<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ______ to ______
Commission File Number: 000-26889
JORE CORPORATION
(Exact Name as Registrant as Specified in Its Charter)
Montana 81-0465233
(State of incorporation) (I.R.S. Employer ID)
45000 Highway 93 South
Ronan, Montana 59864
(Address of principal executive offices)
(406) 676-4900
(Registrant's telephone number)
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
None
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
Common Stock
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 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 90 days.
Yes X No
---- ----
<PAGE>
Indicate by check mark if disclosure of delinquent filers pursuant
to Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of the registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K.
----
The aggregate market value of voting stock held by non-affiliates of
the Registrant, computed with reference to the closing price of such stock, as
of March 15, 2000: $ 30,119,999.
The number of shares of common stock outstanding as of March 15,
2000: 13,840,887.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of Registrant's Proxy Statement for the Annual Meeting of Shareholders
to be held May 17, 2000, are incorporated by reference into this report.
<PAGE>
JORE CORPORATION
FORM 10-K
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999
INDEX
<TABLE>
<CAPTION>
PART I PAGE
<S> <C> <C>
ITEM 1. BUSINESS 1
ITEM 2. PROPERTIES 20
ITEM 3. LEGAL PROCEEDINGS 20
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 22
ITEM 4A EXECUTIVE OFFICERS OF THE REGISTRANT 22
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED
STOCKHOLDERS MATTERS 24
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA 26
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS 27
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET
RISK 33
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA 34
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE 55
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT 56
ITEM 11. EXECUTIVE COMPENSATION 56
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT 56
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS 56
PART IV
ITEM 14 EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON
FORM 8-K 57
SIGNATURES 58
</TABLE>
<PAGE>
PART I
"JORE" (WHICH MAY ALSO BE REFERRED TO AS "WE", "US" OR "OUR") MEANS
JORE CORPORATION AND ITS SUBSIDIARIES, AS THE CONTEXT REQUIRES.
ITEM 1. BUSINESS
OVERVIEW
Jore Corporation is a leader in the design, manufacture and marketing
of innovative power tool accessories and hand tools for the do-it-yourself and
professional craftsman markets. We offer a comprehensive system of proprietary
drilling and driving products that save users time through enhanced
functionality, productivity and ease of use. We manufacture our products using
advanced technologies and equipment designs, thus achieving competitive
advantages in cost, quality and production capacity. Our products are sold under
private labels to the industry's largest power tool retailers and manufacturers
such as Sears, Roebuck and Co., TruServ Corporation, Canadian Tire Corporation
Limited, Black & Decker Corporation and Makita Corporation. Our products also
are sold under the STANLEY(R) brand, to which we have an exclusive license
arrangement for power tool accessories, at retailers such as The Home Depot,
Inc., Menard's, Ace Hardware Corporation, Canadian Tire Corporation Limited,
Fred Meyer, The Andersons, Mid-States and others.
INDUSTRY OVERVIEW
The development and widespread availability of cordless power tools
since the early 1980s has created a growing installed base of these tools among
do-it-yourself consumers, professional craftsmen and industrial users. The
increased use of cordless power tools has led to a growing demand for new and
improved power tool accessories. According to industry sources and our market
research, we believe that the worldwide addressable market for our products is
approximately $13.0 billion per year. In the United States, our addressable
market is approximately $5.7 billion per year, consisting of $3.0 billion for
power tool accessories and a $2.7 billion for hand tools. The drilling and
driving accessories market represents approximately $1.3 billion of the domestic
power tool accessories market. The remainder of the power tool accessories
market consists of saw blades, router bits, surface preparation and related
products.
Historically, the power tool accessories industry has been comprised of
a fragmented group of manufacturers that produce traditional drilling, driving,
cutting and surface preparation accessories. The industry is consolidating as
larger manufacturers seek to broaden their product offerings and expand
production capacity. Significant investments have been made in embedded capital
equipment and production facilities which use traditional, multi-step methods of
production that have remained relatively unchanged for years. The industry
generally has been slow to introduce innovative new products and adopt advanced
manufacturing technologies.
1
<PAGE>
In recent years, the retail distribution channel for power tool
accessories and hand tools has undergone substantial consolidation and change.
The emergence of "big box" home center stores has placed tremendous competitive
pressure on small, independently owned hardware stores throughout North America.
The large home center stores typically limit their purchases within a particular
product category to a few leading national brands and promote their own private
label store brands to induce customer loyalty. This change in the retail channel
has had a tremendous impact on purchasing and distribution patterns. The need
for a large, national sales force to call on numerous smaller retailers has
greatly diminished as centralized purchasing and distribution through
strategically located distribution centers has emerged. As a result, sales
efforts have become more specialized, focusing on targeted programs that add
value through product merchandising or logistical expertise.
STRATEGY
Our objective is to be the leading manufacturer of innovative products
for the global power tool accessories market. Our growth and operating
strategies include the following specific elements:
Growth Strategy
EXPAND THE INSTALLED BASE AND APPLICATIONS OF OUR DRILLING AND DRIVING
SYSTEM -- The base of consumers using our proprietary quick-change connectors is
rapidly expanding. We will seek to further build our user base by expanding
sales of our accessory sets, while concurrently developing new product
applications. We recently worked with Sears, for example, to incorporate our
quick connector directly into some models of its CRAFTSMAN(R) cordless power
drills. We believe that we can leverage complementary hex-shank accessory
products into our growing installed user base. Accordingly, we intend to
continue to develop and introduce new and innovative accessories within our
drilling and driving system.
BROADEN OUR PRODUCT PORTFOLIO -- We are broadening our product
portfolio to include other innovative products, including select hand tools such
as ratchet wrenches and screwdrivers with proprietary features. In connection
with our license of the STANLEY(R) brand, we also plan to introduce other power
tool accessories. We are also using our proprietary manufacturing processes to
achieve cost leadership in producing traditional round-shank drill bits. We will
continue to seek opportunities to license new or existing technologies to
complement our internal product development efforts.
ENHANCE EXISTING CUSTOMER RELATIONSHIPS - We believe that there are
significant opportunities to increase sales to existing customers:
- We intend to increase the number of products that we supply to
our customers and to expand the retail shelf space dedicated to our
products. For example, from 1997 to 1999, we increased the number of SKUs
that we sell to Sears from approximately 12 to 49 and doubled the shelf
space allocated to our products sold under the CRAFTSMAN(R) label in most
of its Full Line retail stores. In 2000, we
2
<PAGE>
will strive to increase the number of SKUs in these stores and broaden our
offering in the off the mall stores as well.
- We intend to increase our product offering to a greater number
of stores. Our products are not yet sold in each of our customers' stores
as we have established new relationships. As a result, we believe that
there are significant opportunities to expand our presence with our current
customers.
- We intend to offer our products under different brands to enable
our customers to effectively target various price points and consumer
segments. These include brand names such as CRAFTSMAN(R) , STANLEY(R) ,
BLACK & DECKER(R) , DEWALT(R) and MAKITA(R) . We intend to offer brands
that are unique to each retail segment allowing us to broaden our store
scope.
DEVELOP NEW CUSTOMER RELATIONSHIPS - In order to broaden our customer
basE, we are developing and expanding relationships with major retailers. For
instance we have relationships with home center retailers such as The Home
Depot, Menards, Meijer and Payless Cashways, and buying groups such as Tru*Serv
and Ace Hardware. We believe that offering our products under the STANLEY(R)
brand will further enhance our opportunities with these customers, while
concurrently enabling us to develop new customer relationships.
EXPAND INTO THE INDUSTRIAL MARKET - We believe that the rapid
interchangeability of our accessories will offer productivity enhancements to
industrial users. Consequently, we intend to introduce our drilling and driving
system to the industrial market, which we believe is roughly equal in size to
the retail market that we presently serve. Moreover, we believe our advanced
drill bit manufacturing facility will allow us to competitively supply the
industrial market with traditional round-shank drill bits. We are presently
evaluating alternative sales and distribution strategies to access the
industrial market.
EXPAND INTO FOREIGN MARKETS - We believe that we have significant
opportunities to expand into foreign markets. We continue to supply the Canadian
market through the largest Canadian hardware retailer, Canadian Tire, as well as
through Sears, Makita and The Home Depot. We are currently evaluating
distribution channels in the European market and we will continue to evaluate
opportunities to enter other foreign markets.
Operating Strategy
CONTINUALLY IMPROVE OUR MANUFACTURING PROCESSES -- We continually
monitor and evaluate production techniques and benchmark our processes against
other related standards to refine and optimize our manufacturing processes. Our
focus on continuous process improvement covers all facets of operations, from
inspection of raw materials to final assembly and packaging of the end product.
CONTINUE TO VERTICALLY INTEGRATE OUR OPERATIONS -- We increasingly
utilize our own innovative manufacturing capabilities to reduce our cost of
goods sold, increase our production capacity, provide better
3
<PAGE>
customer service, improve the quality of our products and reduce our reliance on
third parties. For example, in addition to initiating our own round-shank drill
bit production, recently we have substantially reduced the cost of our
countersinks and our plastic injection molded and blow-molded cases, and
increased our production and quality control capabilities by producing them in
our own facilities. We are achieving similar results by internally producing
other components.
FOCUS ON CREATIVE MERCHANDISING AND RAPID PROTOTYPING -- We distinguish
ourselves by our ability to quickly design and prototype attractive packaging
and retail displays. In addition, we continually evaluate the logistics of
receiving, displaying and purchasing products in retail environments. As a
result, we deliver our products and systems in attractive packages and effective
retail plan-o-grams that, in coordination with each customer's requirements, are
easy to set up and display and are aesthetically appealing to consumers. We
believe this responsiveness and attention to detail provides us with a
competitive advantage in serving our customers and encourages consumer
purchases.
ENHANCE INFORMATION AND CONTROL SYSTEMS TECHNOLOGY -- Integrating our
design, development, manufacturing, sales and management operations is
critically important. We continue to work towards implementing our enterprise
resource planning software in order to facilitate enterprise-wide communication
and coordination among our employees. Real time communication among engineers,
product managers, quality assurance personnel, and graphic designers will enable
us to carefully control design, development, manufacture and marketing of our
products.
DEVELOP, MOTIVATE AND RETAIN HIGHLY PRODUCTIVE PERSONNEL -- We are
committed to creating a working environment that values the contributions of all
personnel and rewards personal initiative. We seek to retrain and redeploy,
rather than displace, employees when we implement manufacturing improvements or
technology upgrades. By encouraging employees to attend our internal education
programs, we believe that we improve the capabilities of our employees and
leverage our investment in process technology and information management
systems. Our programs cover a range of topics including computer aided design,
spreadsheet and database management, work-flow efficiency, sales education and
automation training.
PRODUCTS
We produce a variety of power tool accessories and hand tools. We
currently offer a comprehensive drilling and driving system that combines a
proprietary quick-change connector with a full range of complementary
accessories. We market our products in sets, which generally include
quick-change connectors, reversible drill and driver tools, screw guides and a
combination of hex-shank drill and screw driving bits. Depending on the scope
and configuration, these sets typically sell at retail prices ranging from
$19.99 to $99.99. We also individually package and sell the various components
of our drilling and driving products.
In addition to our drilling and driving systems, we also manufacture
and sell traditional round-shank drill bits and innovative hand tools, including
our TORQUE DRIVER-TM- screw and nut drivers and
4
<PAGE>
wrench ratchets. In connection with our licensing of the STANLEY(R) brand, we
also plan to begin offering other power tool accessories, such as saw blades,
router bits, and related products.
Our product families include the following:
QUICK CHANGE DRILLING AND DRIVING SYSTEMS
The cornerstone of our power tool accessories portfolio is a patented
quick change drilling and driving system that enables single-handed
interchangeability of a full-range of hex-shank drilling, driving and surface
preparation accessories. In addition to quick interchangeability, our hex-shank
accessories provide enhanced torque transmission as compared to traditional
round-shank products. Users chuck the quick connector into their drill and then
can quickly change between accessories throughout their project without having
to continually chuck and re-chuck a particular accessory. We offer the
quick-change connectors in a variety of styles and sizes to fit the needs of
both do-it-yourself consumers and professional craftsmen. The quick-change
connectors are used in conjunction with a variety of hex-shank accessories
including high-speed drill bits, masonry drill bits, wood boring spade bits,
wire brushes and other surface preparation applications.
REVERSIBLE DRILL AND DRIVERS
The patented reversible drill and driver speeds up the process of drilling and
driving as well as providing both functions in one tool. This product line
consists of a drilling tool on one end and a driving tool on the other. The
reversible drill and driver allows the user to drill and/or countersink a pilot
hole, then quickly release and flip the accessory to drive the screw or other
fastener. The product can be used with a number of drilling and driving tools
and is available in a variety of versions and sizes.
SCREW GUIDES
Our patented screw guides are magnetic bit holders with a
self-retracting guide sleeve that provide the user with an easily operated
screw-driving accessory for a power drill. The user places the screw head on the
magnetized insert bit and then pulls the self-retracting guide sleeve forward
over the screw. The guide sleeve holds the screw straight and prevents slippage
during driving. The screw guide comes in many variations to serve specific
applications.
HAND TOOLS
The TORQUE DRIVER-TM- is an ergonomically designed screw and nut driver
with a flip-out handle allowing for greater torque in turning screws and driving
nuts. The CARTRIDGE DRIVER-TM- is a screw and nut-driving tool containing a
retracting cartridge in the handle for storing a number of drilling and driving
bits. This tool also incorporates a quick connect feature allowing fast
interchangeability of screw and nut driving bits.
DRILL BITS
5
<PAGE>
Using our advanced drill bit manufacturing technology, we produce
traditional round-shank drill bits. We offer ground-from-solid drill bits in a
variety of sizes and for various surfaces. These bits have been tested and
demonstrated to meet the highest quality standards in the industry.
MANUFACTURING AND PROCESS TECHNOLOGIES
We use advanced technology to create the highest quality, most
cost-effective processes available to manufacture, assemble and package our
products. We operate based on the concept of "Kaizen," a Japanese word meaning
"never ending improvement." Our processes are based on continuing research into
materials, technology and machines from other companies and industries. Our
focus on innovation and continuous process improvement covers all facets of
operations, from inspection of raw materials to final assembly and packaging of
the end product. The application of advanced technology manufacturing allows us
to enhance product quality, lower production costs, improve customer
responsiveness, and rapidly scale and increase production capacity to support
sales growth.
Our in-house manufacturing processes include drill bit grinding,
high-speed machining, injection molding, blow molding, die-casting, metal
forming and stamping. We have jointly designed and developed a proprietary drill
bit manufacturing machine that automates all aspects of drill bit production,
resulting in improved quality, lower production costs and increased production
capacity. We have entered into an agreement with the manufacturer of this
equipment that grants us an exclusive right to its output and to the machine
design for a five-year period. In order to maintain our exclusive rights, we are
required to purchase a minimum number of machines annually during the term of
the agreement. We also have entered into an agreement with the designer of the
equipment pursuant to which he will provide consulting services relating to our
future manufacturing technologies.
We also operate high speed machining centers to produce a variety of
our component parts, such as screwdriver bits and countersinks. Our injection
molding operations produce a variety of plastic components such as storage cases
and screwdriver handles. We produce hex-shank accessories using our proprietary
die-casting processes and screw driving accessories are produced using our
proprietary metal forming and stamping equipment. Our equipment incorporates
micro processing technology that allows us to capture, analyze and manipulate
data to more effectively manage and coordinate our operations.
Our internally manufactured component parts, as well as selected
outsourced components, go from our manufacturing or receiving operations to our
assembly and packaging work centers. Finished goods, such as hex- and
round-shank drill bits, move immediately to the packaging area and become part
of a multi-product set or are packaged individually. Through a continual study
and assessment of these assembly and packaging processes, our in-house
engineering and automation staff designs, constructs, and installs equipment
that reduces manual labor requirements, increases throughput and allows us to
electronically monitor and control processes.
6
<PAGE>
We constantly monitor all facets of the manufacturing process for
inefficiencies and strive to use technology or new processes that save time,
reduce costs, and improve quality. We first seek to identify and quantify any
advantages that we believe we can achieve by developing a new process. We then
seek a solution by investigating machine manufacturing companies throughout the
world that can potentially address our needs. If an appropriate machine is not
available from an outside source, we will collaborate in the design with a
manufacturer to build process-specific equipment or design and build such
equipment internally.
PRODUCT DEVELOPMENT
We focus our efforts on the design and development of product
improvements and new products based on an evaluation of the needs and demands of
consumers. We maintain an active dialogue with users of our products to
ascertain the most desirable enhancements for our current products and systems
and to aid in the development of new products. Our product and process
innovation group is comprised of 49 people, including 14 engineers, 13
industrial designers and machinists, 9 graphics designers and 13 technicians.
We have a disciplined process by which we identify and develop
potential new products and bring them to market.
CONCEPTUALIZATION AND ENGINEERING OF NEW PRODUCTS OR IMPROVEMENT TO
EXISTING PRODUCTS. Our personnel visit job sites to observe current construction
and manufacturing methods and to identify potential opportunities to improve
existing products or create new products. Once we identify a need for a new
product or an improvement to an existing product we begin a conceptualization
process involving feedback from end-users and personnel within our manufacturing
operations. Using computerized engineering software, we develop
three-dimensional computerized drawings and manipulate these images to optimize
functionality and form.
PROTOTYPED PRODUCTION. Once we are satisfied regarding the functional
and aesthetic objectives of a particular product, our engineering software sends
the three-dimensional computerized model to our rapid prototyping system. Our
system produces a three-dimensional plastic model that we then test for
aesthetics, functionality and general design. Once we are satisfied with the
concept prototype, we commission a fully functional prototype to be made for
performance testing and evaluation as a working prototype. In many cases, the
rapid prototype model serves this function as well.
SELECTION OF RAW MATERIAL AND PRODUCTION EQUIPMENT. In order to select
the appropriate raw material, we use the working prototype to test alternative
materials in many different conditions. After we have determined the appropriate
raw material and product specifications, we send engineering drawings, concept
prototypes and working prototypes to selected manufacturing equipment suppliers
so that they are able to submit proposals on design and fixturing of appropriate
equipment. Our equipment committee evaluates the proposals from these suppliers
and selects the best design to produce our product.
7
<PAGE>
ASSEMBLY, PACKAGING AND AUTOMATION FIXTURES. We design automated work
cells to efficiently assemble and package our products. Our automation team
evaluates and selects the appropriate technology and equipment for each process.
Our work cells, comprised of several process-specific work-centers, are designed
and arranged for efficient flow of product and personnel. Our automation team
designs safe, ergonomic workstations based upon the needs of our production
team.
CUSTOMERS
We sell our products to customers which currently fall into two general
categories:
Retailers of power tool accessories; and
Power tool manufacturers.
Our retail customers offer our products in their own stores under their
own private label brands. We coordinate closely with these customers on
promotional and merchandising strategies and displays, and we supply these
customers with products in final packaged form. We have also begun to offer our
products to retail customers under the STANLEY(R) brand.
Our power tool manufacturer customers offer our products through their
own distribution channels under their own brands. We supply our products to
these customers either in final packaged form or as unpackaged products that the
manufacturers combine and package with related drilling and driving products.
Our customers include the industry's leading manufacturers such as
Black & Decker and Makita as well as major retailers such as Sears, Home Depot,
Lowe's, True Value, Ace Hardware, Canadian Tire, and others. In 1999, Sears,
Black & Decker/DeWalt and Makita each accounted for 58.3%, 22.8% and 10.1%
respectively, of our revenues. In 1998, Sears, Black & Decker/DeWalt and Makita
each accounted for 60.2%, 17.2% and 14.5%, respectively, of our revenues. In
1999, Black & Decker recognized us with its Performance Scorecard Award for
Total Cost Management. In 1998 and 1999, we were awarded a "Partner in Progress"
designation by Sears (for the previous year in each case), an award earned by
approximately only one percent (1%) of Sears' vendors. In addition, we received
the Sears Hardlines Group Innovation Award for 1997.
SALES AND MARKETING
We seek to develop long-term, mutually beneficial relationships with
our customers and to communicate with decision-makers at all levels within our
customers' organizations. Our internal sales and marketing staff closely
coordinates our activities and strategies with a sales representative
organization, Manufacturers' Sales Associates, LLC. Manufacturers' Sales
Associates, which receives a commission that is a percentage of our sales to
selected customers, consists of sales representatives who formerly were
senior sales and marketing executives with major power tool companies. These
representatives are strategically located near major customers in the industry
so they can continually coordinate product and promotional requirements to
optimize
8
<PAGE>
market opportunities. We believe that our relationship with Manufacturers' Sales
Associates effectively leverages their industry experience while complementing
our focus on product and process development.
Our sales and marketing team works closely with our customers to create
coordinated promotional and merchandising campaigns. Elements of a typical
promotional campaign may include television commercials, direct mail product
circulars, catalogs, newspaper and magazine advertisements and promotional
events. Campaigns may also include merchandising events, plan-o-grams, and
promotional displays, such as aisle end caps, clip strips and center aisle
merchandisers.
Most of our sales are derived from purchase orders for products to be
delivered to our customers within 30 days of receipt of the order. As is
customary in the power tools accessories market, we rely on our customers'
forecasts to anticipate future order volumes, and typically do not enter into
long-term supply agreements with our customers. As a result, we typically do not
maintain a significant backlog of purchase orders. See "Risk Factors--Our
dependence on customer forecasts to manage our business may cause us to
misallocate our production, inventory or other resources."
We distinguish ourselves with our highly skilled, responsive in-house
graphics department that works closely with our sales and marketing department
and with Manufacturers' Sales Associates. Our graphics capabilities provide us
with a significant competitive advantage by allowing us to quickly design and
produce packaging mockups and sample promotional materials for new and existing
customers. We also produce our own point-of-sale displays and collaborate with
our customers in designing unique, customer-specific packaging. We believe that
our graphics capabilities enable us to offer our customers a "turn-key" graphics
and packaging solution that makes it easier for them to merchandise and display
our products and greatly enhances our sales and marketing efforts.
COMPETITION
The power tool accessories market and the hand tool market are highly
competitive. Many of our competitors are established companies that have
significantly greater financial, technical, manufacturing, sales and marketing,
and support resources than Jore Corporation. In addition, many of our
competitors own well-known brands, enjoy large end-user bases, and benefit from
long-standing customer relationships. As we expand into new markets, we can
expect to encounter similar competitive environments.
Competitors in power tool accessories include Vermont American
Corporation, Black & Decker, Greenfield Industries, Inc., a wholly-owned
subsidiary of Kennametal Inc., American Tool Companies, Inc., S/B Power Tools,
Milwaukee, Porter Cable, Snap-On Incorporated and others, as well as a number
of independent "job shops" that supply products under private labels to OEM
and retail customers. Competitors in the hand tools market include American
Tool, Cooper Industries, Inc., The Stanley Works and others, including some
foreign companies. Competitive factors in our markets include:
9
<PAGE>
- Establishing favorable brand recognition;
- Maintaining manufacturing efficiency and expertise;
- Developing a breadth of product offerings;
- Implementing appropriate pricing;
- Providing strong marketing support;
- Manufacturing high quality products;
- Providing excellent customer service; and
- Obtaining access to retail outlets and sufficient shelf space.
INTELLECTUAL PROPERTY
Our ability to compete effectively depends in part on our ability to develop and
protect our proprietary technology. We have 13 United States and foreign design
and utility patents covering a variety of our products and processes. While our
patents have been important to our business, we do not believe that our business
is dependent on any single patent or group of patents. We also own or license
several registered trademarks and sell many products to our customers under
arrangements that allow us to maintain control of our trademarks while granting
customers exclusive use of specified marks for limited purposes. For example, we
have granted Sears the exclusive right to use the Speed-Lok trademark in
connection with Sears' sales of quick-change systems and other products,
provided that Sears purchases a minimum quantity of Jore products annually. The
primary trademarks we own or use in our business include SPEED-LOK(R) , SPEED
SHANK(R) , QUAD-DRIVER(R) , BIT-LOK(R) , HIGH TORQUE POWER DRIVER(R) , MONTANA
TOOL CORPORATION-TM-, TORQUE DRIVER-TM-, JORETECH-TM-, WHERE INNOVATION MEETS
REALITY-TM- and AUTO JAW-TM-. Certain of our trademarks are integral to our
business and we aggressively monitor and protect these and other marks. In April
1999, we entered into an agreement with The Stanley Works that grants us the
exclusive license to sell power tool accessories under the Stanley(R) brand in
North America. The agreement provides for the payment by us to Stanley of a
percentage of our sales of our Stanley(R) branded products, with certain minimum
payment obligations, during the term of the agreement. The term of the Agreement
is through December 2004, and may be renewed by us through December 2009.
In December 1999, we entered into agreements with The Norton Company, a
manufacturer of surface preparation and abrasive tool accessories, regarding
the "SPEEDLOK" and "SPEED-LOK" trademarks. In exchange for our agreement to
have The Norton Company be our preferred supplier of grinding wheels and
surface preparation products, we were granted an exclusive license to use the
Speed-Lok name in connection with the sale of power tool accessories.
We enter into confidentiality agreements with our employees and consultants upon
the commencement of an employment or consulting relationship. These agreements
generally require that all confidential information developed or made known to
the individual by us during the course of the individual's relationship with us
be kept confidential and not disclosed to third parties. These agreements also
generally
10
<PAGE>
provide that inventions conceived by the individual in the course of rendering
services to us shall be our exclusive property.
INFORMATION MANAGEMENT
Through our information management systems, we seek to electronically integrate
all aspects of our operations, from procurement of raw materials to sale of our
packaged products to end-users. Our fully-integrated enterprise resource
planning software system allows centralized management of key functions,
including inventory, order processing, accounts receivable, accounts payable,
general ledger, shop floor control, bar-coded inventory, material requirements
planning, scheduling and electronic data interchange. This information system
enables us to ship to customers on a same-day basis, respond quickly to order
changes and provide a high level of customer service. Our new system integrates
our internal processes and allows for cross-platform information sharing among
our various departments.
PERSONNEL AND HUMAN RESOURCES
As of December 31, 1999, we employed 619 full-time employees and 94 part-time
employees, of whom 17 were in sales and marketing, 115 in finance and
administration, 46 in technology development and application and 535 in
operations. All but twelve of our employees are located at our facility near
Ronan, Montana, with eleven being located at our JB Tool, LLC screwdriver bit
facility in Wisconsin. No employees are covered by collective bargaining
agreements, we have never had a work stoppage and we believe we maintain good
relations with our employees.
RISK FACTORS
THE FOLLOWING FACTORS SHOULD BE CONSIDERED IN EVALUATING OUR BUSINESS,
OPERATIONS AND PROSPECTS AND MAY AFFECT OUR FUTURE RESULTS AND FINANCIAL
CONDITION.
OUR RAPID GROWTH MAY MAKE IT DIFFICULT TO EFFECTIVELY ALLOCATE OUR RESOURCES AND
MANAGE OUR BUSINESS:
We are experiencing significant growth in the sales of our products, the
number of employees and the amount of our production and cannot assure that
we will be able to manage any future growth effectively. Continued growth
could strain our management, production, engineering, financial and other
resources. To manage our growth effectively, we must add manufacturing
capacity while maintaining high levels of quality, manufacturing efficiency
and customer service. We also must continue to enhance our operational,
financial and management systems and successfully attract, train, retain and
manage our employees. Any failure to manage our growth effectively could have
a material adverse effect on our business, financial condition and results of
operations, such as declines in revenues and profit margins.
THE LOSS OF A LARGE CUSTOMER COULD RESULT IN A SUBSTANTIAL DECREASE IN REVENUES:
Historically, most of our sales have been derived from a small number of
customers and, due to the continuing consolidation of the
11
<PAGE>
industry's distribution channels, we expect a significant portion of our future
sales to remain concentrated among a limited number of customers. In 1999, sales
to, Sears, and Black & Decker/DeWalt and Makita accounted for 58.3%, 22.8%, and
10.1% respectively, of our net revenues. In 1998, sales to Sears, Black &
Decker/DeWalt and Makita accounted for 60.2%, 17.2% and 14.5%, respectively, of
our net revenues. In 1997, sales to Sears, Black & Decker/DeWalt, Makita and
Home Depot accounted for 31.9%, 21.5%, 25.6% and 17.0%, respectively, of our net
revenues. A significant decrease in sales to, or the loss of, any of our major
customers would have a material adverse effect on our business, prospects,
operating results and financial condition, such as a substantial decline in
revenues.
THE MARKETING OF OUR PRODUCTS UNDER THE STANLEY(R) BRAND MAY BE UNSUCCESSFUL AND
MAY ADVERSELY AFFECT OUR RELATIONSHIPS WITH EXISTING CUSTOMERS:
In April 1999, we signed an agreement with The Stanley Works that grants us
the exclusive license to sell power tool accessories under the STANLEY(R)
brand and indemnifies us for damages and costs incurred in connection with
any infringement claims arising out of our use of STANLEY(R) trademarks and
trade dress. Some of our existing customers may view our license arrangement
with Stanley unfavorably, and therefore reduce or stop purchases of our
products. For example, in June 1999, Black & Decker advised us that our
proposed introduction of STANLEY(R) branded power tool accessories in yellow
and black packaging would violate Black & Decker's trademark rights under its
DEWALT brand. In response to Black & Decker's assertions, Stanley filed a
lawsuit, which we joined as a co-plaintiff, seeking a judgment that, among
other things, the use of the colors yellow and black with the STANLEY(R) name
or trademark on power tool accessories does not infringe or dilute Black &
Decker's trademark rights. On July 7, Black & Decker asserted counterclaims
against Stanley and Jore for unfair competition and trademark and trade dress
infringement. On February 24, 2000, Black & Decker moved to dismiss the
lawsuit on the grounds that no "case or controversy" exists among the
parties. Stanley and Jore have opposed Black & Decker's motion, which is
pending before the Court. This lawsuit poses the risks that we may be
required to modify the colors of the packaging and promotional materials for
our STANLEY(R)-branded products which could diminish the value of, and limit
our sales and growth prospects associated with, the STANLEY(R) brand. We
could incur significant expenses and be required to pay damages if Stanley
fails to fulfill its indemnification obligations to us; and Black & Decker
could limit or terminate its business relationship with us. The occurrence of
any of these events could have a material adverse effect on our business,
operating results and financial condition by increasing our costs, reducing
our sales and diverting management resources.
In addition, retailers may choose not to offer our products under the
STANLEY(R) brand. We cannot be certain that the time and resources we will
spend marketing our products under the STANLEY(R) brand will lead to
increased sales and profitability. Other potential risks in connection with
this licensing agreement include:
12
<PAGE>
- The failure by Stanley to maintain the integrity and quality of its
brand image in the minds of its consumers; and,
- Our inability to meet the performance requirements of the licensing
agreement may cause Stanley to terminate our agreement.
OUR FAILURE TO DEVELOP NEW DISTRIBUTION CHANNELS COULD DIMINISH OUR REVENUE
GROWTH:
We cannot assure that we will be able to develop new distribution channels or
penetrate the industrial market or that this growth strategy can be
implemented profitably. Our growth depends, in part, on our ability to
develop new distribution channels, including penetration of the industrial
market for our products. Challenges that we face in developing new
distribution channels include:
- Obtaining customer acceptance of our products;
- Managing existing customer relationships;
- Establishing relationships with new customers;
- Displacing incumbent vendor relationships; and
- Successfully introducing new products under the STANLEY(R) brand.
Our failure to develop new distribution channels could have a material
adverse effect on our business, operating results, and financial condition,
particularly future revenue levels.
THE LOSS OF ANY OF OUR KEY PERSONNEL COULD ADVERSELY AFFECT OUR ABILITY TO
MANAGE OUR BUSINESS:
Our performance and future success depends to a significant extent on our
senior management and technical personnel, and in particular on the skills,
experience, and continued efforts of Matthew Jore, Jore Corporation's
founder, President and Chief Executive Officer. The loss of Matthew Jore or
any of our other key personnel could have a material adverse effect on our
business and prospects. We have an employment agreement with Matthew Jore,
but do not have employment agreements with any of our other employees.
OUR PRODUCTION PROCESSES COULD BE DISRUPTED AND OUR COST OF PRODUCTION COULD
INCREASE SIGNIFICANTLY IF OUR MANUFACTURING EQUIPMENT DOES NOT MEET PERFORMANCE
EXPECTATIONS OR IS NOT AVAILABLE FOR FUTURE PURCHASE:
The failure of our manufacturing equipment to perform reliably and as
designed, our inability to source such equipment from present suppliers, or
the obsolescence of our equipment could disrupt our production processes,
reduce our sales and increase production costs. Our business is dependent on
the successful implementation and operation of advanced manufacturing
technologies. Our manufacturing equipment may fail to meet our performance
requirements or continue to operate reliably because of unexpected design
flaws or manufacturing defects. Moreover, we may be unable to continue to
obtain equipment and supplies from our present suppliers if they cease
producing or selling such equipment or supplies or opt not to sell to us. In
addition, we cannot be certain that our manufacturing processes will remain
competitive with new and evolving technologies.
13
<PAGE>
OUR INABILITY TO INTRODUCE NEW PRODUCTS THAT ARE ACCEPTED BY THE MARKET COULD
ADVERSELY AFFECT OUR SALES, OUR REPUTATION AS AN INNOVATIVE MANUFACTURER AND OUR
ABILITY TO OBTAIN NEW CUSTOMERS:
Our future success will depend in part on our continuous and timely
development and introduction of new products that address evolving market
requirements. We cannot assure that our new products will be introduced on a
timely basis or will achieve market acceptance. We may be unable to
successfully develop and produce new products because of a lack of market
demand, production capacity constraints or the lack of relevant technical and
engineering expertise. Factors affecting the market acceptance of our new
products include:
- Functionality, quality and pricing;
- Demand from end-users;
- Favorable reviews in trade publications;
- Adequate marketing support;
- The introduction of competitive products; and
- General trends in the power and hand tool industries and the home
improvement market.
OUR GROWTH STRATEGY DEPENDS IN PART ON OUR EXPANSION INTO FOREIGN MARKETS, WHICH
MAY BE DIFFICULT OR UNPROFITABLE:
We intend to expand distribution of our products in foreign markets. Because
of the size and continued growth of the power tools accessories market
outside North America, the failure to successfully enter foreign markets
could limit our growth prospects. In our attempt to enter foreign markets, we
may expend financial and human resources without a corresponding increase in
revenues and profitability. We cannot assure that we will be able to
penetrate foreign markets or that this growth strategy can be implemented
profitably. Penetrating and conducting business in foreign markets involves
challenges, including:
- Local acceptance of our products;
- Currency controls and fluctuations in foreign exchange rates;
- Regulatory requirements such as tariffs and trade barriers;
- Longer payment cycles and increased difficulty in collecting accounts
receivable;
- Unfavorable tax consequences; and
- Transportation and logistics.
WE FACE COMPETITION IN THE POWER TOOL ACCESSORIES AND HAND TOOLS MARKETS:
The power tool accessories and hand tools markets are mature and highly
competitive. We cannot assure that we will be able to compete in our target
markets. In the power tool accessory market competitors include Vermont
American Corporation, Black & Decker Corporation, Greenfield Industries,
Inc., a wholly-owned subsidiary of Kennametal Inc., American Tool Companies,
Inc., S/B Power Tools, Milwaukee, Porter Cable, Snap-On Incorporated and others,
as well as a number of other companies that supply products under private
labels to OEM and retail customers. Some of these competitors offer products
similar to ours or different products with similar functionalities. In
particular, Black & Decker has developed a product
14
<PAGE>
line with similar characteristics to our quick-change system. In the hand tool
market, competitors include American Tool Companies, Inc., Cooper Industries,
Inc., The Stanley Works and others, including foreign manufacturers such as
Sandvik AB.
Many of our competitors are established companies that have significantly
greater financial, technical, manufacturing, sales and marketing, and support
resources than Jore Corporation. In addition, many of our competitors own
well-known brands, enjoy large end-user bases, and benefit from long-standing
customer relationships. We believe that consumers in our markets generally
are loyal to a particular brand. Therefore, it may be difficult to generate
sales to consumers who have purchased products from competitors. Our failure
to compete successfully against current or future competitors would have
material adverse effects on our business, operating results, and financial
condition including loss of customers, declining revenues and loss of market
share.
OUR DEPENDENCE ON CUSTOMER FORECASTS TO MANAGE OUR BUSINESS MAY CAUSE US TO
MISALLOCATE OUR PRODUCTION, INVENTORY OR OTHER RESOURCES:
Significant or numerous cancellations, reductions or delays in orders by a
principal customer or a group of customers could have a material adverse
effect on our revenues, inventory levels and profit margins. We rely on our
customers' forecasts to anticipate their future volume of orders, which
typically do not become contractual obligations until approximately 30 days
prior to shipment. We rely on these forecasts when making commitments
regarding the level of business that we will seek and accept, the mix of
products that we intend to manufacture, the timing of production schedules,
and our use of equipment and personnel. The size and timing of orders placed
by our customers varies due to a number of factors, including consumer
demand, inventory management by customers, our customers' manufacturing or
marketing strategies, and fluctuations in demand for competing and
complementary products. In addition, a variety of economic conditions, both
specific to individual customers and generally affecting the markets for our
products, may cause customers to cancel, reduce or delay orders that were
previously made or anticipated.
OUR BUSINESS IS SEASONAL AND OUR OPERATING RESULTS ARE SUBJECT TO QUARTERLY
FLUCTUATIONS:
Seasonality and unanticipated changes in customer demand could cause our
revenue, expenses, inventory levels and operating results to fluctuate.
Currently, the majority of our sales occur during the third and fourth fiscal
quarters and our operating results depend significantly on the holiday
selling season. In 1997, 1998, and 1999 approximately 69%, 67%, and 67%
respectively, of our net revenues were generated during the third and fourth
quarters. To support this sales peak, we anticipate demand and build
inventories of finished goods throughout the first two fiscal quarters. In
addition, our customers may reduce or delay their orders during the first two
fiscal quarters to balance their inventory between the holiday selling
seasons. As a result, our levels of raw materials and finished goods
inventories tend to be at their highest, relative to sales, during the first
half of the year. These factors can cause variations in our quarterly
operating
15
<PAGE>
results and potentially expose us to greater adverse effects of changes in
economic and industry trends.
In addition, a substantial portion of our sales depends upon receiving
purchase orders for products to be manufactured and shipped in the same
quarter in which these orders are received. While we monitor our customers'
needs, we typically have a small backlog relative to net revenues, and a
significant portion of our orders are placed for production and delivery
within a few weeks from receipt of the order. As a result, the timing of
revenue may be affected by changes in production volume in response to
fluctuations in customer and end-user demand, introduction of new products by
customers, and balancing of customers' inventory to their sales estimates.
UNSATISFACTORY PERFORMANCE OF OUR NEW INFORMATION TECHNOLOGY SYSTEM COULD SLOW
OUR GROWTH:
The satisfactory performance and reliability of our information systems are
essential to our operations and continued growth. We have implemented a new
information technology system parts of which became operational during July
of 1999. If the system fails to perform reliably or otherwise does not meet
our expectations, or if we fail to successfully complete the implementation
of other modules of the system, we could experience design, manufacturing,
and shipping delays, which in turn, could increase our costs and result in
deferred or lost sales. Failure to maintain our new information system, or
unsatisfactory performance of the system, could disrupt manufacturing
operations and reporting systems, cause delays in production and shipping of
product, and adversely affect our responsiveness to customers.
THE LOSS OR NON-PERFORMANCE OF OUR SALES REPRESENTATIVE COULD DISRUPT OUR SALES
EFFORTS:
We coordinate our sales and marketing activities with a sales representative,
Manufacturers' Sales Associates, LLC. In 1999 and 1998, Manufacturers' Sales
Associates and its affiliate received a commission on all of our sales. The
failure or inability of Manufacturers' Sales Associates to represent us
effectively, maintain relationships with our customers, attract new
customers, or satisfactorily perform marketing activities could adversely
affect our business, customer relationships, reputation and prospects for
growth. Moreover, Manufacturers' Sales Associates can terminate its
relationship with us at any time without penalty. Termination of this
relationship would require us either to conduct all of our sales and
marketing activities internally or retain another sales and marketing
representative. Any such change could disrupt our sales efforts and damage
our customer relationships.
EXISTING AND POTENTIAL LITIGATION MAY DIVERT MANAGEMENT RESOURCES AND COULD
ADVERSELY AFFECT OUR OPERATING RESULTS:
From time to time we have been, and expect to continue to be, subject to
legal proceedings and claims in the ordinary course of our business. Such
claims, even if not meritorious, could require the expenditure of significant
financial and managerial resources. On August 16, 1999, Pete K. Block and
Paul K. Block instituted separate
16
<PAGE>
actions in Montana District Court against us, Matthew Jore individually and
d.b.a. Jore Enterprises, Michael Jore and Merle Jore. In their complaints, the
Blocks alleged, among other things, that they are collectively entitled to a 25%
interest in the capital stock of Jore Enterprises and any successor corporation.
Their lawsuits are based in part upon an agreement, dated October 10, 1989,
between the Blocks and Matthew, Michael and Merle Jore. The Blocks seek
dissolution of Jore Corporation and are compensatory damages of not less than
$10 million, punitive damages, attorneys' fees and costs, and injunctive relief
preventing any reorganization or sale that would cause them to collectively own
less than 25% of the equity of Jore Enterprises and any successor corporation.
Litigation is inherently uncertain, and we cannot assure that we and/or the
Jores will prevail in the suit. To the extent that the Blocks become entitled
to shares of our common stock as a result of the suit, we may be required to
recognize an expense equal to the number of shares issued multiplied by the
fair value of the common stock on the date of issuance. Satisfaction of such
liabilities through the issuance of shares could result in the recognition of
future expenses, which could have a material adverse effect on our results of
operations.
WE SUBSTANTIALLY RELY ON CONTRACTS WITH AFFILIATES WHOSE INTERESTS MAY NOT
ALWAYS COINCIDE WITH THOSE OF OUR PUBLIC SHAREHOLDERS:
The existence of, or potential for, conflicts-of-interest between two of our
directors and us could adversely influence decisions relating to sales and
marketing and printing and packaging of our products. We rely substantially
on our sales representative, Manufacturers' Sales Associates, for sales and
marketing assistance and on Printing Press Incorporated for printing and
packaging materials. Our director William M. Steele is the managing member
and owns a significant ownership percentage and control of Manufacturers'
Sales Associates, and our director Bruce Romfo owns 30% of Printing Press
Incorporated. In 1999, Manufacturers' Sales Associates and its affiliate
earned an aggregate of $1,245,424 million in sales commissions and we
purchased $2,597,810 million printing and packaging materials from Printing
Press. In 1998, Manufacturers' Sales Associates and its affiliate earned an
aggregate of $1.8 million in sales commissions and we purchased $2.0 million
printing and packaging materials from Printing Press. Because of their
significant ownership stakes in these two entities, the interests of Messrs.
Steele and Romfo may diverge from those of Jore Corporation and its public
shareholders.
UNFAVORABLE CHANGES IN COSTS AND AVAILABILITY OF RAW MATERIALS MAY ADVERSELY
AFFECT OUR MANUFACTURING OPERATIONS AND ABILITY TO SATISFY OUR CUSTOMERS'
ORDERS:
We purchase raw materials, key components and certain products from third
party vendors. Although there are alternative sources for these raw
materials, components, and products, we could experience manufacturing and
shipping delays if it became necessary to change or replace current
suppliers, or to produce certain components or products internally. In
addition, the prices of raw materials supplied by certain vendors are
influenced by a number of factors, including general economic conditions,
competition, labor costs, and general
17
<PAGE>
supply levels. Our inability to obtain reliable and timely supplies of
out-sourced products and components and raw materials on a cost effective basis,
or any unanticipated change in suppliers, could have a material adverse effect
on our manufacturing operations, revenues and profitability.
WE DEPEND ON PATENT, TRADEMARK AND TRADE SECRET PROTECTION TO MAINTAIN OUR
MARKET POSITION:
Our success depends in part on our ability to obtain patent protection for
our products, maintain trade secret protection for our proprietary processes,
and operate without infringing on the proprietary rights of others. Our
existing U.S. and foreign patents expire between 2002 and 2012. We have
filed, and intend to file, applications for additional patents covering our
products. We cannot be certain that any of these patent applications will be
granted, that any future inventions that we develop will be patentable or
will not infringe the patents of others, or that any patents issued to or
licensed by us will provide us with a competitive advantage or adequate
protection for our technology. In addition, we cannot assure that any patents
issued to or licensed by us will not be challenged, invalidated or
circumvented by others.
We believe that trademarks owned or licensed by us enhance our position in
the marketplace and are important to our business. Our inability to use any
of our trademarks could adversely affect our customer relationships and
revenues. We cannot be certain that we will retain full rights to use our
trademarks in the future.
THE COST OF PROTECTING AND DEFENDING OUR PATENTS, TRADEMARKS AND TRADE SECRETS
MAY BE SIGNIFICANT:
The defense and prosecution of patent claims, and litigation involving
intellectual property rights generally, is both costly and time consuming. If
any of our products are found to have infringed any patent or other third
party proprietary right, we may be unable to obtain licenses to continue to
manufacture and sell such products or may have to pay damages as a result of
such infringement. We endeavor to protect our trade secrets by entering into
confidentiality agreements with third parties, employees and consultants and
generally control access to our facilities and distribution of our
proprietary documentation and other materials. Confidentiality and
non-disclosure obligations are difficult to enforce, however, and we may lack
an adequate remedy for breach of a confidentiality agreement. Moreover, a
third party could gain access to our trade secrets through means other than
by breach of a confidentiality agreement, or could develop independently a
process substantially similar to our trade secrets. In addition, the laws of
other countries in which we market or may market our products may afford
little or no effective protection of our intellectual property.
WE COULD BECOME SUBJECT TO PRODUCT LIABILITY LAWSUITS:
We face a potential risk of product liability claims because our products may
be used in activities where injury may occur such as the building and
construction industries. Although we have product liability insurance
coverage, we cannot be certain that this insurance
18
<PAGE>
will adequately protect us against product liability claims or that we will be
able to maintain this insurance at reasonable cost and on reasonable terms. To
the extent that we are found liable for damages with respect to a product
liability claim and lack adequate insurance coverage to satisfy such claim, our
business, operating results, and financial condition could be materially and
adversely affected.
THE JORE FAMILY CONTROLS ALL MATTERS REQUIRING SHAREHOLDER APPROVAL POSSIBLY IN
CONFLICT WITH YOUR INTERESTS:
Matthew Jore, acting alone, or the Jore family, acting together, are able to
control all matters requiring shareholder approval. Matthew Jore, President
and Chief Executive Officer, his brother Michael Jore, Executive Vice
President, trusts controlled by Matthew and Michael Jore, and other members
of the Jore family beneficially own approximately 63.4% of our outstanding
common stock. Our Articles of Incorporation and Bylaws do not provide for
cumulative voting; therefore, the Jore family has the ability to elect all of
our directors. The Jore family also has the ability to approve or disapprove
significant corporate transactions without further vote by the investors who
purchase common stock in this offering. This ability to exercise control over
all matters requiring shareholder approval could prevent or significantly
delay another company or person from acquiring or merging with us.
WE MAY NEED ADDITIONAL CAPITAL WHICH COULD DILUTE YOUR INTEREST IN THE COMPANY
AND WHICH MAY NOT BE AVAILABLE WHEN NEEDED:
Depending on our rate of growth and cash requirements, we may require
additional equity or debt financing to meet future working capital needs and
to enhance our financial position for future operations. We cannot assure you
that such additional financing will be available or, if available, that such
financing can be obtained on satisfactory terms. If financing is unavailable
to us or is available only on a limited basis, we may be unable to develop or
enhance our products, take advantage of business opportunities or respond to
competitive pressures, any of which could have a material adverse effect on
our business, operating results, and financial condition.
WE USE DEBT, WHICH CREATES FINANCIAL AND OPERATING RISK:
We have relied on debt and may seek additional debt funding in the future. As
of December 31, 1999, we had approximately $27,779,153 million of outstanding
long-term debt, net of current portion, which accounted for 38.2% of our
total capitalization. Our leverage poses the risks that:
- We may be unable to repay our debt due to a decline in revenues or
disruption in cash flow;
- We may be unable to obtain additional financing;
- We must dedicate a substantial portion of our cash flow from operations
to servicing the interest and principal payments on our debt, and any
remaining cash flow may be inadequate to fund our planned operations;
- We have pledged substantially all of our inventory and accounts
receivable as collateral; and
19
<PAGE>
- We may be more vulnerable during economic downturns, less able to
withstand competitive pressures and less flexible in responding to
changing business and economic conditions.
FUTURE SALES OF CURRENTLY OUTSTANDING SHARES COULD NEGATIVELY AFFECT OUR STOCK
PRICE:
The market price of our common stock could decrease as a result of sales of a
large number of shares in the market or in response to the perception that
such sales could occur. Approximately 9.5_ million of our shares are eligible
for immediate sale, in certain instances, subject to the volume limitations
of Rule 144.
CERTAIN PROVISIONS UNDER STATE CORPORATE LAW AND OUR CORPORATE CHARTER COULD
HAVE AN ADVERSE EFFECT ON OUR STOCK PRICE:
Certain provisions of our Articles of Incorporation, Bylaws and Montana
corporate law could be used by our incumbent management to make it
substantially more difficult for a third party to acquire control of Jore
Corporation. These provisions could discourage potential takeover attempts
and could adversely affect the market price of our common stock.
ITEM 2. PROPERTIES
Our operations are housed in 280,590 square feet of facilities located on a 120
acre site near Ronan, Montana that we own. Our existing facilities include three
buildings from which we provide manufacturing, assembly, packaging, warehousing
and administrative functions. During 1999, we expanded our facilities by 153,600
square feet to accommodate expanded manufacturing activities, including our new
drill bit manufacturing operation. We believe this site is sufficient to
continue to expand our facilities to meet our needs for the foreseeable future,
although we may expand beyond our locality and our existing site to accommodate
our product distribution needs and to access more substantial labor pools. We
also lease a facility of about 10,500 square feet in Edgerton, Wisconsin in
which we manufacture insert screwdriver bits in our J.B. Tool operations.
ITEM 3. LEGAL PROCEEDINGS
From time to time we have been, and expect to continue to be, subject to legal
proceedings and claims in the ordinary course of our business, including claims
of alleged infringement of third-party trademarks and other intellectual
property rights. Such claims, even if not meritorious, could require the
expenditure of significant financial and managerial resources.
BLACK & DECKER LITIGATION. On June 9, 1999, The Stanley Works filed a lawsuit
against Black & Decker in the United States District Court for the District of
Connecticut. The lawsuit arises out of claims made by Black & Decker that our
proposed introduction of STANLEY(R)-branded power tool accessories in yellow
and black packaging would violate Black & Decker's trademark rights associated
with its DEWALT(R) brand.
20
<PAGE>
Stanley is seeking a declaratory judgment that the use or license by Stanley or
Jore of yellow and black on power tools or their accessories does not infringe
or dilute any of Black & Decker's federal or state trademark rights, or
constitute an unfair trade practice under federal or state law. We have joined
Stanley as a co-plaintiff in this suit. Stanley has advised us that:
- - - It has used yellow and black on its products since at least 1899;
- - - It has marketed products under its "Stanley in a notched rectangle" trademark
since at least 1902;
- - - It has sold power tool accessories since at least 1939;
- - - It has packaged its power tool accessories utilizing yellow and black trade
dress since at least 1957.
In contrast, we believe that Black & Decker first introduced the DeWalt line of
power tools dressed in yellow and black in 1992. Jore began shipping product
under the STANLEY(R) brand on June 14, 1999.
On July 7, 1999 Black & Decker filed an Amended Answer, Affirmative Defenses,
and Counterclaims to Amended Complaint, in which Black & Decker denied most of
the allegations asserted against it and raised counterclaims against Stanley and
Jore alleging, among other things, unfair competition and trademark and trade
dress infringement. In its filing, Black & Decker seeks:
- - - dismissal of Stanley's action;
- - - an injunction against Stanley and Jore that would prevent Stanley and us from
using the yellow and black color combination for marketing and selling power
tools and power tool accessories;
- - - damages for our use of the yellow and black color combinations; and
- - - attorneys' fees and costs.
On February 24, 2000, Black & Decker moved to dismiss the lawsuit on the grounds
that no "case or controversy" exists among the parties. Stanley and Jore have
opposed Black & Decker's motion, which is pending before the court.
Under the license agreement, Stanley has agreed to indemnify and hold us
harmless with respect to any alleged copyright or trademark infringement action
arising out of the approved use of Stanley's trademarks, and has the sole
responsibility for undertaking and conducting the defense of any such action.
BLOCK BROTHERS LITIGATION. On August 16, 1999, Pete K. Block and Paul K. Block
instituted separate actions in the Montana Fourth Judicial District Court of
Missoula County, Montana against us, Matthew Jore individually and dba Jore
Enterprises, Michael Jore, individually, and Merle Jore, individually. In their
complaints, the Blocks alleged, among other things, that they are collectively
entitled to a 25% interest in the capital stock of Jore Enterprises and any
successor corporation. Their lawsuits are based in part upon an agreement, dated
21
<PAGE>
October 10, 1989, between the Blocks and Matthew, Michael and Merle Jore
pursuant to which the Blocks contend that Matthew, Michael and Merle Jore agreed
to issue them shares of stock of Jore Enterprises and any successor corporation
and to grant them a collective 25% interest in all patent rights, profits and
real and personal property. The Blocks seek dissolution of Jore Corporation and
compensatory damages of not less than $10 million, plus interest, punitive
damages, attorneys' fees and costs and injunctive relief preventing any capital
reorganization or sale that would cause them to collectively own less than 25%
of the equity of Jore Enterprises and any successor corporation.
We have answered the complaint, and we intend to vigorously defend against
the claims, assert affirmative defenses and potentially assert counterclaims.
While we believe that we have meritorious defenses and potential
counterclaims to the Blocks' claims, litigation is inherently uncertain, and
we cannot assure that we and/or the Jores will prevail in the suit. To the
extent that the Blocks become entitled to shares of our common stock as a
result of the suit, we may be required to recognize an expense equal to the
number of shares issued multiplied by the fair value of the common stock on
the date of issuance. This could have a material adverse effect on our
results of operations.
In order to protect Jore Corporation from any adverse outcome in this or any
future proceeding involving the Blocks, Matthew, Michael and Merle Jore have
entered into an indemnification agreement with Jore Corporation pursuant to
which they indemnify and hold Jore Corporation harmless against these and any
other future claims, including any damages and costs resulting therefrom,
that the Blocks may assert against us, including attorneys fees and costs. In
addition, the agreement provides that if the Blocks become entitled to any
shares of our common stock pursuant to a definitive judicial or arbitral
determination or a settlement agreement with us, then the Jores will provide
such shares from their own shareholdings. We cannot be certain, however, that
the Jores will be able to perform their indemnification obligations or that
such performance will not adversely affect the market for our stock.
Satisfaction of such liabilities through the issuance of shares could result
in the recognition of future expenses, which could have a material adverse
effect on our results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matters were submitted for a vote of stockholders of the Company during
the fourth quarter of the year ended December 31, 1999.
ITEM 4a. EXECUTIVE OFFICERS OF THE REGISTRANT
The executive officers and directors of Jore Corporation, as of March 1,
2000, and their ages and positions, are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
<S> <C> <C>
Matthew B. Jore (2) 37 President, Chief Executive Officer and
Chairman
Michael W. Jore 40 Executive Vice President and Director
David H. Bjornson 43 Chief Financial Officer,
General Counsel, Secretary and Director
</TABLE>
22
<PAGE>
<TABLE>
<S> <C> <C>
Kelly D. Grove 33 Vice President--Controller
Nikki M. Snyder 40 Vice President--Human Resources
Jeffery J. Eidsmoe 43 Vice President--Operations
Jeffrey M. Heutmaker 37 Vice President--Strategic Initiatives
George R. Collins 52 Vice President-Industrial Sales
</TABLE>
MATTHEW B. JORE is the founder of Jore Corporation. He has served as
our President since June 1990, Chief Executive Officer since March 1999 and a
Director since its inception in February 1990. He holds a B.S. degree in
Economics from the University of Montana.
MICHAEL W. JORE has served as Executive Vice President since November
1998 and Director of Jore Corporation since February 1990. From June 1990 to
November 1998, he was the Vice President of Jore Corporation. Before joining
Jore Corporation, he worked for Plum Creek Timber, L.L.C. for ten years. Matthew
and Michael Jore are brothers.
DAVID H. BJORNSON has served as General Counsel since November 1998,
Executive Vice President since March 2000 and as a Director since May 1998. Mr.
Bjornson also served as Chief Financial Officer from November 1998 through March
2000. From 1985 to 1998, he was a partner or associate attorney with law firms
in Seattle, Washington and Missoula, Montana, focusing his practice in the area
of business transactions and corporate and tax law. From 1979 to 1981 he worked
with the international accounting firm of Touche Ross & Co. in Seattle. He holds
an LL.M. degree in taxation from New York University, and a J.D. and a B.A.
degree in Business Administration with honors from the University of Montana.
Mr. Bjornson also holds a Certified Public Accountant Certificate.
KELLY D. GROVE has served as Vice President--Controller of Jore
Corporation since March 1999. From August 1995 to March 1999, she was the
Controller of Jore Corporation. From March 1994 to August 1995, she was the
Executive Coordinator of Jore Corporation. From November 1991 to March 1994, she
was a staff accountant at Washington Corporations, a holding company. She has a
B.S. degree from Montana State University. She holds a CPA certificate.
NIKKI M. SNYDER has served as the Vice President--Human Resources of
Jore Corporation since March 1999. From August 1996 to March 1999, she was the
Personnel Manager of Jore Corporation. From August 1994 to August 1996, she was
a personnel coordinator of Jore Corporation.
JEFFERY J. EIDSMOE has served as Vice President--Operations since May
1999. From January 1988 to May 1999 he worked for Western Forge, a subsidiary of
Emerson Electric Company, serving as its Director of Product Development for the
past four years. Mr. Eidsmoe was previously employed by Cessna Aircraft Company
as an Industrial Engineer Group Leader and Production Supervisor from March 1983
to December 1988. He has an M.B.A. degree from the University of Colorado and a
B.S. degree from Bemidji State University, Bemidji, Minnesota.
JEFFREY M. HEUTMAKER has served as Vice President--Strategic
Initiatives since June 1999. From June 1996 to June 1999 Mr. Heutmaker was an
attorney with Van Valkenberg Furber Law Group P.L.L.C, a law firm located in
Seattle, Washington, and outside securities counsel to Jore Corporation. From
1985 to 1996, Mr. Heutmaker practiced law in
23
<PAGE>
Seattle, Washington, including with the international firm of Bogle & Gates,
where his practice focused on securities law and mergers and acquisitions
transactions. He holds a J.D. degree from Notre Dame Law School and a B.A.
degree in Economics and English Literature from the University of Puget Sound.
GEORGE R. COLLINS has served as Vice President of Industrial Sales
since October 1999. From April 1991 to October 1999, he was the Director of
Sales, Consumer Division, for Greenfield Industries, a Division of Kennametal
Industries. From March 1989 to March 1991, he was the Vice President of Sales
and Marketing for NicSand, Incorporated, A Blue Coral Company, a Division of
Quakerstate, Incorporated. He holds a B.A. in Economics from Ohio University.
Our executive officers will serve as officers of Jore Corporation until
the regular meeting of the Board of Directors in May 2000 or until their
respective successors shall have been elected. Mike Jore and Matt Jore are
brothers. There is no family relationship between any of the other executive
officers listed above.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTER
Market Information
Our common stock is traded on the Nasdaq National Stock Market ("Nasdaq")
under the symbol "JORE." The common stock commenced trading on September 23,
1999. The following table sets forth the high and low closing sale prices for
the Common Stock as reported on the Nasdaq for the period from September 23,
1999 through the end of fiscal year 1999, and the period from January 1, 2000
through March 15, 2000.
<TABLE>
<CAPTION>
High Low
---- ---
<S> <C> <C>
Year ended December 31, 1999
Third Quarter (from September 23) $12.3125 $ 9.1000
Fourth Quarter $12.8750 $ 7.0625
January 1, 2000 through March 15, 2000 $ 9.9375 $ 5.7188
</TABLE>
Holders
As of March 15, 2000, there were approximately 90 holders of record of Common
Stock.
Dividends
Except for the S corporation distribution described in Note 5 to Jore
Corporation's Consolidated Financial Statements presented herein under Item
8, we did not declare or pay any dividends in 1999, and do
24
<PAGE>
not anticipate paying cash dividends in the foreseeable future. We intend to
retain future earnings for reinvestment in the operation and expansion of our
business. Any determination to pay cash dividends will be at the discretion of
the Board of Directors and will be dependent upon our financial condition,
results of operations, capital requirements and such other factors as the Board
of Directors deems relevant.
Under certain loan covenants associated with our line of credit facility, we
are restricted from declaring or paying dividends, or from purchasing,
redeeming, retiring or otherwise acquiring for value any of our shares of
stock, or from otherwise distributing property to shareholders with some
limited exceptions.
Sales of Unregistered Securities
There were no unregistered sales of equity securities made during the fourth
quarter of 1999.
Use of Proceeds From Registered Securities
As of December 31, 1999, we had used the net proceeds of our initial public
offering (excluding the net proceeds from the exercise of the over-allotment
option) as follows:
<TABLE>
<S> <C>
Net Proceeds from sale by Jore Corporation of $38.6 million
4,300,000 shares
- - ------------------------------------------------------- ------------------------
USE OF PROCEEDS
- - ------------------------------------------------------- ------------------------
Repayment of indebtedness and related interest $12.9 million
- - ------------------------------------------------------- ------------------------
S Corporation dividend and shareholder advances $4.0 million
- - ------------------------------------------------------- ------------------------
Capital expenditures and working capital $14.0 million
- - ------------------------------------------------------- ------------------------
Investments and marketable securities $7.7 million
- - ------------------------------------------------------- ------------------------
Total $38.6 million
- - ------------------------------------------------------- ------------------------
</TABLE>
25
<PAGE>
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
The following selected consolidated financial data should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations," our Consolidated Financial Statements and Notes
thereto and other financial information included elsewhere in this report.
<TABLE>
<CAPTION>
(in thousands except per share amounts)
1999 1998 1997 1996 1995
<S> <C> <C> <C> <C> <C>
Operating Data
Net sales $ 53,872 $ 44,888 $ 23,656 $ 9,686 $ 9,416
Income (loss) from operations 9,303 7,734 3,445 (63) 561
Net earnings (loss) before extraordinary item 6,477 6,240 2,541 (558) 189
and taxes
Provision for income taxes 633 -- -- -- --
-------------------------------------------------------
Income (loss) before extraordinary item 5,844 6,240 2,541 (558) 189
Extraordinary item:
Loss related to early retirement of debt, net of taxes 914
-------------------------------------------------------
Net income (loss) $ 4,930 $ 6,240 $ 2,541 $ (558) $ 189
=======================================================
Income before extraordinary item per common share:
Basic $ 0.55 $ 0.66 $ 0.27
Diluted $ 0.54 $ 0.66 $ 0.27
Effect of extraordinary item on earnings per share:
Basic $ 0.09
Diluted $ 0.09
Net income per common share:
Basic $ 0.46 $ 0.66 $ 0.27
Diluted $ 0.45 $ 0.66 $ 0.27
Shares used in calculation of income per share
Basic 10,653 9,412 9,358
Diluted 10,893 9,436 9,358
Pro forma data (unaudited):
Net income $ 4,930 $ 6,240 $ 2,541
Proforma provision for income taxes 1,303 2,343 900
Pro forma net income $ 3,627 $ 3,897 $ 1,641
Pro forma net income per common share (unaudited):
Basic $ 0.34 $ 0.41 $ 0.18
Diluted $ 0.33 $ 0.41 $ 0.18
BALANCE SHEET DATA
Inventory $ 27,795 $ 8,072 $ 4,740 $ 2,974 $ 1,101
Current assets 58,683 25,111 11,375 5,166 1,951
Property, plant and equipment, net 58,561 19,816 6,081 4,196 3,022
Total assets 117,908 45,963 17,759 9,548 5,169
Total current liabilities $ 42,605 $ 25,083 $ 10,549 $ 5,210 $ 2,875
Long-term debt, net of current portion 27,779 14,589 4,689 4,189 1,541
Total liabilities 73,153 39,673 15,238 9,399 4,376
Total shareholders' equity 44,754 6,289 2,521 149 763
</TABLE>
26
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANAYLISIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
THE FOLLOWING DISCUSSION AND ANALYSIS SHOULD BE READ IN CONJUNCTION
WITH JORE CORPORATION'S CONSOLIDATED FINANCIAL STATEMENTS AND RELATED NOTES
THERETO INCLUDED HEREIN UNDER ITEM 8. ALL STATEMENTS, TREND ANALYSIS AND OTHER
INFORMATION CONTAINED IN THIS PROSPECTUS RELATIVE TO MARKETS FOR JORE
CORPORATION'S PRODUCTS AND TRENDS IN REVENUE, GROSS MARGIN AND ANTICIPATED
EXPENSE LEVELS, AS WELL AS OTHER STATEMENTS INCLUDING WORDS SUCH AS "SEEK,"
"ANTICIPATE," "BELIEVE," "PLAN," "ESTIMATE," "EXPECT" AND "INTEND" AND OTHER
SIMILAR EXPRESSIONS, CONSTITUTE FORWARD-LOOKING STATEMENTS WITHIN THE MEANING OF
SECTION 21E OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED. THESE
FORWARD-LOOKING STATEMENTS ARE SUBJECT TO BUSINESS AND ECONOMIC RISKS, AND OUR
ACTUAL RESULTS OF OPERATIONS MAY DIFFER MATERIALLY FROM THOSE CONTAINED IN THE
FORWARD-LOOKING STATEMENTS. FACTORS THAT COULD CAUSE OR CONTRIBUTE TO SUCH
DIFFERENCES INCLUDE, BUT ARE NOT LIMITED TO, THOSE DISCUSSED UNDER "RISK
FACTORS" SET FORTH IN ITEM 1 ABOVE. YOU SHOULD NOT RELY ON THESE FORWARD-LOOKING
STATEMENTS, WHICH REFLECT ONLY OUR OPINION AS OF THE DATE OF THIS REPORT. WE DO
NOT ASSUME ANY OBLIGATION TO UPDATE FORWARD-LOOKING STATEMENTS.
Overview
Jore Corporation was founded to develop and produce innovative power
tool accessories to meet the increasing demand resulting from the growth in the
cordless power tool market. Our revenues have grown substantially through the
addition of new customers, increased sales to established customers and expanded
product offerings. Our business commenced in 1987, when we began selling a
limited number of drilling and driving accessories to independent local and
regional hardware stores and building supply centers. In 1990, Makita became our
first national customer and we devoted significant resources to servicing its
demand for our products. By 1996, we had expanded our product portfolio to
include our reversible drill and drivers and contractor versions of our
products. We also began to diversify our customer base by selling products to
Black & Decker/DeWalt, as well as to retail customers. In 1997 and 1998, we
continued to expand our customer base by selling to Sears, Home Depot, Canadian
Tire and TruServ and further expanded our product line by introducing our quick
change system and new drilling and driving accessories such as wood boring and
masonry bits. In 1999,we increased our revenues and margins by pursuing direct
relationships with major retailers through sales of private label and STANLEY(R)
branded products, increasing sales to existing customers, and augmenting our
existing product portfolio.
In 1999, we incurred several significant non-recurring costs in order
to position us for future growth. These costs include the direct and indirect
costs to:
- Construct and reorganize our manufacturing, engineering and
administrative facilities;
27
<PAGE>
- Purchase, install and test our new drill bit manufacturing equipment;
- Install our new management information system and train our personnel
to use it;
- Assess our Year 2000 readiness and implement our compliance program;
- Perform a comprehensive three-year audit of our financial statements;
and
- Prepare for and close our initial public offering of common stock.
Direct costs included the tangible, out-of-pocket costs incurred by us
that related to each activity. Indirect costs resulted from the diversion of
time and resources away from our normal operations while we administered these
activities.
In addition, to ensure an adequate supply of drill bits as we phased
in our internal production, we purchased an excess amount of drill bit
inventory from our existing suppliers. We consumed a portion of this excess
inventory by the end of the fourth quarter of 1999, but still retain a
substantial supply thereof, and we expect to fill most of our future
requirements from our own production capacity.
Net revenues are recognized at the time of shipment and sales terms are
typically net 60 or 90 days. Historically, we have experienced negligible bad
debt and do not expect bad debt to be material in the future.
Cost of goods sold consists primarily of raw materials, labor,
shipping, depreciation, and other manufacturing expenses associated with the
production and packaging of products.
Our operating expenses include product development costs, sales and
marketing expenses and general and administrative expenses. Product development
expenses consist principally of personnel costs and material associated with the
development of new products and changes to existing products, which are charged
to operations as incurred. Sales and marketing expenses consist primarily of
selling commissions paid to Manufacturers' Sales Associates, our sales
representative, salaries and employee benefits for internal sales personnel and
costs of advertising and promotional activities. General and administrative
expenses consist primarily of salaries and employee benefits for executive,
managerial and administrative personnel, license fees, facility leases,
depreciation and amortization of capitalized administrative equipment and
building costs and travel and business development costs. Other expense consists
primarily of interest expense associated with our borrowings, net of interest
income on cash and cash equivalents.
Results of Operations
The following table sets forth, for the periods indicated, certain
financial data as a percentage of net revenues:
28
<PAGE>
<TABLE>
<CAPTION>
Years Ended December 31,
-------------------------------------
1995 1996 1997 1998 1999
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net revenues 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of goods sold 82.4 86.9 72.3 69.5 65.6
Gross profit 17.6 13.1 27.7 30.5 34.4
Operating expenses:
Product development 1.6 0.1 0.6 1.1 1.2
Sales and marketing 0.3 0.3 2.6 5.6 6.0
General and administrative 9.8 13.4 9.9 6.6 10.1
Total operating expense 11.7 13.8 13.1 13.3 17.3
Income (loss) operations 5.9 (0.7) 14.6 17.2 17.1
Other expense:
Interest expense 3.0 5.0 3.4 3.0 5.7
Other income expense 0.9 0.1 0.5 0.3 (0.5)
Net other expense 3.9 5.1 3.9 3.3 5.2
Net income (loss) reported 2.0% (5.8)% 10.7% 13.9% 12.0
</TABLE>
1999 COMPARED TO 1998
NET REVENUES. Net revenues increased from $44.9 million in 1998 to
$53.9 million in 1999, representing a 20.0% increase. Of the $9.0 million
increase, sales to existing customers accounted for $6.2 million and sales to
new customers accounted for $2.8 million. A substantial portion of this
increase for new customers resulted from additional sales under the
STANLEY(R) brand.
COST OF GOODS SOLD. Cost of goods sold increased from $31.2 million in
1998 to $35.3 million in 1999, representing a 13.3% increase. Cost of goods sold
as a percentage of revenues decreased from 69.4% in 1998 to 65.6% in 1999. This
decrease is attributable to an increase in sales to direct retailers at better
margins, a larger sales volume over which to spread fixed overhead costs,
reductions in material costs, and savings related to the new manufacturing
processes implements in effecting technological vertical integration.
PRODUCT DEVELOPMENT EXPENSES. Product development expenses increased
from $495,000 in 1998 to $621,000 in 1999, representing a 25.4% increase.
Professional and technical labor accounted for the majority of the increase as
we hired additional engineers and machinists to develop our proprietary products
and corresponding processes. In addition to the labor expensed in 1998 and 1999,
we capitalized $211,000 and $1,276,000, respectively, of labor related to
equipment constructed in-house. These amounts are included in property, plant
and equipment on the balance sheet and depreciated over the life of the
equipment.
SALES AND MARKETING EXPENSES. Sales and marketing expenses increased
from $2.5 million in 1998 to $3.2 million in 1999, representing a 28.7%
increase. Advertising and promotion expenses increased by approximately $1.0
million due to increased retail advertising, but this increase was partially
offset by a decrease in the sales commission percentage paid to our sales
representative. We increased our internal marketing and graphics staff to
accommodate increased sales and customer support activities as our customer
diversification efforts required us to produce more packaging and merchandising
materials.
29
<PAGE>
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative
expenses increased from $3.0 million in 1998 to $5.5 million in 1999,
representing an 82.8% increase. The increase was a result primarily of our
tremendous growth, including our initiatives to expand our executive level
administrative infrastructure. For example, during 1999, we recruited three new
senior level executives and we increased our finance and administrative staff
from 67 at December 31, 1998 to 115 at December 31, 1999. Other nonrecurring
items which impacted the increase in general and administrative costs were
training and other noncapitalizable costs associated with our new management
information system, costs associated with our Y2K or Year 2000 computer systems
review and compliance, and certain indirect costs associated with our initial
public offering, including nonrecurring increases in professional fees such as
reorganization costs and expenses related to a one-time three year audit of our
financial statements and the consolidation and combination of our operations.
OTHER INCOME/EXPENSE. Other net expense increased from $1.5 million
in 1998 to $2.8 million in 1999, representing a 85.6% increase. This increase
in other expense is directly attributable to a larger amount of borrowings
and a corresponding increase in interest expense.
EXTRAORDINARY ITEM. We incurred an extraordinary expense of
approximately $1.0 million in August 1999 related to the early extinguishment
of our former operating line of credit. We expensed the resulting prepayment
penalty and the unamortized financing costs associated with the credit line.
The proceeds to extinguish the debt came from our new credit line with First
Security Bank. This new credit line provides lower fees, lower interest rates
and greater flexibility and collateral for our inventory.
PRO FORMA PROVISION FOR INCOME TAXES. Prior to the closing of our
initial public offering in September 1999, we were treated as an S
corporation for tax purposes. As an S corporation, we were not subject to
federal and certain state income taxes. Upon the closing of our initial
public offering on September 23, 1999, our status as an S corporation was
terminated and we became subject to taxes as a C corporation. The pro forma
provision for income taxes reflects the estimated tax expense that we would
have incurred had we been subject to federal and state income taxes as a C
corporation during the periods during which we were an S corporation. The pro
forma provision for 1999 reflects a pro forma tax rate of 32.05%, which
differs from the federal statutory rate due primarily to the effects of state
taxes and certain tax credits.
NET INCOME. We made no provision for income tax in 1998 as we retained
our status as an S corporation. On a pro forma basis, our net income decreased
from $3.9 million in 1998 to $3.6 million in 1999, representing a 6.9% decrease.
1998 COMPARED TO 1997
NET REVENUES. Net revenues increased from $23.7 million in 1997 to
$44.9 million in 1998, representing an 89.8% increase. Of the $21.2 million
increase, sales to existing customers accounted for $19.0 million and sales to
new customers accounted for $2.2 million. In particular, we doubled our shelf
space at most Sears stores, increased the number of products sold to them and
increased the number of Sears
30
<PAGE>
stores carrying our products. These factors combined to more than triple our
sales to Sears during 1998.
COST OF GOODS SOLD. Cost of goods sold increased from $17.1 million in
1997 to $31.2 million in 1998, representing an 82.3% increase. Cost of goods
sold decreased as a percentage of revenues from 72.3% in 1997 to 69.4% in 1998.
This decrease is primarily attributable to the greater absorption of
manufacturing overhead associated with increased revenues and the efficiencies
gained from manufacturing our products internally but was partially offset by
the inefficiencies associated with hiring and training more than 400 new
employees during the year. Our gross margins improved as we continued to
vertically integrate our manufacturing operations and the effects of such
integration impacted our margins in the third and fourth quarters of 1999.
PRODUCT DEVELOPMENT EXPENSES. Product development expenses increased
from $151,000 in 1997 to $495,000 in 1998, representing a 228.6% increase.
Professional and technical labor accounted for the majority of the increase as
we hired additional engineers and machinists to develop our proprietary products
and corresponding processes. In addition to the labor expensed in 1997 and 1998,
we capitalized $182,000 and $211,000, respectively, of labor related to
equipment constructed in-house. These amounts are included in property, plant
and equipment on the balance sheet and depreciated over the life of the
equipment.
SALES AND MARKETING EXPENSES. Sales and marketing expenses increased
from $620,000 in 1997 to $2.5 million in 1998, representing a 305.0% increase.
Sales commissions represented $1.3 million of the increase. Advertising and
promotion expenses increased by $474,000 due to increased retail advertising. We
increased our internal marketing and graphics staff to accommodate increased
sales and customer support activities as our customer diversification efforts
required us to produce more packaging and merchandising materials.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative
expenses increased from $2.3 million in 1997 to $3.0 million in 1998,
representing a 27.4% increase. The increase is a result of our growth and
expansion. Administrative salaries and related benefits increased as
professional level staff members were added, increasing the overall salary base.
The total number of administrative staff increased from 86 at the end of 1997 to
111 at the end of 1998.
OTHER EXPENSE. Other expense increased from $904,000 in 1997 to $1.5
million in 1998. This increase in other expense is primarily attributable to a
larger amount of borrowings and a corresponding increase in interest expense.
PRO FORMA NET INCOME. As a result of all of these factors our pro forma
net income increased from $1.6 million in 1997 to $3.9 million in 1998,
representing a 137.5% increase.
31
<PAGE>
Liquidity and Capital Resources
Historically, we have funded operations with short-term lines of credit and
term loans for equipment purchases and, to a lesser extent, net income from
operations. Our initial public offering of common stock in September 1999
yielded net proceeds to us of $38.6 million, including the exercise of the
underwriters' over-allotment option. These proceeds were used to repay debt,
distribute the accumulated but undistributed S Corporation earnings of the
company, purchase capital expenditures, and invest in marketable securities.
Cash, cash equivalents and short-term investments were $7.8 million as of
December 31, 1999, compared to $35,000 as of December 31, 1998. This increase
is attributable to our receipt of the net proceeds of our Initial Public
Offering. Net cash used by operating activities was $1.9 million in 1997,
$1.7 million in 1998 and $13.2 million in 1999. The net cash used in
operating activities consisted primarily of increases in inventory, which was
partially offset by increased depreciation and accrued expenses.
Net cash used by investing activities was $2.7 million in 1997, $15.7
million in 1998 and $48.8 million in 1999. Cash used in investing activities
consisted primarily of property and equipment purchases and some investment
purchases.
Net cash provided by financing activities was $4.7 million in 1997,
$17.3 million in 1998 and $62 million in 1999. Cash provided from financing
activities was primarily from net proceeds from our initial public offering and
proceeds from term debt as well as net borrowings from our line of credit.
We have a revolving line of credit with First Security Bank, N.A., with
a maximum borrowing limit of $25.0 million. Advances on the line are limited to
85% of eligible accounts receivable and 65% of eligible inventory. Trade
accounts receivable and inventory are assigned as collateral. Interest on the
revolving credit line is at the prime rate plus one-half percent or, at our
option, LIBOR plus 3%. The term of the agreement is through August 2001. This
line is secured by receivables, inventory, real estate, equipment and general
intangibles. At December 31, 1999, we had outstanding advances of $25.0 million
on this line.
Capital expenditures and financing associated with those
expenditures have been primary factors affecting our financial condition
during the last four years. Total capital expenditures net of dispositions,
including capitalized internal labor costs, were $40.9 million in 1999
compared to $14.5 million in 1998. A significant portion of these
expenditures have been related to the acquisition of manufacturing equipment
to increase production capacity. In order to maintain an exclusive
relationship with the manufacturer of some of our equipment, we must continue
to purchase approximately $6.8 million of such equipment per year over the
next four years.
On January 6, 2000, we closed a Rural Development Guaranteed
Commercial Real Estate Loan through Mountain West Bank,
32
<PAGE>
N.A., Missoula Branch, for $8,641,500. The loan is collateralized by real
estate and buildings owned by us and is personally guaranteed by Matthew B.
Jore, our principal shareholder and our Chief Executive Officer. The terms
include a 20-year amortization, monthly payment of $77,734, with interest at
the Wall Street Journal Prime Rate plus .5%, adjusted every 5 years (9% at
inception). This loan refinanced short-term debt of $2,500,000 from the same
lender, which is reflected in Note 7 of Notes to our Consolidated Financial
Statements.
We believe that our cash, cash equivalents and short term investments
at December 31, 1999, will be sufficient to meet our cash requirements for the
next twelve months. Depending on our rate of growth and cash requirements,
however, we may require additional equity or debt financing to meet future
working capital needs. We cannot assure you that such additional financing will
be available or, if available, that such financing can be obtained on
satisfactory terms.
Recent Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities," and established standards for derivative
instruments, including certain derivative instruments embedded in other
contracts and hedging activities. The FASB delayed implementation of this
standard, therefore, it will now be effective for the Company beginning in
fiscal 2001. The Company does not expect adoption of SFAS No. 133 to have a
material effect on the financial statements.
Inflation and Interest Rate Risk
Our operating results may be affected by changes in rates of inflation
and market interest rates. In particular, increases in market interest rates
will adversely affect our net income, as most of our indebtedness bears interest
at variable rates tied to the prime rate or other interest rate benchmarks.
Inflation does not currently affect our operating results materially, and we do
not expect inflation to materially affect our operations in the foreseeable
future.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Substantially all of our cash equivalents and marketable
securities are at fixed interest rates, and, as such, the fair value of these
instruments is affected by changes in market interest rates. However, all of
our cash equivalents and marketable securities mature within one year. As a
result, we believe that the market risk arising from our holding of these
financial instruments is minimal. In addition, all of our current customers
pay in U.S. dollars and, consequently, our foreign currency exchange rate
risk is immaterial. We do not have any derivative instruments and do not
currently engage in hedging transactions.
The Company has exposure to interest rate risk from its short-term and
long-term debt. The Company's long-term debt is both fixed rate and variable
rate. The Company had $20.2 million and $3.9 million of long-term debt with
fixed rates at December 31, 1999 and 1998, respectively. (See Note 7 of the
Notes to the Company's Financial Statements for additional information on its
short-term and long-term borrowings). Market risk for fixed-rate long-term
debt is estimated as the potential decrease in fair value resulting from a
hypothetical 100 basis points increase in interest rates and amounts to
$335,329 as of December 31, 1999. The Company does not use derivative
financial instruments to manage interest rate risk.
33
<PAGE>
ITEM 8.
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Shareholders of
Jore Corporation
Ronan, Montana
We have audited the accompanying consolidated balance sheets of Jore
Corporation and subsidiaries (the Company) as of December 31, 1998 and 1999, and
the related consolidated statements of operations, changes in shareholders'
equity, and cash flows for each of the three years in the period ended December
31, 1999. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on the consolidated
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, such consolidated financial statements present fairly,
in all material respects, the financial position of Jore Corporation and
subsidiaries as of December 31, 1998 and 1999, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1999, in conformity with generally accepted accounting principles.
/s/ DELOITTE & TOUCHE LLP
Seattle, Washington
March 29, 2000
34
<PAGE>
JORE CORPORATION
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31, December 31,
1999 1998
---------------------------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 94,283 $ 34,736
Short term investments (fair
market value of $7,676,100) 7,691,791 -
Accounts receivable, net of
allowances for doubtful accounts
of $56,645 and $-0-, respectively 19,031,479 14,672,275
Shareholder notes receivable 1,564,219 1,350,788
Notes receivable from affiliates 11,799 83,917
Inventory 27,795,284 8,071,500
Other current assets 2,494,509 898,155
---------------------------------
Total current assets 58,683,364 25,111,371
Property, plant and equipment, net 58,560,925 19,815,544
Intangibles & other long-term assets, net 663,268 1,035,667
---------------------------------
Total assets $ 117,907,557 $ 45,962,582
=================================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 9,815,501 $ 7,106,060
Accrued expenses 3,406,448 2,073,702
Operating line of credit 25,000,000 13,524,805
Shareholder note payable 81,495 256,061
Other current liabilities 770,981 125,026
Current portion of long-term debt 3,530,287 1,998,192
---------------------------------
Total current liabilities 42,604,712 25,083,846
Long-term debt, net of current portion 27,779,153 14,589,346
Deferred income tax liabilities 2,769,253 -
---------------------------------
Total liabilities 73,153,118 39,673,192
Commitments and contingencies (See Note 10)
Shareholders' equity:
Preferred stock, no par value
Authorized, 30,000,000 shares; issued and
outstanding, 0 shares -
Common stock, no par value
Authorized, 100,000,000 shares; issued and
outstanding, 13,826,020 and 9,508,544, respectively 40,757,891 1,694,931
Deferred compensation - stock options (16,529) (4,868)
Retained earnings 4,013,077 4,599,327
---------------------------------
Total shareholders' equity 44,754,439 6,289,390
---------------------------------
Total liabilities and shareholders' equity $ 117,907,557 $ 45,962,582
=================================
- -
</TABLE>
See notes to consolidated financial statements.
35
<PAGE>
JORE CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
For the year ending December 31,
1999 1998 1997
--------------------------------------------------------------
<S> <C> <C> <C>
Net revenues $ 53,871,762 $ 44,888,324 $ 23,655,966
Cost of goods sold 35,313,825 31,167,724 17,098,184
--------------------------------------------------------------
Gross profit 18,557,937 13,720,600 6,557,782
Operating expenses:
Product development 620,950 495,235 150,691
Sales & marketing 3,227,881 2,508,818 619,520
General & administrative 5,454,268 2,983,035 2,342,165
--------------------------------------------------------------
Total operating expenses 9,303,099 5,987,088 3,112,376
--------------------------------------------------------------
Income (loss) from operations 9,254,838 7,733,512 3,445,406
Other (income) expense:
Interest expense, net 2,873,674 1,337,938 792,932
Other (income) expense (95,709) 159,059 111,424
--------------------------------------------------------------
Net other expense 2,777,965 1,496,997 904,356
--------------------------------------------------------------
6,476,873 6,236,515 2,541,050
--------------------------------------------------------------
Minority interest 3,519
Income before extraordinary item
and income taxes 6,476,873 6,240,034 2,541,050
Provision for income taxes 633,238
--------------------------------------------------------------
Income before extraordinary item 5,843,635 6,240,034 2,541,050
Extraordinary item:
Loss related to early retirement
of debt, net of taxes of $106,428 913,952
--------------------------------------------------------------
Net income $ 4,929,683 $ 6,240,034 $ 2,541,050
==============================================================
Income before extraordinary item
per common share:
Basic $ 0.55 $ 0.66 $ 0.27
Diluted $ 0.54 $ 0.66 $ 0.27
Effect of extraordinary item on earnings per share:
Basic $ 0.09 $ - $ -
Diluted $ 0.09 $ - $ -
Net income per common share:
Basic $ 0.46 $ 0.66 $ 0.27
Diluted $ 0.45 $ 0.66 $ 0.27
Shares used in calculation of income per share
Basic 10,653,247 9,412,497 9,357,801
Diluted 10,893,393 9,435,777 9,357,801
Pro forma data (unaudited):
Net income $ 4,929,683 $ 6,240,034 $ 2,541,050
Proforma provision for income taxes 1,303,057 2,343,193 900,200
Pro forma net income $3,626,626 $ 3,896,841 $ 1,640,850
Pro forma net income per common share (unaudited):
Basic $ 0.34 $ 0.41 $ 0.18
Diluted $ 0.33 $ 0.41 $ 0.18
</TABLE>
See notes to consolidated financial statements.
36
<PAGE>
JORE CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
Common Stock Retained
-------------------------------- Deferred Earnings
Shares Amount Compensation (Deficit) Total
--------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance, January 1, 1997 9,342,564 $ 586,392 $ - $ (436,967) $ 149,425
Common stock issued 47,957 150,000 150,000
Shareholder distributions (319,663) (319,663)
Net income 2,541,050 2,541,050
-
--------------------------------------------------------------------------
Balance, December 31, 1997 9,390,521 736,392 - 1,784,420 2,520,812
Common stock issued 63,587 757,000 757,000
Common stock issued for land 54,436 195,048 195,048
Shareholder distributions (3,425,127) (3,425,127)
Deferred compensation - stock options 6,491 (6,491) -
Noncash compensation - stock options 1,623 1,623
Net income 6,240,034 6,240,034
-
--------------------------------------------------------------------------
Balance, December 31, 1998 9,508,544 1,694,931 (4,868) 4,599,327 6,289,390
Common stock issued for land 14,256 82,302 82,302
Common stock warrants 311,629 311,629
Common stock , initial public offering, net 4,300,000 38,609,246 38,609,246
Exercise of stock options 3,220 23,846 23,846
Deferred compensation - stock options 35,937 (35,937) -
Noncash compensation - stock options 24,276 24,276
Shareholder distributions (3,604,281) (3,604,281)
Deferred tax liability (1,911,652) (1,911,652)
Net income 4,929,683 4,929,683
-
--------------------------------------------------------------------------
Balance, December 31, 1999 13,826,020 $40,757,891 $ (16,529) $ 4,013,077 $ 44,754,439
==========================================================================
</TABLE>
37
<PAGE>
JORE CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For the year ending December 31
1999 1998 1997
-------------------------------------------------------------------
<S> <C> <C> <C>
Operating activities:
Net income $ 4,929,683 $ 6,240,034 $ 2,541,050
Adjustments to reconcile net income to net
cash used by operating activites:
Depreciation 2,216,370 973,762 677,171
Amortization 263,226 155,485 34,829
Compensation expense - stock options 24,276 1,623 -
Bad debt expense 62,051 - 17,008
Extraordinary item, early retirement of debt, before tax 1,020,380 - -
Provision for inventory obsolescence 287,218 24,552 383,802
(Gain)/loss on disposal of fixed assets (13,089) 1,244 100,838
Amortization of discount (92,769) - -
Cash provided (used) by changes in operating
assets and liabilities:
Accounts receivable (4,421,255) (8,686,205) (4,254,543)
Inventory (20,011,002) (3,356,048) (2,150,004)
Prepaid expenses and other current assets (1,155,627) (673,712) (134,525)
Deferred income taxes 416,875 - -
Intangibles and other long-term assets (911,207) (862,686) (133,314)
Accounts payable 2,709,441 3,643,664 204,181
Accrued expenses 1,332,746 831,615 734,062
Other current liabilities - (24,974) 47,617
Income taxes payable 109,933 - -
-------------------------------------------------------------------
Net cash used by operating activities (13,232,751) (1,731,646) (1,931,828)
Investing activities:
Advances on notes receivable - (25,000) -
Payments on notes receivable - 560 342
Advances on shareholder notes receivable (2,909,618) (1,077,893) (29,867)
Payments on shareholder notes receivable 2,604,382 - 112,520
Advances on notes receivable from affiliates (1,800) (326,272) (63,136)
Payments on notes receivable from affiliates 73,918 304,933 558
Payment of patent costs - (24,941) (19,279)
Purchase of investments (7,599,022) - -
Purchase of property and equipment (41,018,613) (15,216,599) (2,693,302)
Proceeds from sale of fixed assets 152,253 701,729 30,669
-------------------------------------------------------------------
Net cash used by investing activities (48,698,500) (15,663,483) (2,661,495)
Financing activities:
Distributions paid to shareholders (3,604,281) (3,425,127) (319,663)
Proceeds from initial public offering, net 38,609,246 - -
Proceeds from options exercised 23,846 - -
Capital contributions - 757,000 150,000
Proceeds from long-term debt 24,887,217 17,149,307 1,862,508
Payments on long-term debt (10,165,315) (6,016,653) (587,085)
Proceeds from short-term debt 15,120,487 -
Payments on short-term debt (14,355,597) -
Proceeds from operating line of credit, net 11,475,195 8,851,867 3,578,751
-------------------------------------------------------------------
Net cash provided by financing activities 61,990,798 17,316,394 4,684,511
-------------------------------------------------------------------
Net increase (decrease ) in cash 59,547 (78,735) 91,188
Cash and cash equivalents:
Beginning of period 34,736 113,471 22,283
-------------------------------------------------------------------
End of period $ 94,283 $ 34,736 $ 113,471
===================================================================
Supplemental disclosures:
Cash paid:
Interest paid $ 3,981,232 $ 1,368,383 $ 782,245
Noncash financing and investing activities:
Warrants issued with debt $ 311,629 $ -
Common stock issued for land $ 82,302 $ 195,048
Property contributed to JB Tool, LLC $ - $ 3,519
See notes to consolidated financial statements.
</TABLE>
38
<PAGE>
JORE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1997, 1998 AND 1999
NOTE 1: DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION AND REORGANIZATION
DESCRIPTION OF BUSINESS: Jore Corporation (the Company or Jore) is a
Montana corporation engaged in the design, manufacture and marketing of
innovative power tool accessories and hand tools for the do-it-yourself and
professional craftsman markets. The Company sells its products under its own
licensed STANLEY(R) label and under private labels to the industry's largest
power tool retailers and manufacturers.
BASIS OF PRESENTATION AND REORGANIZATION: Prior to its initial public
offering (IPO) on September 23, 1999, the Company merged with two affiliated
companies. Because these business combinations were with companies under common
control, the mergers were accounted for in a manner similar to a
pooling-of-interests. Therefore, the assets, liabilities and shareholders'
equity of the acquired entities are combined with the Company's respective
accounts at recorded values. The consolidated financial statements reflect the
restatement of all periods presented to include the accounts of merged entities
accounted for under the pooling-of-interest method of accounting. The historical
results of the pooled entities reflect each of their actual operating cost
structures and, as a result, do not necessarily reflect the cost structure of
the newly combined entity. The historical results do not purport to be
indicative of future results. The combined entities included Montana American
Manufacturing Corporation (MAMC) and Montana American Equipment, LLC (MAE).
MAMC, a Montana corporation, was formed March 26, 1996. On October 1,
1998, MAMC merged with Jore, and the former MAMC shareholders received 360,654
shares of Jore common stock.
MAE, a Montana limited liability company, was formed September 9, 1996.
On January 1, 1999, Jore acquired the assets of MAE, net of outstanding
indebtedness, in exchange for 452,774 shares of Jore common stock.
NOTE 2: PRO FORMA INFORMATION
PRO FORMA CONSOLIDATED INCOME STATEMENT DATA: The unaudited pro forma
results of operations information includes a pro forma income tax benefit
(provision) for each of the three years ended December 31, 1997, 1998 and 1999,
assuming effective tax rates of 35.43%, 37.56% and 34.81%, respectively (see
Note 8), comparable to what would have been reported had the Company operated as
a C corporation during the years ended December 31, 1997, and 1998, and the
entire year ended December 31, 1999. Our S corporation status terminated on
September 23, 1999.
39
<PAGE>
JORE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1997, 1998 AND 1999
NOTE 3: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
PRINCIPLES OF CONSOLIDATION: The financial statements include the
accounts of Jore Corporation and its subsidiaries which include MAMC, MAE, JB
Tool, LLC (JB Tool), and Jore International Ltd. Intercompany transactions and
balances have been eliminated. The allocation of JB Tool's net loss to the
minority interest has been limited to the amount of minority interest capital.
Both MAMC and MAE were merged with Jore Corporation in September of 1998, and
January of 1999, respectively, and are shown as consolidated for the years
presented.
USE OF ESTIMATES: The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities, and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from estimates.
CASH AND CASH EQUIVALENTS: The Company considers all highly liquid
investments with an original maturity of three months or less to be cash
equivalents. The Company has a cash management system under which a cash
overdraft exists for uncleared checks. Uncleared checks of $1,180,162 and
$2,710,326 are included in accounts payable at December 31, 1998 and 1999,
respectively.
SHORT TERM INVESTMENTS: Our marketable securities consist of FNMA
Notes, US Treasury Notes, and Certificates of Deposit, which mature in one year
or less, and are classified as held-to-maturity. In accordance with SFAS 115,
"Accounting for Certain Investments in Debt and Equity Securities", investments
classified as held-to-maturity are reported at amortized cost. The short-term
investment or marketable security balance at December 31, 1999 was $7,691,791.
INVENTORIES: Inventories are stated at the lower of cost (first-in,
first-out basis) or market. The Company provides for obsolete and unsaleable
inventories based on specific identification of inventory against current demand
and recent usage.
PROPERTY, PLANT AND EQUIPMENT: Property, plant and equipment are stated
at cost. Depreciation for financial reporting purposes is computed using the
straight-line method over the following useful lives:
<TABLE>
<S> <C>
Buildings 40 years
Land improvements 10-15 years
Plant, tooling, and packaging equipment 5-10 years
Office equipment and furniture 3-7 years
Vehicles 5 years
</TABLE>
40
<PAGE>
JORE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1997, 1998 AND 1999
NOTE 3: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INTANGIBLES AND OTHER ASSETS: Patents and trademarks are amortized on a
straight-line basis over their estimated useful lives of 17 years. Deferred
financing costs incurred in connection with borrowings are capitalized and
amortized to interest expense over the life of the related obligation.
REVENUE RECOGNITION: Revenues from sales of product are generally
recognized upon shipment. Revenues are recorded net of allowances and discounts.
RECLASSIFICATIONS: Certain prior year balances have been reclassified
to conform to the current year presentation.
PRODUCT DEVELOPMENT: Product development expenses consist principally
of personnel costs and material associated with the development of new products
and changes to existing products, which are charged to operations as incurred.
ADVERTISING AND PROMOTION: Costs associated with advertising and
promoting products are expensed as incurred.
STOCK-BASED COMPENSATION: The Company has elected to follow the
accounting provisions of Accounting Principles Board (APB) Opinion No. 25,
ACCOUNTING FOR STOCK ISSUED TO EMPLOYEES for stock-based compensation and to
furnish the pro forma disclosures required under Statement of Financial
Accounting Standards (SFAS) No. 123, ACCOUNTING FOR STOCK-BASED COMPENSATION.
LONG-LIVED ASSETS: Long-lived assets are reviewed for impairment
whenever events or changes in circumstances indicate that the carrying amount of
an asset may not be recoverable or whenever management has committed to a plan
to dispose of the assets. Such assets are carried at the lower of book value or
fair value. An asset is considered impaired when estimated future undiscounted
cash flows are less than the carrying amount of the asset. In the event the
carrying amount of such asset is not deemed recoverable, the asset is adjusted
to its estimated fair value.
NET INCOME PER COMMON SHARE: Basic net income per common share was
calculated by dividing net income by the weighted average number of common
shares outstanding during the period. Diluted net income per common share was
calculated by dividing net income by the weighted average number of shares
outstanding plus all additional common shares that would have been outstanding
if potentially dilutive common share equivalents had been issued. Both basic and
diluted net income per share reflect the change in the capital structure
discussed in Note 1.
The following table reconciles the number of shares utilized in the net
income per share calculations:
41
<PAGE>
JORE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
YEARS ENDED DECEMBER 31, 1997, 1998 AND 1999
NOTE 3: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
<TABLE>
<CAPTION>
Years Ended December 31,
-----------------------------------
1997 1998 1999
<S> <C> <C> <C>
Number of shares:
Common shares-- basic 9,357,801 9,412,497 10,653,247
Effect of dilutive securities
stock options 23,280 240,146
-----------------------------------
Common shares-- diluted 9,357,801 9,435,777 10,893,393
-----------------------------------
-----------------------------------
</TABLE>
STOCK SPLIT: A 216.017-for-1 split of the Company's common stock was
effected on May 12, 1999. All references in the financial statement to
shares, share prices, per share amounts and stock plan have been adjusted
retroactively to reflect the split.
EXTRAORDINARY ITEM: We incurred an extraordinary expense of
approximately $1.0 million on August 27, 1999 related to the termination of our
operating line of credit. We expensed the prepayment penalty and the unamortized
financing costs associated with the credit line. The proceeds to extinguish the
debt came from our new credit line with First Security Bank. This new credit
line provides lower fees, better interest rates and greater flexibility and
collateral for our inventory.
RECENT ACCOUNTING PRONOUNCEMENTS:
In June 1998, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities,"
and established standards for derivative instruments, including certain
derivative instruments embedded in other contracts and hedging activities. The
FASB delayed implementation of this standard, therefore, it will now be
effective for the Company beginning in fiscal 2001. The Company does not expect
adoption of SFAS No. 133 to have a material effect on the financial statements.
FINANCIAL INSTRUMENTS: Financial instruments consist of cash and
cash equivalents, accounts receivable, notes receivable and long-term debt.
The carrying value of cash and cash equivalents and notes receivable
approximates fair value because of the short-term maturity of those
instruments. The Company has estimated the fair value of accounts receivable
discounted based on average outstanding days and the interest rate of their
credit line at December 31, 1999 to be $18,703,640 and the stated value
$19,031,479. The fair value of long-term debt with variable interest rates
approximates the carrying amount as the borrowings are at adjustable interest
rates which reprice based on fluctuations in market conditions and the level
of operating cash flow of the Company. The fair value of the Company's
long-term debt with fixed interest rates was based on the estimated
equivalent rate on the last business day of the fiscal year. As of December
31, 1999, the fair value and principal amount of the fixed rate long-term
debt were $20,138,032 and $20,226,109, respectively.
42
<PAGE>
SIGNIFICANT CUSTOMERS: A majority of the Company's sales are
concentrated among a few major customers. Sales to customers who individually
accounted for 10% of total sales for each of the years ended December 31, and
receivables from customers who individually accounted for 10% of total
receivables at December 31, are as follows:
<TABLE>
<CAPTION>
1997 1998 1999
---- ----- ----
<S> <C> <C> <C>
Sales to:
Customer A 31.9% 60.2% 58.3%
Customer B 21.5 17.2 22.8
Customer C 25.6 14.5 10.0
Customer D 17.0 - -
-----------------------
96.0 91.9 91.1
All other customers 4.0 8.1 8.9
-----------------------
100.0% 100.0% 100.0%
=======================
<CAPTION>
1998 1999
---- ----
Receivables from:
<S> <C> <C>
Customer A 74.1% 69.5%
Customer B 11.2 18.1
----- -----
85.3 87.6
All other customers 14.7 12.4
----- -----
100.0% 100.0%
=============
</TABLE>
Sales are made without collateral, and the Company's bad debts have
been insignificant to date. Bad debt expense for the years ended December 31,
1999, 1998 and 1997 was $62,051, $-0- and $10,987, respectively.
INTEREST COSTS: Interest costs are capitalized for assets that are
constructed or otherwise produced for the Company including assets constructed
or produced for the Company by others for which deposits or progress payments
have been made. The total interest costs incurred by the company for the years
ended December 31, 1997 1998 and 1999 were $792,932, $1,624,089, and $4,183,726
respectively. The total interest capitalized for 1998 and 1999 was $265,761 and
$1,118,183 respectively.
NOTE 4: BALANCE SHEET COMPONENTS
SHORT-TERM INVESTMENTS AT DECEMBER 31, 1999 CONSIST OF THE FOLLOWING:
<TABLE>
<CAPTION>
AMORTIZED UNREALIZED UNREALIZED MARKET
COST GAIN LOSS VALUE
<S> <C> <C> <C> <C>
CERTIFICATES OF DEPOSIT $ 558,712 $-0- $( 7,041) $ 551,671
FNMA SECURITIES 4,143,105 -0- ( 1,246) 4,141,859
U.S. TREASURY NOTES 2,989,974 -0- ( 7,404) 2,982,570
---------------------------------------------------------------
$7,691,791 $-0- $(15,691) $7,676,100
---------------------------------------------------------------
---------------------------------------------------------------
<CAPTION>
DECEMBER 31, DECEMBER 31,
1998 1999
------------ ------------
<S> <C> <C>
Inventory
Component parts/raw materials $6,205,971 $13,135,170
</TABLE>
43
<PAGE>
<TABLE>
<S> <C> <C>
Work-in-progress* 1,257,704 11,880,461
Finished goods 1,043,179 3,268,238
Provision for obsolescence (435,354) (488,585)
---------------------------
$8,071,500 $27,795,284
===========================
*Work-in-progress includes finished sub-assemblies, which can be sold in bulk or
added to a packaged set.
<CAPTION>
DECEMBER 31, DECEMBER 31,
1998 1999
------------ ------------
<S> <C> <C>
Property, plant and equipment
Buildings & leasehold improvements $ 4,438,668 $ 7,478,959
Land and land improvements 595,329 2,557,169
Plant, tooling, packaging equipment 9,763,618 24,436,751
Office equipment and furniture 1,340,603 2,264,524
Vehicles 376,465 279,654
---------------------------
16,514,683 37,017,057
Accumulated depreciation (2,349,407) (4,497,227)
---------------------------
$14,165,276 $32,519,830
Construction-in-progress -- 3,828,129
Machinery-in-progress 5,650,268 22,212,966
---------------------------
$19,815,544 $58,560,925
===========================
<CAPTION>
DECEMBER 31, DECEMBER 31,
1998 1999
------------ ------------
<S> <C> <C>
Other current assets
Notes receivable $ 53,576 $ 30,900
Other receivables 38,461 47,704
Supplies inventory 111,042 767,648
Deferred tax asset - 440,726
Prepaid expenses and other 695,076 1,207,531
----------------------------
$ 898,155 $ 2,494,509
===========================
<CAPTION>
DECEMBER 31, DECEMBER 31,
1998 1999
------------ ------------
<S> <C> <C>
Other current liabilities
Notes payable $ - $ 660,346
Other current liabilities 125,026 702
Income taxes payable - 109,933
----------------------------
$ 125,026 $ 770,981
===========================
</TABLE>
NOTE 5: SHAREHOLDERS' EQUITY
AUTHORIZED SHARES: At incorporation, the Company was authorized to
issue 50,000 (prior to stock split discussed below) shares of common stock
with no par value. The Articles of Incorporation prior to the amendment
discussed below limited the Company to one class of stock, designated as
common stock. On May 11, 1999, the Articles of Incorporation were amended to
increase the authorized number of shares of the Company's common stock to
100,000,000 shares of no par value common stock and to authorize 30,000,000
shares of no par value preferred stock. On May 12, 1999, the Company effected
a 216.017-for-1 split of the Company's common stock. All references in the
financial statements to shares, share prices, per share amounts and stock
plans have been adjusted retroactively to reflect the stock split.
44
<PAGE>
PUBLIC OFFERING: On September 23, 1999, the Company completed an
initial public offering (the Initial Public Offering) in which it raised net
proceeds of $33.0 million. On October 21, 1999, the underwriters of the
Company's initial public offering exercised their overallotment option,
resulting in the receipt of net proceeds of an additional $5.6 million. A
portion of the net proceeds from both the initial public offering and the
exercise of the overallotment option was used to repay debt, fund a distribution
to shareholders representing previously taxed but undistributed S corporation
earnings and acquire capital equipment.
1997 STOCK PLAN: On September 15, 1997, the Board of Directors approved
the implementation of the 1997 Stock Plan (the Stock Plan). The Stock Plan
provides employees an opportunity to purchase shares of stock pursuant to
options which may qualify as incentive stock options under Section 422 of the
Internal Revenue Code of 1986, as amended (the Code), and employees, outside
directors, and consultants of the Company an opportunity to purchase shares of
stock pursuant to options which are not described in Section 422 of the Code
(nonqualified stock options). The Stock Plan also provides for the direct award
or sale of shares to employees, outside directors, and consultants of the
Company. Options granted under the Stock Plan generally expire ten years from
the date of grant and typically vest over a period of four years such that 20%
vests immediately and an additional 20% vests after each additional year of
continuous service. As of December 31, 1999, 886,614 shares remained available
out of a total of 2,400,000 shares of stock authorized as available under the
Stock Plan.
Activity and price information regarding the options are summarized as
follows:
<TABLE>
<CAPTION>
Options Weighted average
Exercise price
<S> <C> <C>
Outstanding, January 1, 1997 - $ -
Granted - -
--------- ---------
Outstanding, December 31, 1997 - -
Granted 422,312 4.42
--------- ---------
Outstanding, December 31, 1998 422,312 4.42
Granted 1,089,074 8.95
Exercised (3,220) 7.41
Cancelled - -
--------- ---------
Outstanding, December 31, 1999 1,508,166 7.69
--------- ---------
Options exercisable,
December 31, 1999 516,004 7.00
--------- ---------
Information regarding stock option grants during the year ended
December 31, 1999 is summarized as follows:
<CAPTION>
1999 1998
---------------------------------------------- ----------------------------------------------
WEIGHTED AVERAGE WEIGHTED AVERAGE WEIGHTED AVERAGE WEIGHTED AVERAGE
SHARES EXERCISE PRICE FAIR VALUE SHARES EXERCISE PRICE FAIR VALUE
-----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Exercise price
exceeds market 615,847 $ 8.86 $0.00 422,312 $4.42 $0.14
Exercise price
equals market 473,227 $ 9.07 $3.08 - - -
Exercise price is
less than market 0 0 0 - - -
</TABLE>
45
<PAGE>
The Company has elected to follow the measurement provisions of APB
Opinion No. 25, under which no recognition of expense is required in accounting
for stock options granted to employees for which the exercise price equals or
exceeds the fair market value of the stock at the grant date. All options
granted as of December 31, 1999 have been granted at an option price at or
greater than fair market value on the date of grant. Accordingly, the Company
has recognized no compensation expense for employees during the years ended
December 31, 1997, 1998 and 1999. The Company did record compensation expense of
$1,623, and $24,276 for options granted to non-employees for the years ended
December 31, 1998, and 1999 respectively.
To estimate compensation expense that would be recognized under SFAS
No. 123, ACCOUNTING FOR STOCK-BASED COMPENSATION, the Company uses the
modified BLACK-SCHOLES option pricing model with the following weighted
average assumptions for options granted through December 31, 1999: risk-free
interest rate of 4.211% to 6.282%; expected dividend yield of 0%; volatility
of 0% (prior to the IPO) to 36.33%; and an expected life of two to six years.
Had compensation expense for the Plan been determined based on fair
value at the grant dates for awards under the Plan consistent with SFAS No. 123,
ACCOUNTING FOR STOCK-BASED COMPENSATION, the Company's net income for the years
ended December 31, 1997, 1998 and 1999 would have been adjusted to the following
pro forma amounts:
<TABLE>
<CAPTION>
1997 1998 1999
---------- ---------- ----------
<S> <C> <C> <C>
Net income as reported $2,541,050 $6,240,034 $4,929,683
Net income, pro forma 2,541,050 6,227,237 4,345,886
Basic net income per common share, pro forma
$ 0.27 $ 0.66 $ 0.41
Diluted net income per common share, pro forma
$ 0.27 $ 0.65 $ 0.40
</TABLE>
Additional information regarding options outstanding as of December 31, 1999, is
as follows:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
------------------- -------------------
WEIGHTED AVERAGE WEIGHTED
RANGE OF NUMBER REMAINING CONTRACTUAL WEIGHTED AVERAGE NUMBER AVERAGE
EXERCISE PRICE OUTSTANDING LIFE (YRS.) EXERCISE PRICE EXERCISABLE EXERCISE PRICE
- - -------------- ----------- ----------- -------------- ----------- --------------
<S> <C> <C> <C> <C> <C>
$ 4.42 422,312 8.75 $ 4.42 168,943 $ 4.4200
7.0625 159,050 9.96 7.0625 159,050 7.0625
8.41 287,547 9.00 8.41 60,150 8.4100
9.10 186,633 9.47 9.10 37,332 9.1000
9.26 327,480 9.11 9.26 65,498 9.2600
11.625 125,144 9.82 11.62 25,031 11.6250
--------- -------
1,508,166 9.18 7.69 516,004 7.00
--------- -------
</TABLE>
On January 1, 1999, the Company issued 14,256 shares of stock in
exchange for land.
In February 1999, the Company granted options to purchase 311,064
shares of common stock to certain directors. The options are fully vested. These
nonqualified options were granted outside of the Stock
46
<PAGE>
Plan. Because these fall under APB 25 there is no compensation value recognized.
In February 1999, the Company granted warrants to purchase 11,881
shares of the Company's common stock in exchange for services to be provided in
connection with the Company's IPO. No value was ascribed to the warrants as they
were granted at an exercise price substantially greater than the estimated fair
value of the company's common stock.
On April 7, 1999, the Company closed a loan for $2,000,000 from D.A.
Davidson & Co., who were the managing underwriters of the Company's IPO. The
rate was 6.5% plus warrants to purchase 71,933 shares of common stock at an
exercise price of $10.00 per share. The debt was subsequently paid at the
closing of the IPO. The warrants expire three years from the date of grant. No
amount was allocated to the warrants as they were granted at an exercise
price substantially greater than the estimated fair market value of the
Company's common stock.
From June 4 to June 11, 1999, the Company closed short-term loans
with various unrelated parties for a total of $4,045,000. Rates range from
6.5% to 7.0% plus warrants to purchase 201,800 shares of the Company's common
stock at $9.10 to $10.00 per share. All except $146,909 was paid at the
closing of the IPO. The remaining balance is due in 2000. The warrants expire
three years from the date of grant, and have an estimated fair value of
$174,600. The proceeds of the debt was allocated between the debt and the
warrants based on the relative fair value of the two securities on the date
of issuance. The warrants were valued using the Black-Scholes pricing method
with the following assumptions: an estimated life of two years; volatility of
zero; expected dividend yield of zero; and a risk-free of 5.5%. The portion
allocated to the warrants is being accreted to interest expense over the term
of the debt agreement.
From July 14 to August 9, 1999, the Company closed short-term loans
with various unrelated parties for a total of $7,390,000. Rates range from
6.5% to 7% plus warrants to purchase 325,600 shares of the Company's common
stock at $9.10 to $10.00 per share. All except $513,438 was subsequently paid
at the closing of the IPO. The remaining amount is due in 2000. The warrants
expire three years from the date of the grant, and have an estimated fair
value of $137,299. The proceeds of the debt was allocated between the debt
and the warrants based on the relative fair value of the two securities on
the date of issuance. The warrants were valued using the Black-Scholes
pricing method with the following assumptions: an estimated life of two year;
volatility of zero; expected divided yield of zero; and a risk-fee of 5.5%.
The portion allocated to the warrants is being accreted to interest expense
over the term of the debt agreement.
1999 EMPLOYEE STOCK PURCHASE PLAN:
On October 25, 1999, the Board of Directors approved the implementation
of the 1999 Employee Stock Purchase Plan (the ESPP). The ESPP provides employees
an opportunity to purchase shares of stock through payroll withholdings up to
15% of compensation to a maximum of $25,000 per year, by participating in a
series of offerings at a price which is 85% of the lower of the price on the
initial offering date and the periodic purchase dates (generally each 6 months),
occurring in February and August. The purchases are made pursuant to
qualification under Section 423 of the Code. As of December 31, 1999, 1,000,000
shares of stock were available for the grant of options and the corresponding
purchase of stock under the ESPP, however, the ESPP had
47
<PAGE>
not yet been implemented, and no shares had been purchased, and no wages had
been withheld towards such purchase at December 31, 1999.
S CORPORATION DIVIDEND:
The Board of Directors declared a dividend to shareholders of record on
September 22, 1999, equal to the amount of accumulated but undistributed S
corporation earnings of the Company. This dividend was distributed to such
shareholders on a pro rata basis depending on the number shares of our common
stock held by each shareholder, and the number of days in 1999 that each
shareholder held such shares. The total dividend was $3,604,281. The difference
between the S Corporation Distribution and historical retained earnings consists
primarily of temporary timing differences between book and tax income, prior
year distributions in excess of accumulated adjustment account, effect of
elimination entries and retained earnings of the subsidiaries.
DIVIDEND RESTRICTIONS:
Under certain loan covenants associated with its line of credit
facility, the Company is restricted from declaring or paying dividends, or from
purchasing, redeeming, retiring or otherwise acquiring for value any of its
shares of stock, or from otherwise distributing property to shareholders with
some limited exceptions.
NOTE 6: LINES OF CREDIT
REVOLVING LINES OF CREDIT: The Company has an accounts receivable and
inventory revolving line of credit with First Security Bank with a maximum
borrowing limit of $25,000,000.
Advances on the line are limited to 85% of eligible accounts receivable
and 65% of inventory. The majority of trade accounts receivable are, therefore,
assigned as product is shipped. Interest on the revolving credit line advances
is at prime plus one-half of a percent or LIBOR plus 3% at our option. The term
of the agreement is through August 2001, and the agreement contains personal
guarantees by certain Company shareholders. Outstanding advances on the line at
December 31, 1999 were $25,000,000. This line is secured by receivables,
inventory, patents and general intangibles.
NOTE 7: LONG-TERM OBLIGATIONS
The Company has entered into numerous long-term borrowings with various
financial institutions, primarily to finance the purchase of manufacturing
equipment. Unless otherwise noted, the following long-term obligations require
monthly principal and interest payments, and are secured by underlying
equipment.
48
<PAGE>
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1998 1999
-----------------------------
<S> <C> <C>
NOTES PAYABLE
Due January 2003, interest at the highest yield
for U.S. Treasury notes (8.31% at December 31,
1998). Secured by equipment, receivables,
inventory and general intangibles $5,691,717 -
Due January 2003, interest at prime plus 1%
(8.75% at December 31, 1998). Secured by
equipment, receivables, inventory and
general intangibles 741,843
Due March 2005, interest at 8.85% 771,912 677,231
Due August 2001, interest at 10% 1,008,372 -
Due October 2004, interest at 8.97% 726,981 627,626
Due October 2004, interest at 8.97% 969,307 836,837
Due December 2004, interest at 8.97% 2,050,265 1,780,531
Due December 2004, interest at 8.97% 582,606 505,850
Due August 2005, interest at 9.5% 844,971 741,669
Due June 2004, interest at 8.50% 615,840 533,069
Due June 2004, interest at 8.85% 682,502 583,688
Due October 2005, interest at 8.50% 823,842 742,572
Due July 2002, interest at 9.87% _ 219,172
Due December 2004, interest at 9.74% _ 276,518
Due December 2004, interest at 9.87% _ 93,754
Due January 2020, interest at 9.00% _ 2,500,000
Due March 2003, interest at 8.90% _ 869,778
Due January 2003, interest at prime plus 2%
(11.00% at December 31, 1999) 106,983 85,529
Various notes payable due November 1999 through
November 2005, interest rates from 6.66% to 11.89% 210,864 67,959
-----------------------------
Total notes payable 15,828,005 11,141,783
CAPITAL LEASE OBLIGATIONS
Various leases due July 2001 to November 2004,
interest from 6.658% to 6.9% 70,709 102,106
Due November 2002, interest at 7.990% 13,872 10,937
Due January 2006, interest at 8.20% 496,450 447,302
Due June 2006, interest at 8.926% 283,394
Due June 2006, interest at 9.495% 1,772,263
Due June 2006, interest at 8.916% 1,455,645
Due July 2006, interest at 8.924% 477,818
Due August 2006, interest at 9.140% 190,966
Due August 2006, interest at 9.140% 866,460
Due September 2006, interest at 9.172% 805,493
Due November 2006, interest at 9.275% 3,396,419
Due June 2003, interest at 7.90% 24,523 19,732
Various leases due July 2001 to December 2003,
interest from 10.522% to 24.713% 153,979 173,641
Due July 2005, interest at 9.121% 385,659
Due July 2005, interest at 8.447% 884,356
Due October 2005, interest at 7.771% 637,607
Due December 2005, interest at 7.996% 342,258
Due April 2006, interest at 8.271% 333,774
Due March 2007, interest at 9.50% 685,875
Due March 2007, interest at 9.50% 113,685
Due February 2007, interest at 9.50% 79,710
Due March 2007, interest at 9.50% 1,446,623
Due March 2007, interest at 9.50% 399,584
Due February 2007, interest at 9.50% 114,631
</TABLE>
49
<PAGE>
<TABLE>
<S> <C> <C>
Due April 2007, interest at 9.50% 1,120,507
Due May 2007, interest at 9.50% 1,810,000
Due February 2007, interest at 9.50% 1,181,022
Due July 2007, interest at 9.50% 630,000
------------------------------
Total lease obligations 759,533 20,167,657
------------------------------
Total long-term obligations 16,587,538 $31,309,440
Less current portion 1,998,192 3,530,287
----------- -----------
$14,589,346 $27,779,153
=========== ===========
As of December 31, 1999, future maturities of long-term obligations are
as follows:
<CAPTION>
OBLIGATIONS UNDER
NOTES PAYABLE CAPITAL LEASES
------------- --------------
<S> <C> <C> <C>
2000 $ 1,504,113 $ 3,638,690
2001 1,656,006 4,062,116
2002 1,768,596 4,051,844
2003 2,635,946 4,027,015
2004 1,796,341 3,971,517
Thereafter 1,780,781 7,339,735
-------------------------------
SUBTOTAL 27,090,917
----------------------------------------------------------------------
Less amounts representing interest 6,923,258
-------------------------------
$11,141,783 $20,167,657
-------------------------------
-------------------------------
</TABLE>
NOTE 8: PRO FORMA INCOME TAXES (Unaudited)
Prior to filing its IPO the Company had elected to be an S corporation
under the Code, and therefore, its taxable income was reported on the
shareholders' individual income tax returns. The Company's consolidated
subsidiaries were also S corporations or limited liability companies. As a
result, no federal or state income taxes were imposed on the Company or its
subsidiaries until September 23, 1999.
As discussed in Note 2 and in connection with the IPO (see Note 1), the
Company's S corporation status was terminated and we became subject to federal
and state income taxes applicable to C corporations (corporations subject to
income taxes under Subchapter C of the Code). The accompanying consolidated
statements of income reflect a pro forma provision (benefit) for all periods for
federal and state taxes (as if the consolidated group had been subject to tax as
a C corporation for the entire year, each respective year) at effective tax
rates of 35.43%, 37.56% and 33.54% for 1997, 1998, and 1999, respectively. The
difference between the effective rate and the combined federal and state
statutory rate of 38.46% is as follows:
50
<PAGE>
<TABLE>
<CAPTION>
1997 1998 1999
<S> <C> <C> <C>
Statutory tax rate 38.46% 38.46% 38.46%
Indian employment credit (1.00)% (1.18)% (2.94)%
Research/experimentation credit (2.25)% 0.00% 0.00%
Foreign Sales Corporation 0.00% 0.00% (1.45)%
Meals & entertainment 0.21% 0.20% .22%
Other .01% .08% (0.75)%
------------------------
Effective rate 35.43% 37.56% 33.54%
========================
Because the Company plant is situated on a Native American Indian
reservation, the Company is entitled to certain tax benefits. Fixed assets are
being depreciated under accelerated tax depreciation lives for property situated
on Native American Indian reservations. In addition, the Company is receiving
the Indian employment tax credit for qualifying wages paid to tribal members and
spouses of tribal members.
Upon termination of the S corporation status, and based upon
management's determination that it is more likely than not that deferred tax
assets will be realized, we recorded increases in net deferred tax assets and
liabilities and an accompanying one-time entry to retained earnings to reflect
the differences between the financial statement and income tax bases of the
assets and liabilities at C corporation rates.
Since the S corporation status has been terminated as of September 23,
1999, deferred tax liabilities for each temporary difference have been increased
to the following amounts at December 31, 1999:
<CAPTION>
<S> <C>
Deferred tax liabilities:
Basis differential in property, plant and equipment $(2,769,000)
-----------
Total deferred tax liabilities $(2,769,000)
===========
Deferred tax assets:
Inventory obsolescence reserve $ 268,000
Accrued vacation and wages 135,000
Deferred compensation 16,000
Allowance for bad debt 22,000
-----------
Total deferred tax assets $ 441,000
===========
</TABLE>
NOTE 9: RELATED PARTY TRANSACTIONS
Jore Land, LLC (Jore Land), is owned by the Company's majority
shareholder and owned certain real property leased to the Company under an
agreement that expires on September 30, 2003, with an option to renew for an
additional five year term. The lease was accounted for as a financing lease.
Amounts paid under this lease during the years ended December 31, 1997, 1998 and
1999 were $32,000, $84,000, and $42,000, respectively. On February 1, 1999, the
Company acquired an option to purchase approximately 40 acres of land and the
attached construction improvements, including the property referred to above, at
51
<PAGE>
fair market value from Jore Land, LLC. On June 28, 1999, the Company exercised
the option, for payment of $2.7 million.
At December 31, 1997, 1998 and 1999, Jore Land owed the Company the net
amounts of $17,578, $34,102 and $9,999, respectively.
Periodically, the Company's employees perform work for Jore Land in
administrative and technical areas, such as engineering and accounting. Charges
for these types of services by the Company for the years ended December 31,
1997, 1998 and 1999 $4,843, $10,151, and $20,417, respectively.
Shareholder notes receivable are due on demand notes and bear interest
at 6%. The total amount of accrued interest income earned in 1999 from
Shareholder notes was $54,589.
Beginning January 1, 1998, the Company's sales affiliate, Manufacturers
Specialty Marketing, Inc. (MSM), received a commission on Company sales, which
amounted to $1,785,913 during the year ended December 31, 1998. Of this amount,
$225,279 was payable at year-end 1998. Beginning January 1, 1999, most Company
sales were made through Manufacturers' Sales Associates, LLC (MSA), an affiliate
of MSM. MSA receives a commission on most Company sales. The agreement
terminates upon notice by either party at least 60 days in advance of the
intended termination date. MSM was owned 100% by one non-employee director of
Jore and one other non-employee former director of Jore. MSA is owned by the
same two individuals and [four] other non-employee salesmen who market Jore
products. Commissions earned by MSA in 1999 were $1,245,424. As of December 31,
1999, the Company had prepaid commissions to MSA of $298,608.
Printing Press, Incorporated (PPI), a company partially owned by a
non-employee director and shareholder of the Company, provides packaging
services to the Company. Total purchases from PPI during the years ended
December 31, 1997, 1998 and 1999 were $1,360,286, $2,003,062, and $2,597,810,
respectively. Related accounts payable balances at December 31, 1997, 1998 and
1999 were $75,340, $495,686 and $256,775 respectively.
The Company entered into a consulting agreement with a non-employee
director of the Company under which it incurred $16,667 in consulting fees for
1999. An additional $83,333 will be incurred in 2000 under this agreement.
Affiliates of a non-employee director of the Company were participants
in a bridge loan facility, which was closed in June 1999 and repaid in full in
October 1999. The affiliates of the director received warrants for 20,000 shares
of Company common stock at a purchase price of $9.10, exercisable for 3 years
from their date of issuance. The warrants have an estimated fair value of
$18,698.
NOTE 10: COMMITMENTS AND CONTINGENCIES
OPERATING LEASES: The Company has noncancellable operating leases for
various property and equipment. These leases expire at various times over the
next five years. A material portion of the leases are for manufacturing
equipment. The agreements pertaining to
52
<PAGE>
the manufacturing equipment are five-year leases with two one-year renewal
options. The majority of these operating leases were amended to become capital
leases in November of 1999. Their maturities are reflected in the debt footnote
disclosure.
Rent expense for each of the years ended December 31, 1997, 1998, and
1999, totaled $69,036, $301,181, and $535,618, respectively. Future minimum
lease payments required under operating leases are as follows:
<TABLE>
<CAPTION>
Years Ending December 31,
-------------------------
<S> <C> <C>
2000 $99,990
2001 79,464
2002 79,464
2003 52,464
2004 41,364
Thereafter 27,576
--------
Total $380,322
========
</TABLE>
In January 1998, the Company entered into an agreement with a third
party for its interest in one invention. The Company pays the party a fee based
on the manufacturing cost and the Company's margin related to this invention.
Expenses for the years ended December 31, 1998 and 1999 were $74,563 and
$41,090, respectively.
On April 28, 1999, the Company signed an agreement with The Stanley
Works that grants the exclusive license to the STANLEY-R- brand name for all
power tool accessories for a contracted royalty rate.
On December 27, 1999, the Company signed agreements with The Norton
Company, to purchase substantially all of the Company's grinding wheels,
abrasives and surface preparation products from Norton or its affiliates. In
exchange for this purchasing agreement, we obtained an exclusive,
royalty-free license to use the name Speed-Lok-TM- for sales of drilling and
driving products in North America for an indefinite duration. There are no
minimum purchase volumes or fixed pricing agreements required. If the supply
arrangements are terminated, we will be required to pay a royalty of 3% on
all Speed-Lok-TM- product sales annually to Norton, with an annual minimum
royalty of $500,000. The term of the license agreement is five years with
successive automatic one year extensions.
PURCHASE COMMITMENTS: In May 1999, the Company entered into a strategic
alliance agreement with a manufacturer of certain proprietary equipment. The
manufacturer has agreed to produce and sell to the Company this equipment for
five years on an exclusive basis provided it purchases approximately $5,250,000
in equipment each year. The installation of the machines and capitalized
interest for the period they are under construction is an additional cost of
approximately $1 million per year for the Company. In addition to the minimum
purchases, the Company must pay an additional $1,000,000 to the principal of the
manufacturer for consulting services in placing the equipment in service, of
which $400,000 was paid during 1999 and $200,000 is payable in each subsequent
year until fully paid. In exchange for these payments, the Company receives
exclusive access to the equipment and its proprietary design for the five-year
period. This equipment is being
53
<PAGE>
financed through capital leases under an existing master lease agreement.
Equipment under construction and related borrowings are included in the
Company's consolidated balance sheet during the construction period.
During 1999, we entered into two agreements with a third party
to accomplish certain product research and development. The two agreements
require total payments of $500,000. The Company paid $309,566 in 1999 and the
remaining is expected to be paid in 2000.
PRODUCT WARRANTY ISSUES: In the past, we experienced minimal returns of
our manufactured products. Therefore, the financial statements do not include a
product warranty reserve at December 31, 1997, 1998 or 1999.
LITIGATION: The Company is, from time to time, a party to various legal
actions and administrative proceedings and subject to various claims arising in
the ordinary course of business. The Company and our legal counsel believe the
disposition of these matters will not have a material adverse effect on the
financial position of the Company.
On August 16, 1999, Pete K. Block and Paul K. Block instituted separate
actions in Montana District Court against the Company, Matthew Jore individually
and dba Jore Enterprises, Michael Jore and Merle Jore. In their complaints, the
Blocks allege among other things, that they are collectively entitled to a 25%
interest in the capital stock of Jore Enterprises and any successor corporation.
Their lawsuits are based in part upon an agreement, dated October 10, 1989,
between the Blocks and Matthew, Michael and Merle Jore pursuant to which the
Blocks contend that Matthew, Michael and Merle Jore agreed to issue them shares
of stock of Jore Enterprises and any successor corporation and grant them a
collective 25% interest in all patent rights, profits and real and personal
property. The Blocks seek as remedies dissolution of the Company, compensatory
damages of not less than $10 million, plus interest, punitive damages,
attorneys' fees and costs, and injunctive relief preventing any capital
reorganization or sale that would cause them each not to be 12.5% owners of the
equity of Jore Enterprises and any successor corporation.
The Company has answered the complaint, and plans to vigorously defend
against the claims, assert affirmative defenses and potentially assert
counterclaims. In addition, Matt Jore, Mike Jore and Merle Jore have entered
into an agreement under which they have indemnified and held the Company
harmless from and against any damages, costs, and losses associated with the
claim, including attorneys' fees. While the Company believes that it has
meritorious defenses and potential counterclaims to the Blocks' claims,
litigation is inherently uncertain, and there can be no assurance that the
Company will prevail in the suit. To the extent the Company is required to issue
shares of common stock as a result of the suit, the Company would recognize an
expense equal to the number of shares issued multiplied by the fair value of the
common stock on the date of issuance. This could have a material adverse effect
on the Company's results of operations, and any such issuance would be dilutive
to existing stockholders. No estimate of the possible range of loss can be made
at this time.
54
<PAGE>
NOTE 11: SUBSEQUENT EVENTS
SUBSEQUENT DEBT: The Company entered into the following debt agreements
subsequent to year-end:
On January 6, 2000, the Company closed a Rural Development Guaranteed
Commercial Real Estate Loan through Mountain West Bank, N.A., Missoula Branch,
for $8,641,500. The loan is collateralized by real estate and buildings owned by
the Company and is personally guaranteed by Matthew B. Jore, the principal
shareholder of the Company and its CEO. The terms include a 20-year
amortization, monthly payment of $77,734, with interest at the Wall Street
Journal Prime Rate plus .5%, adjusted every 5 years, 9% at inception. This loan
refinanced short-term debt of $2,500,000 from the same lender, which is
reflected in Note seven.
NOTE 12: QUARTERLY FINANCIAL DATA (Unaudited)
The following is a summary of unaudited quarterly financial information:
<TABLE>
<CAPTION>
QUARTER ENDED
-------------
MARCH 31, JUNE 30, SEPT 30, DEC 31, MARCH 31, JUNE 30, SEPT 30, DEC 31,
1998 1998 1998 1998 1999 1999 1999 1999
----------------------------------------------------------------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net revenues $7,579 $7,303 $10,548 $19,458 $9,798 $8,259 $14,378 $21,436
Cost of goods sold 4,926 4,895 7,411 13,936 6,858 5,886 9,282 13,287
------ ------ ------- ------- ------ ------ ------- -------
Gross profit 2,653 2,408 3,137 5,522 2,940 2,373 5,096 8,149
Operating expenses:
Product development 54 50 102 289 117 109 268 128
Sales and marketing 338 373 597 1,201 376 382 822 1,647
General and administrative 538 606 630 1,209 1,150 1,167 1,618 1,519
------ ------ ------- ------- ------ ------ ------- -------
Total operating expenses 930 1,029 1,329 2,699 1,643 1,658 2,708 3,294
------ ------ ------- ------- ------ ------ ------- -------
Income from operations 1,723 1,379 1,808 2,823 1,297 715 2,388 4,855
Other expense 352 265 387 489 457 598 1,069 654
------ ------ ------- ------- ------ ------ ------- -------
Net income as reported $1,371 $1,114 $ 1,421 $ 2,331 $ 840 $ 117 1,319 4,201
------ ------ ------- ------- ------ ------ ------- -------
------ ------ ------- ------- ------ ------ ------- -------
</TABLE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None
55
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information with respect to the Directors of the Company is set forth
in the Proxy Statement relating to the Company's annual meeting of stockholders
to be held on May 17, 2000 (the "Proxy Statement") under the heading "Election
of Directors," which information is incorporated herein by reference.
Information regarding the executive officers of the Company is included as Item
4A of Part I of this Form 10-K. Information required by Item 405 of Regulation
S-K is set forth in the Proxy Statement under the heading "Compliance with
Section 16(a) of the Securities Exchange Act of 1934," which information is
incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
Information relating to executive compensation is set forth under the
captions "Board of Directors" and "Executive Compensation" in the Company's
Proxy Statement, which information is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICAL OWNERS AND MANAGEMENT
Information relating to security ownership of certain beneficial owners
and management is set forth under the caption "Security Ownership of Management
and Other Beneficial Owners" in the Company's Proxy Statement, which information
is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information relating to certain relationships and related transactions
is set forth under the caption "Certain Relationships and Related Transactions
in the Company's Proxy Statement, which information is incorporated herein by
reference.
56
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) The following documents are filed as a part of this report:
1 Financial Statements. The following financial statements
of the Company and the report of the independent public
accountants thereon, are included in this Form 10-K on
pages F-_ through F-__:
Report of Independent Public Accountants
Balance Sheets as of December 31, 1999 and December 31, 1998
Statements of Operations for the years ended December 31,
1999, 1998 and 1997
Statements of Stockholders' Equity for the years ended
December 31, 1999, 1998 and 1997
Statements of Cash Flows for the years ended December 31,
1999, 1998 and 1997
Notes to Financial Statements
2. Financial Statement Schedules
Schedule II - Valuation and Qualifying Accounts
All other schedules have been omitted because the required
information is included in the consolidated financial statements or the notes
thereto, or is not applicable or required.
3. Exhibits
3.1 Amended and Restated Articles of Incorporation (1)
3.2 Bylaws (1)
4.1 Description of capital stock contained in the Amended
and Restated Articles of Incorporation (See Exhibit
3.1)
4.2 Description of rights of security holders contained
in the Bylaws (See Exhibit 3.2)
4.3 Form of common stock certificate (1)
4.4+ Form of Common Stock Warrant issued in pre-IPO bridge
financing
4.5+ Form of Registration Rights Agreement executed in
pre-IPO financing
10.1 Amended and Restated Jore Corporation 1997 Stock Plan
(1)
10.1.1 Amendment dated October 25, 1999 to the Amended and
Restated Jore Corporation 1997 Stock Plan (2)
10.2 Common Stock Purchase Option, dated February 10,
1999, between Jore Corporation and William M. Steele,
Trustee of the Steele Family Trust (1)
10.3 Exclusive Supply Agreement, dated October 1, 1998,
between Jore Corporation and Sears, Roebuck and
Co.*(1)
10.8 Master Equipment Lease Agreement, dated July 6, 1998,
between Key Corp Leasing and Jore Corporation (1)
10.9 Interim funding Loan and Security Agreement, dated
March 3, 1999, between Key Corp Leasing and Jore
Corporation (1)
10.11 Patent Assignment, dated January 1, 1999, between
Jore Corporation and Matthew Jore (1)
10.12 Patent Assignment, dated January 1, 1999, between
Jore Corporation and Matthew Jore (1)
10.13 Patent Assignment, dated January 1, 1999, between
Jore Corporation and Matthew Jore (1)
10.14 Form of Lock-up Agreement executed by certain of Jore
Corporation's shareholders (1)
10.15 Patent Assignment, dated April 2, 1999, between Jore
Corporation and Matthew Jore (1)
10.16 License Agreement, dated April 28, 1999, by and among
Stanley Logistics, Inc., The Stanley Works and Jore
Corporation *(1)
10.18 Patent Assignment, dated January 1, 1999 between Jore
Corporation and Matthew Jore (1)
10.19 Limited Craftsman-Registered Trademark- Trademark
License Agreement, dated May 3, 1999, between Sears,
Roebuck and Co. and Jore Corporation (1)
10.20 Sales and Marketing Agreement, dated January 1, 1999,
between Jore Corporation and Manufacturers' Sales
Associates, LLC *(1)
10.21 Employment Agreement, dated June 8, 1999, between
Matthew B. Jore and Jore Corporation (1)
10.22 Purchase Agreement, dated April 7, 1999, between
DADCO and Jore Corporation (1)
10.23 Guaranty, dated April 7, 1999, given by Matthew B.
Jore to DADCO (1)
10.24 Purchase Agreement, dated June 4, 1999, between
Blaine Huntsman and Jore Corporation (1)
10.25 Guaranty dated June 4, 1999, given by Matthew B. Jore
to Blaine Huntsman (1)
10.26 Registration Rights Agreement, dated June 4, 1999,
between Jore Corporation and Blaine Huntsman (1)
10.27 Independent Contractor Agreement, dated June 30,
1999, between Thomas E. Mahoney and Jore Corporation
(1)
10.27.1+ First Amendment to Independent Contractor Agreement,
dated July 23, 1999, between Thomas E. Mahoney and
Jore Corporation
10.27.2+ Second Amendment to Independent Contractor Agreement,
dated September 30, 1999, 1999, between Thomas E.
Mahoney and Jore Corporation
10.28 Strategic Alliance Agreement, dated May 7, 1999,
between Jore Corporation and International Tool
Machines of Florida, Inc. (1)
10.29 Business Consultant and Management Agreement, dated
May 7, 1999, between Jore Corporation and Karl
Giebmanns (1)
10.30 Credit Agreement, dated August 19, 1999, between
First Security Bank, N.A. and Jore Corporation (1)
10.31 Indemnity Agreement, dated September 14, 1999,
between Matthew B. Jore, Michael W. Jore, Merle B.
Jore, The Michael Jore Family Trust, the Matthew Jore
Family Trust and the Merle and Faye Jore Family Trust
(1)
10.32 Jore Corporation 1999 Employee Stock Purchase Plan (3)
10.32.1+ Jore Corporation Employee Stock Purchase Plan, as
amended
10.33+ Supply Agreement, dated December 27, 1999, between
Norton Company and Jore Corporation
10.34+ Trademark License Agreement, dated December 27, 1999,
between Norton Company and Jore Corporation
16.1 Letter, dated July 7, 1999, from Galusha, Higgins &
Galusha re change in certifying accountant (1)
21 List of Jore Corporation's Subsidiaries (1)
27 Financial Data Schedule
-----------------
+ Filing by Amendment.
* Portions of this exhibit have been omitted pursuant
to an order of the Commission granting the Company's
application respecting confidential treatment thereof.
(1) Incorporated by reference to the Company's
Registration Statement on Form S-1, No. 333-78357, as
amended
(2) Incorporated by reference to the Company's Registration Statement on
Form S-8, No. 333-94029 (3) Incorporated by reference to the Company's
Registration Statement on Form S-8, No. 333-94043
(b) Reports on Form 8-K.
Jore Corporation filed no reports on Form 8-K during the fourth
quarter of 1999.
57
<PAGE>
- - -------------------------------------------------------------------------------
SIGNATURES
- - -------------------------------------------------------------------------------
In accordance with the requirements of the Securities Exchange Act of 1934, the
Registrant has caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
JORE CORPORATION
/s/ MATTHEW B. JORE
-------------------------------------
By: Matthew B. Jore
Title: President and Chief Executive
Officer
Date: March 30, 2000
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated:
Date:
<TABLE>
<S> <C> <C>
3/30/00 /s/ MATTHEW B. JORE Chairman, President and Chief Executive Officer
- - ---------- ------------------- (Principal Executive Officer)
Matthew B. Jore
3/30/00 /s/ DAVID H. BJORNSON Chief Financial Officer and Director
- - ---------- --------------------- (Principal Financial and Accounting Officer)
David H. Bjornson
3/30/00 /s/ MICHAEL W. JORE Executive Vice President and Director
- - ---------- -------------------
Michael W. Jore
3/30/00 /s/ THOMAS E. MAHONEY Director
- - ---------- ---------------------
Thomas E. Mahoney
3/30/00 /s/ R. BRUCE ROMFO Director
- - ---------- ------------------
R. Bruce Romfo
3/30/00 /s/ WILLIAM M. STEELE Director
- - ---------- ---------------------
William M. Steele
3/30/00 /s/ A. BLAINE HUNTSMAN Director
- - ---------- ----------------------
A. Blaine Huntsman
3/30/00 /s/ JAMES P. MATHIAS Director
- - ---------- ----------------------
James P. Mathias
</TABLE>
58
<PAGE>
Schedule II
Inventory Valuation Allowance
<TABLE>
<CAPTION>
Year Ended Balance at Charged/(Credited) to costs Inventory disposed Balance at
beginning of period and expenses or written off end of period
(In Thousands)
<S> <C> <C> <C> <C>
December 31, 1999 $435,354 $287,218 -$233,987 $488,585
December 31, 1998 $410,802 $24,552 $0 $435,354
December 31, 1997 $27,000 $383,802 $0 $410,802
December 31, 1996 $0 $27,000 $0 $27,000
</TABLE>
59
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C> <C> <C> <C>
<PERIOD-TYPE> 3-MOS 3-MOS YEAR YEAR
<FISCAL-YEAR-END> DEC-31-1999 DEC-31-1998 DEC-31-1998 DEC-31-1999
<PERIOD-START> OCT-01-1999 OCT-01-1998 JAN-01-1998 JAN-01-1999
<PERIOD-END> DEC-31-1999 OCT-31-1998 DEC-31-1998 DEC-31-1999
<CASH> 0 0 34,736 94,283
<SECURITIES> 0 0 0 7,691,791
<RECEIVABLES> 0 0 14,672,275 19,031,479
<ALLOWANCES> 0 0 0 0
<INVENTORY> 0 0 8,071,500 27,795,284
<CURRENT-ASSETS> 0 0 25,111,371 58,683,364
<PP&E> 0 0 22,164,951 63,058,152
<DEPRECIATION> 0 0 (2,349,407) (4,497,227)
<TOTAL-ASSETS> 0 0 45,962,582 117,907,557
<CURRENT-LIABILITIES> 0 0 25,083,846 42,604,712
<BONDS> 0 0 0 0
0 0 0 0
0 0 0 0
<COMMON> 0 0 1,694,931 40,757,891
<OTHER-SE> 0 0 4,594,459 3,996,548
<TOTAL-LIABILITY-AND-EQUITY> 0 0 45,962,582 117,907,557
<SALES> 21,436,330 19,458,427 44,888,324 53,871,762
<TOTAL-REVENUES> 21,436,330 19,458,427 44,888,324 53,871,762
<CGS> 13,287,367 13,935,578 31,167,724 35,313,825
<TOTAL-COSTS> 16,581,510 16,634,275 37,154,812 44,616,924
<OTHER-EXPENSES> 84,473 17,619 159,059 (95,709)
<LOSS-PROVISION> 0 0 0 0
<INTEREST-EXPENSE> 738,252 471,197 1,337,938 2,873,674
<INCOME-PRETAX> 4,201,041 2,335,336 6,240,034 6,476,873
<INCOME-TAX> 504,924 0 0 633,238
<INCOME-CONTINUING> 0 0 0 0
<DISCONTINUED> 0 0 0 0
<EXTRAORDINARY> 0 0 0 913,952
<CHANGES> 0 0 0 0
<NET-INCOME> 3,696,117 2,335,336 6,240,034 4,929,683
<EPS-BASIC> 0.27 0.25 0.66 0.46
<EPS-DILUTED> 0.26 0.25 0.66 0.45
</TABLE>
