meet competition.

Backlog

As of December 31, 1999 the Company had a backlog of approximately $110.2 million, compared with $105.2 million as of December 31, 1998. The backlog in 1999 is primarily due to motor sales at Merkle-Korff. Management believes that the backlog may not be indicative of future sales.

Seasonality

The Company's aggregate business has a certain degree of seasonality. SPAI's, Welcome Home's and Riverside's sales are somewhat stronger toward year-end due to the nature of their products. Calendars at SPAI have an annual cycle while Bibles and religious books at Riverside and home furnishings and accessories at Welcome Home are popular as holiday gifts.

Research and Development

As a general matter, the Company operates businesses that do not require substantial capital or research and development expenditures. However, development efforts are targeted at certain subsidiaries as market opportunities are identified. None of these subsidiaries' development efforts require substantial resources from the Company.

Patents, Trademarks, Copyrights and Licenses

The Company protects its confidential, proprietary information as trade secrets. The Company's products are generally not protected by virtue of any proprietary rights such as patents. There can be no assurance that the steps taken by the Company to protect its proprietary rights will be adequate to prevent misappropriation of its technology and know-how or that the Company's competitors will not independently develop technologies that are substantially equivalent to or superior to the Company's technology. In addition, the laws of some foreign countries do not protect the Company's proprietary rights to the same extent as do the laws of the United States. In the Company's opinion, the loss of any intellectual property asset, would not have a material adverse effect on the conduct of the Company's business.

The Company is also subject to the risk of adverse claims and litigation alleging infringement of proprietary rights of others. From time to time, the Company has received notice of infringement claims from other parties. Although the Company does not believe it infringes on the valid proprietary rights of others, there can be no assurance against future infringement claims by third parties with respect to the Company's current or future products. The resolution of any such infringement claims may require the Company to enter into license arrangments or result in protracted and costly litigation, regardless of the merits of such claims.

Employees

As of December 31, 1999, the Company and its subsidiaries employed approximately 7,000 people. Approximately 1,900 of these employees were members of various labor unions. During 1999, the United Auto Workers ("UAW") gained representation of DACCO's converter plant in Cookeville, Tenn. DACCO and the UAW reached an agreement on February 1, 2000. DACCO did not experience any loss of production or sales due to DACCO's ability to hire replacement workers throughout 1999. The Company believes that its subsidiaries' relations with their respective employees are good.

Environmental Regulations

The Company is subject to numerous U.S. and foreign federal, state, provincial and local laws and regulations relating to the storage, handling, emission and discharge of materials into the environment, including the U.S. Comprehensive Environmental Response, Compensation and Liability Act ("CERCLA"), the Clean Water Act, the Clean Air Act, the Emergency Planning and Community Right-to-Know Act, and the Resource Conservation and Recovery Act. Under CERCLA and analogous state laws, a current or previous owner or operator of real property may be liable for the costs of removal or remediation of hazardous or toxic substances on, under, or in such property. Such laws frequently impose cleanup liability regardless of whether the owner or operator knew of or was responsible for the presence of such hazardous or toxic substances and regardless of whether the release or disposal of such substances was legal at the time it occurred. Regulations of particular significance to the Company's ongoing operations include those pertaining to handling and disposal of solid and hazardous waste, discharge of process wastewater and storm water and release of hazardous chemicals. The Company believes it is in substantial compliance with such laws and regulations.

The Company generally conducts an assessment of compliance and the equivalent of a Phase I environmental survey on each acquisition candidate prior to purchasing the company to assess the potential for the presence of hazardous or toxic substances that may lead to cleanup liability with respect to such properties. The Company does not currently anticipate any material adverse effect on its results of operations, financial condition or competitive position as a result of compliance with federal, state, provincial, local or foreign environmental laws or regulations. However, some risk of environmental liability and other costs is inherent in the nature of the Company's business, and there can be no assurance that material environmental costs will not arise. Moreover, it is possible that future developments such as the obligation to investigate or clean-up hazardous or toxic substances at the Company's property for which indemnification is not available, could lead to material costs of environmental compliance and cleanup by the Company.

FIR, a wholly-owned subsidiary of the Company, owns property in Casalmaggiore, Italy that is the subject of investigation and remediation under the review of government authorities for soils and groundwater contaminated by historic waste handling practices. In connection with the acquisition of FIR, the Company obtained indemnification from the former owners for this investigation and remediation.

Alma owns two properties in Alma, MI which are contaminated by chlorinated solvent and oil contamination. One is on the Michigan List of Sites of Environmental Contamination and has been the subject of investigation by the Michigan Department of Environmental Quality ("DEQ") since 1982. By 1985, the former owner had cleaned out, closed and capped the lagoons which were the source of the contamination and in 1992, had installed a groundwater remediation system. On January 5, 1999 the former owner submitted to DEQ a proposed remedial action plan which recommends that the groundwater treatment system continue to operate for up to thirty years, a deed restriction that limits the use of the property to industrial use and the adoption, by the City of Alma, of an ordinance which prohibits the private use of groundwater for drinking water. DEQ has not yet approved or denied the plan. The second property is contaminated with petroleum constituents and chlorinated solvents. The scope and extent of the contamination is being investigated. In connection with the acquisition of these properties, the Company obtained indemnification and assurances from the Seller that the Seller bore full responsibility for the completion of the investigation and remediation of the historic contamination of the two properties.

In October 1997, the Tennessee Department of Environmental Control ("DEC") requested information from Dacco about a contaminated spring adjacent to its Cookeville, Tennessee property. The spring is reportedly contaminated with materials which Dacco does not believe would have originated at the facility, and Dacco therefore does not believe that it caused the contamination or that it will be responsible for the clean-up. In September 1998, the DEC informed Dacco that the spring requires further investigation, and that Dacco's Cookeville property meets the criteria for designation as a state Superfund cleanup site. The DEC has subsequently agreed to examine the potential liability of other companies in the area before pursuing Dacco for cleanup costs. While the Company does not believe that Dacco will be liable for the cost of any further investigation or cleanup, there can be no assurance that the DEC will not attempt to impose such liability, or that, if the DEC is successful in doing so, that such liability would not be material.

Item 2. Properties

The Company leases approximately 43,700 square feet of office space for its headquarters in Illinois. The principal properties of each subsidiary of the Company at December 31, 1999, and the location, the primary use, the capacity, and ownership status thereof, are set forth in the table below.

DACCO also owns or leases 35 distribution centers, which average 5,400 square feet in size. DACCO maintains five distribution centers in Florida, four distribution centers in Tennessee, two distribution centers in each of Arizona, Illinois, Michigan, Texas, Alabama, California, Ohio and Virginia, and the remaining distribution centers are located in Pennsylvania, Indiana, Minnesota, Missouri, Nebraska, West Virginia, Oklahoma, South Carolina, Nevada, and Kentucky.

Welcome Home leases 119 specialty retail stores in 36 states, with the majority of stores location in outlet malls. Welcome Home maintains 14 stores in California, 9 stores in Florida, 6 stores in both Georgia and Texas, 5 stores in both Missouri and New York, and 4 stores in each of Illinois, Michigan, North Carolina, Ohio, Oregon, and Pennsylvania. The remaining stores are located throughout the United States.

Merkle-Korff's facilities are leased from the Chairman of Merkle-Korff. The Company believes that the terms of the lease are comparable to those which would have been obtained by the Company had the leases been entered into with an unaffiliated third party.

To the extent that any of the Company's existing leases expire in 2000, the Company believes that it will be able to renegotiate them on acceptable terms. The Company believes that its existing leased facilities are adequate for the operations of the Company and its subsidiaries.

Item 3. LEGAL PROCEEDINGS

The Company's subsidiaries are parties to various legal actions arising in the normal course of their business. The Company believes that the disposition of such actions individually or in the aggregate will not have a material adverse effect on the consolidated financial position of the Company.

Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

No matters were submitted to a vote of security holders during the fiscal year ended December 31, 1999.

Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED

STOCKHOLDERS MATTERS

The only authorized, issued and outstanding class of capital stock of the Company is Common Stock. There is no established public trading market for the Company's Common Stock.

• At December 31, 1999, there were 18 holders of record of the Company's Common Stock.





• The Company has not declared any cash dividends on its Common Stock since the Company's formation in May 1988. The Indenture, dated as of July 25, 1997, by and between the Company and U.S. Bank Trust National Association f/k/a First Bank National Association, as Trustee, (the "Trustee") with respect to the 10 3/8% Senior Notes and the Indenture dated as of April 2, 1997, by and between the Company and the Trustee with respect to the 11 3/4% Senior Subordinated Discount Debentures (collectively the "Indentures") contain restrictions on the Company's ability to declare or pay dividends on its capital stock. The Indentures each prohibit the declaration or payment of any dividends or the making of any distribution by the Company or any Restricted Subsidiary (as defined in the Indentures) other than dividends or distributions payable in stock of the Company or a Subsidiary and other than dividends or distributions payable to the Company.

Item 6. SELECTED FINANCIAL DATA

The following table presents selected operating, balance sheet and other data of the Company and its subsidiaries as of and for the five years ended December 31, 1999. The financial data of the Company and its subsidiaries as of and for the years ended December 31, 1995 through 1999 were derived from the consolidated financial statements of the Company and its subsidiaries. Due to the sale of the Jordan Telecommunication Products segment on January 18, 2000, the results of that segment are not included in the Company's 1999 results from continuing operations (see note 4). All prior periods have been restated to reflect the sale of this segment.

Year Ended December 31,

(Dollars in thousands)

• The Company has acquired a diversified group of operating companies over the five year period which significantly affects the comparability of the information shown above.

(2) Net loss in 1995 includes $6,929 of restructuring and non-recurring charges related to Welcome Home. Net loss in 1996 includes compensation expense related to compensation agreements of $3,876, the loss on the purchase of an affiliate, $4,488, restructuring charges related to Welcome Home, $8,106, and other non-recurring charges, $4,136. Net loss in 1997 includes a gain on the sale of a subsidiary of $17,081, the recording of equity in the loss of an investee of $3,386, and an extraordinary loss of $31,358 related to the Company's refinancing. Net loss in 1999 includes a gain on the sale of Parsons of $10,037.

• No cash dividends on the Company's Common Stock have been declared or paid.

(4) The "operating data" of Jordan Telecommunication Products has not been included in the information above for all periods presented as this business has been classified as a discontinued operation.

Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS

AND FINANCIAL CONDITION

Historical Results of Operations

Summarized below are the historical net sales, operating income and operating margin (as defined below) for each of the Company's business groups for the fiscal years ended December 31, 1999, 1998 and 1997. This discussion should be read in conjunction with the historical consolidated financial statements and the related notes thereto contained elsewhere in this Annual Report.

In 1998 Sate-Lite and Beemak were reclassified from the Consumer and Industrial Products segment to the Jordan Specialty Plastics segment. In 1999, Dacco was reclassified from the Consumer and Industrial Products segment to the Jordan Auto Aftermarket segment. Also in 1999, Welcome Home was reconsolidated into the Consumer and Industrial Products segment. Welcome Home's results are included from the time of its emergence from bankruptcy on July 21, 1999 through December 31,1999. Prior period results were also realigned into these new groups in order to provide accurate comparisons between periods.

Year ended December 31, 1999 1998 1997

(dollars in thousands)

• Before corporate overhead of $17,749, $14,365, and $13,938 for the years ended December 31, 1999, 1998 and 1997, respectively.

• Operating margin is operating income divided by net sales.

• Consumer and Industrial Products includes Dura-Line (Retube) and Parsons from January 1, 1999 through March 19, 1999 and November 9, 1999, respectively. Consumer and Industrial Products includes Hudson for the period from January 1, 1997 to May 15, 1997, and Paw Print for the period from January 1, 1997 to July 25, 1997 (See Footnote 14 to the financial statements). Consumer and Industrial Products includes the results of Welcome Home from January 1, 1997 through January 21, 1997, the date of the Chapter 11 filing, and from July 21, 1999, the date of its emergence, through December 31, 1999.

Specialty Printing & Labeling. As of December 31, 1999, the Specialty Printing & Labeling group consisted of SPAI, Valmark, Pamco, and Seaboard.

1999 Compared to 1998. Net sales decreased $2.5 million, or 2.1% and operating income decreased $0.6 million, or 7.5% when comparing the year ended December 31, 1999 with the year ended December 31, 1998. Sales decreased primarily due to lower sales of calendars at SPAI, $1.8 million, decreased sales of roll stock at Valmark, $0.1 million, and lower sales of folding boxes at Seaboard, $4.2 million. Partially offsetting these decreases were increased sales of ad specialty products and school annuals at SPAI, $0.3 million and $0.1 million, respectively, higher sales of screen printed products and membrane switches at Valmark, $2.2 million and $0.2 million, respectively, and increased sales of labels at Pamco, $0.8 million. Sales of calendars decreased at SPAI due to consolidation in the banking and insurance industries, which are a large part of SPAI's customer base, and sales declined at Seaboard due to a general slowdown in the corrugated folding box industry. The increase in sales of screen printed products at Valmark is due to Valmark's implementation of a stock inventory program that allows Valmark to more efficiently accommodate its larger customers.

Operating income decreased due to lower operating income at SPAI and Seaboard $0.7 million and $1.4 million, respectively. Partially offsetting these decreases was increased operating income at Valmark and Pamco, $0.8 million and $0.7 million, respectively. Operating income declined at SPAI due to lower sales and the increased focus on and investments in the corporate programs division and operating income decreased at Seaboard due to lower absorption of fixed overhead because of a lower sales level. Operating income increased at Valmark and Pamco due to those businesses more efficiently monitoring production, inventory levels, and operating expenses.

Operating margin in 1999 was 6.5% which was relatively consistent with 1998 operating margin.

1998 Compared to 1997. Net sales increased $0.8 million or 0.7% and operating income decreased $0.3 million or 3.3%. Sales increased primarily due to higher sales of ad specialty products and calendars at SPAI, $1.5 million and $0.2 million, respectively, increased sales of graphic panel overlays and membrane switches at Valmark, $1.3 million, and higher sales of labels at Pamco $0.4 million. Partially offsetting these increases were lower sales of school annuals at SPAI, $0.2 million, decreased sales of labels and shielding devices at Valmark, $0.6 million and $1.0 million, respectively, and lower sales of folding boxes at Seaboard, $0.8 million. The increased ad specialty sales at SPAI were due to management's focus on the higher growth corporate program business, while decreased sales of shielding devices at Valmark reflect a major customer's decision to reduce production of laptop computers that require the shields.

Operating income decreased due to lower operating income at SPAI, Pamco, and Seaboard, $0.1 million, $0.3 million, and $0.7 million, respectively. Partially offsetting these decreases was increased operating income at Valmark, $0.5 million and decreased corporate expenses, $0.3 million. The decreased operating income at SPAI was due to the hiring of additional salespeople to focus on continued growth in the corporate program and ad specialty segment, and the lower operating income at Seaboard was due to pricing pressure in the packaging industry. The improved operating income at Valmark is due to Valmark negotiating more favorable pricing with customers, while the decreased corporate expenses are due to lower bank fees as bank debt was repaid in 1997. Operating margin remained consistent with 1997.

Jordan Specialty Plastics. As of December 31, 1999 the Jordan Specialty Plastics group consisted of Sate-Lite, Beemak, and Deflecto.

1999 Compared to 1998. Net sales increased $14.7 million or 20.6% for the year ended December 31, 1999. This increase was partially due to the acquisition by Deflecto of Teleflow in July 1999. Teleflow contributed net sales of $3.5 million since the date of acquisition. In addition, sales of thermo-plastic colorants and truck reflector products increased at Sate Lite, $1.2 million and $0.4 million, respectively, and sales of hardware and office products increased at Deflecto, $7.0 million and $4.0 million, respectively. Partially offsetting these increases were lower sales of plastic injection molded and fabricated products at Beemak, $0.9 million and $0.1 million, respectively, and decreased sales of bicycle reflectors at Sate Lite, $0.4 million. Sales at Deflecto increased due to the benefit of a full year of sales in 1999 versus ten months of sales in 1998 as well as due to Deflecto's success at integrating Rolite's operations and selling Rolite chairmat products through Deflecto sales channels. Beemak sales declined due to heavy competition in the Tilt-bin product line.

Operating income decreased $0.3 million or 7.2% for the year ended December 31, 1999. Operating income increased at Beemak and Sate Lite, $0.2 million and $0.5 million, but decreased at Deflecto, $1.0 million. Operating income increased at Beemak and Sate Lite due to gross margin increases and better overhead control. Operating income at Deflecto decreased due to lower gross profit resulting from an unfavorable product mix shift from office products sales to hardware sales.

Operating margin decreased 1.5%, from 6.5% in 1998 to 5.0% in 1999, due to the reasons mentioned above.

1998 Compared to 1997. Net sales increased $47.5 million or 197.7% and operating income increased $2.2 million or 86.9%. Net sales increased primarily due to the acquisitions of Deflecto and Rolite in February 1998. Deflecto contributed sales in 1998 of $45.2 million while Rolite contributed sales of $3.2 million. In addition, sales of warning triangles and colorants increased at Sate-Lite, $0.2 million and $0.3 million, respectively. Partially offsetting these increases were lower sales of bike reflectors and custom molded products at Sate-Lite, $0.2 million and $0.4 million, respectively, and decreased sales of molded and fabricated products at Beemak, $0.6 million and $0.2 million, respectively.

Operating income increased primarily due to the acquisitions of Deflecto and Rolite, as discussed above. These companies contributed operating income in 1998 of $5.3 million and $0.6 million, respectively. Partially offsetting these increases was lower operating income at Sate-Lite and Beemak, $2.0 million and $1.5 million, respectively. In addition, corporate overhead of $0.2 million was incurred in 1998 related to the formation of the Jordan Specialty Plastics group. Operating income decreased at Sate-Lite due to operating expenses incurred related to the expansion of manufacturing operations into China and operating income at Beemak decreased due to lower absorption of fixed operating expenses at a lower sales level, as well as additional costs associated with Beemak's expansion into a larger facility. Operating margin decreased 3.9%, from 10.4% in 1997 to 6.5% in 1998, due to the reasons mentioned above.

Jordan Auto Aftermarket. As of December 31, 1999, the Jordan Auto Aftermarket group consisted of Dacco and Alma.

1999 Compared to 1998. Net sales increased $66.5 million or 101.8% for the year ended December 31, 1999. The increase is primarily due to the acquisition of Alma in March 1999 which contributed net sales of $63.0 million since the date of acquisition. In addition, sales of rebuilt torque converters increased at Dacco, $3.5 million.

Operating income increased $6.1 million or 58.3% for the year ended December 31, 1999. This increase is also primarily due to the acquisition of Alma, as discussed above. Alma contributed operating income of $8.1 million in the last nine months of 1999. Partially offsetting this increase was lower operating income at Dacco, $1.2 million, and increased corporate expenses, $0.8 million, due to the establishment of the Jordan Auto Aftermarket companies as a separate segment. The decrease in operating income at DACCO was due to legal and security expenses incurred related to the UAW negotiations at Dacco's Cookeville, TN plant. Dacco did not experience any loss of production or sales due to its ability to hire replacement workers, and an agreement was reached on February 1, 2000.

Operating margin decreased 3.5%, from 16.1% in 1998 to 12.6% in 1999, due to the legal and security expenses incurred at Dacco as well as due to the lower gross margin experienced at Alma resulting from Alma's volume of sales to large OEM customers.

1998 Compared to 1997. Net sales increased $4.2 million or 6.8% for the year ended December 31, 1998 compared to the year ended December 31, 1997. This increase is due to the increased sales of rebuilt converters at Dacco, due to additional market share, and the addition of eight retail stores in 1998.

Operating income increased $1.5 million or 16.0% in 1998 compared to 1997, due to the increase in sales mentioned above. Operating margin increased 1.3%, from 14.8% in 1997 to 16.1% in 1998 due to the increased absorption of fixed expenses related to the higher sales level.

Capita Technologies. As of December 31, 1999, the Capita Technologies group consisted of Protech and Garg.

1999 Compared to 1998. Net sales were $10.2 million for the year ended December 31, 1999. Protech and Garg were both acquired during 1999 and contributed net sales of $5.9 million and $4.3 million, respectively, since the dates of acquisition.

Operating loss was $(2.6) million for the year ended December 31, 1999. Protech and Garg contributed operating income of $0.4 million and $0.3 million, respectively. This operating income was offset by pre-operating costs and business development expenses incurred in order to establish Capita Technologies as a separate segment.

Motors and Gears. As of December 31, 1999, the Motors and Gears group consisted of Imperial, Gear, Merkle-Korff, FIR, ED&C, Motion Control, and Advanced DC.

1999 Compared to 1998. Net sales increased $32.0 million or 11.6% for the year ended December 31, 1999. The increase in net sales was primarily driven by the 1998 acquisition of Advanced DC and Euclid (a wholly-owned subsidiary of Imperial) which accounted for $21.8 million of the increase. Subfractional motor sales decreased 4.1% in 1999 as compared to 1998 largely due to weakness in the vending markets. Significant difficulties in international markets of a major beverage company are the primary reason for this decline. In 1999, sales of fractional/integral motor products increased 22.8% including the effects of the 1998 acquisitions, and 3.2% excluding the effects of the 1998 acquisitions. The growth in fractional/integral products is a result of strong performance in the material handling, elevator and floor care markets partially offset by a weak European market and an unfavorable Euro exchange rate. Sales of electronic motion control systems increased by 17.7% mainly attributed to continued strength in the elevator modernization market.

Operating income increased $8.3 million or 19.5% for the year ended December 31, 1999. The primary increase in operating income was a result of the increase in sales discussed above coupled with an improvement in gross margin from 34.6% in 1998 to 36.1% in 1999. The improvement in gross margin is a result of product design changes, manufacturing process improvements and material cost savings experienced throughout Motors and Gears due to efforts put forth by Motors and Gears' sourcing council. Improvements in gross margin were partially offset by increases in selling, general and administrative expenses primarily as a result of the 1998 acquisitions, increases in depreciation due to the 1998 acquisitions and due to a new systems implementation at one of the Motor and Gears subsidiaries.

Operating margin increased 1.1%, from 15.3% in 1998 to 16.4% in 1999 due to the reasons mentioned above.

1998 Compared to 1997. Net sales increased $127.2 million or 85.5% and operating income increased $14.6 million or 52.9%. The increase in net sales was primarily due to the 1998 acquisition of Advanced DC and the 1997 acquisitions of FIR, ED&C and Motion Control. These companies contributed net sales in 1998 of $27.2 million, $42.1 million, $10.3 million, and $51.3 million respectively, compared to net sales in 1997 of $14.8 million, $1.8 million, and $1.2 million for FIR, ED&C and Motion Control, respectively. Sales of sub-fractional motors increased 13.0% in 1998 due to continued strength in the vending and appliance markets and sales of fractional/integral motors increased 6.6% in 1998 (excluding acquisitions) reflecting market share gains in the floor care market and stronger sales in the elevator market. Partially offsetting these increases, were decreased sales of gears and gearboxes, 8.4%, due to a weaker floor care market after stronger than expected sales in 1997.

Operating income increased primarily due to the increased sales discussed above. Advanced DC, FIR, and Motion Control contributed operating income in 1998 of $5.2 million, $5.9 million and $6.9 million respectively, compared to operating income in 1997 of $1.6 million and $0.1 million for FIR and Motion Control, respectively. Partially offsetting these increases were additional selling, general, and administrative expenses as well as higher depreciation and amortization arising from the 1998 and 1997 acquisitions. Operating margin decreased 3.3%, from 18.6% in 1997 to 15.3% in 1998, due to these additional operating expenses.

Consumer and Industrial Products. As of December 31, 1999, the Consumer and Industrial Products group consisted of Riverside, Cape, Welcome Home, and Cho-Pat.

1999 Compared to 1998. Net sales increased $22.3 million or 22.1% for the year ended December 31, 1999. The increase was primarily due to the reconsolidation of Welcome Home resulting from its emergence from bankruptcy in July 1999 (see note 3). Welcome Home contributed net sales of $35.3 million since the date of emergence. In addition, net sales increased due to increased contract distribution sales at Riverside, $0.5 million, and higher sales of orthopaedic supports and other pain reducing devices at Cho-Pat, $0.2 million. Partially offsetting these increases were lower sales at Parsons and Dura Line Retube, $2.2 million and $3.7 million, respectively, due to the divestitures of those businesses during 1999. In addition, sales decreased due to lower sales of Bibles and Bible accessories, and books at Riverside, $1.8 million and $0.8 million, respectively. This is due to a strong economy and low unemployment. Although sales at Cape appear to have decreased by $5.2 million, the decrease is due to the reconsolidation of Welcome Home and the resulting elimination of sales from Cape to Welcome Home. Sales from Cape to third parties increased $2.7 million, due to improved products and additional customers.

Operating income increased $1.3 million or 19.7% for the year ended December 31, 1999. The primary reason for the increase was due to the reconsolidation of Welcome Home, as discussed above. Welcome Home contributed operating income of $4.0 million since the date of its emergence from bankruptcy. In addition, operating income was positively effected by $0.3 million as a result of the sale of Dura Line Retube in March 1999. Retube had negative operating income historically. Partially offsetting this increase was decreased operating income at Parsons, $1.4 million, due to the divestiture of the business in November 1999. In addition, operating income declined at Riverside, $1.6 million, due to lower sales mentioned above.

Operating margin was 6.4% in 1999 which was consistent with 1998's operating margin.

1998 Compared to 1997. Net sales increased $3.8 million or 3.9% and operating income increased $1.2 million or 22.6%. Net sales increased primarily due to higher sales of Bible, books, videos, music and gifts at Riverside, $0.5 million, $3.9 million, $1.0 million, $0.9 million, and $0.4 million, respectively, increased sales of wooden furniture and other accessories at Cape, $9.7 million, higher sales of orthopedic supports and other pain-reducing devices at Cho-Pat, $1.1 million, and increased sales of plastic pipe at Dura-Line Retube, $3.4 million. Partially offsetting these increases were decreased sales of audio tapes at Riverside, $0.5 million, lower sales of aircraft parts at Parsons, $1.9 million, and decreased sales at Hudson and Paw Print, $6.7 million and $5.5 million, respectively, due to the divestitures of those companies in May and July 1997. In addition, sales decreased due to Welcome Home filing Chapter 11 bankruptcy on January 21, 1997. As a result of the filing, the Company did not consolidate the results of Welcome Home in its 1998 results. Welcome Home generated sales of $2.5 million in 1997. Sales increased at Cape due to management's success at broadening Cape's customer base. Cho-Pat, which was purchased in September 1997, contributed sales of $0.4 million in 1997 compared to sales of $1.5 million in 1998.

Operating income increased due to higher operating income at Riverside, Parsons, Cape, Cho-Pat, and Dura-Line Retube, $0.5 million, $0.3 million, $2.5 million, $0.2 million, and $0.3 million, respectively. Additionally, operating income increased due to the deconsolidation of Welcome Home as discussed above. (Welcome Home's operating loss was $1.1 million in 1997.) Partially offsetting these increases was decreased operating income at Hudson and Paw Print, $2.2 million and $1.5 million, respectively, due to the divestitures of those companies, as mentioned above. The increased operating income at Cape is due to increased sales of higher gross margin product, primarily wooden furniture, the increased operating income at Cho-Pat is due to the acquisition of the company in September 1997, and decreased operating income at Parsons is due to the lower absorption of fixed overhead due to lower sales of aircraft parts. Operating margin increased 1.0% from 5.5% in 1997 to 6.5% in 1998, due to the reasons mentioned above.

Consolidated Operating Results. (See Consolidated Statements of Operations).

1999 Compared to 1998. Net sales increased $143.3 million or 22.6% for the year ended December 31, 1999. The increase in sales was due to the 1999 acquisitions of Teleflow in the Jordan Specialty Plastics group, Alma in the Jordan Auto Aftermarket group, and Protech and Garg in the Capita Technologies group. Sales also increased due to a full year of sales from the following companies which were acquired in 1998: Deflecto and Rolite in the Jordan Specialty Plastics group and Advanced DC in the Motors and Gears group. In addition, increased sales were due to higher sales of screen printed products at Valmark, increased sales of labels at Pamco, higher sales of thermo-plastic colorants and truck reflector products at Sate Lite, increased sales of hardware and office products at Deflecto, higher sales of rebuilt converters at Dacco, and increased sales of fractional/integral motors and motion control systems in the Motors and Gears group. Sales also increased due to the reconsolidation of Welcome Home, resulting from that company's emergence from bankruptcy in July 1999. Partially offsetting these increases were lower sales of calendars at SPAI, decreased sales of folding boxes at Seaboard, decreased sales of plastic-injection molded products at Beemak, lower sales of subfractional motors in the Motors and Gears group, and lower sales of Bibles and Bible accessories at Riverside. In addition, net sales decreased due to the divestitures of Parsons and Dura Line Retube in November and March 1999, respectively.

Operating income increased $8.7 million or 15.1% for the year ended December 31, 1999. Operating income increased due to the 1999 acquisitions, a full year of operations at the businesses acquired in 1998, more efficient monitoring of production and operating expenses at Valmark and Pamco, increased gross margins at Sate Lite and Beemak, manufacturing process improvement in the Motor and Gears group, and the reconsolidation of Welcome Home in the Consumer and Industrial Products group. Partially offsetting these increases was lower operating income due to decreased absorption of fixed overhead resulting from lower sales at Seaboard, an unfavorable product mix at Deflecto, startup expenses incurred to establish the Jordan Auto Aftermarket and Capita Technologies segments, legal and security expenses incurred during Daaco's negotiations with the UAW, and increased depreciation and amortization related to the 1999 and 1998 acquisitions. In addition, operating income decreased due to the divestitures of Parsons and Dura Line Retube. Operating margins declined slightly to 8.6% in 1999 from 9.2% in 1998 due to the reasons mentioned above.

Interest expense increased $17.0 million or 24.3% due to the Company's Senior Notes offering in March 1999 in addition to higher outstanding revolver balances used to finance acquisitions and working capital requirements.

1998 Compared to 1997. Net sales increased $183.5 or 40.8% and operating income increased $18.8 million or 47.8%. The increase in sales was primarily due to the 1998 acquisitions of Deflecto and Rolite in the Jordan Specialty Plastics group and Advanced DC in the Motors and Gears group. Sales also increased due to a full year of sales from the following companies which were acquired in 1997: Arnon-Caine in the Jordan Specialty Plastics group, FIR, ED&C, and Motion Control in the Motors and Gears group, and Cho-Pat in the Consumer and Industrial Products group. In addition, sales increased due to higher sales of ad specialty products and calendars at SPAI, increased sales of membrane switches at Valmark, higher sales of warning triangles and colorants at Sate-Lite, higher sales of sub-fractional motors at Merkle-Korff, increased sales of fractional/integral motors at Imperial, higher sales of books at Riverside, and increased sales of wooden furniture at Cape. Partially offsetting these increases were decreased sales of shielding devices at Valmark, lower sales of folding boxes at Seaboard, decreased sales of plastic injection-molded products at Beemak, lower sales of gears and gearboxes at Gear, and lower sales of aircraft parts at Parsons. In addition, sales decreased due to the divestitures in 1997 of Hudson and Paw Print in the Consumer and Industrial Products group.

Operating income increased primarily due to the 1998 acquisitions, a full year of operations at the companies acquired in 1997, more favorable pricing at Valmark, decreased corporate expenses in the Specialty Printing and Labeling group, and increased sales of higher gross margin product at Cape. Partially offsetting these increases was decreased operating income due to the addition of salespeople to promote the ad specialty segment at SPAI, increased operating expenses related to the expansion of Sate-Lite manufacturing into China, and higher depreciation and amortization related to the 1998 and 1997 acquisitions. In addition, the divestitures of Hudson, and Paw Print reduced operating income. Operating margin increased 0.5%, from 8.7% in 1997 to 9.2% in 1998 due to the reasons mentioned above.

Interest expense increased $3.2 million or 4.8% due to the tack-on bond offering at Motors and Gears done in December 1997, and higher outstanding revolver balances in 1998 due to financing of the 1998 acquisitions.

Income taxes - See note 15 of Notes to Consolidated Financial Statements.

Liquidity and Capital Resources

The Company had approximately $160.3 million of working capital from continuing operations at the end of 1999 compared to approximately $146.9 million at the end of 1998. The increase in working capital from 1998 to 1999 was primarily due to higher receivables and inventory of $24.7 million and $29.9 million, respectively. These increases in working capital are partially offset by higher accounts payable and accrued expenses of $8.9 million and $20.7 million, respectively.

The Company has acquired businesses through leveraged buyouts, and as a result has significant debt in relation to total capitalization. See "Business". Most of this acquisition debt was initially financed through the issuance of bonds which were subsequently refinanced in 1997. See Note 5 to the Consolidated Financial Statements.

In connection with each acquisition of a subsidiary, the subsidiary entered into inter-company notes, and inter-company management and tax sharing agreements, which permit the subsidiaries, including the majority-owned subsidiaries, substantial flexibility in moving funds from the subsidiaries to the Company.

Management expects continued growth in net sales and operating income in 2000. Capital spending levels in 2000 are anticipated to be consistent with 1999 levels and, along with working capital requirements, will be financed internally from operating cash flow. Operating margins and operating cash flow are expected to be favorably impacted by ongoing cost reduction programs, improved efficiencies and sales growth. Management believes that the Company's cash on hand and anticipated funds from operations will be sufficient to cover its working capital, capital expenditures, debt service requirements and other fixed charge obligations for at least the next 12 months.

The Company is, and expects to continue to be, in compliance with the provisions of its Indentures.

None of the subsidiaries require significant amounts of capital spending to sustain their current operations or to achieve projected growth.

Net cash provided by operating activities for the year ended December 31, 1999 was $22.4 million, compared to $29.4 million provided from operating activities during the same period in 1998. The decrease is primarily attributed to increased net losses (after giving effect to non-cash items, including the change in deferred taxes and the gain on the sale of a subsidiary), as well as an increase in non-current liabilities.

Net cash used in investing activities for the year ended December 31, 1999 was $159.4 million, compared to $140.5 million used in investing activities during the same period in 1998. The increase is due primarily to an increase in both the number of acquisitions and the aggregate purchase price of these acquisitions in 1999. Partially offsetting this increase is higher proceeds from the sale of subsidiaries during the year.

Net cash provided by financing activities for the year ended December 31, 1999 was $140.2 million, compared to $79.1 million provided from financing activities during the same period in 1998. The increase is primarily due to a debt issuance by the Company in 1999. Partially offsetting these increases was higher payment of financing costs related to the debt issuance.

On March 22, 1999, the Company completed a $155.0 million "tack-on" bond offering at a 10 3/8% coupon. The bonds were sold at 96.62% of par and mature on August 1, 2007. The proceeds of $149.8 million were used to acquire Alma Products($86.3 million purchase price), pay certain transaction costs and repay indebtedness under a Revolving Credit Agreement.

The Company is party to various credit agreements under which the Company is able to borrow up to $160 million to fund acquisitions, provide working capital and for other general corporate purposes. This excludes the Jordan Telecommunication Products credit agreement of $120 million since Jordan Telecommunication Products is classified as a discontinued operation. The credit agreements mature at various dates through 2002. The agreements are secured by a first priority security interest in substantially all of the Company's assets. As of March 23, 2000, the Company had approximately $137.0 million of available funds under these arrangements.

Foreign Currency Impact

The Company's exposure to decreases in the value of foreign currency is protected by its investment in manufacturing facilities overseas whose costs, including labor and raw materials, are also denominated in local currency. Decreases in the value of foreign currencies relative to the U.S. dollar have not resulted in significant losses from foreign currency translation. However, there can be no assurance that foreign currency fluctuations in the future would not have an adverse effect on the Company's business, financial condition and results of operations.

Impact of Inflation

General inflation has had only a minor effect on the operations of the Company and its internal and external sources for liquidity and working capital, as the Company has been able to increase prices to reflect cost increases, and expects to be able to do so in the future.

Impact of Year 2000

The Company experienced no significant disruptions in mission critical information technology and non-information technology systems and believes those systems successfully responded to the Year 2000 date change.

Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS

The Company's debt obligations are primarily fixed-rate in nature and, as such, are not sensitive to changes in interest rates. At December 31, 1999, the Company had $190.4 million of variable rate debt outstanding. A one percentage point increase in interest rates would increase the annual amount of interest paid by approximately $1.9 million. The Company does not believe that its market risk financial instruments on December 31, 1999 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.

Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Page No.

Reports of Independent Auditors.................................... Consolidated Balance Sheets as of December 31, 1999 and 1998............................................................... Consolidated Statements of Operations for the years ended December 31, 1999, 1998 and 1997............................................ Consolidated Statements of Changes in Shareholders' Equity (Net Capital Deficiency) for the years ended December 31, 1999, 1998 and 1997............................................................... Consolidated Statements of Cash Flows for the years ended December 31, 1999, 1998 and 1997............................................ Notes to Consolidated Financial Statements.........................

3e+11

REPORT OF INDEPENDENT AUDITORS

The Board of Directors and Shareholders

Jordan Industries, Inc.

We have audited the accompanying consolidated balance sheets of Jordan Industries, Inc. as of December 31, 1999 and 1998 and the related consolidated statements of operations, shareholder's equity (net capital deficiency), and cash flows for each of the three years in the period ended December 31, 1999. Our audits also included the financial statement schedule listed in the Index at Item 14(a). These financial statements and schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and schedule based on our audits. We did not audit the financial statements of certain subsidiaries whose statements reflect total assets constituting 20%, and 14%, as of December 31, 1999 and 1998, respectively, and net sales constituting 21%, 8%, and 4% for the years ended December 31, 1999, 1998 and 1997, respectively, of the related consolidated totals. Those statements were audited by other auditors whose reports have been furnished to us, and our opinion, insofar as it relates to data included for these subsidiaries, is based solely on the reports of the other auditors.

We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits and the reports of other auditors provide a reasonable basis for our opinion.

In our opinion, based on our audits and the reports of other auditors, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Jordan Industries, Inc. at December 31, 1999 and 1998, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 1999, in conformity with accounting principles generally accepted in the United States. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein.

ERNST & YOUNG LLP

Chicago, Illinois

March 21, 2000

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Shareholder of Alma Products I, Inc.:

We have audited the accompanying balance sheet of ALMA PRODUCTS I, INC. (as defined in Note 1) as of December 31, 1999, and the related statements of operations, shareholder's equity and cash flows for the period from March 22, 1999 to December 31, 1999. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit.

We conducted our audit in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Alma Products I, Inc. as of December 31, 1999, and the results of its operations and its cash flows for the period from March 22, 1999 to December 31, 1999 in conformity with accounting principles generally accepted in the United States.

ARTHUR ANDERSEN LLP

Detroit, Michigan

February 18, 2000

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Board of Directors of

Motion Control Engineering, Inc.:

We have audited the balance sheets of MOTION CONTROL ENGINEERING, INC. (a California corporation and a wholly-owned subsidiary of Motors & Gears, Inc.) as of December 31, 1999 and 1998, and the related statements of income, shareholders' equity and cash flows for the years then ended and for the 13 days ended December 31, 1997. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with generally accepted auditing standards. Those standards required that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Motion Control Engineering, Inc. as of December 31, 1999 and 1998 and the results of its operations and its cash flows for the years then ended and for the 13 days ended December 31, 1997 in conformity with generally accepted accounting principles.

ARTHUR ANDERSEN LLP

Sacramento, California

January 21, 2000

INDEPENDENT AUDITOR'S REPORT

The Board of Directors

FIR Group Holding Italia S.p.A.

We have audited the consolidated balance sheets of FIR Group Holding Italia S.p.A. (the "Company") as of October 31, 1999 and 1998, and the related consolidated statements of income for the years then ended, and the related consolidated statements of retained earnings and cash flow for the year ended October 31, 1999. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit.

We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatements. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of October 31, 1999 and 1998, and the results of its operations for the years then ended and its cash flow for the year ended October 31, 1999, in conformity with generally accepted accounting principles.

PRICEWATERHOUSECOOPERS S.p.A

Bologna, 26 January 2000

JORDAN INDUSTRIES, INC.

CONSOLIDATED BALANCE SHEETS

(dollars in thousands)

December 31, 1999 1998

LIABILITIES AND SHAREHOLDERS' EQUITY (NET CAPITAL DEFICIENCY)

See accompanying notes.

JORDAN INDUSTRIES, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(dollars in thousands)

Year ended December 31,

1999 1998 1997