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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For fiscal year ended December 31, 1998 Commission File Number 33-24317
JORDAN INDUSTRIES, INC.
(Exact name of registrant as specified in charter)
Illinois 36-3598114
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
ArborLake Center, Suite 550 60015
1751 Lake Cook Road (Zip Code)
Deerfield, Illinois
(Address of Principal Executive Offices)
Registrant's telephone number, including Area Code:
(847) 945-5591
Securities registered pursuant to Section 12(b) of the Act:
Name of Each Exchange
Title of Each Class on Which Registered
None N/A
Securities registered pursuant to Section 12(g) of the Act:
None
Indicated by checkmark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding twelve (12)
months (or for such shorter period that the registrant was
required to file such reports) and (2) has been subject to such
filing requirements for the past ninety (90) days.
Yes X No
The aggregate market value of voting stock held by non-
affiliates of the Registrant is not determinable as such shares
were privately placed and there is currently no public market for
such shares.
The number of shares outstanding of Registrant's Common
Stock as of March 31, 1999: 98,501.0004.
PART I
Item 1. BUSINESS
Jordan Industries, Inc. (the ACompany@) was organized to acquire
and operate a diverse group of businesses on a decentralized
basis, with a corporate staff providing strategic direction and
support. The Company is currently comprised of 30 businesses
which are divided into five strategic business units: (i)
Specialty Printing and Labeling, (ii) Consumer and Industrial
Products, (iii) Jordan Specialty Plastics (iv) Motors and Gears
and (v) Jordan Telecommunication Products. As of January 21,
1997, Welcome Home is no longer consolidated in the Company's
results of operations. (See note 3 to the financial statements.)
The Company believes that its businesses are characterized by
leading positions in niche industries, high operating margins,
strong management, minimal working capital and capital
expenditure requirements and low sensitivity to technological
change and economic cycles.
The Company=s business strategy is to enhance the growth and
profitability of each business unit, and to build upon the
strengths of those units through product line and other strategic
acquisitions. Key elements of this strategy have been the
consolidation and reorganization of acquired businesses,
increased focus on international markets, facilities expansion
and the acquisition of complementary product lines. When,
through such activities, the Company believes that critical mass
is attained in a particular industry segment, the related
companies are organized as a discreet business unit. For
example, the Company acquired Imperial in 1983 and made a series
of complementary acquisitions, which resulted in the formation of
Motors and Gears, Inc., a leading domestic manufacturer of
electric motors, gears, and motion control systems. Similarly,
the Company acquired Dura-Line in 1985, and expanded its presence
in the telecommunications industry through eleven complementary
acquisitions. The organization of these companies as Jordan
Telecommunication Products created a leading global supplier of
products and equipment serving the telecommunications industry.
Through the implementation of this strategy, the Company has
demonstrated significant and consistent growth in net sales. The
Company generated combined net sales of $943.6 million for the
year ended December 31, 1998 as compared to $358.6 million for
the year ended December 31, 1993, representing a compound annual
growth rate of 21.3%.
The following chart depicts the operating subsidiaries which
comprise the Company=s five strategic business units, together
with the net sales for each of the five groups for the year ended
December 31, 1998.
JORDAN INDUSTRIES, INC.
$943.6 Million of Net Sales
SPECIALTY PRINTING AND LABELING -Sales Promotion Associates
$120.2 Million of Net Sales -Pamco
-Valmark
-Seaboard
CONSUMER AND INDUSTRIAL PRODUCTS -DACCO
$166.0 Million of Net Sales -Cape Craftsmen
-Riverside
-Parsons
-Cho-Pat
-Dura-Line Retube
JORDAN SPECIALTY PLASTICS -Sate-Lite
$71.6 Million of Net Sales -Beemak
-Deflecto
-Rolite
JORDAN TELECOMMUNICATION PRODUCTS(1) -Dura-Line
$310.0 Million of Net Sales -Electronic Connectors
and Components
-Viewsonics
-Bond
-Northern
-LoDan
-Engineered Endeavors
-Telephone Services, Inc.
-K&S Sheet Metal
MOTORS AND GEARS(1) -Imperial
$275.8 Million of Net Sales -Gear
-Merkle-Korff
-FIR
-Electrical Design & Control
-Motion Control Engineering
-Advanced D.C. Motors
WELCOME HOME(2) -Welcome Home
(1) The subsidiaries comprising Jordan Telecommunication
Products and Motors and Gears are Non-Restricted
Subsidiaries, the common stock of which is owned by
stockholders and affiliates of the Company and management of
the respective companies. The Company=s ownership in these
subsidiaries is solely in the form of JTP Junior Preferred
Stock and M&G Junior Preferred Stock. See footnote 5 to the
financial statements.
(2) Welcome Home was deconsolidated as of January 21, 1997, the
date of its Chapter 11 bankruptcy filing. There are no
sales included in the 1998 consolidation related to Welcome
Home. See footnote 3 to the financial statements.
The Company=s operations were conducted through the following
business units as of December 31, 1998:
Specialty Printing and Labeling
The Specialty Printing and Labeling group manufactures and
markets (i) promotional and specialty advertising products for
corporate buyers, (ii) labels, tapes and printed graphic panel
overlays for electronics and other manufacturing companies and
(iii) printed folding cartons and boxes and other shipping
materials. The companies that are part of Specialty Printing and
Labeling have provided its customers with products and services
for an average of over 40 years. For the fiscal year ended
December 31, 1998, the Specialty Printing and Labeling group
generated net sales of $120.2 million. Each of the Specialty
Printing and Labeling subsidiaries is discussed below:
SPAI. The Company=s former subsidiaries, The Thos. D. Murphy Co.
(AMurphy@), which was founded in 1889, and Shaw-Barton, Inc.
(AShaw-Barton@), which was founded in 1940, merged to form
JII/SPAI in March 1989. One hundred percent of JII/SPAI=s assets
were sold by JII, on terms equivalent to those that would have
been obtained in an arm=s length transaction, to the Specialty
Printing and Labeling group in August 1995 and the company was
renamed Sales Promotion Associates, Inc. (ASPAI@). SPAI is a
producer and distributor of calendars for corporate buyers and is
a distributor of corporate recognition, promotion and specialty
advertising products.
SPAI=s net sales for fiscal 1998 were $62.2 million.
Approximately 60% of SPAI=s 1998 net sales were derived from
distributing a broad variety of corporate recognition products,
promotion and specialty advertising products. These products
include apparel, watches, crystal, luggage, writing instruments,
glassware, caps, cases, labels and other items that are printed
and identified with a particular corporate logo and/or corporate
advertising campaign. Approximately 30% of SPAI=s 1998 net sales
were derived from the sale of a broad variety of calendars,
including hanging, desktop and pocket calendars that are used
internally by corporate customers and distributed by them to
their clients and customers. High-quality artistic calendars are
also distributed. SPAI also manufactures and distributes
softcover school yearbooks for kindergarten through eighth grade.
SPAI assembles and finishes calendars that are printed both in-
house as well as by a number of outside printers. Facilities for
in-house manufacturing include a composing room, a camera room, a
calendar finishing department and a full press room. Print
stock, binding material, packaging and other materials are
supplied by a number of independent companies. Specialty
advertising products are purchased from more than 2,000
suppliers. Calendars and specialty advertising products are sold
through a 850-person sales force, most of whom are independent
contractors.
Management believes that SPAI has one of the largest domestic
sales forces in the industry. With this large sales force and a
broad range of calendars and corporate recognition products
available, management believes that SPAI is a strong competitor
in its market. This market is very fragmented and most of the
competition comes from smaller-scale producers and distributors.
Valmark. Valmark, which was founded in 1976 and purchased by the
Company in 1994, is a specialty printer and manufacturer of
pressure sensitive label products for the electronics Original
Equipment Manufacturer (AOEM@) market. Valmark=s products
include adhesive-backed labels, graphic panel overlays and
membrane switches, and radio frequency interference (ARFI@)
shielding devices. Approximately 33% of Valmark=s 1998 net sales
of $17.2 million were derived from the sale of membrane switches
and graphic panel overlays, 64% from labels and 3% from shielding
devices.
The specialty screen products sold in the electronics industry
continue to operate relatively free of foreign competition due to
the high level of communication and short time frame usually
required to produce orders. Currently, the majority of Valmark=s
customer base of approximately 1,200 is located in the Northern
California area.
Valmark sells to four primary markets: personal computers;
general electronics; turn-key services; and medical
instrumentation. Sales to the hospital and telecommunication
industries have experienced the most growth over recent years due
to Valmark=s graphic panel overlay capabilities.
Valmark is able to provide OEMs with a broader range of products
than many of its competitors. Valmark=s markets are very
competitive in terms of price and accordingly Valmark=s advantage
over its competitors is derived from its diverse product line and
excellent quality ratings.
Pamco. Pamco, which was founded in 1953 and purchased by the
Company in 1994, is a manufacturer and distributor of a wide
variety of printed tapes and labels. Pamco offers a range of
products from simple one and two-color labels, such as basic bar
codes and address labels, to seven-color, varnish-finished labels
for products such as video games and food packaging. One hundred
percent of Pamco=s products are made to customers= specifications
and approximately 90% of all sales were manufactured in-house in
1998. The remaining 10% of net sales were purchased printed
products and included business cards and stationary.
Pamco=s products are marketed by a team of eighteen sales
representatives who focus on procuring new accounts. Existing
accounts are serviced by nine customer service representatives
and five internal salespeople. Pamco=s customers represent
several different industries with the five largest customers
accounting for approximately 20% of 1998 net sales of $16.5
million.
Pamco competes in a highly fragmented industry. Pamco emphasizes
its impressive 24-hour turnaround and its ability to accommodate
rush orders that other printers cannot handle. Pamco's ability
to deliver a quality product with quick turn around is its key
competitive advantage.
Seaboard. Seaboard, which was founded in 1954 and purchased by
the Company in 1996, is a manufacturer of printed folding cartons
and boxes, insert packaging and blister pack cards.
Seaboard sells directly to a broad customer base, located
primarily east of the Mississippi River, operating in a variety
of industries including hardware, personal hygiene, toys,
automotive supplies, food and drugs. Seaboard=s top ten
customers accounted for approximately 37% of Seaboard=s 1998 net
sales of $24.3 million. Seaboard has exhibited consistent sales
growth and high profit margins and has gained a reputation for
exceeding industry standards primarily due to its excellent
operating capabilities. Seaboard has historically been highly
successful in buying and profitably integrating smaller
acquisitions.
Seaboard=s markets are very competitive in terms of price and,
accordingly, Seaboard=s advantage over its competitors is derived
from its high quality product and excellent service.
Consumer and Industrial Products
Consumer and Industrial Products serves many product segments.
It is the leading supplier of remanufactured torque converters to
the automotive aftermarket parts industry. In addition, Consumer
and Industrial Products manufactures and markets reflectors for
bicycles; publishes and markets Bibles, religious books and audio
materials; manufactures hot-formed titanium materials for the
aerospace and other industries; manufactures and imports gift
items; and manufactures orthopedic supports and pain reducing
medical devices. The companies which are part of Consumer and
Industrial Products have provided their customers with products
and services for an average of over 40 years. For the year ended
December 31, 1998, the Consumer and Industrial Products
subsidiaries generated combined net sales of $166.0 million.
Each of the Consumer and Industrial Products subsidiaries is
discussed below:
DACCO. DACCO is a producer of remanufactured torque converters,
as well as automotive transmission sub-systems and other related
products used by transmission repair shops. DACCO was founded in
1965 and acquired by the Company in 1988.
Approximately 75% of DACCO=s products are classified as Ahard@
products, which primarily consist of torque converters and
hydraulic pumps that have been rebuilt or remanufactured by
DACCO. The torque converter, which replaces a clutch in an
automatic transmission, transfers power from the engine to the
drive shaft. The hydraulic pump supplies oil to all the systems
in the transmission.
DACCO=s primary supply of used torque converters is its
customers. As a part of each sale, DACCO recovers the used
torque converter which is being replaced with its remanufactured
converter. DACCO also purchases used torque converters from
automobile salvage companies. Other hard parts, such as clutch
plates and fly wheels, are purchased from outside suppliers.
Approximately 25% of DACCO=s products are classified as Asoft@
products, such as sealing rings, bearings, washers, filter kits
and rubber components. Approximately 11,000 soft products are
purchased from a number of vendors and are re-sold in a broad
variety of packages, configurations and kits.
DACCO=s customers are automotive transmission parts distributors
and transmission repair shops and mechanics. DACCO has fifty
independent sales representatives who accounted for approximately
57% of DACCO=s net sales of $65.4 million in 1998. These sales
representatives sell nationwide to independent warehouse
distributors and to transmission repair shops. DACCO also owns
and operates thirty-five distribution centers which sell directly
to transmission shops. DACCO distribution centers average 4,000
square feet, cover a 50 to 100-mile selling radius and sell
approximately 41% hard products and 59% soft products. In 1998 no
single customer accounted for more than 2% of DACCO=s net sales.
The domestic market for DACCO=s hard products is fragmented and
DACCO=s competitors primarily consist of a number of small
regional and local rebuilders. DACCO believes that it competes
strongly against these rebuilders by offering a broader product
line, quality products, and lower prices, all of which are made
possible by DACCO=s size and economies of operation. However,
the market for soft products is highly competitive and several of
its competitors are larger than DACCO. DACCO competes in the
soft products market on the basis of its low prices due to volume
buying, its growing distribution network and its ability to offer
one-step procurement of a broad variety of both hard and soft
products.
Riverside. Riverside is a publisher of Bibles and a distributor
of Bibles, religious books and music recordings. Riverside was
founded in 1943 and acquired by the Company in 1988.
Approximately 75% of Riverside=s business consists of products
published by other companies. Riverside sells world-wide to more
than 12,000 wholesale, religious and trade book store customers,
utilizing an in-house telemarketing system, four independent
sales representative groups and printed sales media. In
addition, Riverside sells a small percentage of its products
through direct mail and to retail customers. No single customer
accounted for more than 5% of Riverside=s 1998 net sales of $58.6
million.
Riverside also provides Bible indexing, warehousing, inventory
and shipping services for domestic book publishers and music
producers. Riverside competes with larger firms, including the
Zondervan Corporation, The Thomas Nelson Company, and Ingram Book
Company, on the basis of price, product line and customer
service.
Parsons. Parsons is a diversified supplier of hot formed
titanium parts, precision machined parts and fabricated
components for the U.S. aerospace industry. Parsons was founded
in 1959 and acquired by the Company in 1988. Approximately 70%
of Parsons= 1998 net sales of $13.1 million came from sales to
The Boeing Company. Parsons employs precision machining,
welding/fabrication and sheet metal forming processes to
manufacture its products at its facilities in Parsons, Kansas.
Parsons continues to invest in its titanium hot forming
operation, which permits Parsons to participate in the aerospace
market for precision titanium components.
Parsons uses metals, including stainless steel, aluminum and
titanium, to fabricate its products. These materials are either
supplied by Parsons= customers or obtained from a number of
outside sources.
Parsons sells its products directly to a broad base of aerospace
and military customers, relying on longstanding associations and
Parsons= reputation for high quality products and service.
Cape Craftsmen. Founded in 1966 and purchased by the Company in
1996, Cape Craftsmen is a manufacturer and importer of gifts,
wooden furniture, framed art and other accessories. Cape
Craftsmen manufactures in North Carolina and imports from Mexico
and the Far East. Cape Craftsmen sells its products through one
in-house salesperson and forty independent sales representatives.
Approximately 64% of Cape Craftsmen=s net sales of $22.5 million
in 1998 were to Welcome Home, an affiliated entity. Cape
Craftsmen competes in a highly fragmented industry and has
therefore found it most effective to compete on the basis of
price with most wood manufacturers and importers. Cape Craftsmen
also strives to deliver better quality and service than its
competitors.
Cho-Pat. In September 1997, the Company purchased Cho-Pat, Inc.,
a leading designer and manufacturer of orthopedic supports and
patented preventative and pain reducing medical devices. Cho-Pat
currently produces nine different products primarily for
reduction of pain from injuries and the prevention of injuries
resulting from over use of the major joints. Cho-Pat's largest
selling product is the patented Cho-Pat knee strap, designed to
reduce the pain from patellar tendenitis in the knee. Cho-Pat
manufactures all of its products in-house. Cho-Pat sells its
products to professional, college and high school athletic
trainers, medical products distributors, and independent retail
drug and sporting goods stores. Cho-Pat had net sales of $1.5
million in 1998.
Dura-Line Retube ("Retube"). Retube, which was founded as a
product line of the JTP subsidiary Dura-Line in 1989, is a
leading designer, developer, manufacturer and distributor of
cross-linked polyethylene piping. Retube products are used in a
variety of industries including plumbing, manufactured housing,
retail and radiant heating. Retube was reclassified to Consumer
and Industrial Products in 1997 and had 1998 net sales of $4.9
million.
Jordan Specialty Plastics
Jordan Specialty Plastics serves a broad range of wholesale and
retail markets within the highly-fragmented specialty plastics
industry. The group designs, manufactures and sells (1) "take-
one" point of purchase brochure, folder and application display
holders, (2) modular storage systems ("Tilt-BinsTM"), (3) plastic
injection-molded hardware and office supply products, (4)
extruded vinyl chairmats, (5) safety reflectors for bicycle and
commercial truck manufacturers and (6) colorants to the
thermoplastics industry. The companies that are part of Jordan
Specialty Plastics have provided their customers with products
and services for an average of over 35 years. For the year ended
December 31, 1998, the Jordan Specialty Plastics subsidiaries
generated combined net sales of $71.6 million. Each of the
Jordan Specialty Plastics subsidiaries is discussed below.
Beemak Plastics. Beemak, which was founded in 1951 and acquired
by the Company in July 1989, is an integrated manufacturer of
specialty "take-one" point-of-purchase brochure, folder and
application display holders, and added modular storage systems
("Tilt-BinsTM") for storage and display of small items such as
fasteners and bolts. Beemak sells its proprietary holders and
displays, which accounted for approximately 66% of Beemak's
business in 1998, to approximately 21,000 customers around the
world. It sells its modular storage systems, which accounted for
approximately 34% of Beemak's business in 1998, to wholesale home
centers and hardware stores. In addition, Beemak produces a
small amount of custom injection-molded plastic parts for
customers on a contract manufacturing basis. Beemak's net sales
for 1998 were $9.4 million.
Beemak's products are both injection-molded and custom
fabricated. Beemak's molds are made by outside suppliers. The
manufacturing process consists primarily of the injection molding
of polystyrene plastic and the fabrication of plastic sheets.
Beemak also provides silk screening of decals and logos onto the
final product.
Beemak sells its products through a direct sales force,
independent representatives, an extensive on-going advertising
compaign and by reputation. Beemak sells to distributors, major
companies, and competitors which resell the product under a
different name. Beemak has been successful in providing
excellent service on orders of all sizes, especially small
orders.
The display holder industry is very fragmented, consisting of a
few other known holder and display firms and regionally-based
sheet fabrication shops. Beemak has benefited from the growth in
"direct" advertising budgets at major companies. Significant
advertising dollars are spent each year on direct-mail campaigns,
point-of-purchase displays and other forms of non-media
advertising. Beemak's modular storage systems compete in the
retail storage bin/hardware store market. Its main competition in
the market is Quantum.
Sate-Lite Manufacturing. Sate-Lite manufactures safety
reflectors for bicycle and commercial truck manufacturers, as
well as plastic parts for bicycle manufacturers and colorants for
the thermoplastics industry. Sate-Lite was founded in 1968 and
acquired by the Company in 1988. Bicycle reflectors and plastic
bicycle parts accounted for approximately 40% of Sate-Lite's net
sales in 1998. Sales of triangular flares and specialty
reflectors and lenses to commercial truck customers accounted for
approximately 36% of net sales in 1998. The remaining 24% of Sate-
Lite's 1998 net sales were derived primarily from the sale of
colorants to the thermoplastics industry. Sate-Lite's net sales
for 1998 were $13.8 million.
Sate-Lite's bicycle products are sold directly to a number of
OEMs. The three largest OEM customers for bicycle products are
the Huffy Corporation, Roadmaster and Tandem (China), which
accounted for approximately 17% of Sate-Lite's net sales in 1998.
The triangular flares and other truck reflector products are also
sold to a broad range of OEM customers. Colorants are sold
primarily to mid-western custom molded plastic parts
manufacturers. In 1998, Sate-Lite's ten largest customers
accounted for approximately 44% of net sales.
Sate-Lite's products are marketed on a nationwide basis by its
management. Sales to foreign customers are handled directly by
management and by independent trading companies on a commission
basis. Sate-Lite's export net sales accounted for approximately
17% of its total 1998 net sales. Export sales were principally
to China and Canada. The principal raw materials used in
manufacturing Sate-Lite's products are plastic resins, adhesives,
metal fasteners and color pigments. Sate-Lite obtains these
materials from several independent suppliers. In the fourth
quarter of 1998, Sate-Lite opened a facility in China. Sate-Lite
will be selling to Tandem, Giant, China Bike and other Chinese
bicycle manufacturers who have recently been increasing their
share of bicycles sold in the domestic market.
The markets for bicycle parts and thermoplastic colorants are
highly competitive. Sate-Lite competes in these markets by
offering innovative products and by relying on its established
reputation for producing high-quality plastic components and
colorants. Sate-Lite's principal competitors in the reflector
market consist of foreign manufacturers. Sate-Lite competes with
regional companies in the colorants market.
Deflecto Corporation. Founded in 1960 and acquired by the
Company in 1998, Deflecto designs, manufactures and markets
plastic injection-molded products for mass merchandisers, major
retailers and large wholesalers. Deflecto sells its products in
three product categories: hardware products, office supply
products and houseware products. Hardware products, which
comprised approximately 56% of Deflecto's net sales in 1998,
include heating and cooling air deflectors, clothes dryer vents
and ducts, kitchen vents and ducts, sheet metal pipes and elbows,
exhaust fittings and other widely-recognized products. Office
supply products, many of which have patents and trademarks,
represented approximately 36% of net sales in 1998 and include
such items as wall pockets, literature displays, file and chart
holders, business card holders and other top-branded office
supply products. The remaining sales were primarily from
houseware products such as bath towel holders, spice racks, paper
towel holders and other such items. Deflecto's net sales for
1998 were $45.2 million.
Deflecto manufactures approximately 90% of its products in-house,
with the remainder outsourced to other injection molders.
Deflecto efficiently manages the mix between manufactured and
outsourced product due to its ability to accurately project
pricing, cost and capacity constraints. This strategy enables
Deflecto to grow without being constrained by capacity issues.
Deflecto sells its products through an in-house salaried sales
force and the use of independent sales representatives. Deflecto
has the critical mass to command strong positions and
significant shelf space with the major mass merchandisers and
retailers. In the hardware products line, Deflecto sells to
major national retailers such as Ace Hardware, Wal-Mart, and Home
Depot, as well as to heating, ventilating and air conditioning
("HVAC") and appliance parts wholesalers. Deflecto sells its
office supply products line to major office supply retailers such
as Office Depot, Office Max and Staples, as well as national
wholesalers, such as United Wholesalers and S.P. Richards.
Houseware products are sold primarily to smaller customers,
although Deflecto does sell to Wal-Mart, K-mart and other retail
chains. Deflecto has established strong relationships with its
customers and is known for delivering high quality, well-packaged
products in a timely manner.
Competition in the hardware, office supplies and housewares
products businesses is increasing due to the consolidation of
companies serving the market. The increased competition has
prevented price increases and has forced manufacturers to improve
production efficiency, product quality and delivery. The Company
believes that Deflecto's mix of manufactured and outsourced
product, and its management of this process, allows it to
maintain high production efficiency, keeping costs down and
product quality high.
Rolite Plastics. Founded in 1978 and acquired by the Company in
1998, Rolite manufactures and sells extruded vinyl chairmats for
the office products industry.
During 1998, Rolite sold its products to plastics distributors,
approximately 33%, foreign-based office products companies,
approximately 29%, office products dealers, approximately 25%,
and office superstores, approximately 13%. Rolite produces three
types of standard-size chairmats, as well as custom-size
chairmats. Standard-size chairmats, which comprised
approximately 92% of 1998 net sales, consist of: (1) regular,
which is Rolite's largest seller, (2) anti-static, which reduces
static electricity and is prevalent for computer users, and (3)
glass clear, which is nearly 100% transparent. Rolite's emphasis
on technology helps to ensure excellent product quality, and all
of Rolite's products are backed by a lifetime warranty against
breakage. Rolite's net sales for 1998 were $3.2 million. Rolite
is a division of the Company's Deflecto subsidiary.
Rolite produces its products with a small staff of personnel.
Each shift consists of an extruder, a mixer who compounds the raw
materials, and two or three finishers who rout chairmats to their
finished shape and pack them for shipment.
Rolite's products are sold through nine independent
manufacturers' representatives who sell to over 600 dealers and
six regional wholesalers. Merchandising chairmats is difficult
given their bulky composition. To address this problem, Rolite
developed a freestanding merchandise display and a counter top
display that make the chairmats more accessible to customers
while consuming a small amount of retail space. These displays
are sold to dealers, who can then recoup the cost via discounts
on future chairmat purchases. In addition to the independent
sales representative network, Rolite's products will be sold as a
separate product line through Deflecto.
Rolite is one of four manufacturers of vinyl chairmats in the
United States and one of only seven worldwide. The estimated $80
million domestic market is dominated by Rubbermaid and Tenex;
however, Rolite believes that its superior product quality and
customer service, coupled with a lack of loyalty in the
marketplace among dealers, will enable it to gain market share.
Rolite has also been successful internationally, with over one-
third of sales going to customers outside the United States. The
poor quality of foreign manufacturers' products, coupled with
Rolite's price-competitiveness and customer service, represents
an opportunity to continue strong international growth.
Motors and Gears
Motors and Gears is a leading domestic manufacturer of specialty
purpose electric motors, gears and motion control systems,
serving a diverse customer base. Its products are used in a
broad range of applications, including vending machines,
refrigerator ice dispensers, commercial floor care equipment,
elevators, photocopy machines, and conveyor and automation
systems. The Motors and Gears subsidiaries have sold their brand
name products to their customers for over 70 years. For the year
ended December 31, 1998, Motors and Gears= subsidiaries generated
combined net sales of $275.8 million. Each of Motors and Gears=
subsidiaries is discussed below.
Motors and Gears has three primary products lines: sub-fractional
motors (approximately 38% of 1998 sales), fractional/integral
motors (approximately 40% of 1998 sales), and controls
(approximately 22% of 1998 sales).
Sub-fractional Motors
Merkle-Korff. Merkle-Korff was founded in 1911 and was
purchased, along with its wholly owned subsidiaries, Elmco
Industries, Inc. and Mercury Industries, Inc., by the Company=s
subsidiary, Motors & Gears Industries, Inc., in September 1995.
Merkle-Korff is a custom manufacturer of Alternating Current
(AAC@) and Direct Current (ADC@) sub-fractional horsepower motors
and gear motors used in refrigerators, freezers, dishwashers,
vending machines, business machines, pumps and compressors.
Approximately 67% of Merkle-Korff=s 1998 net sales of $103.1
million, were derived from the home appliance and vending
machine market. Merkle-Korff=s prominent customers include
General Electric Company, Vendo, Whirlpool Corporation and Dixie-
Narco, Inc. In 1998, the Company=s top 10 customers represented
approximately 60% of total sales.
Barber-Colman, founded in 1894, was purchased by Merkle-Korff in
1996 and renamed Colman Motor Products (AColman Motors@) in
January 1997. Colman Motors is a vertically integrated
manufacturer of both AC and DC sub-fractional horsepower motors
and gear motors. The Colman Motors= product line serves a wide
variety of applications, and they are used as components in such
products as vending machines, copiers, printers, ATM machines,
currency changers, X-ray machines, peristatic pumps, HVAC
activators, medical equipment and other products.
The majority of Colman Motors= products are sold directly to
OEMs; however, management has initiated an effort to direct small
orders to four distributors. Each of these distributors is fully
stocked with Colman Motors= standardized parts and equipment
using a computerized catalog system which facilitates the
efficient selection of products and components at the distributor
level.
Merkle-Korff experiences limited competition across its product
lines including Colman Motor Products. Competitors are generally
much smaller in terms of revenues but also produce a much more
limited product line.
Fractional/Integral Motors
Imperial. Imperial was founded in 1889 and acquired by the
Company in 1988. Imperial manufactures elevator motors, floor
care equipment motors and automatic hose reel motors under its
Imperial trade name, and floor care, silicone controlled
rectifier motors, and low voltage DC motors under its Scott trade
name. Scott was acquired by Imperial in 1988 and merged into
Imperial in early 1997. All of Imperial=s assets were sold on
arm=s length terms to Motors and Gears Industries, Inc. in
November 1996.
Imperial designs, manufactures and distributes specialty electric
motors for industrial and commercial use. It manufactures its
products with steel, magnets, copper wire, castings, and other
components supplied by a variety of firms. Its products, AC and
DC motors, generators and permanent magnet motors are sold
principally in the U.S. and Canada and to a limited extent in
Europe and Australia. Approximately 26% of Imperial=s 1998 net
sales of $34.1 million were derived from elevator motors, ranging
from 5 to 100 horsepower, sold to major domestic elevator
manufacturers. Approximately 74% of Imperial=s 1998 net sales
were derived from permanent magnet motors and parts sold
primarily to domestic manufacturers of floor care equipment.
Otis Elevator Company, Westinghouse Corporation and other leading
elevator manufacturers have in recent years discontinued internal
manufacturing of motors and have turned to Imperial and other
independent manufacturers to supply motors. Imperial's largest
customer accounted for approximately 9% of Imperial=s net sales
in 1998, and Imperial=s top ten customers accounted for
approximately 50% of total net sales. Imperial=s products are
marketed domestically by its management and one independent sales
representative and internationally by management.
In the elevator motor market, Imperial competes with several
firms of varying size. The other markets in which Imperial
competes are also highly competitive. However, the Company=s
management believes that Imperial is able to effectively compete
with these firms on the basis of product reliability, price and
customer service.
In December 1998, Imperial acquired Euclid Universal, Inc., a
designer and manufacturer of gear drives for special applications
where stock items will not fit or meet performance requirements.
Euclid's products include speed reducers, custom gearing, right
angle gearboxes and transaxles. Its customized products are used
in an array of industries, including materials handling,
healthcare, agriculture, floor care and food processing.
Euclid's technical expertise lies in the areas of worm, spur and
helical gearing.
Euclid maintains a flexible engineering and production process
that yields a rapid response in design, prototype and production.
All gearing is manufactured in-house to industry standards and
housings are made of high strength, heat treated aluminum alloy,
cast iron or steel. Euclid is able to produce food grade
finishes to its products, as well as hard coating for the
stringent wash down equipment requirements. The Company believes
that the addition of Euclid provides cross selling opportunities
with Imperial, Gear and Advanced DC Motors. Currently, Euclid is
working with Imperial to develop a transaxle product for the
floor care industry. The Company believes that the ability to
provide this product will enable Imperial to broaden its product
line and to defend its market share in the floor care industry.
Gear. Gear manufactures precision gears and gear boxes for OEMs
requiring high-precision commercial gears. Gear was founded in
1952 and acquired by Imperial in October 1988. All of Gear=s
assets were sold on arm=s-length terms to Motors and Gears
Industries, Inc. in November 1996. Gear manufactures precision
gears for both AC and DC electric motors in a variety of sizes.
The gears are sold primarily to the food, floor care machine and
aerospace industries and to other manufacturers of machines and
hydraulic pumps. Gear=s products are nationally advertised in
trade journals and are sold by one internal salesman and one
independent sales representative. Gear precision machines its
products from steel forgings and castings. Net sales for Gear in
1998 were $7.7 million.
The gear industry is very fragmented and competitive. Gear
competes primarily on the basis of quality. In addition, the
ability of Imperial and Gear to offer both electric motors and
gear boxes as a package, and to custom design these items for
customers, may allow both subsidiaries to gain greater market
penetration.
FIR. Founded in 1925 and acquired by the Company in June 1997,
FIR is a leading European manufacturer of AC and DC motors and
pumps for special-end applications such as pumps for commercial
dishwashers, motors for industrial sewing machines, motors for
industrial fans and ventilators, explosion-proof motors for
gasoline pumps and the oil industry, and asynchronous and
brushless motors for lift doors. With the exception of motors
for industrial sewing machines, FIR produces custom products only
after receiving specific customer orders. Motors for industrial
sewing machines, which comprised approximately 9% of FIR=s 1998
net sales of $42.1 million are fairly standardized and are
manufactured and stocked based on internal forecasts.
FIR sells both directly to customers and through two non-
exclusive independent sales representatives located in France and
Germany. The Company enjoys long-term relationships with its
customers, some of which have been customers for over 20 years.
The successful development of long-term customer relationships is
a direct result of FIR=s reputation for high-quality products and
on-time delivery. Within FIR=s customer base of over 450, no
single customer accounts for more than 5% of 1998 sales. FIR=s
top ten customers in 1998 accounted for approximately 32% of
total sales.
FIR has many competitors across a very fragmented European motor
market. However, FIR has distinguished itself by providing
highly engineered custom products for small markets. FIR
provides Motors and Gears with a strong foundation upon which to
expand its overseas market. Through FIR, Motors and Gears will
have access to established European markets, including Italy,
Germany, France, Spain and Great Britain, as well as emerging
Eastern European markets such as Poland, the Czech Republic, and
Russia. Through its European market presence and established
brand name, the Company believes FIR will enable Motors and Gears
to further develop leadership positions within market niches and
expand globally.
Advanced DC Motors. Founded in 1989 and purchased by Motors and
Gears in 1998, Advanced DC Motors is a designer and manufacturer
of DC permanent magnet motors and starters (generators) which
range from 4.5 inches to 9 inches in size. Advanced DC Motors
sells special purpose custom designed motors for use in electric
lift trucks, power sweepers, electric utility vehicles, golf
carts, electric boats and other niche products. Advanced DC
Motors also manufactures and sells commutators, which are motor
components used to reverse the direction of electric current in
motors, as well as special purpose production equipment. Special
purpose motors comprised approximately 95% of Advanced DC Motors'
net sales in 1998, while commutators and production equipment
accounted for approximately 5%. Advanced DC Motors' net sales
for 1998 were $27.2 million.
Advanced DC Motors is a fully-integrated manufacturer, with
nearly 100% of its products manufactured to custom specifications
developed through direct engineer-to-engineer design. Advanced
DC Motors is capable of producing high-volume orders, none of
which are for stock. As a result, Advanced DC Motors carries
virtually no finished goods inventory. Advanced DC Motors has
several production facilities, each specializing in some aspect
of its business, such as motor production, commutator production
for internal and external use, manufacturing of production
equipment for internal and some external use, production of field
coils and armature coils used primarily for internal production
and research and development of electronic control products.
Advanced DC Motors also has a warehouse facility in Germany used
to service its European customers.
Advanced DC Motors primarily sells directly to its customers,
OEMs, through its executive team due to the technical nature of
the sale. Advanced DC Motors uses one independent
representative. It also sells to distributors who serve the on-
road electric vehicle market. Advanced DC Motors' largest
customer accounted for 28% of sales and the top five customers
accounted for 72% in 1998.
Controls
ED&C. ED&C was founded in 1958 and acquired by Motors and Gears
in October 1997. It is a full-service electrical engineering
company which designs, engineers and manufactures electrical
control systems and panels for material handling systems and
other like applications. ED&C provides comprehensive design,
build and support services to produce electronic control panels
which regulate the speed and movement of conveyor systems used in
a variety of automotive plants and other industrial applications.
ED&C had net sales in 1998 of $10.3 million.
ED&C provides its customers with two distinct types of
product/service. The first type consists of designing,
programming, manufacturing, and commissioning the control system.
These types of orders, which represented approximately 65% of
1998 orders, are value-added to the customer and therefore earn
higher margins. The second type of product/service consists of
manufacturing only, in which the customer provides ED&C with
control panel designs and specifications and ED&C manufactures
and assembles the product. These projects comprised
approximately 35% of 1998 orders.
ED&C obtains the majority of its revenues through repeat
business, referrals from its current customer base, and requests
for proposals brought to ED&C due to its reputation for high
quality design. Approximately 98% of 1998 net sales were to the
automobile industry. Auto manufacturers have very stringent
requirements regarding their material handling systems, and ED&C
has gained significant expertise from servicing these demanding
automotive OEMs. This expertise provides ED&C with a competitive
advantage in less technically demanding markets. The company's
largest customer accounted for approximately 35% of revenues in
1998, while the top five customers accounted for approximately
70% in 1998.
Motion Control. Motion Control was founded in 1983 and acquired
by Motors and Gears in December 1997. Motion Control is a
manufacturer of electronic motion and logic control products for
elevator markets and specifically the elevator modernization
market. Motion Control designs, engineers and assembles custom
microprocessor-based control systems primarily used in
modernizing and upgrading existing cable traction and hydraulic
elevators (approximately 90% of 1998 net sales), and also
provides systems for elevators installed in new building
construction (approximately 10% of 1998 net sales). Motion
Control fits closely with Motors and Gears' Imperial subsidiary,
which supplies motor products to the elevator industry. The
addition of Motion Control enables Motors and Gears to provide
the elevator industry with a complete value-added motor and
control package. Motion Control had 1998 net sales of $51.3
million.
Motion Control's production process consists primarily of
assembling electronic components in a cabinet and testing the
final product. Virtually all component parts, such as personal
computer boards, switches, resistors, drivers, transformers, wire
and cabinets are supplied through a network of wholesalers and
distributors, none of which Motion Control is reliant on. Motion
Control's production process is designed to accommodate
flexibility and efficiency in a custom-production environment.
Motion Control's engineers design most of Motion Control's
products in a modular format to accommodate customization.
Motion Control sells through a direct sales force to major
elevator manufacturers (approximately 32% of 1998 sales), large
and small independent contractors (approximately 62% of 1998
sales), and international companies (approximately 6% of 1998
sales). Motion Control's sales and marketing staff of
approximately twenty consists of eight sales representatives,
seven of whom cover the domestic market and one Australia-based
employee who serves the Australian market and all international
customers. Motion Control also engages in marketing and
promotional activities such as presentations at trade shows and
industry conventions; development of brochures; articles and
advertisements in trade magazines; direct mailings to customers;
and a quarterly newsletter distributed to over 3,000 existing and
potential customers.
Elevator modernization projects represent Motion Control's
primary market. Motion Control focuses on the high-end domestic
elevator modernization market, a niche which represents
approximately 5% of the entire worldwide elevator control market.
Elevator modernization primarily involves cosmetic, structural,
or performance enhancements to an existing elevator system.
While an elevator may last 30-40 years, its controls are
typically replaced two-to-three times during its life. Further,
while the worldwide elevator market is growing at approximately
4% annually, the elevator modernization niche is growing
approximately 20% annually. This growth is expected to continue
as new electronic control technology is developed. Motion
Control's technology is also transferrable to other non-elevator
motion control and drive markets, such as factory automation,
commercial equipment and appliances.
Jordan Telecommunication Products
Jordan Telecommunication Products (AJTP@) is a leading supplier
of infrastructure products and equipment, (approximately 50% of
1998 sales), electronic connectors and components, (approximately
15% of 1998 sales), and custom cable assemblies and accessories
(approximately 35% of 1998 sales) to the telecommunications
industry. It has provided its customers with products and
services for an average of over 20 years. For the fiscal year
ended December 31, 1998, Jordan Telecommunication Products
generated combined net sales of $310.0 million, including sales
of $16.1 million for Diversified Wire and Cable which was sold in
July 1998.
Infrastructure Products and Equipment
Dura-Line. Dura-Line is a manufacturer and supplier of
AInnerduct@ pipe through which fiber optic cable is installed and
housed. Dura-Line sells this product to major telecommunications
companies throughout the world. Dura-Line also manufactures
flexible polyethylene water and natural gas pipe. Dura-Line was
founded in 1974, and acquired by the Company in 1985.
Approximately 96% of Dura-Line=s 1998 net sales of $91.5 million
came from sales of its Innerduct product. Dura-Line sells
Innerduct to major telecommunications companies, such as SPT
Telecom, GTE, Bell South and Pacific Telesis, each of which
accounted for less than 12% of Dura-Line=s net sales in 1998.
Innerduct is marketed worldwide by Dura-Line=s management, ten
manufacturing representatives and forty in-house sales
representatives. Dura-Line negotiates long-term contracts with
major telecommunications companies for its Innerduct product
line.
The cable conduit market is highly competitive. In the United
States, Dura-Line faces competition from a wide range of
companies including national, international and regional
suppliers of cable conduit. In addition to other independent
manufacturers of cable conduit outside of the United States, Dura-
Line=s competitors include manufacturers that produce pipe and
tubing for other uses, such as gas and water transportation.
Competition within the industry is based primarily on quality,
price, production capacity, field support, technical
capabilities, service and reputation.
In addition, approximately 4% of Dura-Line=s 1998 net sales came
from the sale of polyethylene water and natural gas pipe to a
variety of hardware stores, contractors, plumbing supply firms
and distributors. Dura-Line markets its water and natural gas
pipe products through sixty manufacturing representatives in the
Southern and Eastern United States. The water and natural gas
pipe market is very competitive. Dura-Line competes on the basis
of quality and price with a number of regional and local firms.
Dura-Line=s products are manufactured through the plastic
extrusion process. Dura-Line procures raw plastic for extrusion
from a number of independent suppliers. In March 1989, Dura-Line
opened a new manufacturing facility in the United Kingdom to
manufacture products for sale to British Telecom and other
foreign customers. Approximately 44% of Dura-Line=s 1998 net
sales were foreign sales. In late 1990, Dura-Line purchased a
facility in Reno, Nevada. This facility opened in early 1991 and
has increased Dura-Line=s annual capacity by approximately 50%.
In 1993, Dura-Line entered into joint venture agreements in the
Czech Republic and Israel to service Eastern Europe and the
Middle East more effectively. In early and late 1995, Dura-Line
opened subsidiaries in Mexico and China to manufacture and supply
High Density Polyethylene ("HDPE"), plastic conduit systems to
Central and South American markets as well as China and other
Asian markets. Dura-Line owns 100% of the equity in both
subsidiaries. In August 1996, Dura-Line incorporated a
subsidiary in India under a joint venture agreement in which Dura-
Line has the controlling interest. The subsidiary was
established to manufacture and supply HDPE plastic conduit
systems to India and neighboring countries. In 1997, Dura-Line
opened facilities in Malaysia and Spain to supply HDPE plastic
conduit systems in those markets. Dura-Line opened a facility in
Pryor, Oklahoma in 1998 to supply HDPE plastic conduit systems in
support of its contracts as part of Level 3's nationwide buyout
as well as to increase general domestic capacity.
Viewsonics. Viewsonics was founded in 1974 and purchased by the
Company in 1996. Viewsonics designs, manufactures and markets
branded cable television (ACATV@), electronic network components,
and electronic security components mainly for the Adrop@ or home
connection portion of the CATV infrastructure. Viewsonics
develops, warehouses and sells its products out of its Florida
facility. Viewsonics sources approximately 80% of its products
from China, approximately 50% of which are manufactured in
Viewsonics= Shanghai facility, and the remaining 50% of which are
manufactured by subcontractors. Viewsonics has also developed
manufacturing capabilities in St. Petersburg, Russia. The
overseas procurement has allowed Viewsonics to lower production
costs and it has also positioned Viewsonics to exploit the
overseas CATV component markets as they develop.
Viewsonics sells approximately 50% of its products to multisystem
operations including companies such as Time/Warner, Cencast,
Continental Cablevision, and TCI. Viewsonics also sells to a
network of distributors, six of whom account for the majority of
the other 50% of 1998 sales. In 1998, Viewsonics generated net
sales of $14.2 million. Competition in the industry is focused
on quality, service, engineering support and price.
Northern. Northern was founded in 1985 and was purchased by the
Company in 1996. Northern designs, manufactures and markets power
conditioning and power protection equipment for primarily
telecommunication applications, such as cellular and Personal
Communication System (APCS@) networks. Northern also offers a
variety of products including voltage regulators, uninterruptible
power supplies, isolation transformers, and grounding devices to
protect any power-critical application.
Northern sells directly through its own highly technical in-house
sales force of 23 employees, who are supported by seven
application engineers and four product development engineers.
Northern sells to such large telecom OEMs as Sprint, Motorola,
Lucent, Ericsson and Nokia. Northern=s largest customer
accounted for approximately 50% of net sales in 1998 of $26.4
million and its 10 largest customers accounted for approximately
76% of net sales in 1998.
Engineered Endeavors (AEEI@). EEI was founded in 1987 and
acquired by the Company in September 1997. EEI designs complete
cellular and PCS towers, manufactures monopole antenna mount
platforms, custom bill and clock towers, and accessories. EEI
also distributes ancillary products used in the construction of
cellular and PCS towers. Approximately 51% of its 1998 net sales
were PCS towers, while approximately 24% were from cellular
towers. The remaining 25% were from packagers and others. EEI's
net sales in 1998 were $18.4 million.
EEI's manufacturing facility links a computer aided design
drawing system directly to the production lines where the antenna
support, monopole and ancillary equipment is manufactured. Once
manufactured, the products are shipped to a New Orleans
subcontractor where they are galvanized, packaged and shipped
directly to the telecommunication tower construction site.
EEI uses a direct sales force consisting of one lead salesman,
six computer aided design engineers and five structural
engineers. It also uses one manufacturers' representative. EEI's
largest customer is Nextel Communications, Inc., which comprised
approximately 16% of revenues in 1998. Other top customers
include Airtouch Cellular, Bell South PCS, Southwestern Bell,
Sprint, AT&T Wireless and Alltell. Its sales are primarily to
the domestic market.
The market for communications towers is expected to continue to
grow for the next several years, and EEI provides
Telecommunication Products with an entrance into that market. It
also complements Telecommunication Products' Northern subsidiary,
which specializes in surge protection devices for cellular and
personal communications systems. EEI`s competition is primarily
regional, with Valmont, Fort Worth Tower, Summit Manufacturing,
Piro and UNR Roan being its main competitors. EEI will also
benefit from Telecommunication Products' strong international
presence.
Electronic Connectors and Components
Effective December 1998, Telecommunication Products reorganized
the operations of its subsidiaries, Johnson Components, AIM
Electronics, Cambridge Products and Vitelec Electronics. The
reorganization consisted of centralizing manufacturing, sales and
marketing, and headquarters operations at Johnson's Waseca,
Minnesota facility. AIM Electronics' Sunrise Florida facility
and Vitelec's Bordon, England facility are still used for
assembly, distribution and sales operations. Electronic
Connectors and Components still sells and markets its products
under the Johnson Components, AIM Electronics, Cambridge Products
and Vitelec Electronics tradenames.
Electronic Connectors and Components is a leading designer,
developer, manufacturer and distributor of standard, sub-
miniature and micro-miniature radio frequency and other
connectors and related products for use in cable assemblies,
mobile communications, voice/date communications, testing
instruments, computers, security equipment and other
applications. Electronic Connectors and Components has a
reputation for delivering high-quality products with a high
degree of service and expedited delivery. Of its 1998 net sales
of $43.0 million, radio frequency connectors/adaptors represented
approximately 59%, voice/data products accounted for
approximately 15%, cable assemblies comprised approximately 9%,
and electronic hardware and other electronic components were
responsible for approximately 17%.
Electronic Connectors and Components manufactures, assembles and
distributes its products in a timely and cost-effective manner
worldwide. Its manufactured radio frequency connectors
(including sub-miniature and micro-miniature) are made 98% from
brass bar and rod stock. The brass bar is machined to
specification and then plated. Manufactured hardware and other
electronic components are produced from various metals as well as
injection-molded parts, and often require manual assembly.
Electronic Connectors and Components' efficient, fully-integrated
manufacturing system and warehouse operations allow approximately
26% of its manufactured product orders to be shipped within 24
hours. The industry's average lead time is six to eight weeks.
The assembly operations import materials from Taiwan, Hong Kong
and the United Kingdom. The operations are fully automated and
have excellent order processing and warehouse systems. These
systems allow Electronic Connectors and Components to ship
assembled products within 24 hours of receipt of an order 90% of
the time, on average.
Electronic Connectors and Components' products are sold to OEMs
(approximately 18% of 1998 sales) and general line distributors
(approximately 82% of 1998 sales). Its OEM customers include
Hewlett-Packard, Nokia, Motorola, Ericsson and Tandy. Electronic
Connectors and Components sells its products through a direct
sales force of 11 and a coordinated effort with over 100
manufacturing representatives belonging to over 20 independent
representative organizations. Sales to North America and South
America are coordinated out of Electronic Connectors and
Components' headquarters, while European sales are managed by a
United Kingdom-based sales manager. International sales
comprised approximately 23% of 1998 revenues. Electronic
Connectors and Components' customer base is large and diverse,
and no one customer accounted for more than 5% of sales. The top
ten customers accounted for approximately 18% of sales in 1998.
The electronic connector and components industry is highly
fragmented with over 1,500 manufacturers competing worldwide.
Electronic Connectors and Components competes with different
suppliers in each of the various categories of the overall
market, as well as with large national suppliers such as
Amphenol, M-A/COM (a division of AMP), Radiall and Pan-Pacific.
Electronic Connectors and Components focuses on the customer
niche that values high quality products with a quick turnaround
time and superior customer service.
Custom Cable Assemblies and Accessories
Bond. Bond was founded in 1988 and the Company acquired 80% of
the outstanding shares of Bond in 1996. Bond designs, engineers
and manufactures high-quality custom electronic cables and
connector sub-assemblies for computer-related and
telecommunications customers. All of Bond=s products are custom-
made and are specifically designed to meet customer needs. Bond
has three fully integrated, independent manufacturing facilities.
Bond has rapidly become an industry leader due to its commitment
to high quality and competitively priced products offered in
conjunction with outstanding and dependable service.
Bond has established two separate, very profitable sales agencies
in Northern and Southern California to represent them. Bond is
continuing to actively solicit new strategic customers located
throughout the United States via an independent sales
representative network. In 1998, Bond=s single-largest customer
accounted for approximately 31% of its net sales of $13.9 million
and the top five customers accounted for approximately 53%.
K&S Sheet Metal. In January 1998, Bond Technologies purchased
K&S Sheet Metal, a manufacturer of precision metal electronic
enclosures and box-build assemblies for electronic OEMs. Box-
build assemblies consist of precision metal enclosures outfitted
with power supplies, fans, cable assemblies and other electronic
and mechanical components. One-hundred percent of K&S Sheet
Metal's products are customized according to customer
specifications. Approximately 96% of K&S Sheet Metal's 1998
revenues were derived from the sale of precision metal
enclosures, while the remaining 4% were derived from box-build
assemblies. K&S Sheet Metal's net sales for 1998 were $12.0
million.
K&S Sheet Metal has carved a niche as a supplier of short to
medium run complicated boxes where it can demand a premium price
for good product quality and service. It sells direct to many of
the largest data storage, computer and telecommunication product
OEMs in Southern California. Its top five customers are Kingston
Technologies Corporation, MGE-UPS Systems, Gateway 2000, OLEC and
Cherokee International.
LoDan. LoDan, founded in 1967 and acquired by the Company in May
1997, designs, engineers, manufactures, and distributes high-
quality, custom electronic cable assemblies, sub assemblies, and
electro-mechanical assemblies to OEMs in the data and
telecommunications segments of the electronics industry. LoDan
manufactures approximately 49% of the products it sells in-house
at an ISO-9001 certified manufacturing facility, with the
remaining 51% being distributed products. For fiscal 1998,
LoDan=s net sales were $28.8 million.
The acquisition of LoDan has bolstered the presence of Jordan
Telecommunication Products in the custom cable assembly business.
LoDan=s customer base, which compliments that of Bond, was built
based on providing innovative solutions to customers= needs.
LoDan's largest customer, Cisco Systems (approximately 43% of
1998 sales), is the world=s pre-eminent networking company and
provides LoDan with access to international markets. LoDan=s
products are sold through internal and external sales forces.
Bond and LoDan supply the custom cable assembly market which
encounters competition from a broad range of companies, several
of which are much larger and have greater financial resources
than either Bond or LoDan. In addition to other independent
manufacturers of cable assemblies, offshore manufacturers compete
in this market, primarily on the basis of price. Competition
within the industry is based on quality, production, capacity,
breadth of product line, engineering support capability, price,
local support capability, systems support and financial strength.
Telephone Services, Inc. (ATSI@). In October 1997, the Company
acquired 70% of TSI. TSI designs, manufactures and distributes
custom cable assemblies (approximately 82% of 1998 sales),
terminal strips and terminal blocks (approximately 8% of 1998
sales) and other connecting devices (approximately 10% of 1998
sales) primarily to the telephone operating companies and major
telecommunication manufacturers. TSI has established a reputation
for high-quality products, on time-delivery and dependable
service. Its 1998 net sales were $45.7 million.
TSI designs its products on an engineer-to-engineer basis for
specific telecommunication applications. Its manufacturing
equipment consists of numerous crimping and stripping devices
used to manufacture cable assemblies and test equipment for
quality control purposes. Its manufacturing process is extremely
efficient, enabling it to finish prototype and pre-production
assemblies within one week. After pre-production, general
production lead times average one to three weeks. TSI`s technical
expertise and efficient production process have enabled it to
establish strong relationships with many of the largest
telecommunication companies.
TSI manufactures cable assemblies for approximately 100
telecommunication OEMs. It sells its products through a direct
sale force of eight regional salespeople who are supported
internally by a staff of engineering and technical application
engineers. The direct salesperson also functions as an
application engineer and interacts directly with the customer's
design engineers. TSI's largest customer is Pacific Bell, which
represented approximately 24% of revenues in 1998. The other
four which made up the top five customers in 1998 are Tekontrol,
approximately 17%, GTE, approximately 15%, Sprint, approximately
9%, and A.D.C., approximately 6%. Other top customers include
Southwestern Bell, Nynex, World Com and M.F.S.
The cable assembly business is highly fragmented, but is
experiencing strong growth as telecommunication companies
continue to outsource this subcomponent. TSI's competition is
regional by product line, and cable assembly competitors include
M.M.I., Varitronics and Telect, while terminal block competitors
include Thomas & Betts and Lucent Technologies.
A key component of TSI's growth is through acquisitions of
smaller companies with product line and/or customer synergies.
As part of this strategy, in July 1998, TSI acquired Opto-Tech
Industries, Inc., a manufacturer of a variety of filters,
attenuaters and other miscellaneous equipment for the
telecommunications industry. Most of Opto-Tech's sales are to
Regional Bell Operating Companies. Opto-Tech Industries is a good
fit for TSI because of their overlapping customer base. Opto-
Tech's operations have been fully integrated into those of TSI.
Backlog
As of December 31, 1998, the Company had a backlog of
approximately $134.4 million, compared with $109.6 million as of
December 31, 1997. The backlog in 1998 is primarily due to
titanium hot formed sales at Parsons, motor sales at Merkle-
Korff, and cable assembly sales at LoDan. Management believes
that the backlog may not be indicative of future sales.
Seasonality
The Company=s aggregate business has a certain degree of
seasonality. SPAI=s and Riverside=s sales are somewhat stronger
toward year-end due to the nature of their products. Calendars
at SPAI have an annual cycle while Bibles and religious books at
Riverside are popular as holiday gifts.
Research and Development
As a general matter, the Company operates businesses that do not
require substantial capital or research and development
expenditures. However, development efforts are targeted at
certain subsidiaries as market opportunities are identified.
None of these subsidiaries= development efforts require
substantial resources from the Company.
Patents, Trademarks, Copyrights and Licenses
The Company relies on a combination of patent, copyright,
trademark and trade secret laws and contractual agreements to
protect its proprietary technology and know how. The Company
owns and uses trademarks and brandnames to identify itself as a
source of certain goods and services including the DURA-LINE and
SILICORE trademarks, both of which are registered in the United
States and various foreign countries, and the VIEWSONICS
brandname, in which the Company has common law rights. The
Company=s SILICORE technology includes a patented solid co-
extruded polymer lubricant lining that uses a silicone-based
lubricant which is marketed and sold under the SILICORE
trademark. There can be no assurance that the Company will be
granted additional patents or that the Company=s patents either
will be upheld as valid if ever challenged or will prevent the
development of competitive products. The Company=s U.S. patent
with respect to the SILICORE lubricant lining expires in 2007.
The Company has not sought foreign patents for most of its
technologies, including technologies which have been patented in
the United States, such as the SILICORE lubricant lining, which
may adversely affect the Company=s ability to protect its
technologies and products in foreign countries. The Company
protects its confidential, proprietary information as trade
secrets.
Except for the SILICORE polymer pipe products, certain of the
Company=s CATV components and its fiber optic connector
technology, the Company=s products are generally not protected by
virtue of any proprietary rights such as patents. There can be
no assurance that the steps taken by the Company to protect its
proprietary rights will be adequate to prevent misappropriation
of its technology and know-how or that the Company=s competitors
will not independently develop technologies that are
substantially equivalent to or superior to the Company=s
technology. In addition, the laws of some foreign countries do
not protect the Company=s proprietary rights to the same extent
as do the laws of the United States. In the Company=s opinion,
the loss of any intellectual property asset, would not have a
material adverse effect on the conduct of the Company=s business.
The Company is also subject to the risk of adverse claims and
litigation alleging infringement of the proprietary rights of
others. From time to time, the Company has received notice of
infringement claims from other parties. Although the Company
does not believe it infringes the valid proprietary rights of
others, there can be no assurance against future infringement
claims by third parties with respect to the Company=s current or
future products. The resolution of any such infringement claims
may require the Company to enter into license arrangements or
result in protracted and costly litigation, regardless of the
merits of such claims.
Employees
As of December 31, 1998, the Company and its subsidiaries
employed approximately 7,092 people. Approximately 1,189 of
these employees were members of various labor unions. The
Company has not experienced any work stoppages in the past five
years as a result of labor disruptions. The Company believes
that its subsidiaries= relations with their respective employees
are good.
Environmental Regulations
The Company is subject to numerous U.S. and foreign federal,
state, provincial, and local laws and regulations relating to the
storage, handling, emission and discharge of materials into the
environment, including the U.S. Comprehensive Environmental
Response, Compensation and Liability Act (ACERCLA@), the Clean
Water Act, the Clean Air Act, the Emergency Planning and
Community Right-To-Know Act and the Resource Conservation and
Recovery Act. Under CERCLA and analogous state laws, a current
or previous owner or operator of real property may be liable for
the cost of removal or remediation of hazardous or toxic
substances on, under, or in such property. Such laws frequently
impose cleanup liability regardless of whether the owner or
operator knew of or was responsible for the presence of such
hazardous or toxic substances and regardless of whether the
release or disposal of such substances was legal at the time it
occurred. Regulations of particular significance to the
Company=s ongoing operations include those pertaining to handling
and disposal of solid and hazardous waste, discharge of process
wastewater and stormwater and release of hazardous chemicals.
The Company believes it is in substantial compliance with such
laws and regulations.
The Company generally conducts a Phase I environmental survey on
each acquisition candidate prior to purchasing the company to
assess the potential for the presence of hazardous or toxic
substances that may lead to cleanup liability with respect to
such properties. The Company does not currently anticipate any
material adverse effect on its results of operations, financial
condition or competitive position as a result of compliance with
federal, state, provincial, local or foreign environmental laws
or regulations. However, some risk of environmental liability
and other costs is inherent in the nature of the Company=s
business, and there can be no assurance that material
environmental costs will not arise. Moreover, it is possible
that future developments such as the obligation to investigate or
clean up hazardous or toxic substances at the Company=s property
for which indemnification is not available, could lead to
material costs of environmental compliance and cleanup by the
Company.
Barber-Colman Motors, a product line of the Company and formerly
a wholly-owned subsidiary of the Company, leases property that
has been the subject of remedial investigation and corrective
action following the removal of a small, underground waste oil
tank in 1994. Contaminated soils have been removed up to the
edge of the foundation of an overlying structure and down to
bedrock. The Wisconsin Department of Natural Resources has
advised the Company that no further action is necessary at this
time. In connection with the acquisition of Barber-Colman, the
Company obtained indemnification from the former owner of Barber-
Colman Motors for environmental liability resulting from its
prior operations.
FIR, a wholly-owned subsidiary of the Company, owns property in
Casalmaggiore, Italy that is the subject of investigation and
remediation under the review of government authorities for soils
and groundwater contaminated by historic waste handling
practices. In connection with the acquisition of FIR, the
Company obtained indemnification from the former owners for this
investigation and remediation.
In October 1997 the Tennessee Department of Environmental Control
("DEC") requested information from Dacco about a contaminated
spring adjacent to its Cookeville, Tennessee property. The
spring is reportedly contaminated with materials which Dacco does
not believe it ever used at the facility, and Dacco therefore
does not believe that it caused the contamination or that it will
be responsible for the cleanup. In September 1998 the DEC
informed Dacco that the spring requires further investigation,
and that Dacco's Cookeville property meets the criteria for
designation as a state Superfund cleanup site. The DEC has
subsequently agreed to examine the potential liability of other
companies in the area before pursuing Dacco for cleanup costs.
While the Company does not believe that Dacco will be liable for
the cost of any further investigation or cleanup, there can be no
assurance that the DEC will not attempt to impose such liability,
or that, if the DEC is successful in doing so, that such
liability would not be material.
Item 2. Properties
The Company leases approximately 31,700 square feet of office
space for its headquarters in Illinois. The principal properties
of each subsidiary of the Company at December 31, 1998, and the
location, the primary use, the capacity, and ownership status
thereof, are set forth in the table below:
SQUARE OWNED/
COMPANY LOCATION USE FEET LEASED
Advanced DC Dewitt, NY Manufacturing/Administration 49,600 Owned
Syracuse, NY Manufacturing 45,000 Leased
Carrollton, TX Manufacturing/Administration 29,000 Leased
Dewitt, NY Manufacturing 18,500 Leased
Eternoz, France Manufacturing/Administration 10,000 Leased
Putzbrunn,Germany Warehouse 1,200 Leased
Palo Alto, CA Research and Development 1,000 Leased
Beemak Rancho Dominguez, CA Manufacturing/Administration110,000 Leased
Bond Anaheim, CA Manufacturing/Administration 22,000 Leased
Huntington Beach, CA Manufacturing/Administration 150,000 Leased
Austin, TX Manufacturing/Administration 13,000 Leased
Cape Craftsmen Elizabethtown,NC Manufacturing 230,200 Leased
Wilmington, NC Administration 8,500 Leased
Cho-Pat Hainesport, NJ Manufacturing/Administration 7,000 Leased
DACCO Cookeville, TN Administration/Manufacturing 140,000 Owned
Huntland, TN Manufacturing 65,000 Owned
Rancho Cucamonga, CA Administration/Manufacturing 40,00 Owned
Deflecto Indianapolis, IN Manufacturing/Administration 200,000 Owned
Indianapolis, IN Manufacturing 38,100 Leased
Indianapolis, IN Manufacturing 25,600 Leased
St. Catherines,Ont.Manufacturing 30,000 Owned
St. Catherines,Ont.Manufacturing 30,000 Leased
Dura-Line Beranang, Melaysia Manufacturing/Administration 64,000 Leased
Ciudad Real, Spain Manufacturing/Administration 3,000 Leased
Goa, India Manufacturing/Administration 48,000 Owned
Grimsby, U.K. Manufacturing/Administration 35,000 Owned
Knoxville, TN Administration 10,000 Leased
Mexico City, Mexico Sales Office/Administration 2,000 Leased
Middlesboro, KY Manufacturing/Administration 80,000 Owned
New Delhi, India Sales Office/Administration 2,000 Leased
Pryor, OK Manufacturing/Administration 33,750 Owned
Queretaro, Mexico Manufacturing/Administration 43,000 Leased
Sao Paolo, Brazil Sales 600 Leased
Shanghai, China Manufacturing/Administration 50,000 Owned
Shanghai, China Sales Office/Administration 1,000 Leased
Sparks, NV Manufacturing 35,000 Owned
Tel Aviv, Israel Manufacturing/Administration 10,000 Leased
Zlin, Czech Republic Manufacturing/Administration 40,000 Owned
ED&C Troy, MI Manufacturing/Administration 29,400 Leased
EEI Mentor, OH Manufacturing/Administration 48,000 Leased
Belle Chasse, LA Warehouse 195,000 Leased
Elec Connectors
& Components Bordan, U.K. Dist/Admn/Assembly 16,500 Owned
Sunrise, FL Dist/Admn/Assembly 28,000 Leased
Waseca, MN Manufacturing/Administration 70,000 Sub-Leased
Paris, France Sales 1,000 Leased
FIR Casalmaggiore,ItalyManufacturing/Administration 100,000 Owned
Varano, Italy Manufacturing 30,000 Owned
Bedonia, Italy Manufacturing 8,000 Owned
Reggio Emilia, Italy Manufacturing 35,000 Leased
Reggio Emilia, Italy Manufacturing 30,000 Leased
Genova, Italy Manufacturing 33,000 Leased
Gear Grand Rapids, MI Manufacturing/Administration 39,000 Owned
Imperial Akron, OH Manufacturing/Administration 43,000 Owned
Stow, OH Administration 7,000 Leased
Middleport, OH Manufacturing 85,000 Owned
Cuyahoga Falls, OH Manufacturing 63,000 Leased
Alamogorda, NM Manufacturing 15,000 Leased
Bedford, OH Manufacturing/Administration 25,000 Leased
LoDan San Carlos, CA Manufacturing/Administration 22,500 Leased
San Carlos, CA Manufacturing 13,500 Leased
Merkle-Korff Des Plaines, IL Manufacturing/Administration 38,000 Leased
Des Plaines, IL Manufacturing/Administration 45,000 Leased
Richland Center, WI Manufacturing/Administration 45,000 Leased
Darlington, WI Manufacturing 68,000 Leased
Des Plaines, IL Manufacturing/Administration 112,000 Leased
Motion Control Rancho Cordova,CA Manufacturing/Administration 40,000 Leased
Northern Liberty Lake, WA Manufacturing/Administration 22,600 Leased
Pamco Des Plaines, IL Manufacturing/Administration 24,500 Owned
Parsons Parsons, KS Manufacturing/Administration 97,500 Owned
Riverside Iowa Falls, IA Distribution/Administration 65,900 Leased
Sparks, NV Distribution/Administration 35,000 Leased
Rolite Midvale, OH Manufacturing/Administration 20,500 Owned
Sate-Lite Niles, IL Manufacturing/Administration 120,000 Leased
Shunde, China Manufacturing/Administration 9,282Sub-Leased
Seaboard Fitchburg, MA Administration/Manufacturing 260,000 Owned
Miami, FL Manufacturing 90,000 Owned
Brentwood, NY Manufacturing 35,000 Leased
Red Oak, IA Manufacturing/Administration 136,500 Owned
Coshocton, OH Manufacturing/Administration 240,000 Leased
(Four buildings)
TSI Grand Prairie, TX Manufacturing/Administration 15,000 Leased
Shasta Lake City, CA Manufacturing 5,000 Leased
Riverview, FL Manufacturing 75,000 Leased
Tampa, FL Manufacturing 20,000 Leased
Valmark Fremont, CA Manufacturing/Administration 46,000 Leased
Fremont, CA Manufacturing/Administration 15,000 Leased
Viewsonics Boca Raton, FL Administration/Distribution/
Research and Development 14,500 Leased
Shanghai, China Manufacturing/Administration 25,000 Leased
St. Petersburg, Russia Manufacturing/Administration 10,000 Leased
DACCO also owns or leases thirty-five distribution centers, which
average 4,000 square feet in size. DACCO maintains five
distribution centers in Tennessee, four distribution centers in
Florida, two distribution centers in each of Illinois, Arizona,
Michigan, Texas, Alabama, California, Ohio, and Virginia, and the
remaining distribution centers are located in Pennsylvania,
Indiana, Minnesota, Missouri, Nebraska, West Virginia, Oklahoma,
South Carolina, Nevada, and Kentucky.
Merkle-Korff=s facilities are leased from the chairman of Merkle-
Korff and Northern=s Liberty Lake, Washington, facility is
leased from a general partnership consisting of the former
owners. The Company believes that the terms of these leases are
comparable to those which would have been obtained by the Company
had these leases been entered into with an unaffiliated third
party.
The Company also has sales representatives in field offices in
Florida, Illinois, Ohio, Oregon, Virginia and internationally in
Brazil, Bulgaria, Germany, Malaysia, Romania, Russia and
Slovakia.
To the extent that any of the Company's existing leases expire in
1999, the Company believes that it will be able to renegotiate
them on acceptable terms. The Company believes that its existing
leased facilities are adequate for the operations of the Company
and its subsidiaries.
Item 3. LEGAL PROCEEDINGS
On January 21, 1997, Welcome Home filed for Chapter 11 bankruptcy
protection. As a result of the Chapter 11 filing, the results of
Welcome Home are not consolidated with the Company=s results for
periods subsequent to January 21, 1997.
The Company=s subsidiaries are parties to various other legal
actions arising in the normal course of their business. The
Company believes that the disposition of such actions
individually or in the aggregate will not have a material adverse
effect on the consolidated financial position of the Company.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders
during the fiscal year ended December 31, 1998.
PART II
Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
(a) The only authorized, issued and outstanding class of capital
stock of the Company is Common Stock. There is no
established public trading market for the Company's Common
Stock.
(b) At December 31, 1998, there were 19 holders of record of the
Company's Common Stock.
(c) The Company has not declared any cash dividends on its
Common Stock since the Company's formation in May, 1988.
The Indenture (the "Indenture"), dated as of September 9,
1997, by and between the Company and First Bank National
Association, as Trustee, with respect to the 10 3/8% Senior
Notes and the 11 3/4% Senior Subordinated Discount
Debentures contain restrictions on the Company's ability to
declare or pay dividends on its capital stock. The
Indenture prohibits the declaration or payment of any
dividends or the making of any distribution by the Company
or any Restricted Subsidiary (as defined in the Indenture)
other than dividends or distributions payable in stock of
the Company or a Subsidiary and other than dividends or
distributions payable to the Company.
Item 6. SELECTED FINANCIAL DATA
The following table presents selected operating, balance
sheet and other data of the Company and its subsidiaries as of
and for the five years ended December 31, 1998. The financial
data of the Company and its subsidiaries as of and for the years
ended December 31, 1994 through 1998 were derived from the
consolidated financial statements of the Company and its
subsidiaries.
Year Ended December 31,
(dollars in thousands)
1998 1997 1996 1995 1994
Operating data:(1)
Net sales..................$943,607$ 707,112$601,567$507,311$424,391
Cost of sales, excluding
depreciation.............. 601,385 446,580 375,745 320,653 262,730
Gross profit, excluding
depreciation.............. 342,222 260,532 225,822 186,658 161,661
Selling, general and
administrative expense.... 193,426 148,921 150,951 121,371 97,428
Operating income .......... 91,696 55,444 13,392 32,360 42,944
Interest expense........... 109,705 82,455 63,340 46,974 40,887
Interest income ........... (2,178) (2,713) (2,538) (2,841) (1,471)
Income (loss) before income
taxes, minority interest,
equity in investee,
and extraordinary item.... (22,550) (6,173) (47,410) (11,773)27,689
Income (loss) before extra-
ordinary items (2)....... (31,407)(14,260) (51,884) (7,470)23,741
Net income (loss) (2) $(31,586)$(45,618)$(55,690)$(7,470)$23,741
Balance sheet data (at end of period):
Cash and cash equivalents $ 23,008 $ 52,500 $ 32,797 $ 41,253 $56,386
Working capital........... 189,065 176,508 123,479 115,387 123,395
Total assets..............1,043,888 930,231 681,885 532,384 398,474
Long-term debt (less
current portion).........1,059,419 921,871 687,936 513,690 380,966
Net capital deficiency(3).$(208,144)$(175,285)$(130,281)$(74,479)
$(66,867)
(1) The Company has acquired a diversified group of operating
companies over the five year period which significantly
affects the comparability of the information shown above.
(2) Net income in 1994 includes a gain from the sale of a
partial interest in Welcome Home of $24,161. Net loss in
1995 includes $6,929 of restructuring and non-recurring
charges related to Welcome Home. Net loss in 1996 includes
compensation expense related to a stock appreciation right
and other compensation agreements of $9,822, the loss on
the purchase of an affiliate, $4,488, and restructuring
charges related to Welcome Home, $8,106, and other non-
recurring charges, $4,136. Net loss in 1997 includes
compensation expense related to a stock appreciation right
and other compensation agreements of $15,871, a gain on the
sale of a subsidiary of $17,081, the recording of equity in
the loss of an investee of $3,386, and an extraordinary loss
of $31,358 related to the Company=s refinancing. Net loss
in 1998 includes a loss on the sale of a subsidiary of
$6,299 and a loss on foreign translation of $3,020.
(3) No cash dividends on the Company's Common Stock have been
declared or paid.
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
OPERATIONS AND FINANCIAL CONDITION
Historical Results of Operations
Summarized below are the historical net sales, operating
income and operating margin (as defined below) for each of the
Company's business groups for the fiscal years ended December 31,
1998, 1997 and 1996. This discussion should be read in
conjunction with the historical consolidated financial statements
and the related notes thereto contained elsewhere in this Annual
Report.
In 1996, Dura-Line was moved from the Consumer and Industrial
Products segment to the Telecommunication Products segment. In
1997, the Retube product line of Dura-Line was moved from the
Telecommunication Products segment to the Consumer and Industrial
Products segment. In 1998 Sate-Lite and Beemak were reclassified
from the Consumer and Industrial Products segment to the Jordan
Specialty Plastics segment. Prior period results were also
realigned into these new groups in order to provide accurate
comparisons between periods.
Year ended December 31,
1998 1997 1996__
(dollars in thousands)
Net Sales:
Specialty Printing & Labeling.. $120,160 $119,346 $109,587
Jordan Specialty Plastics...... 71,568 24,038 20,120
Motors and Gears............... 275,833 148,669 117,571
Telecommunication Products(4).. 310,028 257,010 131,592
Welcome Home(3)................ - 2,456 81,855
Consumer and Industrial Products(4) 166,018 155,593 140,842
Total ..................... $943,607 $707,112 $601,567
Operating Income (1):
Specialty Printing & Labeling.. 8,259 8,540 5,540
Jordan Specialty Plastics...... 4,654 2,490 (592)
Motors and Gears............... 42,324 27,684 23,229
Telecommunication Products(4).. 30,791 13,258 13,828
Welcome Home(3)................ - (1,107) (15,975)
Consumer and Industrial Products(4) 17,105 16,012 13,222
Total .................... $103,133 $66,877 $39,252
Operating Margin (2):
Specialty Printing & Labeling.. 6.9% 7.2% 5.1%
Jordan Specialty Plastics...... 6.5% 10.4% (2.9)%
Motors and Gears............... 15.3% 18.6% 19.8%
Telecommunication Products(4).. 9.9% 5.2% 10.5%
Welcome Home(3)................ - (45.1)% (19.5)%
Consumer and Industrial Products(4)10.3% 10.3% 9.4%
Combined (1)................... 10.9% 9.5% 6.5%
(1) Before corporate overhead of $11,437 and $11,433, for the
years ended December 31, 1998 and 1997, respectively. The
Telecommunication Products operating income includes expense
of $15,871 related to compensation agreements in 1997. The
operating income for the year ended December 31, 1996 is
before corporate overhead of $17,500, the write-off of
$4,488 in notes receivable resulting from the Cape Craftsmen
acquisition and the charge of $3,872 for a compensation
agreement. Telecommunication Products= operating income
includes the AIM and Cambridge SARA expense of $3,411 for
the year ended December 31, 1996.
(2) Operating margin is operating income divided by net sales.
(3) For the period from January 1, 1997 to January 21, 1997, the
date of the Chapter 11 filing (See Footnote 3 to the
financial statements).
(4) Jordan Telecommunication Products includes Diversified Wire
and Cable for the period from January 1, 1998 to July 8,
1998. Consumer and Industrial Products includes Hudson for
the period from January 1, 1997 to May 15, 1997, and Paw
Print for the period from January 1, 1997 to July 25, 1997.
(See Footnote 15 to the financial statements).
Specialty Printing & Labeling. As of December 31, 1998, the
Specialty Printing and Labeling group consisted of SPAI, Valmark, Pamco,
and Seaboard.
1998 Compared to 1997. Net sales increased $0.8 million or
0.7% and operating income decreased $0.3 million or 3.3%. Sales
increased primarily due to higher sales of ad specialty products
and calendars at SPAI, $1.5 million and $0.2 million,
respectively, increased sales of graphic panel overlays and
membrane switches at Valmark, $1.3 million, and higher sales of
labels at Pamco, $0.4 million. Partially offsetting these
increases were lower sales of school annuals at SPAI, $0.2
million, decreased sales of labels and shielding devices at
Valmark, $0.6 million and $1.0 million, respectively, and lower
sales of folding boxes at Seaboard, $0.8 million. The increased
ad specialty sales at SPAI were due to management's focus on the
higher growth corporate program business, while decreased sales
of shielding devices at Valmark reflect a major customer's
decision to reduce production of laptop computers that require
the shields.
Operating income decreased due to lower operating income at SPAI,
Pamco, and Seaboard, $0.1 million, $0.3 million, and $0.7
million, respectively. Partially offsetting these decreases was
increased operating income at Valmark, $0.5 million, and
decreased corporate expenses, $0.3 million. The decreased
operating income at SPAI was due to the hiring of additional
salespeople to focus on continued growth in the corporate program
ad specialty segment, and the lower operating income at Seaboard
was due to pricing pressure in the packaging industry. The
improved operating income at Valmark is due to Valmark
negotiating more favorable pricing with customers, while the
decreased corporate expenses are due to lower bank fees as bank
debt was repaid in 1997. Operating margin remained consistent
with 1997.
1997 Compared to 1996. Net sales increased $9.8 million or
8.9% and operating income increased $3.0 million or 54.2%. Sales
increased due to higher sales of ad specialty products at SPAI,
$2.2 million, increased sales of labels and graphic panel
overlays and membrane switches at Valmark, $1.0 million and $0.6
million, respectively, higher sales of labels at Pamco, $0.3
million, and increased sales of folding boxes at Seaboard, $7.3
million, due to the acquisition of Seaboard in May 1996.
Partially offsetting these increases were decreased sales of
calendars and school annuals at SPAI, $0.1 million and $0.2
million, respectively, and lower sales of shielding devices at
Valmark, $1.3 million.
Operating income increased due to higher operating income at
SPAI, $0.6 million, increased operating income at Valmark, $0.1
million, and higher operating income at Seaboard, $2.6 million.
Partially offsetting these increases was decreased operating
income at Pamco, $0.3 million. The higher operating income at
SPAI was due to lower selling, general, and administrative costs,
primarily medical insurance and commissions, while the increase
at Valmark was due to higher sales and lower operating costs.
The decrease in operating income at Pamco was attributed to lower
gross profit stemming from decreased sales of custom-made labels.
Operating margin increased 2.1%, from 5.1% in 1996 to 7.2% in
1997, primarily due to higher sales and lower operating costs as
discussed above.
Jordan Specialty Plastics. As of December 31, 1998, the Jordan
Specialty Plastics group consisted of Sate-Lite, Beemak, Deflecto
and Rolite.
1998 Compared to 1997. Net sales increased $47.5 million
or 197.7% and operating income increased $2.2 million or 86.9%.
Net sales increased primarily due to the acquisitions of Deflecto
and Rolite in February 1998. Deflecto contributed sales in 1998
of $45.2 million while Rolite contributed sales of $3.2 million.
In addition, sales of warning triangles and colorants increased
at Sate-Lite, $0.2 million and $0.3 million, respectively.
Partially offsetting these increases were lower sales of bike
reflectors and custom molded products at Sate-Lite, $0.2 million
and $0.4 million, respectively, and decreased sales of molded and
fabricated product at Beemak, $0.6 million and $0.2 million,
respectively.
Operating income increased primarily due to the acquisitions of
Deflecto and Rolite, as discussed above. These companies
contributed operating income in 1998 of $5.3 million and $0.6
million, respectively. Partially offsetting these increases was
lower operating income at Sate-Lite and Beemak, $2.0 million and
$1.5 million, respectively. In addition, corporate overhead of
$0.2 million was incurred in 1998 related to the formation of the
Jordan Specialty Plastics group. Operating income decreased at
Sate-Lite due to operating expenses incurred related to the
expansion of manufacturing operations into China and operating
income at Beemak decreased due to lower absorption of fixed
operating expenses at a lower sales level, as well as additional
costs associated with Beemak's expansion into a larger facility.
Operating margin decreased 3.9%, from 10.4% in 1997 to 6.5% in
1998, due to the reasons mentioned above.
1997 Compared to 1996. Net sales increased $3.9 million of
19.5%. The increase in net sales was partially due to the
acquisition of Arnon-Caine by Beemak in January 1997. Arnon-
Caine contributed net sales of $3.9 million in 1997. Further
contributing to the increase in 1997 net sales were increased
sales of bicycle reflectors and custom molded products at Sate-
Lite, $0.5 million and $0.2 million, respectively. Partially
offsetting these increases were decreased sales of plastic
injection molded products of Beemak, $0.7 million. The increase
in bicycle reflector sales at Sate-Lite was primarily due to the
extension of sales of bicycle reflectors into Asian markets.
Operating income increased $3.1 million or 520.6%. The increase
in operating income was partially due to the acquisition of Arnon-
Caine which contributed operating income of $1.4 million in 1997.
In addition, operating income increased at Sate-Lite and Beemak
(excluding Arnon-Caine), $1.1 million and $0.6 million,
respectively. The increase in operating income was primarily due
to higher gross profit at Sate-Lite stemming from increased sales
of custom molded product and decreased operating expenses at
Beemak due to a focused cost cutting program.
Operating margin increased to 10.4% in 1997 from (2.9)% in 1996
due to the reasons mentioned above.
Motors and Gears. As of December 31, 1998, the Motors and
Gears group consisted of Imperial, Gear, Merkle-Korff, FIR, ED&C,
Motion Control, and Advanced DC. Effective January 1997, Barber-
Colman became a fully integrated division of Merkle-Korff.
Motors and Gears operates in three separate business segments;
sub-fractional motors, fractional/integral motors, and controls.
Motors and Gears entered the controls business segment through
the acquisitions of ED&C and Motion Control during 1997.
1998 Compared to 1997. Net sales increased $127.2 million
or 85.5% and operating income increased $14.6 million or 52.9%.
The increase in net sales was primarily due to the 1998
acquisition of Advanced DC and the 1997 acquisitions of FIR,
ED&C, and Motion Control. These companies contributed net sales
in 1998 of $27.2 million, $42.1 million, $10.3 million, and $51.3
million, respectively, compared to net sales in 1997 of $14.8
million, $1.8 million, and $1.2 million for FIR, ED&C, and Motion
Control, respectively. Sales of sub-fractional motors increased
13.0% in 1998 due to continued strength in the vending and
appliance markets and sales of fractional/integral motors
increased 6.6% in 1998 (excluding acquisitions) reflecting market
share gains in the floor care market and stronger sales in the
elevator market. Partially offsetting these increases, were
decreased sales of gears and gearboxes, 8.4%, due to a weaker
floor care market after stronger than expected sales in 1997.
Operating income increased primarily due to the increased sales
discussed above. Advanced DC, FIR, and Motion Control
contributed operating income in 1998 of $5.2 million, $5.9
million, and $6.9 million, respectively, compared to operating
income in 1997 of $1.6 million and $0.1 million for FIR and
Motion Control, respectively. Partially offsetting these
increases were additional selling, general, and administrative
expenses as well as higher depreciation and amortization arising
from the 1998 and 1997 acquisitions. Operating margin decreased
3.3%, from 18.6% in 1997 to 15.3% in 1998, due to these
additional operating expenses.
1997 Compared to 1996. Net sales increased $31.1 million
or 26.5% and operating income increased $4.5 million or 19.2%.
Sales increased partially due to the acquisitions of FIR in June
1997, ED&C in October 1997, and Motion Control in December 1997.
These companies contributed $14.8 million, $1.8 million, and $1.2
million, respectively, in 1997, or 57.2% of the total increase in
net sales. In addition, net sales increased due to an 18.2%
increase in sales of sub-fractional motors at Merkle-Korff and a
24.0% increase in sales of planetary gears at Gear. Partially
offsetting these increases was a 6.6% decrease in sales of
fractional/integral motors at Imperial. The sales increases were
primarily due to strong sales of sub-fractional motors in the
vending and appliance markets and strong sales of planetary gears
in the floor care market. The decrease in net sales of
fractional/integral motors was primarily due to unusually strong
sales in the first half of 1996 resulting from the high backlog
of orders accumulated in the fourth quarter of 1995.
The increase in operating income was primarily due to the
increase in sales of sub-fractional motors and planetary gears as
discussed above. Partially offsetting these increases were
slightly decreased gross margins in the fractional/integral
motors group due to FIR operating at slightly lower gross margins
than the rest of the group, and increased operating expenses
attributed to the acquisitions of Barber-Colman in 1996, and FIR,
ED&C and Motion Control in 1997. Operating margin decreased 1.2%
from 19.8% in 1996 to 18.6% in 1997, due to the decreased gross
margins and increased operating expenses discussed above.
Telecommunication Products. As of December 31, 1998, the
Telecommunication Products group consisted of Dura-Line,
Electronic Connectors and Components, Viewsonics, Bond, K & S
Sheet Metal, Northern, LoDan, EEI and TSI. Due to the similarity
of many of the Telecommunication Products subsidiaries= product
lines, management evaluates, oversees and manages the companies
based on three product group segments: Infrastructure Products
and Equipment which includes Dura-Line, Viewsonics, Northern and
EEI; Electronic Connectors and Components; and Custom Cable
Assemblies and Specialty Wire and Cable which includes Bond, K &
S Sheet Metal, LoDan and TSI.
1998 Compared to 1997. Net sales increased $53.0 million or
20.6% and operating income increased $17.5 million or 132.2%.
The increase in sales was due to the 1998 acquisition of K&S
Sheet Metal and the 1997 acquisitions of TSI, LoDan, and EEI.
These companies contributed net sales in 1998 of $12.0 million,
$45.7 million, $28.8 million, and $17.3 million, respectively,
compared to net sales in 1997 of $4.4 million, $14.7 million, and
$7.5 million for TSI, LoDan, and EEI, respectively. Partially
offsetting these increases were decreased sales at Diversified of
$15.2 million due to the divestiture of that company in July
1998. In addition, sales decreased due to a slowdown of business
at Bond and in the Connectors group.
Operating income increased primarily due to a $15.9 million Stock
Appreciation Rights ("SAR") expense incurred in April 1997
related to the Company's acquisition of Dura-Line in 1988.
Excluding the effects of the SAR expense, operating income in
1998 increased $5.3 million or 18.2%. This increase was due to
the acquisition of K&S Sheet Metal in 1998 and TSI and LoDan in
1997, as mentioned above. These companies contributed operating
income in 1998 of $2.8 million, $7.5 million, and $3.1 million,
respectively, compared to operating income in 1997 of $0.1
million and $1.0 million for TSI and LoDan, respectively.
Partially offsetting these increases was decreased operating
income at Diversified, $0.8 million, due to the sale of that
company in 1998. Operating income also decreased in the
Connectors group due to the initial costs incurred of
centralizing manufacturing, sales and marketing, and headquarters
at Johnson Components' facility in Minnesota. In addition,
corporate expenses increased due to a full year of overhead in
1998 compared to five months in 1997, as Telecommunication
Products was formed in August 1997.
Operating margin increased 4.7%, from 5.2% in 1997 to 9.9% in
1998, primarily due to the reduction of SAR expense in 1998.
Excluding SAR expense, operating margin would have been 11.3% in
1997. The decrease in operating margin excluding SAR expense is
due to the reasons mentioned above.
1997 Compared to 1996. Net sales increased $125.4 million
or 95.3% and operating income decreased $0.6 million or 4.1%.
The increase in net sales was primarily due to the acquisitions
of Johnson, Diversified, Viewsonics, Vitelec, and Bond in 1996
and Northern, LoDan, EEI and TSI in 1997. These companies
contributed net sales of $19.8 million, $31.3 million, $12.4
million, $5.4 million, $21.8 million, $23.3 million, $14.7
million, $7.5 million, and $4.4 million, respectively, in 1997
compared to net sales in 1996 of $16.9 million for Johnson, $13.9
million for Diversified, $5.1 million for Viewsonics, $2.4
million for Vitelec, and $3.6 million for Bond. In addition, net
sales increased $26.7 million due to higher sales of
infrastructure products and equipment, particularly cable
conduit. This increase was primarily due to higher international
sales resulting from the addition of new manufacturing facilities
in Mexico and China.
Operating income decreased primarily due to a SAR expense of
$15.9 million in 1997 related to the acquisition of Dura-Line in
1988, and additional corporate expenses and management fees due
to the new acquisitions mentioned above. Operating income at
Dura-Line, excluding SAR, increased $2.2 million in 1997
primarily due to higher sales of cable conduit in Europe,
particularly in the Czech Republic. Partially offsetting this
decrease is operating income contributed by the 1996 and 1997
acquisitions. These companies contributed operating income in
1997 of $3.6 million, $1.4 million, $3.7 million, $1.0 million,
$2.7 million, $4.3 million, $1.1 million, $1.0 million and $0.1
million, respectively, compared to operating income in 1996 of
$2.9 million for Johnson, $0.7 million for Diversified, $0.5
million for Vitelec, and $0.3 million for Bond. In addition,
operating income at AIM increased $2.3 million due to Stock
Appreciation Rights (ASAR@) expense of $3.4 million in 1996.
Operating income at Aim, excluding SAR expense, decreased $1.1
million in 1997 primarily due to lower domestic sales and gross
profits.
Operating margin decreased 5.3%, from 10.5% in 1996 to 5.2% in
1997. Excluding the SAR expenses, operating margins would have
decreased 1.8%, from 13.1% in 1996 to 11.3% in 1997. The
decrease in operating margin was primarily due to international
market development costs in 1997 not incurred in 1996 and lower
operating margins at AIM.
Welcome Home. (See note 3 to the Consolidated Financial
Statements.)
1998 Compared to 1997. Net sales decreased $2.5 million or
100.0%, and the operating loss decreased $1.1 million or 100.0%.
Due to Welcome Home filing Chapter 11 bankruptcy on January 21,
1997, the results of operations of Welcome Home are not included
in the consolidated results of the Company at December 31, 1998.
1997 Compared to 1996. Net sales decreased $79.4 million or
97.0%, while the operating loss decreased $14.9 million or 93.1%.
These fluctuations are the direct result of Welcome Home=s
Chapter 11 bankruptcy filing on January 21, 1997 (see note 3 to
the financial statements). As a result of the filing, the
Company no longer has the ability to control the operations and
financial affairs of Welcome Home. Accordingly, the results of
operations of Welcome Home from January 21, 1997 to December 31,
1997, are not included in the consolidated results of the
Company. Since January 21, 1997 the Company has accounted for
its investment in Welcome Home under the equity method of
accounting.
Consumer and Industrial Products. As of December 31, 1998,
the Consumer and Industrial Products group consisted of DACCO,
Riverside, Parsons, Cape, Cho-Pat and Dura-Line Retube.
1998 Compared to 1997. Net sales increased $10.4 million or
6.7% and operating income increased $1.1 million or 6.8%. Net
sales increased primarily due to increased sales of rebuilt
converters at Dacco, $4.2 million, higher sales of Bibles, books,
videos, music and gifts at Riverside, $0.5 million, $3.9 million,
$0.9 million, $0.9 million, and $0.4 million, respectively,
increased sales of wooden furniture and other accessories at
Cape, $9.7 million, higher sales of orthopedic supports and other
pain-reducing devices at Cho-Pat, $1.1 million, and increased
sales of plastic pipe at Dura-Line Retube, $3.4 million.
Partially offsetting these increases were decreased sales of
audio tapes at Riverside, $0.5 million, lower sales of aircraft
parts at Parsons, $1.9 million, and decreased sales at Hudson and
Paw Print, $6.7 million and $5.5 million, respectively, due to
the divestitures of those companies in May and July 1997. Sales
increased at Dacco due to additional market share and the
addition of eight retail stores in 1998, and sales increased at
Cape due