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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, 2000 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.)
Arbor Lake Centre, Suite 550 60015
1751 Lake Cook Road (Zip Code)
Deerfield, Illinois
(Address of Principal Executive Offices)
Registrant's telephone number, including Area Code:
(847) 945-5591
Securities registered pursuant to Section 12(b) of the Act:
Name of Each Exchange
Title of Each Class on Which Registered
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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 no public market for such shares.
The number of shares outstanding of Registrant's Common Stock
as of March 30, 2001: 98,501.0004.
Item 1. BUSINESS
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Jordan Industries, Inc. ("the Company") was organized to acquire and
operate a diverse group of businesses with a corporate staff providing
strategic direction and support. The Company is currently comprised
of 25 businesses which are divided into five strategic business
units: (i) Specialty Printing and Labeling, (ii) Consumer and
Industrial Products, (iii) Jordan Specialty Plastics, (iv) Jordan Auto
Aftermarket, and (v) Motors and Gears. As of July 21, 1999, Welcome Home is
consolidated in the Company's results of operations and is included in the
Consumer and Industrial Products business unit. (See Note 3 to the
financial statements.) As a result of the transactions described in Note 4
to the financial statements, the Jordan Telecommunication Products segment
and the Capita Technologies segment have been reported as discontinued
operations for financial reporting purposes in accordance with Accounting
Principals Board ("APB") Opinion No. 30.
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.
Through the implementation of this strategy, the Company has demonstrated
significant and consistent growth in net sales. The Company generated
consolidated net sales of $807.3 million for the year ended December 31,
2000 as compared to $468.6 million for the year ended December 31, 1996,
representing a compound annual growth rate of 14.7%.
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, 2000.
-2-
Jordan Industries, Inc.
$807.3 Million of Net Sales (3)
SPECIALTY PRINTING AND LABELING - JII Promotions
$122.7 Million of Net Sales - Pamco
- Valmark
- Seaboard
CONSUMER AND INDUSTRIAL PRODUCTS - Cape Craftsmen
$128.4 Million of Net Sales - Welcome Home (1)
- Riverside (2)
- Cho-Pat
- Online Environs
- Internet Services of Michigan
- Flavorsource
- GramTel
JORDAN SPECIALTY PLASTICS - Sate-Lite
$98.3 Million of Net Sales - Beemak
- Deflecto
JORDAN AUTO AFTERMARKET - Dacco
$141.2 Million of Net Sales - Alma
MOTORS AND GEARS (4) - Imperial
$316.7 Million of Net Sales - Gear
- Merkle-Korff
- FIR
- Electrical Design & Control
- Motion Control Engineering
- Advanced D.C. Motors
- ---------------------------
(1) On January 21, 1997 Welcome Home filed for Chapter 11
bankruptcy protection. As a result of the Chapter 11 filing,
the results of Welcome Home were not consolidated with the
Company's results for the period between January 21, 1997 and
July 21, 1999, the date Welcome Home emerged from bankruptcy.
The results of Welcome Home have been consolidated with the
Company's results from the date of its emergence, as the
Company regained operational and financial control of Welcome
Home. See footnote 3 to the financial statements.
(2) Riverside was sold on February 2, 2001. See footnote 24 to the
financial statements.
(3) The results of operations of acquired businesses have been
included in the Company's consolidated results since the
respective dates of acquisition. See footnote 19 to the
financial statements.
(4) The Subsidiaries comprising Motors and Gears are Non-Restricted
Subsidiaries, the common stock of which is owned by stockholders
and affiliates of the Company and management of the respective
companies. In 2001 Motors and Gears, Inc. changed its name to
Kinetek, Inc. Kinetek, Inc. is a wholly-owned subsidiary of
Motors and Gears Holdings Inc., of which the Company's ownership
is solely in the form of M&G Junior Preferred Stock. See note 5
to the financial statements.
-3-
The Company's operations were conducted through the following business units as
of December 31, 2000:
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, 2000, the
Specialty Printing and Labeling group generated net sales of $122.7
million. Each of the Specialty Printing and Labeling subsidiaries is
discussed below:
JII Promotions. In 2001, in an effort to focus attention on its specialty
promotion strengths, Sales Promotion Associates, Inc. was renamed JII
Promotions, Inc. ("JII Promotions"). JII Promotions is a distributor of
corporate recognition, promotion and specialty advertising products and a
producer and distributor of calendars for corporate buyers and soft-cover
yearbooks for kindergarten through eighth grade.
JII Promotions' net sales for fiscal 2000 were $62.0 million. Approximately
62% of JII Promotions' 2000 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 27% of JII Promotions'
2000 net sales were derived from sales of a broad variety of calendars,
including hanging, desktop and pocket calendars that are used internally by
corporate customers and distributed by them to their clients and customers.
High-quality artistic calendars are also distributed. In addition, JII
Promotions manufactures and distributes soft-cover school yearbooks for
kindergarten through eighth grade, which accounted for approximately 11% of
2000 net sales.
JII Promotions distributes calendars that are assembled in-house as well as
by a number of outside suppliers. Facilities for in-house finishing include
a composing room, a camera room, and a calendar binding department. Print
stock, binding material, packaging and other materials are supplied by a
number of independent companies. Specialty advertising products are
purchased from more than 950 suppliers. Calendars and specialty advertising
products are sold through a 700 person sales force, most of whom are
independent contractors.
Management believes that JII Promotions has one of the largest domestic
sales forces in the industry. With this large sales force and broad range
of calendars and corporate recognition products available, management
believes that JII Promotions is a strong competitor in its market. This
market is very fragmented and most of the competition comes from
smaller-scale producers and distributors.
-4-
Valmark. Valmark, which was founded in 1976 and purchased by the Company in
1994, is a specialty printer and manufacturer of graphic components for the
electronics Original Equipment Manufacturer ("OEM") market. Valmark's
product line includes graphic panel overlays, membrane switch control
panels, adhesive-backed labels and electro magnetic shielding devices.
Approximately 31% of Valmark's 2000 net sales of $21.7 million were derived
from the sales of membrane switch control panels, 49% from graphic panel
overlays, 18% from labels and 2% from shielding devices.
The specialty screen print products sold in the electronics industry
continue to operate relatively free of foreign competition due to the high
level of communication and short time frame usually required to produce
orders. While the majority of Valmark's customer base of approximately
1,200 is located in the Northern California area, Valmark conducts business
nationally through its network of manufacturing sales representatives.
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 membrane switch control panel
capabilities.
Valmark is able to provide OEM's with a broader range of products than many
of its competitors. Valmark's markets are very competitive in terms of
price and accordingly, Valmark's advantage over its competitors is derived
from its diverse product line and excellent quality ratings.
Pamco. Pamco, which was founded in 1953 and purchased by the Company in
1994, is a manufacturer and distributor of a wide variety of printed tapes
and labels. Pamco offers a range of products from simple one and two-color
labels, such as basic bar code and address labels, to eight-color,
laminated, embossed, and hot stamped labels for products such as video
games and food packaging. All of Pamco's products are made to customer
specifications and approximately 94% of all sales were manufactured
in-house in 2000. The remaining 6% of net sales were purchased printed
products and included business cards and stationery.
Pamco's products are marketed by a team of 9 sales representatives who
procure new accounts and service existing accounts. Existing accounts are
serviced by 8 customer service representatives and 2 internal salespeople.
Pamco's customers represent several different industries with the five
largest customers accounting for approximately 19% of 2000 net sales of
$18.4 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.
-5-
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
2000 net sales of $20.6 million. Seaboard has exhibited 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 competition is derived from its high quality
products and excellent service.
Consumer and Industrial Products
Consumer and Industrial Products serves many product segments. It publishes
and markets Bibles, religious books and audio materials; manufactures and
imports gift items; manufactures orthopedic supports and pain reducing
medical devices; provides internet access to small Midwestern markets;
manufactures and develops flavors used in beverages and foods; provides
internet business development solutions and consulting services; and
provides dedicated internet connectivity, co-location, and data storage
services at regionally located Secure Network Access Centers. For the year
ended December 31, 2000, the Consumer and Industrial Products subsidiaries
generated combined net sales of $128.4 million. Each of the Consumer and
Industrial Products subsidiaries is discussed below:
Riverside. Riverside is a publisher of Bibles and a distributor of Bibles,
religious books and music recordings. Riverside was founded in 1943 and
acquired by the Company in 1988. Approximately 77% of Riverside's business
consists of products published by other companies. Riverside sells
world-wide to more than 10,000 wholesale, religious and trade book store
customers, utilizing an in-house telemarketing system, five independent
sales representative groups, printed sales media and an internet website.
In addition, Riverside sells a small percentage of its products through
direct mail and to retail customers. Riverside had 2000 net sales of $54.8
million. On February 2, 2001, Riverside was sold to a third party. See note
24 to the financial statements.
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 3 in-house salespeople and 44 independent sales representatives.
Net sales in 2000 were $12.7 million, excluding sales to Welcome Home, a
related party, of $17.2 million. Cape Craftsmen competes in a highly
fragmented industry and has therefore found it most effective to compete on
the basis of price with most wood manufacturers and importers. Cape
Craftsmen also strives to deliver better quality and service than its
competitors.
Welcome Home.Welcome Home is a specialty retailer of gifts and decorative
home furnishings and accessories in North America. Welcome Home began
operations in the mid 1970's and was acquired by the Company in 1991. It
currently operates 124 stores located in factory outlet centers and
regional malls in 37 states. Welcome Home offers a broad product line of
1,500 to 2,500 items consisting of 12 basic groups, including decorative
home textiles, framed art, furniture, candles, lighting, fragrance,
decorative accessories, decorative garden, music, special opportunity
merchandise and seasonal products.
-6-
Competition is highly intense among specialty retailers, traditional
department stores and mass merchant discounters in outlet malls and other
high traffic retail locations. Welcome Home competes principally on the
basis of product assortment, convenience, customer service, price and the
attractiveness of its stores. Welcome Home had net sales of $54.4 million
in the year ended December 31, 2000.
Cho-Pat. In September 1997, the Company purchased Cho-Pat, Inc., a leading
designer and manufacturer of orthopedic supports and patented preventative
and pain reducing medical devices. Cho-Pat currently produces eighteen
different products primarily for reduction of pain from injuries and the
prevention of injuries resulting from over use of the major joints.
Cho-Pat's largest selling product is the patented Cho-Pat knee strap,
designed to reduce the pain from patellar tendonitis in the knee. Cho-Pat
manufactures all of its products in-house. Cho-Pat sells its products to
professional, college and high school athletic trainers, medical product
distributors, and independent retail drug and sporting goods stores.
Cho-Pat had net sales of $1.9 million in 2000.
Online Environs. In March 2000, the Company purchased Online Environs, Inc.
Online is an international Internet business solutions developer and
consultant whose services are designed to help clients increase sales,
improve communications, and create and enhance business identities over the
Internet. Online had sales of $3.1 million from the date of acquisition
through December 31, 2000.
ISMI. Internet Services of Michigan was purchased by the Company on October
10, 2000. ISMI is an Internet service provider with approximately 9,500
customers located in Michigan. ISMI offers standard dial up resources as
well as high-speed Internet connections such as DSL, Satellite and ISDN.
ISMI also provides website development and creation services and web
hosting features. ISMI had net sales of $0.5 million from the date of
acquisition through December 31, 2000.
Flavorsource.On October 23, 2000, the Company purchased Flavorsource, Inc.
Flavorsource is a developer and compounder of flavors for use in beverages
of all kinds, including coffee, tea, juices, bar mixes, sodas, and
cordials, as well as in nutritional foods, bakery products and ice cream
and dairy products. Flavorsource had net sales of $0.7 million from the
date of acquisition through December 31, 2000.
GramTel. GramTel Communications, Inc. was started by the Company in
December 2000. GramTel is an information technology infrastructure
outsourcing company that allows its customers to transfer, protect and
store their mission critical data at regionally located Secure Network
Access Centers. GramTel had net sales of $0.3 million from the date of
formation through December 31, 2000.
-7-
Jordan Specialty Plastics
Jordan Specialty Plastics serves a broad range of wholesale and retail
markets within the highly-fragmented specialty plastics industry. The group
designs, manufactures and sells (1) "take-one" point of purchase brochure,
folder and application display holders, (2) modular storage systems
("Tilt-Bins"(TM)), (3) plastic injection-molded hardware and office supply
products, (4) extruded vinyl chairmats, (5) safety reflectors for bicycles
and commercial truck manufacturers and (6) colorants to the thermoplastics
industry. The companies that are part of Jordan Specialty Plastics have
provided their customers with products and services for an average of over
35 years. For the year ended December 31, 2000, the Jordan Specialty
Plastics subsidiaries generated combined net sales of $98.3 million. Each
of the Jordan Specialty Plastics subsidiaries is discussed below:
Beemak Plastics. Beemak, which was founded in 1951 and acquired by the
Company in July 1989, is an integrated manufacturer of custom
point-of-purchase displays, brochure holders and sign holders. Beemak sells
its proprietary holders and displays to approximately 5,000 customers
around the world. 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 2000 were $6.8 million.
Beemak's products are both injection-molded and custom fabricated. Beemak's
molds are made by outside suppliers. The manufacturing process consists
primarily of the injection-molding of polystyrene plastic and the
fabrication of plastic sheets. Beemak also provides silk screening of
decals and logos onto the final product.
Beemak sells its products through a direct sales force, independent
representatives, an extensive on-going advertising campaign and by
reputation. Beemak sells to distributors, major companies, and competitors
which resell the product under a different name. Beemak has been successful
in providing excellent service on orders of all sizes, especially on 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.
Sate-Lite Manufacturing. Sate-Lite specializes in safety reflectors for
bicycles and commercial truck manufacturers, colorants/masterbatches for
the thermoplastics industry, and a line of retail Tilt-Bin(TM) storage
containers. Sate-Lite was founded in 1968 and acquired by the Company in
1988. Bicycle reflectors and plastic bicycle parts account for
approximately 32% of Sate-Lite's net sales in 2000. Sales of emergency
warning triangles and specialty reflectors and lenses to commercial truck
customers accounted for approximately 25% of net sales in 2000. Sales of
colorants to the thermoplastics industry accounted for approximately 32% of
net sales in 2000. Sales of storage containers accounted for approximately
5% of net sales. The remaining 6% of 2000 net sales were derived from other
miscellaneous plastic injection molded products. Sate-Lite's net sales for
2000 were $16.2 million.
Sate-Lite's bicycle and truck/auto products are sold directly to a number
of OEM's. The three largest OEM customers are Tandem (China), Grote
Industries, and Federal Mogul, which account for a total of approximately
13% of Sate-Lite's net sales in 2000. Colorants are sold primarily to
plastic processors in North America. The Tilt-Bin(TM) storage containers
are sold primarily to retail outlets used for in-store display fixtures, as
well as for home consumer use. In 2000, Sate-Lite's ten largest customers
accounted for approximately 43% of net sales.
-8-
Sate-Lite's bicycle products are marketed to bicycle OEM's in North America
and Asia. Sales to foreign customers are handled directly by management and
by independent trading companies on a commission basis. Sate-Lite's net
export sales accounted for approximately 25% of its total 2000 net sales.
Export sales were principally to China and Canada. The principal raw
materials used in manufacturing Sate-Lite's products are plastic resins,
metal fasteners, and color pigments. Sate-Lite purchases these materials
from several independent suppliers. In the fourth quarter of 1998,
Sate-Lite opened a wholly-owned manufacturing factory in China. Sate-Lite
sells to a variety of companies in Asia including Tandem, Giant, Southern
Cross, and other bicycle manufacturers who have recently been increasing
their sales to the North American market through mass market bicycle brands
such as Huffy, Mongoose, Pacific, and Roadmaster.
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 bicycle parts market consist of both foreign and
domestic manufacturers. Sate-Lite competes with regional companies in the
thermoplastic colorant markets.
Deflecto Corporation. Founded in 1960 and acquired by the Company in 1998,
Deflecto designs, manufactures and markets plastic injection-molded
products for mass merchandisers, major retailers and large wholesalers.
Deflecto sells its products in two product categories: hardware products
and office supply products. Hardware products, which comprised
approximately 57% of Deflecto's net sales in 2000, include heating and
cooling air deflectors, clothes dryer vents and ducts, kitchen vents and
ducts, sheet metal pipes and elbows, exhaust fittings, heating ventilation
and air conditioning registers and other widely recognized products. Office
supply products, many of which have patents and trademarks, represented
approximately 43% of net sales in 2000 and include such items as wall
pockets, literature displays, file and chart holders, business card
holders, chairmats and other top-branded office supply products. Deflecto's
net sales for 2000 were $75.3 million.
Deflecto manufactures approximately 80% of its products in-house, with the
remainder outsourced to other injection molders. Deflecto efficiently
manages the mix of manufactured and outsourced product due to its ability
to accurately project pricing, cost and capacity constraints. This strategy
enables Deflecto to grow without being constrained by capacity issues.
-9-
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 part wholesalers. Deflecto sells its office supply products line
to major office supply retailers such as Office Depot, Office Max and
Staples, as well as to national wholesalers, such as United Wholesalers and
S.P. Richards. 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 and office supplies business is increasing due
to the consolidation of companies serving the market. The increased
competition has prevented price increases and has forced manufacturers to
improve production efficiency, product quality and delivery. The Company
believes that Deflecto's mix of manufactured and outsourced product, and
its management of this process, allows it to maintain high production
efficiency, keeping costs down and product quality high.
Jordan Auto Aftermarket
Jordan Auto Aftermarket is the leading supplier of remanufactured torque
converters to the automotive aftermarket parts industry. In addition, it
produces newly manufactured torque converters, air conditioning
compressors, and clutch and disc assemblies for major automotive and
equipment OEM's. For the year ended December 31, 2000, the Jordan Auto
Aftermarket subsidiaries generated combined net sales of $141.2 million.
Each of the Jordan Auto Aftermarket subsidiaries is discussed below.
DACCO. DACCO is a producer of remanufactured torque converters, as well as
automotive transmission sub-systems and other related products used by
transmission repair shops. DACCO was founded in 1965 and acquired by the
Company in 1988.
Approximately 70% of DACCO's products are classified as "hard" products,
which primarily consist of torque converters and hydraulic pumps that have
been rebuilt or remanufactured by DACCO. The torque converter, which
replaces the clutch in an automatic transmission, transfers power from the
engine to the drive shaft. The hydraulic pump supplies oil to all the
systems in the transmission.
Approximately 30% of DACCO's products are classified as "soft" products,
such as sealing rings, bearings, washers, filter kits and rubber
components. Soft products are purchased from a number of vendors and are
resold in a broad variety of packages, configurations and kits.
DACCO's customers are automotive transmission parts distributors and
transmission repair shops and mechanics. DACCO has 50 independent sales
representatives who accounted for approximately 51% of DACCO's net sales of
$66.4 million in 2000. These sales representatives sell nationwide to
independent warehouse distributors and transmission repair shops. DACCO
also owns and operates 39 distribution centers which sell directly to
transmission shops. DACCO's distribution centers average 5,400 square feet,
cover a 50-100 mile selling radius and sell approximately 40% hard products
and 60% soft parts. In 2000, no single customer accounted for more than 2%
of DACCO's net sales.
-10-
The domestic market for DACCO's hard products is fragmented and DACCO's
competitors primarily consist of a number of small regional and local
re-builders. DACCO believes that it competes strongly against these
re-builders by offering a broader product line, quality products, and lower
prices, all of which are made possible by DACCO's size and economies of
operation. However, the market for soft products is highly competitive and
several of its competitors are larger than DACCO. DACCO competes in the
soft products market on the basis of its low prices due to volume buying,
its growing distribution network and its ability to offer one-step
procurement of a broad variety of both hard and soft products.
Alma. Founded in 1944 and acquired by the Company in March 1999, Alma uses
a combination of remanufacturing and new production to produce torque
converters, air conditioning compressors, and clutch and disc assemblies
for major automotive and equipment OEM's such as Ford, Chrysler, GM, John
Deere, Caterpillar, and Case, as well as numerous other direct aftermarket
customers. Torque converters and clutch and disc assemblies are also
referred to as drive trains. Net sales were $74.8 million during the year
ended December 31, 2000.
Alma manufactures its products to customer's specifications, and its
engineering department works closely with the customer's engineers to
ensure that specifications are met. Torque converters (approximately 45% of
2000 net sales) are remanufactured and sold to major automotive OEMs such
as Ford and Chrysler, typically for warranty replacement. Alma does not
sell torque converters in the independent aftermarket, which is the primary
market for DACCO's torque converters. Air conditioning compressors
(approximately 38% of 2000 net sales) are both remanufactured and produced
new for the automotive aftermarket. Alma's compressors are sold to the
service arms of major automotive manufacturers such as Ford, Chrysler, GM,
John Deere, and Caterpillar. Alma supplies the majority of the compressors
purchased by these customers in the aftermarket. Clutch and disc assemblies
(approximately 17% of 2000 net sales) are both remanufactured and produced
new and are sold primarily to repackagers who then resell the products to
automotive parts distributors. Alma has long-term contracts with several
customers, and has developed strong relationships with all of its major
customers. Alma was selected by Ford to remanufacture, distribute, and
fully merchandise Ford's first two Ford Quality Renewal programs for torque
converters and clutch and disc assemblies. The use of Alma remanufactured
Ford Quality Renewal products in new vehicle warranty repair is indicative
of Alma's engineering, manufacturing and quality expertise. Approximately
27% of Alma's 2000 sales were to Ford and approximately 14% were to
Chrysler.
Alma's market is somewhat captive in that any supplier selling to the major
automotive and equipment OEMs must adhere to the same quality standards
with which Alma complies. Alma's primary competitors in the torque
converter market are Dynamic and Aftermarket Technologies, while Four
Seasons is the primary competitor in the air conditioning compressor
market. Alma competes based on quality, price, and customer service.
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.
-11-
Motors and Gears operates in the businesses of electric motors ("motors")
which includes the subsidiaries Imperial, Gear, Merkle-Korff, Fir, and
Advanced D.C. Motors; and electronic motion control systems ("controls")
which includes the subsidiaries Electrical Design & Control and Motion
Control Engineering. For the year ended December 31, 2000 Motors and Gears
generated net sales of $316.7 million.
Electric Motors. Electric motors are devices that convert electric power
into rotating mechanical energy. The amount of energy delivered is
determined by the level of input power supplied to the electric motor and
the size of the motor itself. An electric motor can be powered by
alternating current ("AC") or direct current ("DC"). AC power is generally
supplied by power companies directly to homes, offices and industrial sites
whereas DC power is supplied either through the use of batteries or by
converting AC power to DC power. Both AC motors and DC motors can be used
to power most applications; the determination is made by the consideration
of power source availability, speed variability requirements, torque
considerations, and noise constraints.
The power output of electric motors is measured in horsepower. Motors are
produced in power outputs that range from less than one horsepower up to
thousands of horsepower.
SubFractional Motors. Motors & Gears' subfractional horsepower products are
comprised of motors and gearmotors which power applications up to 30 watts
(1/25 horsepower). These small, "fist-sized" AC and DC motors are used in
light duty applications such as snack and beverage vending machines,
refrigerator ice dispensers and photocopy machines.
Fractional/Integral Motors. Motors & Gears' fractional/integral horsepower
products are comprised of AC and DC motors and gearmotors having power
ranges from 1/8 to 100 horsepower. Primary end markets for these motors
include commercial floor equipment, commercial dishwashers, commercial
sewing machines, industrial ventilation equipment, golf carts, lift trucks
and elevators.
Gears and Gearboxes. Gears and gearboxes are mechanical components used to
transmit mechanical energy from one source to another source. They are
normally used to change the speed and torque characteristics of a power
source such as an electric motor. Gears and gearboxes come in various
configurations such as helical gears, bevel gears, worm gears, planetary
gearboxes, and right-angle gearboxes. For certain applications, an electric
motor and a gearbox are combined to create a gearmotor.
Motors & Gears' precision gear and gearbox products are produced in sizes
of up to 16 inches in diameter and in various customized configurations
such as pump, bevel, worm and helical gears. Primary end markets for these
products include original equipment manufacturers ("OEM's") of motors,
commercial floor care equipment, aerospace and food processing product
equipment.
Electronic Motion Control Systems. Electronic motion control systems are
assemblies of electronic and electromechanical components that are
configured in such a manner that the systems have the capability to control
various commercial or industrial processes such as conveyor systems,
packaging systems, elevators, and automated assembly operations. The
components utilized in a motion control system are typically electric motor
drives (electronic controls that vary the speed and torque characteristics
of electric motors), programmable logic controls ("PLCs"), transformers,
capacitors, switches and software to configure and control the system. The
majority of the Company's motion control products control automated
conveyor systems used in automotive manufacturing and elevators.
-12-
Backlog
As of December 31, 2000 the Company had a backlog of approximately $95.6
million, compared with $90.5 million as of December 31, 1999. The backlog
in 2000 is primarily due to motor sales at Merkle-Korff. Management
believes that the backlog may not be indicative of future sales.
Seasonality
The Company's aggregate business has a certain degree of seasonality. JII
Promotions, Welcome Home's and Riverside's sales are somewhat stronger
toward year-end due to the nature of their products. Calendars at JII
Promotions have an annual cycle while Bibles and religious books at
Riverside and home furnishings and accessories at Welcome Home are popular
as holiday gifts.
Research and Development
As a general matter, the Company operates businesses that do not require
substantial capital or research and development expenditures. However,
development efforts are targeted at certain subsidiaries as market
opportunities are identified. None of these subsidiaries' development
efforts require substantial resources from the Company.
Patents, Trademarks, Copyrights and Licenses
The Company protects its confidential, proprietary information as trade
secrets. The Company's products are generally not protected by virtue of
any proprietary rights such as patents. There can be no assurance that the
steps taken by the Company to protect its proprietary rights will be
adequate to prevent misappropriation of its technology and know-how or that
the Company's competitors will not independently develop technologies that
are substantially equivalent to or superior to the Company's technology. In
addition, the laws of some foreign countries do not protect the Company's
proprietary rights to the same extent as do the laws of the United States.
In the Company's opinion, the loss of any intellectual property asset,
would not have a material adverse effect on the conduct of the Company's
business.
The Company is also subject to the risk of adverse claims and litigation
alleging infringement of proprietary rights of others. From time to time,
the Company has received notice of infringement claims from other parties.
Although the Company does not believe it infringes on the valid proprietary
rights of others, there can be no assurance against future infringement
claims by third parties with respect to the Company's current or future
products. The resolution of any such infringement claims may require the
Company to enter into license arrangements or result in protracted and
costly litigation, regardless of the merits of such claims.
Employees
As of December 31, 2000, the Company and its subsidiaries employed
approximately 6,967 people. Approximately 1,698 of these employees were
members of various labor unions. 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, emissions and discharge of materials into the environment,
including the U.S. Comprehensive Environmental Response, Compensation and
Liability Act ("CERCLA"), the Clean Water Act, the Clean Air Act, the
Emergency Planning and Community Right-to-Know Act, and the Resource
Conservation and Recovery Act. Under CERCLA and analogous state laws, a
current or previous owner or operator of real property may be liable for
the costs of removal or remediation of hazardous or toxic substances on,
under, or in such property. Such laws frequently impose cleanup liability
regardless of whether the owner or operator knew of or was responsible for
the presence of such hazardous or toxic substances and regardless of
-13-
whether the release or disposal of such substances was legal at the time it
occurred. Regulations of particular significance to the Company's ongoing
operations include those pertaining to handling and disposal of solid and
hazardous waste, discharge of process wastewater and storm water and
release of hazardous chemicals. The Company believes it is in substantial
compliance with such laws and regulations.
The Company generally conducts an assessment of compliance and the
equivalent of a Phase I environmental survey on each acquisition candidate
prior to purchasing a 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 cleanup
hazardous or toxic substances at the Company's property for which
indemnification is not available, could lead to material costs of
environmental compliance and cleanup by the Company.
FIR, a wholly-owned subsidiary of the Company, owns property in
Casalmaggiore, Italy that is the subject of investigation and remediation
under the review of government authorities for soils and groundwater
contaminated by historic waste handling practices. In connection with the
acquisition of FIR, the Company obtained indemnification from the former
owners for this investigation and remediation.
Alma owns two properties in Alma, MI which are contaminated by chlorinated
solvent and oil contamination. One is on the Michigan List of Sites of
Environmental Contamination and has been the subject of investigation by
the Michigan Department of Environmental Quality ("DEQ") since 1982. By
1985, the former owner had cleaned out, closed and capped the lagoons which
were the source of the contamination and in 1992, had installed a
groundwater remediation system. On January 5, 1999 the former owner
submitted to DEQ a proposed remedial action plan which recommends that the
groundwater treatment system continue to operate for up to thirty years, a
deed restriction that limits the use of the property to industrial use and
the adoption, by the City of Alma, of an ordinance which prohibits the
private use of groundwater for drinking water. DEQ has not yet approved or
denied the plan. The second property is contaminated with petroleum
constituents and chlorinated solvents. The scope and extent of the
contamination is being investigated. In connection with the acquisition of
these properties, the Company obtained indemnification and assurances from
the Seller that the Seller bore full responsibility for the completion of
the investigation and remediation of the historic contamination of the two
properties.
In October 1997, the Tennessee Department of Environmental Control ("DEC")
requested information from DACCO about a contaminated spring adjacent to
its Cookeville, Tennessee property. The spring is reportedly contaminated
with materials which DACCO does not believe would have originated at the
facility, and DACCO therefore does not believe that it caused the
contamination or that it will be responsible for the clean-up. In September
1998, the DEC informed DACCO that the spring requires further
investigation, and that DACCO's Cookeville property meets the criteria for
designation as a state Superfund cleanup site. The DEC has subsequently
agreed to examine the potential liability of other companies in the area
before pursuing DACCO for cleanup costs. While the Company does not believe
that DACCO will be liable for the cost of any further investigation or
cleanup, there can be no assurance that the DEC will not attempt to impose
such liability, or that, if the DEC is successful in doing so, that such
liability would not be material.
-14-
Item 2. Properties
----------
The Company leases approximately 36,800 square feet of office space for its
headquarters in Illinois. The principal properties of each subsidiary of
the Company at December 31, 2000, 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 LEASE
- ---------------- --- ------ ------
Advanced DC
Syracuse, 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 15,000 Leased
Putzbrunn, Germany Warehouse 1,200 Leased
Alma
Alma, MI Manufacturing 459,000 Owned
Beemak
Rancho Dominguez, CA Manufacturing/Administration 104,000 Leased
Cape Craftsmen
Elizabethtown, NC Manufacturing/Administration 85,000 Leased
Elizabethtown, NC Assembly 20,000 Leased
Elizabethtown, NC Assembly 57,000 Leased
Clarkton, NC Assembly 47,000 Owned
Cho-Pat
Hainesport, NJ Manufacturing/Administration 7,000 Leased
Dacco
Cookeville, TN Manufacturing/Administration 355,000 Owned
Huntland, TN Manufacturing 72,000 Owned
Rancho Cucamonga, CA Manufacturing/Administration 42,000 Owned
Deflecto
Indianapolis, IN Manufacturing/Administration 182,600 Owned
Indianapolis, IN Assembly/Administration 47,900 Leased
Fishers, IN Manufacturing 134,400 Leased
St. Catherines, Ont. Manufacturing 50,000 Owned
St. Catherines, Ont. Assembly 78,000 Leased
Midvale, OH Manufacturing/Administration 20,430 Owned
Pearland, TX Manufacturing 63,000 Leased
Newport, Wales Manufacturing 66,000 Owned
Aurora, Ontario Manufacturing/Administration 30,500 Leased
ED&C
Troy, MI Manufacturing/Administration 29,000 Leased
FIR
Casalmaggiore, Italy Manufacturing/Administration 100,000 Owned
Varano, Italy Manufacturing 30,000 Owned
Bedonia, Italy Manufacturing 8,000 Leased
Reggio Emilia, Italy Manufacturing/Distribution 30,000 Leased
Genova, Italy Research and Development 33,000 Leased
-15-
Gear
Grand Rapids, MI Manufacturing/Administration 45,000 Owned
GramTel
Chicago, IL Administration 3,300 Leased
South Bend, IN Sales 9,000 Owned
Imperial
Akron, OH Manufacturing 43,000 Owned
Middleport, OH Manufacturing 85,000 Owned
Cuyahoga Falls, OH Manufacturing 63,000 Leased
Alamogordo, NM Manufacturing 25,800 Leased
Oakwood Village, OH Manufacturing/Administration 25,000 Leased
ISMI
Howell, MI Administration/Sales 3,800 Leased
Merkle-Korff
Des Plaines, IL Design/Administration 38,000 Leased
Richland Center, WI Manufacturing 45,000 Leased
Darlington, WI Manufacturing 68,000 Leased
Des Plaines, IL Manufacturing/Administration 112,000 Leased
SLP Mexico Manufacturing 46,000 Leased
Motion Control
Rancho Cordova, CA Manufacturing/Administration 40,000 Leased
Rancho Cordova, CA Administration 45,000 Leased
Online Environs
Cambridge, MA Design/Sales 7,587 Leased
San Francisco, CA Design 1,040 Leased
Pamco
Des Plaines, IL Manufacturing/Administration 52,000 Owned
King of Prussia, PA Manufacturing/Administration 24,000 Leased
Riverside
Iowa Falls, IA Distribution/Storage 150,000 Owned
Sate-Lite
Niles, IL Manufacturing/Administration 117,835 Leased
Shunde, Guangdong Manufacturing/Administration 57,072 Leased
Seaboard
Fitchburg, MA Manufacturing/Administration 260,000 Owned
Miami, FL Manufacturing 90,000 Owned
Brentwood, NY Manufacturing 35,000 Leased
JII Promotions
Red Oak, IA Manufacturing/Administration 140,000 Owned
Coshocton, OH Manufacturing/Administration 218,000 Owned
Columbus, OH Sales 11,000 Leased
Valmark
Fremont, CA Manufacturing/Administration 46,700 Leased
Fremont, CA Manufacturing/Administration 14,830 Leased
Welcome Home
Wilmington, NC Administration 10,000 Leased
-16-
DACCO also owns or leases 39 distribution centers, which average 5,400
square feet in size. DACCO maintains five distribution centers in Florida,
four distribution centers in Tennessee, three distribution centers in
Illinois and Virginia, two distribution centers in each of Arizona,
Indiana, Michigan, Texas, Alabama, California, and Ohio with the remaining
distribution centers located in Pennsylvania, Minnesota, Missouri,
Nebraska, West Virginia, Oklahoma, South Carolina, Nevada, Georgia and
Kentucky.
Welcome Home leases 124 specialty retail stores in 37 states, with the
majority of store locations in outlet malls. Welcome Home maintains 17
stores in California, 9 stores in Florida, 6 stores in both Georgia and
Texas, 5 stores in both Missouri and New York, and 4 stores in each of
Illinois, Michigan, North Carolina, Ohio, Pennsylvania and Washington. The
remaining stores are located throughout the United States.
Merkle-Korff's facilities are leased from the Chairman of Merkle-Korff. The
Company believes that the terms of the lease are comparable to those which
would have been obtained by the Company had the leases been entered into
with an unaffiliated third party.
To the extent that any of the Company's existing leases expire in 2001, the
Company believes that its existing leased facilities are adequate for the
operations of the Company and its subsidiaries.
Item 3. LEGAL PROCEEDINGS
-----------------
The Company's subsidiaries are parties to various legal actions arising in
the normal course of their businesses. 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, 2000.
Part II
Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDERS MATTERS
-------------------------------------------------
The only authorized, issued and outstanding class of capital stock of the
Company is Common Stock. There is no established public trading market for
the Company's Common Stock.
(a) At December 31, 2000, there were 18 holders of record of the
Company's Common Stock.
(b) The Company has not declared any cash dividends on its Common Stock
since the Company's formation in May 1988. The Indenture, dated as
of July 25, 1997, by and between the Company and U.S. Bank Trust
National Association f/k/a First Bank National Association, as
Trustee, (the "Trustee") with respect to the 10 3/8% Senior Notes and
the Indenture dated as of April 2, 1997, by and between the Company
and the Trustee with respect to the 11 3/4% Senior Subordinated
Discount Debentures (collectively the "Indentures") contain
restrictions on the Company's ability to declare or pay dividends on
its capital stock. The Indentures each prohibit the declaration or
payment of any dividends or the making of any distribution by the
Company or any Restricted Subsidiary (as defined in the Indentures)
other than dividends or distributions payable in stock of the Company
or a Subsidiary and other than dividends or distributions payable to
the Company.
-17-
Item 6. SELECTED FINANCIAL DATA
-----------------------
The following table presents selected operating, balance sheet and other
data of the continuing operations of the Company and its subsidiaries as of
and for the five years ended December 31, 2000. The financial data have
been derived from the consolidated financial statements of the Company and
its subsidiaries. As a result of the transactions described in Note 4 to
the financial statements, the Jordan Telecommunications Products segment
and the Capita Technologies segment have been reported as discontinued
operations for financial reporting purposes in accordance with Accounting
Principals Board ("APB") Opinion No. 30, and their results have been
excluded from the information shown below.
Year Ended December 31,
------------------------------------------
(Dollars in thousands)
2000 1999 1998 1997 1996
---- ---- ---- ---- ----
Operating data: (1)
Net Sales.................................. $807,296 $766,655 $633,579 $450,102 $468,568
Cost of sales, excluding
depreciation............................... 513,755 497,223 406,970 282,654 292,889
------- ------- ------- ------- -------
Gross profit, excluding
depreciation............................... 293,541 269,432 226,609 167,448 175,679
Selling, general and
administrative expense,
excluding depreciation..................... 173,370 153,582 131,055 100,778 127,529
Operating income............................ 51,013 69,245 57,977 39,221 407
Interest expense............................ 92,009 87,058 70,184 66,947 62,576
Interest income............................. (5,464) (1,083) (1,656) (2,227) (2,416)
Loss from continuing
operations (2)............................. (36,046) (5,731) (15,081) (10,603) (58,797)
Balance sheet data (at end of period):
Cash and cash equivalents................... 21,713 19,973 14,967 43,512 25,787
Working capital............................. 159,299 161,570 144,474 124,941 84,208
Total assets................................ 896,701 1,159,496 955,405 849,595 642,808
Long-term debt (less
current portion).......................... 787,694 837,712 1,054,327 915,145 683,564
Net capital deficiency (3).................. (82,010) (238,835) (208,144) (175,285) (130,281)
- ----------------------------------------
(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) Loss from continuing operations in 1996 includes compensation expense
related to compensation agreements of $3,876, the loss on the purchase
of an affiliate, $4,488, restructuring charges related to Welcome
Home, $8,106, and other non-recurring charges, $4,136. Loss from
continuing operations in 1997 includes a gain on the sale of a
subsidiary of $17,081, and the recording of equity in the loss of an
investee of $3,386. Loss from continuing operations in 1999 includes a
gain of the sale of Parsons of $10,037. Loss from continuing
operations in 2000 includes a $14,636 write-down of goodwill related
to a subsidiary of Motors and Gears (see footnote 22 to the financial
statements) and a loss on the sale of a subsidiary of $2,798 (see
footnote 24 to the financial statements).
(3) No cash dividends on the Company's Common Stock have been declared or paid.
-18-
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, 2000, 1999, and 1998. This
discussion should be read in conjunction with the historical consolidated
financial statements and the related notes thereto contained elsewhere in
this Annual Report.
In 1998 Sate-Lite and Beemak were reclassified from the Consumer and
Industrial Products segment to the Jordan Specialty Plastics segment. In
1999, DACCO was reclassified from the Consumer and Industrial Products
segment to the Jordan Auto Aftermarket segment. Also in 1999, Welcome Home
was reconsolidated into the Consumer and Industrial Products segment.
Welcome Home's results are included from the time of its emergence from
bankruptcy on July 21, 1999. Prior period results were also realigned into
these new groups in order to provide accurate comparisons between periods.
Year ended December 31,
-----------------------
2000 1999 1998
---- ---- ----
(dollars in thousands)
Net Sales:
Specialty Printing & Labeling $122,691 $117,678 $120,160
Jordan Specialty Plastics 98,353 86,284 65,387
Jordan Auto Aftermarket 141,213 131,935 71,568
Motors and Gears 316,666 307,877 275,833
Consumer and Industrial Products 128,373 122,881 100,631
-------- -------- --------
Total $807,296 $766,655 $633,579
======== ======== ========
Operating Income (1):
Specialty Printing & Labeling $7,210 $7,638 $8,259
Jordan Specialty Plastics 1,928 4,319 4,654
Jordan Auto Aftermarket 20,449 16,675 10,531
Motors and Gears 36,497 50,597 42,324
Consumer and Industrial Products 3,071 7,867 6,574
------- ------- -------
Total $69,155 $87,096 $72,342
======= ======= =======
Operating Margin (2):
Specialty Printing & Labeling 5.9% 6.5% 6.9%
Jordan Specialty Plastics 2.0% 5.0% 7.1%
Jordan Auto Aftermarket 14.5% 12.6% 14.7%
Motors and Gears 11.5% 16.4% 15.3%
Consumer and Industrial Products 2.4% 6.4% 6.5%
Combined 8.6% 11.4% 11.4%
(1) Before corporate overhead of $18,142, $17,851 and $14,365 for the
years ended December 31, 2000, 1999, and 1998, respectively.
(2) Operating margin is operating income divided by net sales.
-19-
Specialty Printing & Labeling. As of December 31, 2000, the Specialty
Printing & Labeling group consisted of JII Promotions, Valmark, Pamco, and
Seaboard.
2000 Compared to 1999. Net sales increased $5.0 million or 4.3% for the
year ended December 31, 2000. Net sales increased primarily due to
increased sales of outside specialties at JII Promotions, $1.2 million,
screen printing and membrane switches at Valmark, $1.6 million and $0.9
million, respectively, labels at Pamco, $1.2 million and packaging at
Seaboard, $0.4 million. Partially offsetting these increases was the
decrease in calendar sales at JII Promotions of $0.3 million. The decrease
in sales of calendars at JII Promotions is due to consolidation in the
banking and insurance industries. The increase in sales at Valmark is
primarily the result of Valmark's successful initiative to provide Apple
Computer with the product identification labels for its new computer
products.
Operating income decreased $0.4 million or 5.6% for the year ended December
31, 2000. The majority of the decrease was due to lower operating income at
Pamco, $0.8 million and Seaboard, $0.3 million, partially offset by
increases in operating income at JII Promotions, $0.1 million and Valmark,
$0.6 million. The increase in operating income at Valmark is due primarily
to the increase in sales to Apple as mentioned above. The decrease in
operating income at Pamco was due to it's new facility in Pennsylvania.
1999 Compared to 1998. Net sales decreased $2.5 million, or 2.1% and
operating income decreased $0.6 million, or 7.5% when comparing the year
ended December 31, 1999 with the year ended December 31, 1998. Sales
decreased primarily due to lower sales of calendars at JII Promotions, $1.8
million, decreased sales of roll stock at Valmark, $0.1 million, and lower
sales of folding boxes at Seaboard, $4.2 million. Partially offsetting
these decreases were increased sales of ad specialty products and school
annuals at JII Promotions, $0.3 million and $0.1 million, respectively,
higher sales of screen printed products and membrane switches at Valmark,
$2.2 million and $0.2 million, respectively, and increased sales of labels
at Pamco, $0.8 million. Sales of calendars decreased at JII Promotions due
to consolidation in the banking and insurance industries, which are a large
part of JII Promotions' customer base, and sales declined at Seaboard due
to a general slowdown in the corrugated folding box industry. The increase
in sales of screen printed products at Valmark is due to Valmark's
implementation of a stock inventory program that allows Valmark to more
efficiently accommodate its larger customers.
Operating income decreased due to lower operating income at JII Promotions
and Seaboard $0.7 million and $1.4 million, respectively. Partially
offsetting these decreases was increased operating income at Valmark and
Pamco, $0.8 million and $0.7 million, respectively. Operating income
declined at JII Promotions due to lower sales and the increased focus on
and investments in the corporate programs division and operating income
decreased at Seaboard due to lower absorption of fixed overhead because of
a lower sales level. Operating income increased at Valmark and Pamco due to
those businesses more efficiently monitoring production, inventory levels,
and operating expenses.
-20-
Jordan Specialty Plastics. As of December 31, 2000 the Jordan Specialty
Plastics group consisted of Sate-Lite, Beemak, and Deflecto.
2000 Compared to 1999. Net sales increased $12.1 million or 14.0% for the
year ended December 31, 2000. The increase in net sales was primarily due
to increases in sales at Deflecto and Sate-Lite, $12.0 million and $1.5
million, respectively, partially offset by decreased sales at Beemak, $1.4
million. The increase in sales at Deflecto is due to the acquisitions of
Yearntree and IDL on December 20, 1999 and June 2, 2000, respectively,
which added $5.1 million and $4.6 million to 2000 sales, in addition to
increased sales of hardware products of $7.1 million. These increases were
partially offset by decreased sales in Deflecto's office product line of
$4.8 million. Sate-Lite's increase in sales resulted from the addition of
the Tilt-Bin(TM) product line which was transitioned from Beemak to
Sate-Lite in August 2000, $0.8 million, and increased sales at Midwest
Color of $0.7 million. Beemak's sales decreased due to the transfer of the
Tilt-Bin(TM) product line to Sate-Lite. Beemak's sales from the
Tilt-Bin(TM) product line for the period from January to July 2000 amounted
to $1.3 million as compared to $2.7 million for the full year of 1999.
Operating income decreased $2.4 million or 55.4% for the year ended
December 31, 2000. Lower operating income was due to decreases at Beemak
and Deflecto, $0.9 million and $1.6 million, respectively, partially offset
by increases at Sate-Lite of $0.1 million. Decreased operating income at
Beemak is attributable to the Tilt-Bin(TM) transfer to Sate-Lite and a
shift of product mix to more fabricated product which is a lower margin
product. Deflecto's decrease in operating income was due to a $1.5 million
management severance accrual in December. Increased operating income at
Sate-Lite was due to greater operating efficiencies and the increased sales
resulting from the Tilt-Bin(TM) addition to their product line.
1999 Compared to 1998. Net sales increased $14.7 million or 20.6% for the
year ended December 31, 1999. This increase was partially due to the
acquisition by Deflecto of Teleflow in July 1999. Teleflow contributed net
sales of $3.5 million since the date of acquisition. In addition, sales of
thermo-plastic colorants and truck reflector products increased at
Sate-Lite, $1.2 million and $0.4 million, respectively, and sales of
hardware and office products increased at Deflecto, $7.0 million and $4.0
million, respectively. Partially offsetting these increases were lower
sales of plastic injection molded and fabricated products at Beemak, $0.9
million and $0.1 million, respectively, and decreased sales of bicycle
reflectors at Sate-Lite, $0.4 million. In addition to the increase in net
sales resulting from the Teleflow acquisition, sales at Deflecto also
increased due to the benefit of a full year of sales in 1999 versus ten
months of sales in 1998 as well as Deflecto's success at integrating
Rolite's operations and selling Rolite chairmat products through Deflecto
sales channels. Beemak sales declined due to heavy competition in the
Tilt-bin(TM) product line.
Operating income decreased $0.3 million or 7.2% for the year ended December
31, 1999. Operating income increased at Beemak and Sate-Lite, $0.2 million
and $0.5 million, but decreased at Deflecto, $1.0 million. Operating income
increased at Beemak and Sate-Lite due to gross margin increases and better
overhead control. Operating income at Deflecto decreased due to lower gross
profit resulting from an unfavorable product mix shift from office products
sales to hardware sales.
-21-
Jordan Auto Aftermarket. As of December 31, 2000, the Jordan Auto Aftermarket
group consisted of DACCO and Alma.
2000 Compared to 1999. Net sales increased $9.3 million or 7.0% for the
year ended December 31, 2000. The increase was due to increased sales at
Alma of $11.9 million, including increased sales of drive trains and air
compressors of $7.4 million and $4.5 million, respectively, offset by a
decrease in sales at DAACO of $2.6 million. The primary reason for the
increase at Alma was due to a full year's results being included in 2000 as
compared with approximately nine months results included in 1999. The
decrease in DACCO's sales resulted from lower sales of converters, $3.1
million, other hard parts, $0.5 million and scrap sales, $0.2 million,
partially offset by increased sales of soft parts of $1.2 million.
Operating income increased $3.8 million or 22.6% for the year ended
December 31, 2000. Increases at Alma and DACCO were $2.6 million and $1.8
million, respectively, partially offset by increased corporate expenses of
$0.6 million. The major reason for the increase in operating income at Alma
is due to the increase in 2000 sales, as mentioned above. DACCO's operating
income increased as a result of focused cost cutting efforts aimed at
achieving production efficiencies and a price increase instituted in
October 2000.
1999 Compared to 1998. Net sales increased $66.5 million or 101.8% for the
year ended December 31, 1999. The increase is primarily due to the
acquisition of Alma in March 1999 which contributed net sales of $63.0
million since the date of acquisition. In addition, sales of rebuilt torque
converters increased at DACCO, $3.5 million.
Operating income increased $6.1 million or 58.3% for the year ended
December 31, 1999. This increase is also primarily due to the acquisition
of Alma, as discussed above. Alma contributed operating income of $8.1
million in the last nine months of 1999. Partially offsetting this increase
was lower operating income at DACCO, $1.2 million, and increased corporate
expenses, $0.8 million. The decrease in operating income at DACCO was due
to expenses incurred related to the UAW negotiations at DACCO's Cookeville,
TN plant. DACCO did not experience any loss of production or sales due to
its ability to hire replacement workers, and an agreement was reached on
February 1, 2000.
Motors and Gears. As of December 31, 2000, the Motors and Gears group
consisted of Imperial, Gear, Merkle-Korff, FIR, ED&C, Motion Control, and
Advanced DC.
2000 Compared to 1999. Net sales increased $8.8 million or 2.9% for the
year ended December 31, 2000. The increase in net sales was primarily due
to increased sales of fractional/integral products, 3.4%. This growth is
the result of strong performance in the material handling, utility vehicle
and European markets (net of unfavorable Euro exchange rates). Sales of
electronic motion control systems increased by 15.2% as a result of
continued strength in the elevator modernization market. The increase in
sales was partially offset by decreases in subfractional motor sales, 6.4%,
due to weakness in the bottle and can vending market.
-22-
Operating income decreased $14.1 million or 27.9% for the year ended
December 31, 2000. The decrease was primarily the result of the $14.6
million goodwill impairment charge at ED&C (see note 24 to the financial
statements). Excluding the impact of the goodwill impairment, operating
income would have increased 1.1%, primarily as a result in the increased
sales and gross margin. The improvement to gross margin was driven by the
company's continued product design changes, manufacturing process
improvements, and outsourcing and insourcing of component purchases.
Offsets to the gross margin improvement include increased selling, general
and administrative expenses.
1999 Compared to 1998. Net sales increased $32.0 million or 11.6% for the
year ended December 31, 1999. The increase in net sales was primarily
driven by the 1998 acquisition of Advanced DC and Euclid (a wholly-owned
subsidiary of Imperial) which accounted for $21.8 million of the increase.
Subfractional motor sales decreased 4.1% in 1999 as compared to 1998
largely due to weakness in the vending markets. Significant difficulties in
international markets of a major beverage company are the primary reason
for this decline. In 1999, sales of fractional/integral motor products
increased 22.8% including the effects of the 1998 acquisitions, and 3.2%
excluding the effects of the 1998 acquisitions. The growth in
fractional/integral products is a result of strong performance in the
material handling, elevator and floor care markets partially offset by a
weak European market and an unfavorable Euro exchange rate. Sales of
electronic motion control systems increased by 17.7% mainly attributed to
continued strength in the elevator modernization market.
Operating income increased $8.3 million or 19.5% for the year ended
December 31, 1999. The primary increase in operating income was a result of
the increase in sales discussed above coupled with an improvement in gross
margin from 34.6% in 1998 to 36.1% in 1999. The improvement in gross margin
is a result of product design changes, manufacturing process improvements
and material cast savings experienced throughout Motors and Gears due to
efforts put forth by Motors and Gears' sourcing council. Improvements in
gross margin were partially offset by increases in selling, general and
administrative expenses primarily as a result of the 1998 acquisitions,
increases in depreciation due to the 1998 acquisitions and due to a new
systems implementation at one of the Motor and Gears subsidiaries.
Consumer and Industrial Products. As of December 31, 2000, the Consumer and
Industrial Products group consisted of Riverside, Cape, Welcome Home,
Cho-Pat, Online Environs, Flavorsource, ISMI and GramTel. Riverside was
sold on February 2, 2001. See footnote 25 to the financial statements.
2000 Compared to 1999. Net sales increased $5.5 million or 4.5% for the
year ended December 31, 2000. Net sales increased primarily due to higher
sales at Welcome Home, $19.1 million, sales to third parties at Cape of
$1.9 million, and sales of knee straps and related products at Cho-Pat,
$0.2 million. In addition, ISMI, Online Environs, GramTel and Flavorsource
were added to the group in 2000, increasing net sales by $0.5 million, $3.1
million, $0.3 million and $0.7 million, respectively. The increase in sales
was offset by decreases in Riverside sales of $2.0 million, and the sale of
Parsons and Pex, which had 1999 net sales of $10.8 million and $1.2 million
respectively. Total consolidated sales at Cape decreased $6.3 million due
to a twelve month elimination of Cape's intercompany sales to Welcome Home
in the current year versus six months in 1999 due to Welcome Home's
reconsolidation in mid 1999. Welcome Home's sales increase was the result
of being consolidated for a full year in 2000 versus six months in 1999.
Operating income decreased $4.8 million or 61.0% for the year ended
December 31, 2000. The decrease in operating income is primarily the result
of lower operating income at Welcome Home, $5.5 million, resulting from
their reconsolidation. Due to the seasonality of Welcome Home's business,
the majority of its operating income is recorded in the fourth quarter,
therefore, because of the timing of Welcome Home's reconsolidation, its
typical slow season was not included in the 1999 consolidated results. Also
contributing to the decrease in operating income were the dispositions of
Parsons and Pex, which contributed operating income in 1999 of $2.3 million
and $0.4 million respectively. Offsetting the decrease in operating income
were increases at Cape, $1.1 million and Riverside, $2.2 million. In
addition, Cho-Pat recorded increased operating income of $0.1 million.
-23-
1999 Compared to 1998. Net sales increased $22.3 million or 22.1% for the
year ended December 31, 1999. The increase was primarily due to the
reconsolidation of Welcome Home in July 1999. Welcome Home contributed net
sales of $35.3 million during the period from July 21, 1999 to December 31,
1999. In addition, net sales increased due to increased contract
distribution sales at Riverside, $0.5 million, and higher sales of
orthopedic supports and other pain reducing devices at Cho-Pat, $0.2
million. Partially offsetting these increases were lower sales at Parsons
and Dura Line Retube ("Pex"), $2.2 million and $3.7 million, respectively,
due to the divestitures of those businesses during 1999. In addition, sales
decreased due to lower sales of Bibles and Bible accessories, and books at
Riverside, $1.8 million and $0.8 million, respectively. This is due to a
strong economy and low unemployment. Although sales at Cape decreased by
$5.2 million, the decrease is due to the reconsolidation of Welcome Home
and the resulting elimination of sales from Cape to Welcome Home. Sales
from Cape to third parties increased $2.7 million, due to improved products
and additional customers.
Operating income increased $1.3 million or 19.7% for the year ended
December 31, 1999. The primary reason for the increase was due to the
reconsolidation of Welcome Home, as discussed above. Welcome Home
contributed operating income of $4.0 million since the date of its
emergence from bankruptcy. In addition, operating income was positively
effected by $0.3 million as a result of the disposition of Pex in March
1999. Pex had negative operating income historically. Partially offsetting
this increase was decreased operating income at Parsons, $1.4 million, due
to the divestiture of the business in November 1999. In addition, operating
income declined at Riverside, $1.6 million, due to lower sales mentioned
above.
Consolidated Operating Results. (See Consolidated Statements of Operations).
- -------------------------------
2000 Compared to 1999. Net sales increased $40.6 million or 5.3% for the
year ended December 31, 2000 as compared to 1999. The increase in sales
partially resulted from Welcome Home's inclusion in the consolidated
financial statements for the full year due to its reconsolidation in mid
1999, $19.1 million, and the Company's acquisitions of Yearntree and
Rolite, $5.1 million and $4.6 million, respectively. In addition, increased
sales of outside specialties at JII Promotions, greater sales of membrane
switches and screen printing at Valmark, increased sales of drive trains
and air compressors at Alma, higher sales of fractional/integral products
and electronic motion control systems in the Motors and Gears group and an
increase of sales to third parties at Cape also contributed to higher 2000
sales. Sales also increased due to the acquisitions of ISMI, GramTel,
Online Environs and Flavorsource in the Consumer and Industrial Products
group. Offsetting these increases were lower calendar sales at JII
Promotions, decreased sales in Deflecto's office products division, lower
converter sales at DACCO, a decrease in sub fractional motor sales in the
Motors and Gears group, and the sale of Parsons and Pex in 1999.
Operating income decreased $18.2 million or 26.3% for the year ended
December 31, 2000. The decrease in operating income was due to a $14.6
million goodwill impairment charge in the Motors and Gears group relating
to ED&C. SPL had lower operating income due to Pamco's new operations in
Pennsylvania. In addition, the sales of Parsons and Pex contributed to the
decrease. Partially offsetting these decreases was increased operating
income in the Auto Aftermarket group for both DACCO and Alma due to DACCO's
price increase and cost cutting efforts and Alma's increase in sales as
mentioned above. Operating income for SPL increased slightly due to
Valmark's increased sales to Apple.
-24-
1999 Compared to 1998. Net sales increased $133.1 million or 21.0% for the
year ended December 31, 1999. The increase in sales was partially due to
the 1999 acquisitions of Teleflow in the Jordan Specialty Plastics group
($3.5 million) and Alma in the Jordan Auto Aftermarket group ($63.0
million). Sales also increased due to a full year of sales from the
following companies which were acquired in 1998: Deflecto and Rolite in the
Jordan Specialty Plastics group and Advanced DC in the Motors and Gears
group. In addition, increased sales were due to higher sales of screen
printed products at Valmark, increased sales of labels at Pamco, higher
sales of thermo-plastic colorants and truck reflector products at
Sate-Lite, increased sales of hardware and office products at Deflecto,
higher sales of rebuilt converters at DACCO, and increased sales of
fractional/integral motors and motion control systems in the Motors and
Gears group. Sales also increased by $35.3 million due to the
reconsolidation of Welcome Home, resulting from that company's emergence
from bankruptcy in July 1999. Partially offsetting these increases were
lower sales of calendars at SPAI, decreased sales of folding boxes at
Seaboard, decreased sales of plastic-injection molded products at Beemak,
lower sales of subfractional motors in the Motors and Gears group, and
lower sales of Bibles and Bible accessories at Riverside. In addition, net
sales decreased due to the divestitures of Parsons and Dura Line Retube in
November and March 1999, respectively.
Operating income increased $11.3 million or 19.4% for the year ended
December 31, 1999. Operating income increased due to the 1999 acquisitions,
a full year of operations at the businesses acquired in 1998, more
efficient monitoring of production and operating expenses at Valmark and
Pamco, increased gross margins at Sate-Lite and Beemak, manufacturing
process improvement in the Motors and Gears group, and the reconsolidation
of Welcome Home in the Consumer and Industrial Products group. Partially
offsetting these increases was lower operating income due to decreased
absorption of fixed overhead resulting from lower sales at Seaboard, an
unfavorable product mix at Deflecto, startup expenses incurred to establish
the Jordan Auto Aftermarket segment, legal and security expenses incurred
during DACCO's negotiations with the UAW, and increased depreciation and
amortization related to the 1999 and 1998 acquisitions. In addition,
operating income decreased due to the divestitures of Parsons and Dura Line
Retube.
Interest expense increased $16.9 million or 24.0% due to the Company's
Senior Notes offering in March 1999 in addition to higher outstanding
revolver balances used to finance acquisitions and seasonal working capital
requirements.
Income taxes - See note 13 of Notes to Consolidated Financial Statements.
Liquidity and Capital Resources
The Company had approximately $159.3 million of working capital from
continuing operations at the end of 2000 compared to approximately $161.6
million at the end of 1999. The decrease in working capital from 1999 to
2000 was primarily due to a higher current portion of long-term debt,
accounts payable, and accrued expenses of $24.7 million, $8.5 million, and
$2.5 million, respectively. These increases were partially offset by higher
inventory and prepaids and other current assets of $8.3 million and $14.0
million, respectively.
The Company has acquired businesses through leveraged buyouts, and as a
result has significant debt in relation to total capitalization. See
"Business". Most of this acquisition debt was initially financed through
the issuance of bonds which were subsequently refinanced in 1997. See Note
12 to the Consolidated Financial Statements.
Management expects continued growth in net sales and operating income in
2001. Capital spending levels in 2001 are anticipated to be below 2000
levels and, along with working capital requirements, will be financed
internally from operating cash flow. Operating margins and operating cash
flow are expected to be favorably impacted by ongoing cost reduction
programs, improved efficiencies and sales growth. Management believes that
the Company's cash on hand and anticipated funds from operations will be
sufficient to cover its working capital, capital expenditures, debt service
requirements and other fixed charge obligations for at least the next 12
months.
-25-
The Company is, and expects to continue to be, in compliance with the
provisions of its Indentures.
None of the subsidiaries require significant amounts of capital spending to
sustain their current operations or to achieve projected growth.
Net cash provided by operating activities for the year ended December 31,
2000 was $1.0 million, compared to $22.0 million provided by operating
activities during the same period in 1999. The decrease is primarily
attributed to increased prepaids and other current assets and inventory
balances and decreased operating liabilities.
Net cash provided by investing activities for year ended December 31, 2000
was $64.8 million, compared to $159.4 million used in investing activities
during the same period in 1999. The increase is due primarily to decreased
spending on acquisitions and the proceeds from the sale of discontinued
operations in the current year.
Net cash used in financing activities for the year ended December 31, 2000
was $59.6 million, compared to $140.2 million provided by financing
activities during the same period in 1999. The decrease is primarily due to
the net proceeds of $149.8 million from the Company's senior debt issuance
in the prior year. In addition, the Company had net revolver repayments of
$53.6 million in the current year as compared to net revolver borrowings of
$22.1 million in the prior year.
The Company is party to various credit agreements under which the Company
is able to borrow up to $160 million to fund acquisitions, provide working
capital and for other general corporate purposes. The credit agreements
mature at various dates through 2002. The agreements are secured by a first
priority security interest in substantially all of the Company's assets. As
of March 30, 2001, the Company had approximately $133.0 million of
available funds under these arrangements.
The Company may, from time to time, use cash, including cash generated from
borrowings under its credit agreements, to purchase either its 11 3/4%
Senior Subordinated Discount Debentures due 2009 or its 10 3/8% Senior
Notes due 2007, or any combination thereof, through open market purchases,
privately negotiated purchases or exchanges, tender offers, redemptions or
otherwise, and may, from time to time, pursue various refinancing or
financial restructurings, including pursuant to current solicitations and
waivers involving those securities, in each case, without public
announcement or prior notice to the holders thereof, and if initiated or
commenced, such purchases or offers to purchase may be discontinued at any
time.
Foreign Currency Impact
The Company's exposure to fluctuations in foreign currency exchange rates
is protected by its investment in manufacturing facilities overseas whose
costs, including labor and raw materials, are also denominated in local
currency. Decreases in the value of foreign currencies relative to the U.S.
dollar have not resulted in significant losses from foreign currency
translation. However, there can be no assurance that foreign currency
fluctuations in the future would not have an adverse effect on the
Company's business, financial condition and results of operations.
Impact of Inflation
General inflation has had only a minor effect on the operations of the
Company and its internal and external sources for liquidity and working
capital, as the Company has been able to increase prices to reflect cost
increases, and expects to be able to do so in the future.
-26-
Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS
-----------------------------------------------------------
The Company's debt obligations are primarily fixed-rate in nature and, as
such, are not sensitive to changes in interest rates. At December 31, 2000,
the Company had $31.7 million of variable rate debt outstanding. A one
percentage point increase in interest rates would increase the annual
amount of interest paid by approximately $0.3 million. The Company does not
believe that its market risk financial instruments on December 31, 2000
would have a material effect on future operations or cash flows.
The Company is exposed to market risk from changes in foreign currency
exchange rates, including fluctuations in the functional currency of
foreign operations. The functional currency of operations outside the
United States is the respective local currency. Foreign currency
translation effects are included in accumulated other comprehensive income
in shareholder's equity.
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
-------------------------------------------
Page No.
Reports of Independent Auditors...................................... 31
Consolidated Balance Sheets as of December 31, 2000 and
1999.................................................................. 35
Consolidated Statements of Operations for the years ended December
31, 2000, 1999, 1998................................................... 36
Consolidated Statements of Changes in Shareholder's Equity (Net
Capital Deficiency) for the years ended December 31, 2000, 1999 and
1998................................................................... 37
Consolidated Statements of Cash Flows for the years ended
December 31, 2000, 1999, and 1998...................................... 38
Notes to Consolidated Financial Statements............................. 40
-27-
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Shareholders
Jordan Industries, Inc.
We have audited the accompanying consolidated balance sheets of Jordan
Industries, Inc. as of December 31, 2000 and 1999 and the related
consolidated statements of operations, shareholder's equity (net
capital deficiency), and cash flows for each of the three years in the
period ended December 31, 2000. Our audits also included the financial
statement schedule listed in the Index at Item 14(a). These financial
statements and schedule are the responsibility of the Company's
management. Our responsibility is to express an opinion on these
financial statements and schedule based on our audits. We did not
audit the financial statements of certain subsidiaries whose
statements reflect total assets constituting 26% as of December 31,
1999, and net sales constituting 21% and 8% for the years ended
December 31, 1999 and 1998, respectively, of the related consolidated
totals. Those statements were audited by other auditors whose reports
have been furnished to us, and our opinion, insofar as it relates to
data included for these subsidiaries, is based solely on the reports
of the other auditors.
We conducted our audits in accordance with auditing standards
generally accepted in the United States. Those standards require that
we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the
amounts and disclosures in the financial statements. An audit also
includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits and the
reports of other auditors provide a reasonable basis for our opinion.
In our opinion, based on our audits and the reports of other auditors,
the financial statements referred to above present fairly, in all
material respects, the consolidated financial position of Jordan
Industries, Inc. at December 31, 2000 and 1999, and the consolidated
results of its operations and its cash flows for each of the three
years in the period ended December 31, 2000, in conformity with
accounting principles generally accepted in the United States. Also,
in our opinion, the related financial statement schedule, when
considered in relation to the basic financial statements taken as a
whole, presents fairly in all material respects the information set
forth therein.
/s/ ERNST & YOUNG LLP
Chicago, Illinois
March 23, 2001
-28-
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholder of Alma Products I, Inc.:
We have audited the balance sheet of ALMA PRODUCTS I, INC. (a Michigan
corporation) as of December 31, 1999, and the related statements of
operations, shareholder's equity and cash flows for the period from
March 22, 1999 to December 31, 1999. These financial statements are
the responsibility of the Company's management. Our responsibility is
to express an opinion on these financial statements based on our
audit.
We conducted our audit in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts
and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Alma
Products I, Inc. as of December 31, 1999, and the results of its
operations and its cash flows for the period from March 22, 1999 to
December 31, 1999 in conformity with accounting principles generally
accepted in the United States.
/s/ ARTHUR ANDERSEN LLP
Detroit, Michigan
February 18, 2000
-29-
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of
Motion Control Engineering, Inc.:
We have audited the balance sheets of MOTION CONTROL ENGINEERING, INC.
(a California corporation and a wholly-owned subsidiary of Kinetek, Inc.
formerly Motors and Gears, Inc.) as of December 31, 1999, and the related
statements of income, shareholder's equity and cash flows for the two
years then ended. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on
these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. We believe
that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Motion
Control Engineering, Inc. as of December 31, 1999 and the results of
its operations and its cash flows for the two years then ended in
conformity with generally accepted accounting principles.
/s/ ARTHUR ANDERSEN LLP
Sacramento, California
January 21, 2000
-30-
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors
FIR Group Holding Italia S.p.A.
We have audited the consolidated balance sheets of FIR Group
Holding Italia S.p.A. (a wholly-owned subsidiary of Kinetek, Inc.,
formerly Motors and Gears, Inc.) as of October 31, 1999, and the
related consolidated statements of income for the two years ended
October 31, 1998 and 1999, and the related consolidated statements of
retained earnings and cash flow for the year ended October 31, 1999.
These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatements. An audit includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to
above present fairly, in all material respects, the financial position
of the Company as of October 31, 1999, and the results of its
operations for the two years ended October 31, 1998 and 1999 and its
cash flow for the year ended October 31, 1999, in conformity with
generally accepted accounting principles.
/s/ PRICEWATERHOUSECOOPERS S.p.A.
Bologna, 26 January 2000
-31-
JORDAN INDUSTRIES, INC.
CONSOLIDATED BALANCE SHEETS
(dollars in thousands)
December 31,
--------------------
2000 1999
---- ----
Current assets:
Cash and cash equivalents $21,713 $19,973
Accounts receivable, net of allowance of
$4,384 and $2,809 in 2000 and 1999, respectively 128,265 127,537
Inventories 139,046 130,747
Net assets of discontinued operations held for
sale - 297,297
Deferred income taxes 9,001 9,681
Prepaid expenses and other current assets 32,155 18,135
------- -------
Total current assets 330,180 603,370
Property, plant and equipment, net 107,526 107,483
Investments in and advances to affiliates 42,902 18,052
Goodwill, net 371,487 373,041
Deferred income taxes 2,851 6,170
Other assets 41,755 51,380
-------- ----------
Total Assets $896,701 $1,159,496
======== ==========
LIABILITIES AND SHAREHOLDER'S EQUITY (NET CAPITAL DEFICIENCY)
- -------------------------------------------------------------
Current liabilities:
Accounts payable $68,236 $59,722
Accrued liabilities 65,108 62,578
Advance deposits 1,937 1,651
Current portion of long-term debt 35,600 424,520
-------- -------
Total current liabilities 170,881 548,471
Long-term debt 787,694 837,712
Other non-current liabilities 17,728 9,896
Minority interest 410 406
Preferred stock 1,998 1,846
Shareholder's equity (net capital deficiency):
Common stock $.01 par value: authorized - 100,000
shares; issued and outstanding - 98,501 shares 1 1
Additional paid-in capital 2,116 2,116
Accumulated other comprehensive loss (16,641) (5,740)
Accumulated deficit (67,486) (235,212)
-------- ---------
Total shareholder's equity (net capital deficiency) (82,010) (238,835)
-------- ---------
Total Liabilities and Shareholder's Equity (Net
Capital Deficiency) $896,701 $1,159,496
========= ==========
See accompanying notes.
-32-
JORDAN INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(dollars in thousands)
Year ended December 31,
-----------------------
2000 1999 1998
---- ---- ----
Net Sales $807,296 $766,655 $633,579
Cost of sales, excluding depreciation 513,755 497,223 406,970
Selling, general, and administrative
expense, excluding depreciation 173,370 153,582 131,055
Depreciation 24,070 20,647 16,409
Amortization of goodwill and other
Intangibles 31,108 15,504 13,753
Management fees and other 13,980 10,454 7,415
------- ------ --------
Operating income 51,013 69,245 57,977
Other income and expenses:
Interest expense 92,009 87,058 70,184
Interest income (5,464) (1,083) (1,656)
Loss (gain) on sale of subsidiaries 2,798 (10,037) -
Other 554 (90) 361
------- ------- --------
Total other expenses 89,897 75,848 68,889
------- ------- --------
Loss from continuing operations before
income taxes and minority interest (38,884) (6,603) (10,912)
(Benefit) provision for income taxes (3,191) (952) 3,875
------- ------- --------
Loss from continuing operations before
minority interest (35,693) (5,651) (14,787)
Minority interest 353 80 294
------- -------- --------
Loss from continuing operations (36,046) (5,731) (15,081)
Discontinued operations, net of taxes
(Note 4) 203,924 (12,848) (16,326)
------- -------- --------
Income (loss) before extraordinary
Items 167,878 (18,579) (31,407)
Extraordinary loss - - 179
--------- --------- --------
Net income (loss) $167,878 $(18,579) $(31,586)
========= ========= =========
See accompanying notes.
-33-
JORDAN INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDER'S EQUITY
(NET CAPITAL DEFICIENCY)
(dollars in thousands)
Common Stock
------------ Accumulated
Number Additional Other
of Paid-in Comprehensive Accumulated
Shares Amount Capital Loss Deficit Total
------ ------ ------- ---- ------- -----
Balance at
January 1, 1998 98,501 $1 $2,116 $(504) $(176,898) $(175,285)
Non-cash dividends to
third parties - - - - (3,815) (3,815)
Cumulative
translation adjustment - - - 2,542 - 2,542
Net loss - - - - (31,586) (31,586)
----------
Comprehensive
income - - - - - (29,044)
------ -- ------ -------- --------- ----------
Balance at
December 31, 1998 98,501 1 2,116 2,038 (212,299) (208,144)
Non-cash dividends to
third parties - - - - (4,334) (4,334)
Cumulative
translation adjustment - - - (7,778) - (7,778)
Net loss - - - - (18,579) (18,579)
----------
Comprehensive
income - - - - - (26,357)
------ -- ------ -------- ---------- ----------
Balance at
December 31, 1999 98,501 1 2,116 (5,740) (235,212) (238,835)
Non-cash dividends to
third parties - - - - (152) (152)
Cumulative
translation adjustment - - - (10,901) - (10,901)
Net income - - - - 167,878 167,878
-------
Comprehensive
income - - - - - 156,977
------ -- ------ --------- --------- -------
Balance at
December 31, 2000 98,501 $1 $2,116 $(16,641) $(67,486) $(82,010)
====== == ====== ========= ========= =========
See accompanying notes.
-34-
JORDAN INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(dollars in thousands)
Year ended December 31,
-----------------------
2000 1999 1998
---- ---- ----
Cash flows from operating activities:
Net income (loss) $167,878 $(18,579) $(31,586)
Adjustments to reconcile net income
(loss) to net cash provided by
operating activities:
Amortization of deferred financing
costs 5,067 4,679 4,451
Depreciation and amortization 55,178 36,151 45,047
Deferred taxes 3,999 (12,542) 205
Loss(gain) on sale of
subsidiaries 2,798 (10,037) 6,299
Gain on sale of discontinued
operations, net of tax (213,520) - -
Minority interest 4 80 696
Extraordinary loss - - 179
Non-cash interest 20,160 30,085 26,303
Changes in operating assets and liabilities
(net of acquisitions):
Accounts receivable 1,384 (457) (17,597)
Inventories (6,454) (5,517) (3,947)
Prepaid expenses and other current
assets (13,729) 3,640 (3,998)
Non-current assets (5,008) (1,702) (4,024)
Accounts payable and accrued
liabilities (24,716) 7,798 5,370
Advance deposits 286 (190) 156
Non-current liabilities 7,830 (4,954) 378
Other (169) 806 (540)
Net current assets of discontinued
operations - (7,277) 1,991
---------- ---------- ---------
Net cash provided by operating
activities 988 21,984 29,383
Cash flows from investing activities:
Proceeds from sale of discontinued
operations 149,285 - -
Capital expenditures, net of
dispositions (16,608) (23,318) (21,477)
Acquisitions of subsidiaries (48,154) (133,233) (118,416)
Additional purchase price payments
and SAR payments (3,093) (9,359) (10,649)
Net cash acquired in purchase of
subsidiaries 1,196 2,534 2,292
Net proceeds from sale of subsidiary - 17,965 15,000
Investment in affiliates (17,842) (13,942) (7,285)
----------- ---------- ----------
Net cash provided by (used in) $64,784 $(159,353) $(140,535)
investing activities
(Continued on following page.)
See accompanying notes.
-35-
JORDAN INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(dollars in thousands)
(continued)
Year ended December 31,
-----------------------