JORDAN INDUSTRIES INC
The Company believes that its businesses are characterized by leading positions in niche industries, strong management, minimal working capital and capital expenditure requirements and low sensitivity to technological change and economic cycles.  The Company's business strategy is to enhance the growth and profitability of each business unit, and to build upon the strengths of those units through product line and other strategic acquisitions. Key elements of this strategy have been the consolidation and reorganization of acquired businesses, increased focus on international markets, facilities expansion and the acquisition of complementary product lines. When, through such activities, the Company believes that critical mass is attained in a particular industry segment, the related companies are organized as a discreet business unit. For example, the Company acquired Imperial in 1983 and made a series of complementary acquisitions, which resulted in the formation of Kinetek, Inc., a leading manufacturer of electric motors, gears, and motion control systems.  The following chart depicts the operating subsidiaries, which comprise the Company's five strategic business units, together with the net sales for each of the five groups as of December 31, 2005.                                                                  -4-                                Jordan Industries, Inc.                          $729.5 Million of Net Sales (1)  SPECIALTY PRINTING AND LABELING            -  Pamco $50.0 Million of Net Sales                 -  Valmark                                            -  Seaboard  CONSUMER AND INDUSTRIAL PRODUCTS (2)       -  Welcome Home LLC $66.2 Million of Net Sales                 -  GramTel  JORDAN SPECIALTY PLASTICS                  -  Beemak $156.6 Million of Net Sales                -  Sate-Lite                                            -  Deflecto  JORDAN AUTO AFTERMARKET                    -  Dacco $119.2 Million of Net Sales                -  Alma                                            -  Atco  Kinetek                                    -  Imperial Group $337.5 Million of Net Sales                -  Merkle-Korff                                            -  FIR                                            -  Motion Control                                            -  Advanced D.C.                                            -  Kinetek DeSheng        - ---------------------------  (1)  The results of operations of acquired businesses have been included in the      Company's consolidated results since the respective dates of acquisition.      See Note 19 to the financial statements.  (2)  Includes sales from Cho-Pat of $0.4 million prior to its sale on      March 24, 2005.                                                               -5-   The Company's operations were conducted through the following business units as of December 31, 2005:  Specialty Printing and Labeling  The Specialty Printing and Labeling Group manufactures and markets (i) labels, tapes, and printed graphic panel overlays for electronics and other manufacturing companies and (ii) printed folding cartons and boxes and other shipping materials. The companies that are part of Specialty Printing and Labeling have provided its customers with products and services for an average of over 40 years. For the fiscal year ended December 31, 2005, the Specialty Printing and Labeling group generated net sales of $50.0 million. Each of the Specialty Printing and Labeling subsidiaries is discussed below:  Valmark. Valmark, which was founded in 1976 and purchased by the Company in 1994, is a specialty printer and manufacturer of graphic components for the electronics Original Equipment Manufacturer ("OEM") market. Valmark's product lines include graphic panel overlays, membrane switch control panels, and adhesive-backed labels. Approximately 53% of Valmark's 2005 net sales of $16.0 million were derived from the sales of membrane switch control panels, 37% from graphic panel overlays, and 10% from labels and other products.  Valmark sells to four primary markets: medical instrumentation, general electronics, turn-key services serving primarily the telecommunications market, and personal computers. During 2005, Valmark's products were subject to increased foreign price competition in all of its market segments. Although Valmark does not operate free of foreign competition within any of its markets, it does maintain advantages over foreign competitors due primarily to the high level of communication and long history with its customers, the relatively short time frame required to produce orders of non-membrane switch products, and the significant engineering and product development investments required to secure and manufacture orders for its membrane switch control panel customers.  Valmark is able to provide OEMs with a broader range of products than many of its competitors. Valmark's markets are very competitive in terms of price and accordingly, Valmark's advantage over its competitors is derived from its diverse product line, exceptional customer service and excellent quality ratings.  Pamco. Pamco, which was founded in 1953 and acquired by the Company in 1994, is a manufacturer and distributor of a wide variety of printed tapes and labels. Pamco offers a range of products from simple one and two-color labels, such as basic bar code and address labels, to eight-color, laminated, embossed, and hot stamped labels for products such as candy, housewares, health and beauty aids and food packaging. All of Pamco's products are made to customer specifications and approximately 84% of all sales were manufactured in-house in 2005. The remaining 16% of sales were purchased printed products and included such items as business cards and stationery.  Pamco's products are marketed by a team of 11 sales representatives who procure new accounts and service existing accounts. Existing accounts are serviced by 8 customer service representatives. Pamco's customers represent many different industries with the five largest customers accounting for approximately 13% of 2005 net sales of $18.4 million.  Pamco competes in a highly  fragmented  industry.  Pamco  emphasizes its 24-hour turnaround  time and its ability to accommodate  rush orders that other printers cannot  handle.  Pamco's  ability  to  deliver  a  quality  product  with  quick turn-around is its key competitive advantage.                                             -6-     Seaboard. Seaboard, which was founded in 1954 and purchased by the Company in 1996, is a manufacturer of printed folding cartons and boxes, insert packaging and blister pack cards.  Seaboard sells directly to a broad customer base, located primarily east of the Mississippi River, operating in a variety of industries including hardware, personal hygiene, toys, automotive supplies, food and drugs. Seaboard's top ten customers accounted for approximately 48% of Seaboard's 2005 net sales of $15.6 million. Seaboard has exhibited high profit margins and has gained a reputation for exceeding industry standards primarily due to its excellent operating capabilities. Seaboard has historically been highly successful in buying and profitably integrating smaller acquisitions.  Seaboard's markets are very competitive in terms of price, and accordingly, Seaboard's advantage over its competition is derived from its high quality products and excellent service at competitive prices.  Consumer and Industrial Products  Consumer and Industrial Products serves multiple product segments. It manufactures and imports gift items; is a specialty retailer of gifts and decorative home furnishings and provides data storage services at a Secure Network Access Center. For the year ended December 31, 2005, the Consumer and Industrial Products subsidiaries generated consolidated net sales of $66.2 million (including sales from Cho-Pat of $0.4 million prior to its sale in March 2005). Each of the current Consumer and Industrial Products subsidiaries is discussed below.  Welcome Home LLC. During 2002, Cape Craftsmen and Welcome Home were combined into one entity, Welcome Home LLC. Cape Craftsmen remains a division of Welcome Home LLC that imports gifts, wooden furniture, framed art and other accessories from the Far East, while the Welcome Home division is a retailer specializing in such imports.  Cape Craftsmen sells its products through 3 in-house salespeople and 100 independent sales representatives. Cape Craftsmen competes in a highly fragmented industry and has therefore found it most effective to compete with most wood manufacturers and importers on the basis of price. Cape Craftsmen also strives to deliver better quality and service than its competitors. Net sales of the Cape Craftsmen division in 2005 were $11.8 million, excluding sales to the Welcome Home division, of $18.3 million.  Welcome Home currently operates 122 stores located in factory outlet centers and regional malls in 38 states. Welcome Home offers a broad product line of 2,500 to 4,000 items consisting of 8 basic groups, including furniture, candles, lighting, decorative accessories, decorative garden items, music, special opportunity merchandise and seasonal products.  Competition is highly intense among specialty retailers, traditional department stores and mass merchant discounters in outlet malls and other high traffic retail locations. Welcome Home competes principally on the basis of product assortment, convenience, customer service, price and the attractiveness of its stores. Welcome Home had net sales of $51.3 million for the year ended December 31, 2005.  GramTel. GramTel USA, Inc. was started by the Company in December 2000. GramTel is a information technology infrastructure and disaster recovery company. It                                              -7-   owns and operates a state-of-the-art data center that houses clients' business-critical computer systems, applications, and data. The facility provides alternate sites for companies to continue operations in the event of a disaster or emergency. GramTel leverages its infrastructure and technical staff to support the data storage needs of businesses at a fraction of the cost that businesses would incur to perform these tasks in-house or with higher-priced providers. It provides the facilities, technical personnel and network connectivity to keep the critical operations of businesses available 24 hours a day. GramTel had net sales of $2.7 million for the year ended December 31, 2005.  Jordan Specialty Plastics  Jordan Specialty Plastics serves a broad range of wholesale and retail markets within the highly-fragmented specialty plastics industry. The group primarily designs, manufactures and sells (1) "take-one" point of purchase brochure, folder and application display holders, (2) plastic injection-molded hardware and office supply products, (3) extruded vinyl chairmats, and (4) safety reflectors for bicycles and commercial truck manufacturers. The companies that are part of Jordan Specialty Plastics have provided their customers with products and services for an average of over 35 years. For the year ended December 31, 2005, the Jordan Specialty Plastics subsidiaries generated consolidated net sales of $156.6 million. Each of the Jordan Specialty Plastics subsidiaries is discussed below:  Beemak Plastics. Beemak, which was founded in 1951 and acquired by the Company in July 1989, is a manufacturer and distributor of custom point-of-purchase displays, brochure holders and sign holders. Beemak sells its proprietary holders and displays to approximately 3,000 customers around the world. Beemak's net sales for 2005 were $6.8 million.  Beemak's products are both injection-molded and custom fabricated. Injection molded products consists primarily of polystyrene plastic with production being outsourced to affiliated companies. Custom fabrication consists primarily of heat bent acrylic plastic sheets with processing performed in-house. Beemak also provides silk screening of decals and logos onto the final product.  Beemak sells its products through a direct sales force and by reputation. Beemak sells to distributors, major companies, and competitors, which resell the product under a different name. Beemak has been successful in providing excellent service on orders of all sizes.  The display holder industry is very fragmented, consisting of a few other known holder and display firms and regionally-based sheet fabrication shops.  Sate-Lite Manufacturing. Sate-Lite specializes in safety reflectors for bicycles, heavy duty commercial vehicles, and disposable health care products. Sate-Lite was founded in 1968 and acquired by the Company in 1988. Bicycle reflectors and plastic bicycle parts accounted for 33% of Sate-Lite's net sales in 2005, sales of emergency warning triangles and specialty reflectors and lenses to commercial truck customers accounted for approximately 20% of net sales in 2005, and sales of disposable health care products accounted for approximately 9% of net sales. An additional 38% of 2005 net sales were derived from other miscellaneous plastic injection molded products. Sate-Lite's net sales for 2005 were $16.5 million, excluding sales to Deflecto and Beemak, related parties, of $8.6 million and $0.9 million, respectively.                                             -8-     Sate-Lite's bicycle and truck/auto products are sold directly to a number of OEMs. The two largest OEM customers are Truck-Lite, and Giant Phoenix (China) which accounted for approximately 11% of Sate-Lite's net sales in 2005. The disposable health care products are sold primarily to a single distributor who has a long-term supply agreement with a major domestic health care products supplier. In 2005, Sate-Lite's five largest customers accounted for approximately 30% of net sales.  Sate-Lite's bicycle products are marketed to bicycle OEMs in North America and Asia. Sales to foreign customers are handled directly by management. Sate-Lite's net export sales accounted for approximately 15% of its total 2005 sales. The principal raw materials used in manufacturing Sate-Lite's products are plastic resins. Sate-Lite purchases these materials from several independent suppliers. In 1998, Sate-Lite opened a wholly owned manufacturing factory in China. Sate-Lite sells to a variety of companies in Asia including Tandem, Ideal, Giant/Phoenix, and other bicycle manufacturers who have increased their sales to the North American bicycle market through mass market branded companies such as Huffy, Pacific Cycle (Mongoose, Schwinn, Roadmaster, GT), Kent and Magna.  The markets for bicycle and truck/auto parts are highly competitive. Sate-Lite competes in these markets by being a low cost producer, offering innovative products and by relying on its established reputation for producing high quality plastic components in the industries served. Sate-Lite's principal competitors in the bicycle parts market consist primarily of foreign companies and Cortina, James King, and Accutek in the truck/auto markets.  Deflecto Corporation. Founded in 1960 and acquired by the Company in 1998, Deflecto designs, manufactures and markets plastic injection-molded products for mass merchandisers, major retailers and large wholesalers. Deflecto sells its products in two product categories: hardware products and office supply products. Hardware products, which comprised approximately 66% of Deflecto's net sales in 2005, include heating and cooling air deflectors, clothes dryer vents and ducts, kitchen vents and ducts, sheet metal pipes and elbows, exhaust fittings, heating ventilation and air conditioning registers and other widely recognized products. Office supply products, many of which have patents and trademarks, represented approximately 33% of net sales in 2005 and include such items as wall pockets, literature displays, file and chart holders, business card holders, chairmats and other top-branded office supply products. The remaining 1% of net sales are for bicycle reflectors. Deflecto's consolidated net sales for 2005 were $133.3 million.  Deflecto manufactures approximately 90% of its products in-house, with the remainder outsourced to other injection molders. Deflecto efficiently manages the mix of manufactured and outsourced product due to its ability to accurately project pricing, cost and capacity constraints. This strategy enables Deflecto to grow without being constrained by capacity issues.  Deflecto sells its products through an in-house salaried sales force and the use of independent sales representatives. Deflecto has the critical mass to command strong positions and significant shelf space with the major mass merchandisers and retailers. In the hardware products line, Deflecto sells to major national retailers such as Ace Hardware, Wal-Mart, Lowes and Home Depot, as well as to heating, ventilating and air conditioning ("HVAC") and appliance part wholesalers. Deflecto sells its office supply products line to major office supply retailers such as Office Max and Staples, as well as to national wholesalers, such as United Stationers and S.P. Richards. Deflecto has                                             -9-   established strong relationships with its customers and is known for delivering high quality, well packaged products in a timely manner.  Competition in the hardware and office supplies business is increasing due to the consolidation of companies serving the market. The increased competition has forced manufacturers to improve production efficiency, product quality and delivery. The Company believes that Deflecto's mix of manufactured and outsourced product, and its management of this process, allows it to maintain high production efficiency, keeping costs down and product quality high.  Jordan Auto Aftermarket  Jordan Auto Aftermarket is the leading supplier of remanufactured torque converters to the automotive aftermarket parts industry. In addition, it produces newly manufactured torque converters, air conditioning compressors, and clutch and disc assemblies for major automotive and equipment OEMs. For the year ended December 31, 2005, the Jordan Auto Aftermarket subsidiaries generated consolidated net sales of $119.2 million. Each of the Jordan Auto Aftermarket subsidiaries is discussed below.  Dacco. Dacco is a producer of remanufactured torque converters, as well as automotive transmission sub-systems and other related products used by transmission repair shops. Dacco was founded in 1965 and acquired by the Company in 1988.  The majority of Dacco's products are classified as "hard" products, which primarily consist of torque converters and hydraulic pumps that have been rebuilt or remanufactured by Dacco. The torque converter, is a fluid drive coupling between the engine and transmission and smoothly transfer power from the engine to the drive shaft. The hydraulic pump supplies oil to all the systems in the transmission.  The remaining products sold by Dacco are classified as "soft" products, such as sealing rings, bearings, washers, filter kits and rubber components. Soft products are purchased from a number of vendors and are resold in a broad variety of packages, configurations and kits.  Dacco's customers are automotive transmission parts distributors, transmission repair shops and mechanics. Dacco's independent sales representatives sell nationwide to independent warehouse distributors and transmission repair shops. Dacco also operates 47 distribution centers, which sell directly to transmission shops. Dacco's distribution centers average 5,400 square feet and cover a 50-100 mile selling radius. In 2005, no single customer accounted for more than 2% of Dacco's net sales. Net sales were $53.0 million during the year ended December 31, 2005.  The domestic market for Dacco's hard products is fragmented and Dacco's competitors consist of a number of small regional and local re-builders, as well as several larger national suppliers. Dacco believes that it competes strongly against these re-builders by offering a broader product line, quality products, and competitive prices, all of which are made possible by Dacco's size and economies of operation. However, the market for soft products is highly competitive and at least one of its competitors is larger than Dacco in this area. Dacco competes in the soft products market on the basis of its competitive prices due to volume buying, its growing distribution network and its ability to offer one-stop procurement of a broad variety of both hard and soft products.                                               -10-   Alma. Founded in 1944 and acquired by the Company in March 1999, Alma uses a combination of remanufacturing and new production to produce torque converters, air conditioning compressors, and clutch and disc assemblies for major automotive and equipment OEMs, as well as numerous direct aftermarket customers. Torque converters and clutch and disc assemblies are also referred to as drive trains. Net sales were $52.3 million during the year ended December 31, 2005.  Alma manufactures its products to customer's specifications, and its engineering department works closely with the customer's engineers to ensure that specifications are met. Torque converters are remanufactured and sold to major automotive OEMs such as Ford and Chrysler, typically for warranty replacement. Alma does not sell torque converters in the independent aftermarket, which is the primary market for Dacco's torque converters. Air conditioning compressors are both remanufactured and produced new for the automotive aftermarket. Alma's compressors are sold to the service arms of major automotive manufacturers such as Ford, Chrysler, GM, John Deere, and Caterpillar. Alma supplies the majority of the compressors purchased by these customers in the aftermarket. Alma also supplies air conditioning compressors to retailers, independent warehouse distributors, and air conditioning repair specialists. Clutch and disc assemblies are both remanufactured and produced new and are sold primarily to repackagers who then resell the products to automotive parts distributors. Alma has long-term contracts with several customers, and believes it has developed strong relationships with all of its major customers. Alma was selected by Ford to remanufacture, distribute, and fully merchandise Ford's first two Ford Quality Renewal programs for torque converters and clutch and disc assemblies. Management believes the use of Alma remanufactured Ford Quality Renewal products in new vehicle warranty repair is indicative of Alma's engineering, manufacturing and quality expertise.  Alma competes based on quality, price, and customer service. The market for original equipment service products is very demanding, requiring stringent quality standards, thereby providing some barriers to entry to smaller, less capable competitors. Through the years, Alma has been recognized by its customers for its high levels of service and quality.  Atco. Atco was founded in 1968 and was acquired by the Company in July 2001. The Company's office, engineering, sales, and customer service departments are located in Ferris, Texas, where mobile air conditioning components are manufactured. Atco focuses on quality parts, quick responses to customer needs and deliveries.  Atco manufactures and distributes hose assemblies, driers and accumulators, evaporators, fittings, and crimping tools to a large customer base, including such companies as GMSPO, PACCAR, Gates, Dana-Weatherhead, and other OE and automotive aftermarket customers. Also, Atco acquired CoolStar, Inc. in 2005. This move added evaporators to Atco's product line. Atco is the sole external source to Kenworth and Peterbilt for steel and aluminum air conditioning tube assemblies and hose end fittings, which are manufactured in Atco's QS-9000 certified plant in Ennis, Texas. Atco has led the way with innovations such as the patented portable hand-operated model 3700 crimping tool. Net sales were $13.9 million during the year ended December 31, 2005.  Kinetek  Kinetek is a manufacturer of specialty purpose electric motors, gearmotors, gearboxes, gears, transaxles and electronic motion controls, serving a diverse                                               -11-   customer base, including consumer, commercial and industrial markets. Its products are used in a broad range of applications, including vending machines, golf carts, lift trucks, industrial ventilation equipment, and elevators.  Kinetek operates in the businesses of electric motors ("motors") which includes the subsidiaries Imperial Group, Merkle-Korff, Fir, Advanced D.C. and Kinetek De Sheng; and electronic motion control systems ("controls") which includes the subsidiary Motion Control Engineering. For the year ended December 31, 2005 Kinetek generated net sales of $337.5 million.  Kinetek has established itself as a reliable niche manufacturer of high-quality, economical, custom electric motors, gearmotors, gears and electronic motion control systems used in a wide variety of applications including vending machines, refrigerator ice dispensers, commercial dishwashers, commercial floor care equipment, golf carts, lift trucks, and elevators. Kinetek's products are custom designed to meet specific application requirements. Less than 5% of Kinetek's products are sold as stock products.  Kinetek offers a wide variety of options to provide greater flexibility in its custom designs. These options include thermal protectors, special mounting brackets, custom leads and terminals, single or double shaft extensions, brakes, cooling fans, special heavy gearing, custom shaft machining and custom software solutions. Kinetek also provides value-added assembly work, incorporating some of the above options into its final motor and control products. All of the custom-tailored motors, gearmotors and control systems are designed for long life, quiet operation, and superior performance.  Electric Motors. Electric motors are devices that convert electric power into rotating mechanical energy. The amount of energy delivered is determined by the level of input power supplied to the electric motor and the size of the motor itself. An electric motor can be powered by alternating current ("AC") or direct current ("DC"). AC power is generally supplied by power companies directly to homes, offices and industrial sites whereas DC power is supplied either through the use of batteries or by converting AC power to DC power. Both AC motors and DC motors can be used to power most applications; the determination is made through the consideration of power source availability, speed variability requirements, torque considerations, and noise constraints.  The power output of electric motors is measured in horsepower. Motors are produced in power outputs that range from less than one horsepower up to thousands of horsepower.  SubFractional Motors. Kinetek's subfractional horsepower products are comprised of motors and gearmotors, which power applications up to 30 watts (1/25 horsepower). These small, "fist-sized" AC and DC motors are used in light duty applications such as snack and beverage vending machines, refrigerator ice dispensers and photocopy machines.  Fractional/Integral Motors. Kinetek's fractional/integral horsepower products are comprised of AC and DC motors and gearmotors having power ranges from 1/8 to 100 horsepower. Primary end markets for these motors include commercial floor care equipment, commercial dishwashers, commercial sewing machines, industrial ventilation equipment, golf carts, lift trucks and elevators.                                             -12-    Gears and Gearboxes. Gears and gearboxes are mechanical components used to transmit mechanical energy from one source to another source. They are normally used to change the speed and torque characteristics of a power source such as an electric motor. Gears and gearboxes come in various configurations such as helical gears, bevel gears, worm gears, planetary gearboxes, and right-angle gearboxes. For certain applications, an electric motor and a gearbox are combined to create a gearmotor.  Kinetek's precision gear and gearbox products are produced in sizes of up to 16 inches in diameter and in various customized configurations such as pump, bevel, worm and helical gears. Primary end markets for these products include OEMs of motors, commercial floor care equipment, aerospace and food processing product equipment.  Electronic Motion Control Systems. Electronic motion control systems are assemblies of electronic and electromechanical components that are configured in such a manner that the systems have the capability to control a range of elevators. The components utilized in an elevator control system are typically electric motor drives (electronic controls that vary the speed and torque characteristics of electric motors), programmable logic controls ("PLCs"), transformers, capacitors, switches and software to configure and control the system.  Backlog  As of December 31, 2005 the Company had a backlog of approximately $106.6 million compared with a backlog of $91.5 million as of December 31, 2004. The backlog is primarily due to motor sales at Merkle-Korff and controls sales at Motion Control, both subsidiaries of Kinetek, printing and graphic component sales at Valmark, folding boxes at Seaboard, plastic products at Deflecto and air conditioning assemblies and parts at Atco. Management believes that the Company will ship substantially its entire backlog during 2006.  Seasonality  The Company's aggregate business has a certain degree of seasonality. Welcome Home's sales are somewhat stronger toward year-end due to the nature of their products. Home furnishings and accessories at Welcome Home are popular as holiday gifts.  Research and Development  As a general matter, the Company operates businesses that do not require substantial capital or research and development expenditures. However, development efforts are targeted at certain subsidiaries as market opportunities are identified.  Patents, Trademarks, Copyrights and Licenses  The Company protects its confidential, proprietary information as trade secrets. With some exceptions noted in the business descriptions above, the Company's products are generally not protected by virtue of any proprietary rights such as patents. There can be no assurance that the steps taken by the Company to protect its proprietary rights will be adequate to prevent misappropriation of its technology and know-how or that the Company's competitors will not independently develop technologies that are substantially equivalent to or                                                -13-   superior to the Company's technology. In addition, the laws of some foreign countries do not protect the Company's proprietary rights to the same extent as do the laws of the United States. In the Company's opinion, the loss of any intellectual property asset would not have a material adverse effect on the Company's business, financial condition, or results of operations.  The Company is also subject to the risk of adverse claims and litigation alleging infringement of proprietary rights of others. From time to time, the Company has received notice of infringement claims from other parties. Although the Company does not believe it infringes on the valid proprietary rights of others, there can be no assurance against future infringement claims by third parties with respect to the Company's current or future products. The resolution of any such infringement claims may require the Company to enter into license arrangements or result in protracted and costly litigation, regardless of the merits of such claims.  Employees  As of December 31, 2005, the Company and its subsidiaries employed approximately 6,363 people. Approximately 1,245 of these employees were members of various labor unions. The Company believes that its subsidiaries' relations with their respective employees are good.  Environmental Regulations  The Company is subject to numerous U.S. and foreign, federal, state, provincial and local laws and regulations relating to the storage, handling, emissions and discharge of materials into the environment, including the Comprehensive Environmental Response, Compensation and Liability Act ("CERCLA"), the Clean Water Act, the Clean Air Act, the Emergency Planning and Community Right-to-Know Act, and the Resource Conservation and Recovery Act. Under CERCLA and analogous state laws, a current or previous owner or operator of real property may be liable for the costs of removal or remediation of hazardous or toxic substances on, under, or in such property. Such laws frequently impose cleanup liability regardless of whether the owner or operator knew of or was responsible for the presence of such hazardous or toxic substances and regardless of whether the release or disposal of such substances was legal at the time it occurred. Regulations of particular significance to the Company's ongoing operations include those pertaining to handling and disposal of solid and hazardous waste, discharge of process wastewater and storm water and the handling or release of hazardous chemicals. The Company believes it is in substantial compliance with such laws and regulations.  In 2003, the USEPA has sent the Company letters which indicate that it may be a potential responsible party at two Superfund sites. The first alleged that, JII Promotions had shipped lead typeface to the Pittsburgh Metal & Equipment site in New Jersey. In October 2005, the Company settled this matter through an Administrative Consent Order for a deminimus payment of less than $3 thousand. The second alleged that Alma sent wastes to the proposed Lake Calumet Cluster site in Illinois. Alma made a claim under the environmental indemnity from the former owner of Alma and the former owner has assumed responsibility for this matter.  The Company generally conducts an assessment of compliance and the equivalent of a Phase I environmental survey on each acquisition candidate prior to purchasing a company to assess the potential for the presence of hazardous or toxic substances that may lead to cleanup liability with respect to such properties. The Company does not currently anticipate any material adverse effect on its                                                  -14-   operations, financial condition or competitive position as a result of compliance with federal, state, provincial, local or foreign environmental laws or regulations. However, some risk of environmental liability and other costs is inherent in the nature of the Company's business, and there can be no assurance that material environmental costs will not arise. Moreover, it is possible that future developments such as the obligation to investigate or cleanup hazardous or toxic substances at the Company's property for which indemnification is not available, could lead to material costs of environmental compliance and cleanup by the Company.  FIR, a wholly-owned subsidiary of Kinetek, owns property in Casalmaggiore, Italy that is the subject of investigation and remediation under the review of government authorities for soils and groundwater contaminated by historic waste handling practices. In connection with the acquisition of FIR, the Company obtained indemnification from the former owners for this investigation and remediation.  Alma owns two properties in Alma, Michigan that are contaminated by chlorinated solvent and oil contamination, the main plant on Michigan Avenue and a satellite plant on North Court Street. The former owner retained full responsibility for the continued investigation and remediation of the contaminated groundwater and soil at the properties when Alma acquired them in April 1999. The Michigan Avenue property has been the subject of investigation by the Michigan Department of Environmental Quality, ("MDEQ"), since 1982. By 1985, the former owner had cleaned out, closed and capped the lagoons that were the source of the contamination and in 1992, installed a groundwater remediation system. In January 1999, the former owner submitted to the MDEQ a proposed remedial action plan that recommends that the groundwater treatment system continue to operate for up to 30 years, a deed restriction that limits the use of the property to industrial use and the adoption, by the City of Alma, of an ordinance that prohibits the private use of groundwater for drinking water. The MDEQ has held off approving the plan until the former owner delineates the horizontal and vertical extent of contamination to the agency's satisfaction. In November 2002, the former owner submitted a revised sampling plan and MDEQ has approved the additional investigation. Some of the sampling was conducted in 2004 and the rest in 2005. The former owner submitted the data to MDEQ and asked for approval of the remedial action plan. The second property is contaminated with petroleum constituents and chlorinated solvents and the former owner, under the supervision of the MDEQ, is investigating the scope and extent of the contamination. In May 2003, the former owner also submitted a remedial action plan with respect to this property to the MDEQ and an interim response plan for removed contaminated soils deemed to be the source of contamination. Contamination soils were excavated in 2004 and ground soil sampling was conducted and the data was submitted to DEQ 2005.  Alma has received two claims for contribution to the investigation and cleanup of waste materials at offsite locations. One is the notice letter from the USEPA referenced above regarding the Lake Calumet Cluster site. USEPA sent a follow-up information request letter in December 2004. The other is a claim by TPI Petroleum for the removal or remediation of asbestos-containing clutch plates allegedly discarded in the 1950s or 1960s at TPI's property in Alma.  In connection with its 1999 acquisition of the Alma properties and other assets, the Company obtained indemnification and a $1.5 million environmental escrow. Claims for losses against the environmental escrow were to be filed by March 2004. Prior to the deadline, Alma filed claims for the Michigan Avenue                                                  -15-   contamination, the North Court Street contamination, the TPI Petroleum claim and the proposed Lake Calumet Cluster site. Although undisputed amounts remaining in environmental escrow are to be distributed to the former owners in March 2004, the claims filed put the total amount in the environmental escrow in dispute. The $1.5 million remains in escrow to cover the outstanding claims.  Since October 1997, Dacco has engaged in investigation and remediation of possible releases of petroleum and other chemicals into the soil and groundwater from underground storage tanks and facility operations at its Cookeville, Tennessee property under the direction of the Tennessee Department of Environmental Conservation, ("TNDEC"). In 2002 and 2003, Dacco conducted extensive monitoring of the extent of the contamination, the potential for offsite migration and the methods for remediation. In July 2002, Dacco installed a simple, free product recovery system in one of the monitoring wells located in the area with the most extensive contamination. The investigation concluded that the contamination was relatively small and contained, and the consultant recommended that Dacco continue to use the free product recovery well until quarterly monitoring results confirm that the release was contained onsite. Dacco submitted this proposal to the TNDEC in August 2003 and has continued to operate the free product recovery system. It estimates that the total potential cost for the Cookeville site will be between $10 and $200 over the next five years.
Certain principals, partners, officers, employees and affiliates of The Jordan Company control all fundamental matters affecting the Company. Certain principals, partners, officers, employees and affiliates of The Jordan Company and their respective family members, collectively referred to as the Jordan Group, own a majority of the outstanding common and other voting stock of the Company. The Jordan Group has sufficient votes to elect all of the Company's directors and control the management and financing decisions of the Company. In addition, as owner of a majority of the outstanding common stock and other voting stock of the Company, the Jordan Group is able to approve any action requiring the approval of its shareholders, including the adoption of amendments to its certificate of incorporation and the approval of mergers or sales of all or substantially all of its assets.  The Company, through its respective subsidiaries, operates in highly competitive industries and competes with many larger and better capitalized companies. Each of the business lines that the Company operates compete with a substantial number of national, regional and local competitors, many of which have greater financial and other resources than the Company. Many of these competitors can be expected to continue to improve the design and performance of their products and to introduce new products with competitive price and performance characteristics. Although the Company believes that it has certain advantages over its competitors, realizing and maintaining those advantages will require continued investment by it in research and development, quality standards, marketing and customer service and support. There can be no assurance that the Company will have sufficient resources to continue to make those investments or that they will be successful in maintaining those advantages. Failure to make those investments or to maintain those advantages could have a material adverse                                                 -16-   effect on each of its respective businesses, financial conditions and results of operations and the Company's ability to generate cash flow to service its obligations.  The Company's operations are subject to substantial environmental regulation. The Company and its respective operating subsidiaries are subject to federal, state, provincial, local and foreign laws, regulations and ordinances related to the storage, use, discharge and disposal of toxic, volatile or otherwise hazardous materials used in their respective manufacturing processes. Under applicable environmental laws, the Company's subsidiaries may be responsible for the remediation of environmental conditions and may be subject to associated liabilities relating to the facilities and the land on which their facilities are situated, regardless of whether they lease or own the facilities in question, and regardless of whether such environmental conditions were created by the Company, any of their respective subsidiaries, by a prior owner or tenant or by any other person. Moreover, we anticipate that such laws and regulations will become increasingly stringent in the future. We cannot assure you that the need to comply with environmental laws and regulations or that environmental conditions relating to prior, existing or future facilities and operations of the Company's subsidiaries will not have a material adverse effect on their respective businesses, financial conditions and results of operations.  Increases in the prices of raw materials could adversely affect our subsidiaries' operations. The Company's subsidiaries purchase most of the raw materials for their products on the open market, and their sales may be affected by changes in the market price of such raw materials. We do not generally engage in commodity hedging transactions for raw materials. Although the Company's subsidiaries attempt to pass on increases in the price of raw materials to their customers, there have been delays in the subsidiaries' ability to pass on such increases in the past and there can be no assurance that they will be able to do so in the future on a timely basis, or at all. Additionally, significant increases in the prices of the Company's subsidiaries' products due to increases in the cost of raw materials could have a negative effect on demand for their respective products and a material adverse effect on their respective businesses, financial conditions and results of operations.  We are highly dependent on our key personnel. The Company is highly dependent on a small number of executive officers and key employees, both individually and as a group. The Company's future performance will be substantially dependent on their ability to retain and motivate these individuals and to attract and retain additional qualified personnel in the future. The loss of the services of any of the Company's executive officers or key employees or the inability to identify, hire and retain other highly qualified technical and managerial personnel could have a material adverse effect on their respective businesses, financial conditions and results of operations.  We are subject to the risks of doing business in foreign countries. The Company has significant operations outside the United States. The risks of doing business in foreign countries include:      o  Adverse changes or greater volatility in the economies of those         countries;      o  Adverse effects of currency exchange controls;      o  Adverse changes to the regulatory environment of those countries;      o  Adverse changes to the tax laws and regulations of those countries      o  Restrictions on the withdrawal of foreign investment and earnings;                                                -17-        o  The nationalization of our businesses      o  The potential instability of foreign governments, including from         domestic insurgency movements; and      o  The challenge of managing culturally and geographically diverse         operations.  Operations in foreign countries are also subject to economic uncertainties, including, among others, risk or renegotiation or modification of existing agreements or arrangements with governmental authorities, exportation and transportation tariffs, foreign exchange restrictions and changes in taxation structure.  The Company's businesses could be negatively impacted if they fail to maintain satisfactory labor relations. Collectively, over 19% of the Company's subsidiaries' employees currently belong to unions and operate under collective bargaining agreements. There can be no assurance that future issues with their respective labor unions will be resolved favorably or that they will not experience a work stoppage that could adversely affect their respective businesses. The Company's current collective bargaining agreements are with various unions and generally expire over the next one to three years. There can be no assurances that new agreements will be reached or that the Company will be able to negotiate extensions of such agreements on favorable terms. Any work stoppage could have a material adverse effect on the Company's business and financial condition and results of operations.  The Company has a substantial amount of debt maturing in 2006. The Company's subsidiary, Kinetek, has Senior Notes with a principal amount of $270 million, maturing in November of 2006. While the Company is currently evaluating multiple scenarios for either the repayment or refinancing of that debt prior to its maturity date, there can be no assurance that the Company will complete the necessary transactions prior to that date. Should the Company be unable to repay or refinance this debt prior to its maturity date, the Company would risk a default of its debt covenants and significant stress on its access to cash for ongoing operations. Such defaults or reduction in available cash could have a material adverse effect on the Company's business and financial condition and results of operations.
Not applicable to the Company.                                                         -18-
The Company leases approximately 13,411 square feet of office space for its headquarters in Illinois. The principal properties of each subsidiary of the Company at December 31, 2005, and the location, the primary use, the capacity, and ownership status thereof, are set forth in the table below.                                                                               SQUARE            OWNED/ COMPANY LOCATION                      USE                                  FEET              LEASED - ----------------                      ---                                  -------           ------      Advanced DC   Syracuse, NY                        Manufacturing/Administration            49,600           Owned   Syracuse, NY                        Manufacturing                           18,500          Leased   Syracuse, NY                        Manufacturing                           14,000          Leased   Eternoz, France                     Manufacturing/Administration            19,000          Leased   Putzbrunn, Germany                  Warehouse                                1,200          Leased  Alma   Alma, MI                            Manufacturing/Warehouse                276,200           Owned   Alma, MI                            Manufacturing/Warehouse                103,000           Owned   Alma, MI                            Warehouse                               46,000           Owned   Alma, MI                            Warehouse                               33,400           Owned   Alma, MI                            Warehouse                                9,600           Owned   Alma, MI                            Warehouse                               43,000          Leased  Atco   Ferris, TX                          Manufacturing                           93,100           Owned   Ennis, TX                           Manufacturing                           24,100           Owned  Beemak   Cerritos, CA                        Manufacturing/Administration            40,000          Leased  Cape Craftsmen   Elizabethtown, NC                   Warehouse/Administration               175,000          Leased   Elizabethtown, NC                   Warehouse/Outlet Store                  10,000          Leased   Elizabethtown, NC                   Warehouse                               30,000          Leased   Wilmington, NC                      Administration                           6,250          Leased  Dacco   Cookeville, TN                      Manufacturing/Administration           355,000           Owned   Huntland, TN                        Manufacturing                           72,000           Owned   Cookeville, TN                      Administration                           7,000          Leased  Deflecto   Indianapolis, IN                    Manufacturing/Administration           182,600           Owned   Fishers, IN                         Distribution                           134,400          Leased   St. Catherines, Ont.                Manufacturing/Administration            53,000           Owned   St. Catherines, Ont.                Assembly                                88,700          Leased   Pearland, TX                        Manufacturing/Assembly                  80,000          Leased   Newport, Wales                      Manufacturing/Administration            92,000           Owned   Aurora, Ontario                     Manufacturing/Administration            34,000          Leased   Ontario, CA                         Manufacturing                           36,500          Leased   Jefferson, GA                       Manufacturing                           51,000          Leased   Dover, OH                           Manufacturing/Administration            56,000          Leased   Houston, TX                         Manufacturing/Assembly                  33,000          Leased   Mira Loma, CA                       Warehouse                               44,000          Leased  Kinetek De Sheng   Shunde, Guangdong                   Manufacturing/Administration           926,000           Owned  FIR   Casalmaggiore via Vanoni, Italy     Manufacturing                            4,000          Leased   Casalmaggiore via Vanoni, Italy     Manufacturing                           18,000           Owned   Casalmaggiore via Roma, Italy       Manufacturing/Administration           189,000           Owned   Casalmaggiore via Cazumenta, Italy  Manufacturing/Administration            52,000          Leased   Varano, Italy                       Manufacturing                           97,000           Owned   Genova, Italy                       Research & Development/Manufacturing    34,000          Leased                                           -19-       GramTel   South Bend, IN                      Sales/Administration/Other              19,000           Owned  Imperial Group   Akron, OH                           Manufacturing                          106,000          Leased   Middleport, OH                      Manufacturing                           85,000           Owned   Alamagordo, NM                      Manufacturing                           40,200          Leased   Perry, OH                           Research & Development                   5,000          Leased   Solon, OH                           Manufacturing/Administration            66,500          Leased   Grand Rapids, MI                    Manufacturing/Administration            45,000           Owned  JII Promotions   Coshocton, OH                       Manufacturing/Administration           218,000           Owned  Merkle-Korff   Des Plaines, IL                     Design/Administration                   38,000          Leased   Richland Center, WI                 Manufacturing                           45,000          Leased   Darlington, WI                      Manufacturing                           68,000          Leased   Des Plaines, IL                     Manufacturing/Administration            63,000          Leased   San Luis Potosi,                    Manufacturing                           70,000          Leased     Mexico  Motion Control   Rancho Cordova, CA                  Manufacturing/Administration           108,000          Leased   Glendale, NY                        Manufacturing/Administration            11,200          Leased  Pamco   Des Plaines, IL                     Manufacturing/Administration            52,000           Owned  Sate-Lite   Niles, IL                           Manufacturing/Administration            70,650          Leased   Shunde, Guangdong                   Manufacturing/Administration/Assembl   166,800          Leased  Seaboard   Fitchburg, MA                       Manufacturing/Administration           260,000           Owned   Miami, FL                           Warehouse                               11,500          Leased   Carlstadt, NJ                       Manufacturing                           49,700          Leased   Enfield, NC                         Warehouse                               50,000          Leased  Valmark   Livermore, CA                       Manufacturing/Administration            74,200          Leased  Welcome Home   Wilmington, NC                      Administration/Storage                  10,000          Leased   Wilmington, NC                      Administration/Warehouse                12,000          Leased                                               -20-   Dacco also owns or leases 47 distribution centers, which average 5,400 square feet in size. Dacco maintains five distribution centers in Florida and Alabama, four distribution centers in Tennessee, three distribution centers in Illinois, Georgia, California, Ohio and Indiana, two distribution centers in each of Virginia, Arizona, and Texas, with the remaining distribution centers located in South Carolina, Michigan, Pennsylvania, Minnesota, Missouri, Nebraska, West Virginia, Oklahoma, Nevada, New York, Maryland and Wisconsin.  Welcome Home leases 122 specialty retail stores in 38 states, with the majority of store locations in outlet malls. Welcome Home maintains 11 stores in California, 9 stores in Florida, 8 stores in Ohio and Pennsylvania, 6 stores in Texas, 5 stores in North Carolina, Georgia, and Missouri, and 4 stores in New York and Washington. The remaining stores are located throughout the United States.  Merkle-Korff, Motion Control and Seaboard lease certain production, office and warehouse space from related parties. The Company believes that the terms of these leases are comparable to those which would have been obtained by the Company had the leases been entered into with an unaffiliated third party.  To the extent that any of the Company's existing leases expire in 2006, the Company believes that its existing leased facilities are adequate for the operations of the Company and its subsidiaries.
The Company's subsidiaries are parties to various legal actions arising in the normal course of their businesses. The Company believes that the disposition of such actions individually or in the aggregate will not have a material adverse effect on the consolidated financial position or results of operations of the Company.
No matters were submitted to a vote of security holders during the fiscal year ended December 31, 2005.                                                         -21-                                          Part II
The only authorized, issued and outstanding class of capital stock of the Company is Common Stock. There is no established public trading market for the Company's Common Stock.  (a)   At December 31, 2005, there were 21 holders of record of the Company's       Common Stock.  (b)   The Company has not declared any cash dividends on its Common Stock since       the Company's formation in May 1988. The Indentures, dated as of February       18, 2004 and February 16, 2005, by and between the Company and U.S. Bank       National Association, as Trustee, (the "Trustee") with respect to the 13%       Senior Secured Notes, the Indentures dated as of July 25, 1997 and March       22, 1999, by and between the Company and the Trustee with respect to the       10 3/8% Senior Notes and the Indenture dated as of April 2, 1997, by and       between the Company and the Trustee with respect to the 11 3/4% Senior       Subordinated Discount Debentures (collectively the "Indentures") contain       restrictions on the Company's ability to declare or pay dividends on its       capital stock. The Indentures each prohibit the declaration or payment of       any dividends or the making of any distribution by the Company or any       Restricted Subsidiary (as defined in the Indentures) other than dividends       or distributions payable in stock of the Company or a Subsidiary and other       than dividends or distributions payable to the Company.                                                                    -22-
The following table presents selected operating, balance sheet and other data of the continuing operations of the Company and its subsidiaries as of and for the five years ended December 31, 2005. The financial data has been derived from the consolidated financial statements of the Company and its subsidiaries. As a result of the divestitures of JII Promotions entity within the Specialty Printing and Labeling segment and the sale of Electrical Design & Control ("ED&C"), a subsidiary of Kinetek, these segments and entities have been reported as discontinued operations for financial reporting purposes in accordance with Accounting Principles Board ("APB") Opinion No. 30 and Statement of Financial Accounting Standards ("SFAS") No. 144, and their results have been excluded from the information shown below.                                                                   Year Ended December 31,                                                               (Dollars in thousands)                                           ----------------------------------------------------------------                                              2005         2004        2003          2002         2001                                              ----         ----        ----          ----         ----        Operating data: Net sales ........................         $729,485     $723,279    $666,931      $667,151     $665,962 Cost of sales, excluding  depreciation ....................          517,625      502,368     450,308       431,511      428,459                                             -------     --------     --------      -------      ------- Gross profit, excluding  depreciation ....................          211,860      220,911     216,623       235,640      237,503 Selling, general and  administrative expense,  excluding depreciation ..........          143,786      151,211     151,986       156,036      151,638 Operating income .................           56,048       57,372      42,797        46,981       30,397 Interest expense (1)..............           54,720       66,048      83,215        89,332       91,312 Interest income ..................             (240)      (2,267)     (1,352)       (1,248)        (784) (Loss) income from continuing  operations before income  taxes and minority interest(2)                (121)      (4,901)    (35,096)       53,390      (62,145)  (Loss) income from continuing  operations ......................           (4,097)      (8,406)    (43,725)       23,181      (56,378)  Balance sheet data (at end   of period): Cash and cash equivalents ........           15,699       15,412      15,517        19,717        25,565 Working capital (4)...............         (164,691)      98,872     103,571       102,218       151,045 Total assets .....................          611,367      662,406     690,632       703,510       826,431 Long-term debt (less   current portion) ...............          361,673      689,399     728,124       715,516       819,406 Net capital deficiency (3)  ......         (251,361)    (242,981)   (227,363)     (201,558)     (139,056) - --------------------------------------   (1)   Interest expense decreased in 2004 and 2005 primarily due to the treatment       of the Company's Exchange Offer as a troubled debt restructuring pursuant       to SFAS No. 15. In addition, certain of the Company's 2009 Debenture note       holders entered into a Modification Agreement which provides for a       reduction in their stated maturity value and a reduction of their       applicable interest rate. See Note 12 to the financial statements.  (2)  Income from continuing operations before income taxes and minority interest      in 2002 includes a gain on the extinguishment of long-term debt of $88,882,      a gain on the liquidation of a subsidiary of $1,888, a gain on the sale of      a facility of $1,431, and the write-down of certain assets held for sale of      $1,800. Loss from continuing operations before income taxes and minority      interest in 2003 includes a loss on the sale of a division of a subsidiary      of $401. Loss from continuing operations before income taxes and minority      interest in 2004 includes income from the sale of three affiliates of      $7,954 and a goodwill impairment loss of $3,676. Loss from continuing      operations before income taxes and minority interest in 2005 includes      income from the sale of an affiliate of $4,410, income from the refinancing      of an affiliate of $8,584, gain on sale of a subsidiary of $251, and      $14,727 of income related to the sale of affiliates. Offsetting these gains      was a goodwill impairment loss of $24,277.  (3)  No cash dividends on the Company's Common Stock have been declared or paid.  (4)  The negative working capital in 2005 is the result of the reclassification      of $270.0 million of Kinetek's Senior Notes from long-term to current based      on their maturity date.                                          23
Historical Results of Operations           Summarized below are the historical net sales, operating income and      operating margin (as defined below) for each of the Company's business      groups for the fiscal years ended December 31, 2005, 2004, and 2003. Due to      the divestiture of the net assets of the School Annual division of JII      Promotions in September 2003 and the subsequent sale of certain assets of      the Ad Specialty and Calendar product lines in January 2004, the operations      of JII Promotions have been classified as discontinued operations in the      Company's Consolidated Statement of Operations in all periods. JII      Promotions was part of the Specialty Printing and Labeling segment. (See      Note 5 to the financial statements.) Additionally, due to the sale of ED&C      in May 2005, a subsidiary of Kinetek, the results of ED&C have also been      classified as discontinued operations in all periods presented. (See Note 5      to the financial statements.) This discussion should be read in conjunction      with the historical consolidated financial statements and the related notes      thereto contained elsewhere in this Annual Report.                                                   Year ended December 31,                                                -----------------------                                              2005          2004           2003                                              ----          ----           ----                                                  (Dollars in thousands)      Net Sales:     Specialty Printing & Labeling          $49,977        $51,085       $48,647     Jordan Specialty Plastics              156,593        147,665       125,974     Jordan Auto Aftermarket                119,171        141,862       144,874     Kinetek                                337,524        313,867       278,309     Consumer and Industrial Products        66,220         68,800        69,127                                           --------       --------      --------        Total                              $729,485       $723,279      $666,931                                           ========       ========      ========      Operating Income (1):     Specialty Printing & Labeling           $3,379         $1,689        $3,663     Jordan Specialty Plastics                2,662          9,832         5,482     Jordan Auto Aftermarket                (24,101)         3,783         7,266     Kinetek                                 40,652         34,153        30,048     Consumer and Industrial Products         (640)          1,919         2,297                                            -------        -------       -------        Total                               $21,952        $51,376       $48,756                                            =======        =======       =======      Operating Margin (2):     Specialty Printing & Labeling             6.8%           3.3%          7.5%     Jordan Specialty Plastics                 1.7%           6.7%          4.4%     Jordan Auto Aftermarket                 (20.2)%          2.7%          5.0%     Kinetek                                  12.0%          10.9%         10.8%     Consumer and Industrial Products         (1.0)%          2.8%          3.3%     Combined                                  3.0%           7.1%          7.3%  (1)  Before corporate overhead of $(34,096), $(5,996), and $5,959 for the      years ended December 31, 2005, 2004, and 2003, respectively. Certain      amounts in the prior year have been reclassified to conform with the      current year presentation.  (2)  Operating margin is operating income divided by net sales.                                          -24-    Consolidated Operating Results.  (See Consolidated Statements of Operations). - -------------------------------  2005 Compared to 2004. Net sales for continuing operations increased $6.2 million, or 0.9%, to $729.5 million for 2005 from $723.3 million for 2004. The increase in sales was primarily due to solid growth at Kinetek and Jordan Specialty Plastics, which grew 7.5% and 6.0%, respectively. These increases were largely offset by a 16.0% decline in the Jordan Automotive Aftermarket segment. The discontinuation of business with a large customer in the Automotive Aftermarket segment represented $18.3 million of the sales decrease and was the primary reason for the precipitous sales decline in this segment. The improved economy helped both the Kinetek and Jordan Specialty Plastics segments but most of the growth in these segments continues to come from the introduction of the new products and market share gains in several niche markets.  Operating income of continuing operations decreased $1.4 million, or 2.3%, to $56.0 million for 2005 from $57.4 million for 2004. Operating income, excluding the impact of the goodwill impairment charges of $24.3 million for 2005 and $3.7 million for 2004, income from the sale of affiliates of $4.4 million for 2005 and $8.0 million for 2004, proceeds from the refinancing of an affiliate of $8.6 million for 2005 and income in 2005 of $14.7 million from the reversal of reserves previously recorded against the receivables from JIR Broadcast and JIR Paging would have decreased $0.5 million to $52.6 million in 2005 compared with similarly adjusted operating income of $53.1 million for 2004.  Operating income in 2005 was positively impacted by the gain on the sale of affiliates of $19,137 (See Note 15) and the proceeds to the Company from the refinancing of an affiliate of $8,584 (See Note 15). 2005 operating income was negatively impacted by goodwill impairment charges of $24,277.  The decrease in operating income, excluding goodwill impairment charges and income from affiliate transactions, was primarily due to decreases at Jordan Auto Aftermarket and Jordan Specialty Plastics. These decreases were mostly offset by increased operating income at Kinetek and to a lesser extent the Specialty Printing and Labeling segment. Raw material inflation continued to challenge product margins at Kinetek and Jordan Specialty Plastics although to a lesser degree than in the prior year. The operating income related to the Jordan Auto Aftermarket climate control product line was adversely impacted by the much lower sales volume described above. The Automotive Aftermarket segment management team worked diligently to reduce the cost structure in the climate control product lines in response to significantly lower sales volume. Operating income for 2005 was also adversely impacted by costs associated with product transitions and plant rationalizations at Kinetek and Jordan Specialty Plastics.  2004 Compared to 2003. Net sales increased $56.3 million, or 8.5%, to $723.3 million for 2004 from $666.9 million for 2003. The increase in sales was primarily due to strong growth for Kinetek and Jordan Specialty Plastics which grew 12.8% and 17.2%, respectively. These increases were partially offset by a 2.1% decline in the Jordan Auto Aftermarket segment. The improved economy helped both the Kinetek and Jordan Specialty Plastics segments, and much of the growth in these segments came from the introduction of new products and market share gains in several niche markets.  Operating income increased $14.6 million, or 34.1%, to $57.4 million for 2004 from $42.8 million for 2003. The increase in operating income was primarily due to increases at Kinetek and Jordan Specialty Plastics which grew 13.7% and                                                  -25-   79.4%, respectively. In addition, operating income was positively impacted by income from the sales of three affiliates of $8.0 million. These increases were largely offset by decreases for the Jordan Auto Aftermarket and Specialty Printing and Labeling segments. Additionally, raw material inflation compressed product margins at Kinetek and Jordan Specialty Plastics. These segments were unable to pass through much of the increased commodity prices for copper, steel, wire, and resin throughout the year. Beginning in the second half of 2004, all companies began to pass along some of these costs with greater success. The Jordan Auto Aftermarket segment incurred several costs in 2004 associated with the introduction of a new product line, and production inefficiencies during peak demand for climate control products in the second and third quarters. Also, 2004 results included non recurring costs associated with the planned exit of certain low-margin Jordan Auto Aftermarket business. The decrease in operating income for the Specialty Printing and Labeling segment includes a non-cash pretax goodwill impairment charge of $3.7 million.  Income taxes - See Note 13 of to the financial statements.  Specialty Printing & Labeling. As of December 31, 2005, the Specialty Printing & Labeling group consisted of Valmark, Pamco, and Seaboard.  2005 Compared to 2004. Net sales of continuing operations decreased $1.1 million, or 2.2%, to $50.0 million for 2005 from $51.1 million for 2004. Revenues for the Valmark product line increased 11.3%, while sales of Pamco labels and Seaboard folding box products declined 6.9% and 8.1% respectively for 2005. Sales related to Valmark's membrane switches were up well over last year largely driven by sales in medical equipment and navigation products. Pamco and Seaboard product lines have been negatively impacted by a small number of customers moving a portion of their packaging and end products offshore, which has been only partially offset by the acquisition of several new customers and growth with existing customers.  Operating income from continuing operations increased $1.7 million, or 100%, to $3.4 million for 2005 from $1.7 million for 2004. The increase in operating income is largely due to improved operating margins at Seaboard partially offset by the product margins associated with the loss of a large customer in the printing and labeling market that moved its product source to Asia. Cost savings generated by the 2004 management reorganization and reduction in employment at Valmark also contributed significantly to the increased operating income. In addition, a non-cash pretax goodwill impairment of $3.4 million was less than the prior year goodwill impairment of $3.7 million. Excluding the impact of the goodwill impairment charges for both years, operating income would have increased $1.4 million from 2004 to $6.8 million in 2005.  2004 Compared to 2003. Net sales increased $2.4 million, or 5.0%, to $51.1 million for 2004 from $48.6 million for 2003. Revenues for Valmark and Pamco product lines were up 14.6% and 8.3% respectively, while sales of the Seaboard folding box products declined 5% in 2004. Sales related to screen printed, rollstock, and membrane switch products were up well over last year partially driven by a new product for pest control and increased sales in the medical equipment market.  Operating income decreased $2.0 million, or 53.9%, to $1.7 million for 2004 from $3.7 million for 2003. The decrease in operating income is largely due to a non-cash pretax goodwill impairment charge of $3.7 million. Excluding this charge, operating income would have increased $1.7 million, or 46.5%, to $5.4                                               -26-   million. Cost savings generated by a management reorganization and reduction in employment at Valmark partially offset the goodwill impairment charge.  Jordan Specialty Plastics. As of December 31, 2005 the Jordan Specialty Plastics group consisted of Sate-Lite, Beemak, and Deflecto.  2005 Compared to 2004. Net sales increased $8.9 million, or 6.0%, to $156.6 million for 2005 from $147.7 million for 2004. The increased sales were the result of a stronger economy, the introduction of several new products, market share gains, and selling price increases which only partially offset the increase in raw material costs. Increased sales of Office Products, Reflectors and Hardware Products were the largest contributors to the 2005 sales increase. Revenues were up significantly at several of the superstore retailers for both hardware and office products as a result of market share gains and the introduction of several new products. Chairmat sales increased over 16% for 2005 with increased market shares at superstores, distributors, and international distributors. Increased sales of bike related products and safety reflectors for commercial trucks also contributed to the overall sales growth. Sales of certain hardware products to the wholesale distribution channel were negatively impacted by the limited availability of insulation material used in the product. The increased sales of office products continue to be partially offset by lower selling prices of private label office products as super stores migrate to private labeling strategies. JSP was successful in passing along a much greater percentage of the raw material price increases in 2005 as compared with 2004, largely offsetting the carry-over effect of the significant inflation experienced in the second half of 2004.  Operating income decreased $7.2 million, or 72.9%, to $2.7 million for 2005 from $9.8 million for 2004. The customer sales mix and to a lesser extent raw material inflation experienced in 2005 both contributed to the decrease in operating income. In addition, costs incurred in 2005 include expenses associated with the closing of the Niles manufacturing operations and start up costs in Indianapolis associated with the transferred products. Costs associated with other product transitions and business reorganizations were also expensed in 2005 and negatively impacted operating income. JSP recorded expenses of approximately $1.0 million in the second quarter of 2005 primarily due to increased accruals and reserves in foreign operations. The Company continues to pursue cost reduction initiatives and price increases to overcome the increased raw material costs.  2004 Compared to 2003. Net sales increased $21.7 million, or 17.2%, to $147.7 million for 2004 from $126.0 million for 2003. The increased sales were the result of a stronger economy, the introduction of several new products, market share gains, and selling price increases which only partially offset the dramatic increase in raw material costs in 2004. Revenues were up significantly at several of the superstore retailers and large distributors for both hardware and office products as a result of market share gains and the introduction of several new products. Chairmat sales increased significantly for 2004 with increased market shares at superstores, distributors, and wholesalers. Increased sales of bike related products and safety reflectors for commercial trucks also contributed to the overall sales growth. Partially offsetting the increased sales of office products were lower selling prices of private label office products as super stores continue migrating to private labeling strategies. In addition, 2003 net sales included $2.3 million of thermoplastic colorants which were not included in the 2004 results. The thermoplastic colorants product line was divested in September of 2003.                                               -27-    Operating income increased $4.4 million, or 79.4%, to $9.8 million for 2004 from $5.5 million for 2003. The increase in operating income is largely due to the increased sales volume and selling price increases in 2004 and non-recurring costs included in 2003 results. The selling price increases were more than offset by significant raw material price increases for steel, aluminum, and resin. Cost reduction initiatives continue to be pursued and several products have been successfully transitioned to lower cost manufacturing operations in China.  Jordan Auto Aftermarket. As of December 31, 2005, the Jordan Auto Aftermarket group consisted of Dacco, Alma, and Atco.  2005 Compared to 2004. Net sales decreased $22.7 million, or 16.0%, to $119.2 million for 2005 from $141.9 million for 2004. Alma's discontinuation of business with a large customer in the climate control market represented $18.3 million of the sales decrease and was the primary reason for the precipitous sales decline. Sales of torque converters to original equipment manufacturers decreased only slightly in 2005 as compared with the prior year and were significantly higher in the fourth quarter of 2005 compared with the prior year. Sales of air compressors decreased only slightly as compared with the prior year after excluding the impact of the discontinuation of business with the large retailer as described above. Sales of torque converters to the non-OEM automotive aftermarket declined $3.3 million or 5.8% in 2005 compared with the prior year. The prolific hurricane season and special new car incentive programs from the domestic automotive manufacturers partially drove lower sales of torque converters in the non-OEM aftermarket segment. This decrease was partially offset by the introduction of new torque converter and transmission products and the continued expansion of new DACCO retail distribution centers in targeted locations. Sales of tubing assemblies and fittings for the truck market were up over 30% for 2005 due to a stronger economy and many companies updating their fleets in advance of the new emissions standards set to become effective in 2007.  Operating income decreased $27.9 million to an operating loss of $24.1 million for 2005 from operating income of $3.8 million for 2004. The most significant decrease in operating income was the result of a non-cash pretax goodwill impairment charge of $20.9 million recorded in 2005. Operating income, excluding the impact of the goodwill impairment charge, would have decreased $7.0 million to an operating loss of $3.2 million in 2005 compared with operating income of $3.8 million for 2004.  The sales decline in the torque converter non-OEM aftermarket segment had a significant impact on the decline in operating income specifically due to the high fixed cost nature of the business. In addition, operating income was negatively impacted by a contractual price reduction for a large customer and production inefficiencies resulting from consigned parts shortages in the torque converter business earlier in the year. The operating income related to the climate control product line was adversely impacted by the much lower sales volume described above. Partially in response to the reduced sales volume, management initiated cost reductions through lean manufacturing, headcount reductions and other cost reduction initiatives, positioning the business to pursue growth opportunities. The decreases in operating income for the OE torque converter and climate control segments were nominally offset by increased operating income associated with the sales of tubing assemblies and fittings in the truck market.  2004 Compared to 2003. Net sales decreased $3.0 million, or 2.1%, to $141.9 million for 2004 from $144.9 million for 2003. The decrease was primarily the result of the continued reduction in the volume of transmission repairs due to improved original equipment quality and the implementation of new warranty                                                -28-   policies of automotive manufacturers in 2003. This decrease was partially offset by the introduction of new torque converter products in the second half of 2004 as well as the opening of new DACCO retail distribution centers in targeted locations. Continued softness in the climate control market was offset by higher sales volumes to certain large customers in this segment. Sales of tubing assemblies and fittings for the truck market were up significantly for 2004 due to a stronger economy and many companies updating their fleets in advance of the new emissions standards set to become effective in 2007. Selling price increases on certain product lines in the third and fourth quarters of 2004 also partially offset the market softness in both the climate control and torque converter remanufacturing segments.  Operating income decreased $3.5 million, or 47.9%, to $3.8 million for 2004 from $7.3 million for 2003. The decline in operating income was primarily the result of several contributing factors including (i) operating inefficiencies resulting from peak demand in the second and third quarters for climate control products, (ii) supply chain issues associated with new products introduced in 2004 that resulted in increased quality and freight costs, and (iii) production inefficiencies resulting from consigned parts shortages in the torque converter business, which also coincided with the peak of the climate control products season.  In addition, during 2004 severance costs were recorded related to a management reorganization associated with de-layering and changing certain management personnel. Also, 2004 results include non-recurring costs associated with the planned exit of certain low-margin business. The combined impact in 2004 of these non-recurring costs was $1.5 million.  Kinetek. As of December 31, 2005, the Kinetek group consisted of Imperial Group, Merkle-Korff, FIR, Motion Control, Advanced DC and De Sheng.  2005 Compared to 2004. Net sales for continuing operations increased $23.6 million, or 7.5%, to $337.5 million for 2005 from $313.9 million in 2004. The increased net sales were driven by $10.6 million in sales of new products and net gains in market share compared to the prior year. The full year impact of Kinetek's 2004 acquisition of O. Thompson (see Note 19 to "Notes to Consolidated Financial Statements") contributed $5.4 million in higher sales. The net impact of improved markets in Kinetek's principal markets in North America and China, partially offset by weaker markets in Europe, contributed approximately $4.2 million in higher sales. The net impact of price increases and decreases charged to customers added $1.9 million in increased sales. The continued revaluation of the Euro against the dollar during 2005 caused a $1.5 million improvement in sales due to favorable translation impact on Kinetek's European business.  Sales in Kinetek's Motors segment increased to $252.1 million in 2005 from $230.4 million in 2004, a gain of $21.7 million or 9.4%. Sales of subfractional motor products were virtually identical with the prior year, as generally improved markets for Kinetek's main products, the full year impact of an ice crusher first sold to a major appliance customer in 2004, sales of various new products and the impact of general price increases offset losses of share of vending and refrigeration products and price decreases to refrigeration customers. Both the share losses and price decreases were driven by global competition from Kinetek's principal rival in these markets. Sales of fractional and integral motors increased $21.7 million, driven by significant gains in share of the North American market for electric golf car motors and gains in the Chinese elevator motor market. General improvement in Kinetek's North American                                        -29-   and Chinese markets, selective price increases passed to customers, and the aforementioned improvement of the Euro all further contributed to the sales increases. These gains were partially offset by weakness in Kinetek's markets in Europe and share losses in those markets.  Sales in Kinetek's Controls segment increased $1.9 million, or 2.3%, to $85.4 million in 2005 from $83.5 million in 2004. The sales growth was driven by the aforementioned full year impact of Kinetek's 2004 acquisition of O. Thompson (see Note 19 to "Notes to Consolidated Financial Statements"), which contributed $5.4 million in higher sales in 2004. The ramp up of Kinetek's recently introduced "I" family of control products added higher sales in the form of higher prices per controller sold in comparison with traditional controller products. These increases were partially offset by a generally weaker market for elevator controllers.  Operating income of continuing operations increased $6.5 million, or 19.0%, to $40.7 million in 2005 from $34.2 million in 2004. Operating income from continuing operations increased to 12.0% of sales in 2005 from 10.9% of sales in 2004. Gross profit increased to $100.6 million (29.8% of net sales), from the prior year level of $99.4 million (31.7% of net sales). The increase in gross profit is a result of the sales increases described earlier, partially offset by a number of factors, the most significant of which is inflation. Over the past two years, Kinetek has experienced severe increases in market prices paid for parts used in the assembly of motors, especially copper, steel and zinc, and increases in the prices of plastic components and freight and transportation associated with rising global oil prices. Gross margin and gross margin as a percentage of sales are also negatively affected by shifts of product mix, as gains in market share reflected in net sales growth are frequently achieved by competing aggressively on price, diluting Kinetek's total margin as a percentage of sales. Selling, general and administrative expenses decreased by $5.4 million, from $56.5 million in 2004 to $51.0 million in 2005. This decrease reflects Kinetek's continued cost reduction activities across its business units; the impact of costs incurred in 2004 associated with the relocation of operations of the Grand Rapids, MI, Des Plaines, IL and Oakwood Village, OH facilities; the capitalization of certain costs in 2005 for development of software that is central to Kinetek's "I" family of elevator control products, and to a reduction of $1.2 million of charges for corporate overhead under the Transition Agreement.  2004 Compared to 2003. Net sales increased $35.6 million, or 12.8%, to $313.9 million for 2004 from $278.3 million in 2003. The increased sales were driven by the introduction of new products and net gains in market share, which contributed approximately $20.0 million, and improvements in Kinetek's principal markets in North America and Europe, which account for approximately $8.4 million in increased sales. The continued revaluation of the Euro against the dollar during 2004 caused a $4.5 million improvement in sales due to the favorable translation impact on Kinetek's European businesses. The acquisition of O Thompson contributed $4.3 million in sales since the acquisition date. The net impact of increases and decreases in selling prices is estimated to reduce sales from the prior year by approximately $1.6 million, reflecting the competitive global market for Kinetek's core products.  Sales in Kinetek's Motors segment increased to $230.4 million in 2004 from $201.7 million in 2003, a gain of $28.7 million, or 14.2%. Subfractional motor sales increased $3.7 million on the strength of an improved market for products used in consumer refrigeration appliances, the partial year impact of a new ice crusher product sold to a major appliance manufacturer, and numerous share gains                                             -30-   in smaller product categories. These gains were partly offset by the loss of "value-added subassembly" ice crusher products sold to several key refrigeration customers, for whom Kinetek continues to supply the ice crusher motor. Sales of fractional and integral motors increased $25.0 million on significant gains in market share and the sale of new products used in commercial floor care, and recovery in the markets for material handling and golf car motor products. Kinetek's European markets remained difficult during 2004, with sales down 4.6% from 2003, due to general market conditions and the impact of net share losses. The European sales declines were more than offset by the aforementioned increase in sales due to favorable Euro translation. Sales of Kinetek's products in China have benefited from that country's overall market strength and from share gains in elevator motors as Kinetek expands its market presence geographically.  Sales in Kinetek's Controls segment increased $6.8 million, to $83.5 million in 2004, an increase of 8.9% from $76.7 million in the prior year. The increase in sales was led by the inclusion of the partial year sales of O Thompson, which contributed $4.3 million in sales. Sales of elevator controls and accessory products increased $2.5 million, led by higher sales of the "I" family of control products, the SmarTraq door operator system, and other non-controller products.  Operating income increased to $4.1 million, or 13.7%, to $34.2 million in 2004 from $30.0 million in 2003. Gross profit increased to $99.4 million (31.7% of net sales), from the prior year level of $94.2 million, (33.9% of net sales). The increase in gross profit is mainly attributable to the increases in sales described above. The impact of higher sales is partly offset by the unfavorable impact of net reductions in selling prices resulting from global market competition (approximately $1.6 million) and higher prices for purchased components and services, particularly steel, copper, zinc, aluminum, and freight. Gross margin as a percentage of sales declined in 2004 due to the impacts of net selling price reductions, purchased cost inflation, and the introduction of certain new products and share gains at competitive margins which are lower than Kinetek's historical average. Selling, general, and administrative expenses increased from $54.4 million in 2003 to $56.5 million. Operating expenses increased modestly in line with the increases in sales, and from costs associated with the relocation of operations of the Grand Rapids, MI, Des Plaines, IL, and Oakwood Village, OH facilities. These increases were offset in part by a one-time charge of $1.0 million in 2003 for excess medical claims incurred by Kinetek's subsidiaries during 2001 and 2002.  Consumer and Industrial Products. As of December 31, 2005, the Consumer and Industrial Products group consisted of Welcome Home LLC and its two divisions, Cape Craftsmen and Welcome Home, and GramTel.  2005 Compared to 2004. Net sales decreased $2.6 million, or 3.8%, to $66.2 million for 2005 from $68.8 million for 2004. Sales for Cape and Welcome Home consolidated decreased 2.8% in 2005 compared with prior year. Comparable store sales at Welcome Home decreased 0.4% in 2005. Cape Craftsman sales to third parties decreased 9.5% in 2005 primarily as a result of increased competition at key accounts and an overall decline in retail sales for the home furnishings segment in which Cape Craftsman participates. Cho-Pat was sold in March of 2005 and represents $1.3 million of the CIP sales decrease in 2005 as compared with prior year.  Operating income decreased $2.6 million to a loss of $0.6 million for 2005 from operating income of $1.9 million for 2004. Merchandise margins decreased at Welcome Home largely due to promotional discounts used to increase sales and                                              -31-   reduce inventory. Operating income at Cape Craftsman decreased due to the decline in third party sales.  2004 Compared to 2003. Net sales decreased $0.3 million, or 0.5%, to $68.8 million for 2004 from $69.1 million for 2003. Sales for Welcome Home decreased 2.0% in 2004 while third party sales for Cape Craftsmen were consistent with prior year. Comparable store sales at Welcome Home decreased 4.1% in 2004. The decline in comparable Welcome Home store sales was primarily the result of a difficult retail environment in Welcome Home's category in outlet malls. Welcome Home closed four underperforming stores and opened eight new stores in 2004. Cho-Pat sales of orthopedic supports grew 28.1% in 2004.  Operating income decreased $0.4 million, or 16.5%, to $1.9 million for 2004 from $2.3 million for 2003. Merchandise margins decreased at Welcome Home largely due to promotional discounts used to increase the turnover of slower moving inventory. The decrease in operating income at Welcome Home was partially offset by the non-cash Cho-Pat goodwill impairment charge of $0.7 million recorded in 2003.  Liquidity and Capital Resources  The Company had negative working capital of $(164.7) million at the end of 2005 compared to approximately $98.9 million at the end of 2004. The negative working capital in 2005 is the result of the reclassification of $270.0 million of Kinetek's Senior Notes from long term to current based on their maturity date. Currently, the Company is contemplating various avenues of refinancing this debt, and management is confident that it will do so prior to the maturity.  The Company has acquired businesses through leveraged buyouts, and, as a result, has significant debt in relation to total capitalization. See "Item 1 - Business." See Note 12 to the Consolidated Financial Statements.  Management expects modest growth in net sales and operating income in 2006. Capital spending levels in 2006 are anticipated to be consistent with 2005 levels and, along with working capital requirements, will be financed internally from operating cash flow. Operating margins and operating cash flow are expected to be favorably impacted by ongoing cost reduction programs, price increases, improved efficiencies and sales growth. Management believes that the Company's cash on hand and anticipated funds from operations in conjunction with opportunistic sales of assets, refinancings or market transactions will be sufficient to cover its working capital, capital expenditures, debt service requirements and other fixed charge obligations for at least the next 12 months.  The Company is, and expects to continue to be, in compliance with the provisions of its Indentures.  None of the subsidiaries require significant amounts of capital spending to sustain their current operations or to achieve projected growth.  Net cash provided by operating activities for the year ended December 31, 2005 was $14.8 million compared to $6.2 million used in operating activities in 2004.  Net cash provided by investing activities for the year ended December 31, 2005 was $25.1 million compared to $26.1 million provided by investing activities in 2004. In 2005, net cash provided by investing activities primarily includes $1.0                                              -32-   million from proceeds of a sale of discontinued operations, $6.6 million from the sale of an affiliate, $1.2 million in proceeds from the sale of Cho-Pat, $9.4 million from sale of an affiliate promissory note and $15.0 million in proceeds from a refinancing transaction executed by an affiliate. This is compared to $6.2 million of proceeds from the sale of discontinued operations and $27.2 million of proceeds from the sale of affiliates in 2004.  Net cash used in financing activities for the year ended December 31, 2005 is $38.0 million compared to $35.3 million used in financing activities in 2004. The increase in cash used in financing activities is primarily due to higher repayments of borrowings under revolving credit facilities and long-term debt in 2005.  The Company and its subsidiaries are party to two credit agreements under which the Company is able to borrow up to $95.0 million, based on the value of certain assets, to fund acquisitions, provide working capital and for other general corporate purposes. The credit agreements mature in 2006. The agreements are secured by a first priority security interest in substantially all of the Company's assets. As of December 31, 2005, the Company had approximately $37.7 million of available funds under these arrangements. (See Note 12 to the consolidated financial statements.)  In conjunction with the Exchange Offer completed by the Company in February 2004 (see discussion below), one of the Company's revolving credit facilities was amended to reduce, over time, the maximum loan commitment under the facility. As of December 31, 2004, the maximum loan commitment under the facility was $75.0 million. As of June 1, 2005, that commitment was reduced to $55.0 million and to $45.0 million as of March 1, 2006 for the remaining life of the agreement. At this time, the Company does not expect the decrease in available funds to have a material impact on its operations.  Both of the Company's credit agreements expire in 2006. If necessary, the Company intends to replace these facilities in 2006. Management is confident such refinancings can be obtained under favorable terms to the Company and Kinetek, however, such terms will be subject to market conditions which may change significantly.  The Company may, from time to time, use cash, including borrowings under its credit agreements, to purchase either its 11 3/4% Senior Subordinated Discount Debentures due 2009, its 10 3/8% Senior Notes due 2007, or its 13% Exchange Notes due 2007, or any combination thereof, through open market purchases, privately negotiated purchases or exchanges, tender offers, redemptions or otherwise. Additionally, the Company may, from time to time, pursue various refinancing or financial restructurings, including pursuant to current solicitations and waivers involving those securities, in each case, without public announcement or prior notice to the holders thereof, and if initiated or commenced, such purchases or offers to purchase may be discontinued at any time.  As discussed above, one of the Company's revolving credit facilities contains a provision for the step-down in maximum borrowing capacity during 2006. As of March 1, 2006 the Company's maximum borrowings under this agreement decreased from $55.0 million to $45.0 million. This, coupled with the facts that the Company's Kinetek subsidiary has a significant portion of its Senior debt due in 2006, the Company has experienced operating losses in recent years and has used cash in operating activities, has caused the Company's executive management to                                            -33-   evaluate various options to improve the Company's liquidity. To this end, the Company has restructured some of its outstanding debt through the Exchange Offer discussed below and in Note 12 to the financial statements and the Modification and Waiver Agreements also discussed below and in Note 12 to the financial statements. The effect of these transactions has been to reduce cash paid for interest in the current year as well as to provide for further reductions in debt maturity payments if certain financial performance is not achieved. In addition, the Company expects improved operating performance in all segments over the prior year. Specifically, new product development and the continued shift of manufacturing to China in the Specialty Plastics and Kinetek groups are expected to improve results. In addition, plans to improve production efficiencies within the Auto Aftermarket Group will increase operating margins. Further, the Company has evaluated its holdings of investments in affiliates (See Note 8) and, when appropriate, will sell certain investments, similar to the sale of the Company's investments in DMS Holdings Inc, Mabis Healthcare Holdings Inc., Flavor and Fragrance Holdings Inc. and JIR Broadcast, Inc. as described in Note 15 to the financial statements. The Company believes that through its efforts discussed above, in conjunction with opportunistic sales of assets, refinancings or market transactions the Company will have sufficient liquidity to meet its obligations in the coming year.  On February 18, 2004, the Company completed an Exchange Offer, whereby it exchanged $173.3 million of new Senior Notes (the "Exchange Notes") for $104.8 million of 2007 Seniors and $142.8 million of New 2007 Seniors (collectively, "Old Senior Notes"). The Exchange Notes were co-issued by JII Holdings LLC, a wholly owned subsidiary of the Company, and its wholly owned subsidiary, JII Holdings Finance Corporation. The Exchange Notes bear interest at 13% per annum which is payable semi annually on February 1 and August 1 of each year, and mature on April 1, 2007. The notes that were exchanged bore interest at 10 3/8% per annum and paid interest semi annually on February 1 and August 1. The remaining Old Senior Notes mature on August 1, 2007.  The Exchange Offer has been accounted for as a troubled debt restructuring in conformity with Statement of Financial Accounting Standards No. 15 "Accounting by Debtors and Creditors for Troubled Debt Restructurings" (SFAS No. 15). SFAS No. 15 requires that, when there is a modification of terms such as this, if the total debt service of the new debt is less than the carrying amount on the balance sheet of the old debt, the carrying amount should be reduced to the total debt service amount. This reduction resulted in a gain of $2.0 million, which was required by SFAS No. 15 to be offset by fees incurred on the transaction. Fees of $7.5 million which were in excess of the gain were recorded as interest expense during 2004. There will be no interest expense recognized on the Exchange Notes, and the cash interest payments made will be accounted for as a reduction of the carrying amount of the Exchange Notes. During 2005, the reduction in interest expense attributable to this treatment was $22.5 million.  On January 31, 2004, the Company and holders of $89.9 million of the Company's 2009 Debentures and $0.2 million of the Company's Discount Debentures (collectively, the "Waived Debentures") entered into a Waiver Agreement which provides that the participating note holders waive any rights to claim an event of default if the Company does not make the scheduled interest payments as required in the applicable indenture. The Company may pay interest on these Waived Debentures only if such payment complies with the restricted payments covenant in the indenture governing the Exchange Notes. Should the Company be prohibited from or elect not to make interest payments on these notes, the                                           -34-   interest will continue to accrue on the Waived Debentures at the original rate of 11 3/4% per year and will be due and payable to the holders at the maturity date of the notes. Pursuant to the Waiver Agreement, the maturity date of the participating notes is the earlier of (1) the date on which all of the outstanding principal and interest on the Exchange Notes and the 2009 and Discount Debentures not participating in the Waiver Agreement have been paid in full, (2) the date six months after the original maturity of the participating notes, or (3) the date on which the Company enters into a bankruptcy proceeding.  On February 18, 2004, certain of the Company's 2009 Debenture note holders entered into a Modification Agreement which provides for a reduction in their stated maturity value and a reduction of their applicable interest rate. The aggregate maturity value of the notes held by the parties to the Modification Agreement is $23.0 million which has been reduced to $6.9 million. The interest rate on these notes has been reduced to a stated rate of 1.61% from 11 3/4%. On April 1, 2004 certain holders of an additional $1.7 million of the Company's 2009 Debentures elected to participate in the Modification Agreement. The maturity value of these notes has been reduced to $0.5 million. The holders of these modified notes retain the right to collect the original maturity value and interest thereon at the original interest rate if the Company meets certain financial tests and ratios including the Available Cash requirements (as defined in the Modification Agreement) and the Fixed Charge Coverage Ratio (as defined in the Indenture to the Exchange Notes). The Available Cash requirements states that the Company must have at least $20 million in cash on hand or available under any credit agreements of the Company or certain subsidiaries (excluding Kinetek) after giving effect to a pro forma payment of the interest on the Debentures at the original interest rate, and that cash availability must have existed for all days since the last interest payment date on the Exchange Notes. The Fixed Charge Coverage Ratio measures the ratio between Consolidated Cash Flow (as defined) and Fixed Charges (as defined) and must have been at least 2.0 to 1 for the twelve month period preceding the payment of any contingent principal or contingent interest. Since entering into the Modification Agreement, the Company has not met the Available Cash requirement or the Fixed Charge Ratio as described above. At this time we can not estimate when and if these targets will be met.  Under the Modification Agreement, the modified 2009 Debentures mature on the earlier of (1) the date that all other 2009 Debenture note holders have been paid in full, (2) the date that is six months after the original maturity date, or (3) the date on which the Company enters into a bankruptcy proceeding.  The Company has determined that this modification will be accounted for as a troubled debt restructuring as required by SFAS No. 15. The effect of this accounting treatment will not reduce the carrying value of the modified notes; however, the interest expense associated with the modified notes will be calculated using the modified stated interest rate of 1.61% per annum and the reduced maturity amount.  The remaining 2009 and Discount Debentures that are not party to the Modification Agreement will continue to accrue interest at 11 3/4% and represent $70.2 million of the total outstanding principal amount of $94.9 million.                                              -35-  Foreign Currency Impact  The Company is exposed to fluctuations in foreign currency exchange rates. Decreases in the value of foreign currencies relative to the U.S. dollar have not resulted in significant losses from foreign currency translation. However, there can be no assurance that foreign currency fluctuations in the future would not have an adverse effect on the Company's business, financial condition or results of operations.  Impact of Inflation  The Company purchases certain raw materials for use in the manufacture of its products, including steel, aluminum, copper, and resin which are generally available from multiple sources with adequate supply. While certain commodities have experienced greater pricing volatility in the past year, the Company has used a number of programs to address this risk such as entering into longer term purchase contracts with suppliers of certain commodities and implementing selling price adjustments over time. The Company believes it is not significantly dependent on a limited number of suppliers and that practices are in place to ensure an adequate supply of raw materials in the future.  Critical Accounting Policies and Estimates  Our significant accounting policies are described in Note 2 to the consolidated financial statements included in Item 8 of this Form 10-K. Our discussion and analysis of financial condition and results from operations are based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of the financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues, and expenses. On an on-going basis, we evaluate the estimates that we have made. These estimates have been based upon historical experience and on various other assumptions that we believe to be reasonable under the circumstances. However, actual results may differ from these estimates under different assumptions or conditions.  We believe the following critical accounting policies affect the more significant judgments and estimates we have used in the preparation of the consolidated financial statements.       Goodwill  Goodwill represents the excess of cost over fair value of identifiable net assets acquired through business purchases. In accordance with Statement of Financial Accounting Standards No. 142, Goodwill and Other Intangible Assets ("SFAS 142"), goodwill is reviewed for impairment on at least an annual basis by applying a fair-value-based test. In evaluating the recoverability of the carrying value of goodwill and other indefinite-lived intangible assets, we must estimate the fair values of our reporting units, as defined under SFAS 142. Our estimate of the fair value of each of our reporting units was based primarily on projected future operating results and cash flows, and other assumptions. Although we believe our projections and resulting fair values are reasonable, our past projections have not always been achieved. The failure of a reporting unit to achieve projected future operating results and cash flows, or adjustments to other valuation assumptions, could change our estimate of reporting unit fair value, in which case we may be required to record an impairment charge related to goodwill and other indefinite-lived intangible assets.       Investments in Affiliates  Periodically, we make strategic investments in debt and/or equity securities of affiliated companies. See Note 8 to the consolidated financial statements for details of these investments. These debt and/or equity securities are not currently publicly traded on any major exchange. Either the cost method or                                        -36-   equity method of accounting is used to account for these investments depending on the level of the Company's ownership in these affiliates. Each quarter, we review the carrying amount of these investments and record an impairment charge when we believe an investment has experienced a decline in value below its carrying amount that is other than temporary. Annual review of previously recorded impairment charges may result in a reversal of those charges if the Company has substantial evidence that the value of the investment has increased. Future adverse changes in market conditions or poor operating results of underlying investments could result in losses or an inability to recover the carrying value of the investments that may not be reflected in an investment's current carrying value, thereby possibly requiring an impairment charge in the future.       Allowance for Doubtful Accounts  Allowances for doubtful accounts are estimated at the individual operating companies based on estimates of losses on customer receivable balances. Estimates are developed by using standard quantitative measures based on historical losses, adjusting for current economic conditions and, in some cases, evaluating specific customer accounts for risk of loss. The establishment of reserves requires the use of judgment and assumptions regarding the potential for losses on receivable balances. Though we consider our allowance for doubtful accounts balance to be adequate, changes in economic conditions in specific markets in which we operate could have a material effect on future reserve balances required.       Excess and Obsolete Inventory  We record reserves for excess and obsolete inventory equal to the difference between the cost of inventory and its estimated market value using assumptions about future product life-cycles, product demand and market conditions. If actual product life-cycles, product demand and market conditions are less favorable than those projected by management, additional inventory reserves may be required.       Income Taxes  As part of the process of preparing our consolidated financial statements, we are required to estimate our income taxes in each of the jurisdictions in which we operate. This process involves estimating our actual current tax expense together with assessing temporary differences resulting from differing treatment of items for tax and accounting purposes. These differences result in deferred tax assets and liabilities, which are included within our consolidated balance sheet. We must then assess the likelihood that our deferred tax assets will be recovered from future taxable income and to the extent we believe that recovery is not likely, we must establish a valuation allowance. Increases (decreases) in the valuation allowance are included as an increase (decrease) to our consolidated income tax provision in the statement of operations.                                             -37-   Contractual Obligations  The following table summarizes our contractual obligations as of December 31, 2005 (in thousands):                                                           Payments by Period                       ------------------------------------------------------------------------------                       Total        2006        2007        2008        2009       2010    Thereafter                       ------------------------------------------------------------------------------          Long-term debt        $645,225   $316,883   $229,933     $ 2,084    $ 95,015      $ 408    $   902 Interest                95,430     63,978     17,161       9,070       4,474        129        618 Capital leases           7,441      2,174      1,292       3,252         315        408          - Operating leases        59,065     13,902     11,926      10,236       7,796     10,105      5,100 Pension contributions    1,180      1,180          -           -           -          -          -                       ------------------------------------------------------------------------------ Total                 $808,341   $398,117   $260,312     $24,642    $107,600    $11,050    $ 6,620                       ------------------------------------------------------------------------------                                                       -38-
The Company's debt obligations are primarily fixed-rate in nature and, as such, are not sensitive to changes in interest rates. At December 31, 2005, the Company had $37.7 million of variable rate debt outstanding. A one percentage point increase in interest rates would increase the annual amount of interest paid by approximately $0.4 million. The Company does not believe that its market risk financial instruments on December 31, 2005 would have a material effect on future operations or cash flows.  The Company is exposed to market risk from changes in foreign currency exchange rates, including fluctuations in the functional currency of foreign operations. The functional currency of operations outside the United States is the respective local currency. Foreign currency translation effects are included in accumulated other comprehensive income in shareholders' deficit.                                                              -39-
Page No.                                                                        -------- Report of Independent Registered Public Accounting Firm ...........       41  Consolidated Balance Sheets as of December 31, 2005 and 2004...............................................................       42  Consolidated Statements of Operations for the years ended December 31, 2005, 2004, and 2003...........................................       43  Consolidated Statements of Changes in Shareholders' Deficit for the years ended December 31, 2005, 2004 and 2003   ................       44  Consolidated Statements of Cash Flows for the years ended December 31, 2005, 2004,  and 2003.................................       45  Notes to Consolidated Financial Statements.........................       47                                                        -40-                   REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM              -------------------------------------------------------  The Board of Directors and Shareholders Jordan Industries, Inc.  We have audited the accompanying consolidated balance sheets of Jordan Industries, Inc. as of December 31, 2005 and 2004 and the related consolidated statements of operations, shareholders' deficit, and cash flows for each of the three years in the period ended December 31, 2005. Our audits also included the financial statement schedule listed in the Index at Item 15. These financial statements and schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and schedule based on our audits.  We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. We were not engaged to perform an audit of the Company's internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.  In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Jordan Industries, Inc. at December 31, 2005 and 2004, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 2005, in conformity with U.S. generally accepted accounting principles. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein.  The accompanying financial statements have been prepared assuming that Jordan Industries, Inc. will continue as a going concern. As more fully described in Note 12, the Company has substantial debt maturing within the next year, which raises substantial doubt about the Company's ability to continue as a going concern. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.        /s/ ERNST & YOUNG LLP   Chicago, Illinois March 15, 2006                                             -41-                                JORDAN INDUSTRIES, INC.                            CONSOLIDATED BALANCE SHEETS                              (dollars in thousands)                                                               December 31,                                                            ----------------                                                            2005        2004                                                            ----        ----  ASSETS - ------ Current assets:   Cash and cash equivalents                              $15,699       $15,412   Accounts receivable, net of allowance of   $4,979 and $7,233 in 2005 and 2004, respectively       110,090       109,554   Inventories                                            124,529       130,033   Assets of discontinued operations                          728         3,432   Income tax receivable                                    1,926         3,631   Investment in and advances to affiliates                23,015             -   Prepaid expenses and other current assets               10,513        12,363                                                        ---------      --------      Total current assets                                286,500       274,425  Property, plant and equipment, net                        79,639        85,036 Investments in and advances to affiliates                 14,044        40,882 Goodwill, net                                            220,514       245,309 Other assets                                              10,670        16,754                                                        ---------     ---------   Total Assets                                          $611,367      $662,406                                                        =========      ========  LIABILITIES AND SHAREHOLDERS' DEFICIT - -------------------------------------  Current liabilities:   Accounts payable                                       $58,159       $62,796   Accrued liabilities                                     73,215        81,451   Liabilities of discontinued operations                       -           698   Current portion of long-term debt                      319,089        27,874                                                        ---------     ---------       Total current liabilities                          450,463       172,819  Long-term debt                                           361,673       689,399 Other non-current liabilities                             32,152        25,167 Deferred income taxes                                     14,093        14,255 Minority interest                                          1,377         1,003 Preferred stock of a subsidiary                            2,970         2,744  Shareholders' deficit: Common stock $.01 par value: authorized - 100,000   shares; issued and outstanding - 98,501 shares               1             1 Additional paid-in capital                                 2,116         2,116 Accumulated other comprehensive income                     1,542         3,685 Accumulated deficit                                     (255,020)     (248,783)                                                        ----------     -------- Total shareholders' deficit                             (251,361)     (242,981)                                                        ----------     --------    Total Liabilities and Shareholders' Deficit            $611,367     $662,406                                                          ========     ========                               See accompanying notes.                                               -42-                                JORDAN INDUSTRIES, INC.                       CONSOLIDATED STATEMENTS OF OPERATIONS                              (dollars in thousands)                                                     Year ended December 31,                                                    -----------------------                                                 2005         2004       2003                                                 ----         ----       ----   Net sales                                    $729,485     $723,279    $666,931 Cost of sales, excluding depreciation         517,625      502,368     450,308 Selling, general, and administrative  expense, excluding depreciation              143,786      151,211     151,986 Depreciation                                   14,382       16,082      20,228 Amortization                                      172          158         497 Goodwill impairment loss                       24,277        3,676         696 Income from sale of affiliates                (12,994)      (7,954)          - Management fees and other                     (13,811)         366         419                                               --------    --------      ------    Operating income                            56,048       57,372      42,797  Other (income) and expenses:   Interest expense                             54,720       66,048      83,215   Interest income                                (240)      (2,267)     (1,352)   (Gain)/loss on sale of subsidiaries            (251)          -          401   Other, net                                    1,940       (1,508)     (4,371)                                               --------    ---------   ---------                                                56,169       62,273      77,893                                              ---------    ---------    -------- Loss from continuing operations before  income taxes and minority  interest             (121)      (4,901)    (35,096) Provision for income taxes                      3,602        2,973       8,436                                                -------    ---------   --------- Loss from continuing operations before  minority interest                            (3,723)      (7,874)     (43,532) Minority interest                                374          532          193                                               --------    --------    --------- Loss from continuing operations               (4,097)      (8,406)     (43,725) Discontinued Operations:   Loss from discontinued operations, net of    tax(See Note 5)                            (3,416)     (10,529)        (942)   Gain (loss) on sale of discontinued    operations, net of tax (See Note 5)         1,502       (1,171)       8,190                                              --------     ---------     ------                                               (1,914)     (11,700)       7,248                                              --------     ---------     ------     Net loss                                 $(6,011)    $(20,106)    $(36,477)                                              ========    ==========   =========                               See accompanying notes.                                                      -43-                                JORDAN INDUSTRIES, INC.            CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' DEFICIT                              (dollars in thousands)                                               Common Stock                                           ------------                                                                                  Accumulated                                         Number                    Additional        Other                                          of                        Paid-in      Comprehensive     Accumulated                                         Shares      Amount         Capital      Income (Loss)       Deficit            Total                                         ------      ------         -------      -------------       -------            -----         Balance at December 31, 2002            98,501           1             2,116          (11,877)         (191,798)       (201,558) Non-cash dividends on preferred  stock of subsidiary                         -           -                 -                -              (193)           (193) Comprehensive income(loss):   Translation                                -           -                 -           10,437                 -          10,437   Minimum pension liability   adjustment, net of tax                     -           -                 -              428                 -             428   Net loss                                   -           -                 -                -           (36,477)        (36,477)                                                                                                                       ---------- Total comprehensive loss                                                                                                (25,612)                                        -------      ------          --------         ----------       ---------       ---------- Balance at December 31, 2003           98,501            1             2,116            (1,012)        (228,468)       (227,363) Non-cash dividends on preferred  stock of subsidiary                         -           -                 -                -              (209)           (209) Comprehensive income(loss):   Translation                                -           -                 -            5,463                 -           5,463   Minimum pension liability   adjustment, net of tax                     -           -                 -             (766)                -            (766)   Net loss                                   -           -                 -                -           (20,106)        (20,106)                                                                                                                       --------- Total comprehensive loss                                                                                                (15,409)                                        -------      ------          --------         --------        ----------       ---------- Balance at December 31, 2004            98,501      $    1         $   2,116       $    3,685        $ (248,783)      $(242,981) Non-cash dividends on preferred  stock of subsidiary                         -           -                 -                -              (226)           (226) Comprehensive income(loss):   Translation                                -           -                 -           (1,386)                -          (1,386)   Minimum pension liability   adjustment, net of tax                     -           -                 -             (757)                -            (757)   Net income                                 -           -                 -                -            (6,011)         (6,011)                                                                                                                          ------- Total comprehensive loss                                                                                                 (6,768)                                        -------      ------         ---------           ------         ----------      ---------- Balance at December 31, 2005            98,501      $    1        $    2,116           $1,542         $(255,020)      $(251,361)                                        =======      ======        ==========           ======         ==========      ==========                                  See accompanying notes.                                                   -44-                                    JORDAN INDUSTRIES, INC.                       CONSOLIDATED STATEMENTS OF CASH FLOWS                              (dollars in thousands)                                                     Year ended December 31,                                                    -----------------------                                                 2005         2004       2003                                                 ----         ----       ---  Cash flows from operating activities:   Net loss                                   $ (6,011)   $(20,106)   $(36,477) Adjustments to reconcile net loss to net  cash provided by (used in) operating  activities:   (Gain)/loss on sale of discontinued    operation (See Note 5)                      (1,502)      1,171      (8,190)   Gain on refinancing of affiliate             (8,584)          -           -   Income from reversal of reserves related    to sale of affiliate                       (14,727)          -           -   Gain on sale of affiliates                   (4,410)     (7,954)          -   (Gain)/loss on sale of subsidiaries            (251)          -         401   Loss/(gain) on disposal of fixed assets         429        (231)     (3,711)   Goodwill impairment loss                     24,277       3,676         696   Amortization of deferred financing    costs                                        6,451       8,358       6,196   Depreciation and amortization                14,554      16,240      20,725   Deferred income taxes                          (269)      5,351       5,881   Minority interest                               374         532         193   Non-cash interest expense                     8,269      11,181          26 Changes in operating assets and liabilities (net of acquisitions and  dispositions):   Accounts receivable                            (676)    (16,369)     (3,219)   Inventories                                   5,472      (7,081)       (507)   Prepaid expenses and other current    assets                                       1,618      (3,089)     (1,197)   Non-current assets                            2,182          13      (4,668)   Accounts payable and accrued    liabilities                                (12,355)      7,017       9,390   Non-current liabilities                        (813)     (1,539)        531   Net assets of discontinued operations         2,007       9,963       1,707   Other                                        (1,247)       (952)        111                                              ---------    --------     ------- Net cash provided by (used in) operating  activities                                    14,788       6,181     (12,112)  Cash flows from investing activities: Proceeds from sale of fixed assets                809       1,107       3,845 Capital expenditures                           (8,041)     (8,014)    (10,515) Acquisitions of subsidiaries                     (955)       (372)          - Additional purchase price payments                  -           -        (750) Net proceeds from sale of subsidiaries          1,209           -         678 Net proceeds from sales of discontinued  operations (See Note 5)                        1,002       6,155       9,400 Net proceeds from sales of affiliates           6,600      27,207           - Net proceeds from sales of affiliated  promissory notes                               9,449           -           - Net proceeds from refinancing by an  affiliate                                     15,000           -           -                                              --------     -------    -------- Net cash provided by investing activities      25,073      26,083       2,658                            (Continued on following page.)                                             -45-                                JORDAN INDUSTRIES, INC.                       CONSOLIDATED STATEMENTS OF CASH FLOWS                              (dollars in thousands)                                    (continued)                                                   Year ended December 31,                                                  -----------------------                                              2005          2004           2003                                              ----          ----           ----  Cash flows from financing activities: (Payments on) proceeds from  revolving  credit facilities, net                    (8,811)       (3,042)        11,802 Payment of deferred financing costs            --        (3,942)          (150) Payment of long-term debt                 (38,191)      (36,918)       (15,441) Proceeds from other borrowings              9,011         8,583          2,849                                           -------       -------        ------- Net cash used in financing activities     (37,991)      (35,319)          (940) Effect of exchange rate changes on  cash                                      (1,583)        2,950          6,194                                          ---------       ------        ------- Net increase/(decrease) in cash and  cash equivalents                             287          (105)        (4,200) Cash and cash equivalents at beginning  of year                                   15,412        15,517         19,717                                           -------      --------       -------- Cash and cash equivalents at end of  year                                    $ 15,699      $ 15,412       $ 15,517                                           =======      =========      ========  Supplemental disclosures of cash flow  information:    Cash paid during the year for:         Interest                         $ 61,895     $63,296          $75,831         Income taxes, net                $  6,968     $ 2,328          $ 5,883    Non-cash investing activities:         Capital leases                   $    898     $ 1,404          $   881                                See accompanying notes.                                                          -46-                                JORDAN INDUSTRIES, INC.                    NOTES TO CONSOLIDATED FINANCIAL STATEMENTS                              (dollars in thousands)  Note 1 - Organization - ---------------------  The Company's business is divided into five groups. The Specialty Printing and Labeling group consists of Valmark Industries, Inc. ("Valmark"), Pamco Printed Tape and Label Co., Inc. ("Pamco") and Seaboard Folding Box, Inc. ("Seaboard"). The Jordan Specialty Plastics group consists of Beemak Plastics, Inc. ("Beemak"), Sate-Lite Manufacturing Company ("Sate-Lite"), and Deflecto Corporation ("Deflecto"). The Jordan Auto Aftermarket group consists of Dacco Incorporated ("Dacco"), Alma Products Company ("Alma") and Atco Products ("Atco"). The Kinetek group consists of The Imperial Group("Imperial"), Merkle-Korff Industries, Inc. ("Merkle-Korff"), FIR Group Companies ("FIR"), Motion Control Engineering ("Motion Control"), Advanced D.C. Motors ("Advanced DC") and Kinetek De Sheng Electric Motor Co., Ltd. ("De Sheng"). The remaining businesses comprise the Company's Consumer and Industrial Products group. This group consists of Welcome Home LLC and its two divisions Cape Craftsmen, Inc. ("Cape") and Welcome Home, Inc. ("Welcome Home"), Cho-Pat, Inc. ("Cho-Pat") (until March 2005), and GramTel Communications, Inc. ("GramTel"). All of the foregoing corporations are collectively referred to herein as the "Subsidiaries", and individually as a "Subsidiary."  All of the Subsidiaries, exclusive of the Kinetek subsidiaries, are classified as Restricted Subsidiaries ("Restricted Subsidiaries") for purposes of certain of the Company's debt instruments.  Note 2 - Significant accounting policies - ----------------------------------------                  Principles of consolidation                 ---------------------------  The consolidated financial statements include the accounts of the Company and the Subsidiaries. All significant intercompany balances and transactions have been eliminated. Operations of certain subsidiaries outside the United States are included for the period ended two months prior to the Company's year-end and interim periods to ensure timely preparation of the consolidated financial statements.                  Cash and cash equivalents                 -------------------------  The Company considers all highly liquid investments purchased with an initial maturity of three months or less to be cash equivalents.                  Accounts Receivable and Allowance for Doubtful Accounts                 -------------------------------------------------------  The Company carries its accounts receivable at their face amounts less an allowance for doubtful accounts. Allowances for doubtful accounts are estimated at the individual operating companies based on estimates of losses on customer receivable balances. Estimates are developed by using standard quantitative measures based on historical losses, adjusting for current economic conditions and, in some cases, evaluating specific customer accounts for risk of loss. A receivable is considered past due if payments have not been received within agreed upon invoice terms. Uncollectible receivables are charged against the                                             -47-   allowance for doubtful accounts when approved by operating company management after all collection efforts have been exhausted.                  Inventories                 -----------  Inventories are stated at lower of cost or market. Inventories are primarily valued at either average or first-in, first-out (FIFO) cost.                  Goodwill and Other Long-Lived Assets                 ------------------------------------  Goodwill represents the excess of cost over fair value of identifiable net assets acquired through business purchases. In accordance with Statement of Financial Accounting Standards No. 142, Goodwill and Other Intangible Assets ("SFAS 142"), goodwill is reviewed for impairment on at least an annual basis by applying a fair-value-based test. In evaluating the recoverability of the carrying value of goodwill and other indefinite-lived intangible assets, we must estimate the fair values of our reporting units, as defined under SFAS 142. Our estimate of the fair value of each of our reporting units was based primarily on projected future operating results and cash flows, and other assumptions. Although we believe our projections and resulting fair values are reasonable, our past projections have not always been achieved. The failure of a reporting unit to achieve projected future operating results and cash flows, or adjustments to other valuation assumptions, could change our estimate of reporting unit fair value, in which case we may be required to record an impairment charge related to goodwill and other indefinite-lived intangible assets. See Note 3 for additional details.  Other long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of the related asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of the asset to future undiscounted cash flows expected to be generated by the asset. If the asset is determined to be impaired, the impairment recognized is measured by the amount by which the carrying value of the asset exceeds its fair value.                  Property, Plant and Equipment                 -----------------------------  Property, plant and equipment are stated at cost, less accumulated depreciation. Depreciation and amortization of property, plant and equipment is calculated over the estimated useful lives, or over the lives of the underlying leases, if less, using the straight-line method. Amortization of leasehold improvements and assets under capital leases is included in depreciation expense.  The useful lives of plant and equipment for the purpose of computing book depreciation are as follows:             Machinery and equipment              3-10 years            Buildings and improvements           5-35 years            Furniture and fixtures               3-10 years             Income taxes            ------------  Deferred tax assets and liabilities are determined based on differences between the financial reporting and tax basis of assets and liabilities and are measured using the enacted tax rates and laws that are expected to be in effect when the differences reverse. The Company has not determined the U.S. Federal and State income tax liability on undistributed earnings of foreign subsidiaries to the extent the undistributed earnings are considered to be permanently reinvested ($25,242 at December 31, 2005), as such determination is not practical.                                            -48-                    Deferred Financing Fees                 -----------------------  Deferred financing costs amounting to $6,566 and $13,017 net of accumulated amortization of $60,265 and $53,814 at December 31, 2005 and 2004, respectively, are amortized using the straight-line method, over the terms of the loans or, if shorter, the period such loans are expected to be outstanding. Deferred financing costs are included in "other assets" on the balance sheet.                  Revenue recognition                 -------------------  The Company's revenue is derived primarily from product sales. Revenue is recognized in accordance with the terms of the sale, primarily upon shipment to customers, once the sales price is fixed or determinable, and collectibility is reasonably assured. Estimated discounts and rebates are recorded as a reduction of sales in the same period revenue is recognized. Sales returns and allowances are estimated and recorded based upon historical experience. If actual future sales returns and allowances are higher than past experience, additional accruals may be required. If any significant obligations to the customer with respect to such sale remain to be fulfilled following shipment, typically involving obligations relating to installation and acceptance by the buyer, revenue recognition is deferred until such obligations have been fulfilled.                  Shipping and Handling Costs                 ---------------------------  Shipping and handling costs are classified in cost of sales in the statement of operations.                  Use of estimates                 ----------------  The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates.                  Concentration of credit risk                 ----------------------------  Financial instruments which potentially subject the Company to a concentration of credit risk consist principally of cash and cash equivalents and accounts receivable. The Company deposits cash and cash equivalents with high quality financial institutions, and is restricted by its revolving credit facilities as to its investment instruments. Concentration of credit risk relating to accounts receivable is limited due to the large number of customers from many different industries and locations. The Company believes that its allowance for doubtful accounts is adequate to cover potential credit risk.  At December 31, 2005 and 2004 the Company had approximately $23,015 and $21,942, respectively, of investments in Russia and Austria related to unsecured advances including net interest receivables made to two affiliates (see Note 8). In 2006, the Company's investments in Russia and Austria were sold to third parties. All amounts invested by the Company were fully recovered.                  Foreign currency translation                 ----------------------------  The functional currencies of the Company's foreign operations are the local currencies. Accordingly, assets and liabilities of the Company's foreign operations are translated from foreign currencies into U.S. dollars at the exchange rates in effect at the balance sheet date while income and expenses are translated at the weighted-average exchange rates for the year.                                             -49-   Adjustments resulting from the translation of foreign currency financial statements are classified as a separate component of shareholders' deficit. The accumulated balance in other comprehensive income pertaining to foreign currency translation was $5,953 and $7,339 as of December 31, 2005 and 2004, respectively.                  Reclassifications                 -----------------  Certain amounts in the prior year financial statements have been reclassified to conform to the current year presentation. In 2004, the non-cash reduction in the Exchange Notes, as a result of troubled debt accounting, in the amount of $19,591 was reclassified from the "accounts payable and accrued liabilities" line in the operating activities section of the Consolidated Statement of Cash Flows to the "payment of long-term debt" line in the financing activities section. In addition, $10,830 of waived interest on the Waived Debentures was reclassified from the "accounts payable and accrued liabilities" line in the Consolidated Statement of Cash Flows to the "non-cash interest expense" line. This reclass was entirely within the operating activities section of the Consolidated Statement of Cash Flow. Both reclassifications were made to more accurately classify the nature of these transactions consistently with 2005 presentation.                  Fair Value of Financial Instruments                 -----------------------------------  The Company's financial instruments include cash and cash equivalents, accounts receivable, investments in and advances to affiliates and long-term debt. The carrying values of such financial instruments approximate their estimated fair value, except for long-term debt for which the fair value is disclosed in footnote 12.                  New Accounting Pronouncements                 -----------------------------  In January 2003, the FASB issued Interpretation No. 46 (FIN 46), "Consolidation of Variable Interest Entities - An Interpretation of Accounting Research Bulletin (ARB) No. 51." This interpretation provides guidance on how to identify variable interest entities and how to determine whether or not those entities should be consolidated. The Company was required to apply FIN 46 by March 31, 2005 for entities which were created before February 1, 2003. The adoption of FIN 46 was immediate for variable interest entities created after January 31, 2003. The Company has not created any significant variable interest entities since January 31, 2003. The Company has evaluated its interests in entities created before February 1, 2003 and has determined that FIN 46 is not applicable.  In May 2005, the FASB issued Statement No. 154, Accounting Changes and Error Corrections ("FAS 154"), a replacement of APB Opinion No. 20, Accounting Changes, and FASB Statement No. 3, Reporting Accounting Changes in Interim Financial Statements ("FAS 3"). FAS 154 replaces the provisions of FAS 3 with respect to reporting accounting changes in interim financial statements. FAS 154 is effective for accounting changes and corrections of errors made in fiscal years beginning after December 15, 2005. Early adoption is permitted for accounting changes and corrections of errors made in fiscal years beginning after June 1, 2005. The Company does not expect FAS 154 will significantly impact its financial statements upon its adoption on January 1, 2006.  Note 3 - Goodwill - -----------------  The Company adopted SFAS No. 142, Goodwill and Other Intangible Assets, on January 1, 2002 and completed the transitional impairment review of its reporting units during the second quarter of 2002, resulting in a non-cash pretax charge of $108,595 ($87,065 after-tax). This charge was recorded as a cumulative effect of a change in accounting principle effective January 1, 2002.                                              -50-   The impairment charge recorded related to JII Promotions, Valmark, and Pamco in the Specialty Printing and Labeling group, Sate-Lite and Beemak in the Jordan Specialty Plastics group, Alma in the Jordan Auto Aftermarket group, FIR and the L'Europa product line in the Kinetek group and Online Environs in the Consumer and Industrial Products group. During the fourth quarter of 2002, the Company performed its annual impairment review which resulted in no impairment.  The Company determines the fair value of each reporting unit using a discounted cash flow approach taking into consideration projections based on the individual characteristics of the reporting units, historical trends and market multiples for comparable businesses. The Company is required to complete impairment reviews of its subsidiaries on at least an annual basis. In the fourth quarter of 2005, the annual impairment review resulted in a non-cash pre-tax charge of $3,415 related to Seaboard, which is part of the Specialty Printing and Labeling group and $13,086 at Alma and $7,776 at Dacco, which are part of the Jordan Auto Aftermarket group. These charges are included in "goodwill impairment loss" in the Company's statement of operations.  The changes in the carrying amount of goodwill by operating segment for the year ended December 31, 2005 were as follows:                                    Specialty       Jordan                                           Consumer &                                 Printing      Specialty      Jordan Auto                        Industrial                                & Labeling      Plastics      Aftermarket       Kinetek           Products       Consolidated                                ----------      --------      -----------       -------          ---------       ------------         Balance as of  January 1, 2004                  $11,436       $37,174         $20,862         $178,100          $328              $247,900  Adjustments                             -          (700)              -                -             -                  (700)  Goodwill impairment                (3,676)            -               -                -             -                (3,676) loss Currency translation  impact                                 -         1,005               -              780             -                 1,785                                    ------       -------         --------        --------        ------              --------  Balance at  December 31, 2004                  7,760        37,479          20,862          178,880           328               245,309  Additional Purchase                     -             -               -               81             -                    81  Price Payments and  Adjustments  Goodwill impairment                (3,415)            -         (20,862)               -             -               (24,277) loss Sale of subsidiary                      -             -               -                -          (328)                 (328)  Currency translation  impact                                 -           215               -             (486)            -                  (271)                                    ------       -------         --------        ---------        ------              --------  Balance at  December 31, 2005                 $4,345       $37,694         $     -         $178,475         $   -              $220,514                                    ======       =======         ========        ========         ======             ========   Note 4 -Investments in JAAI, JSP, and M&G Holdings - -------------------------------------------------- JAAI - ---- During 1999, the Company completed the recapitalization of Jordan Auto Aftermarket, Inc. ("JAAI"). As a result of the recapitalization, certain of the Company's affiliates and JAAI management own substantially all of the JAAI common stock and the Company's investment in JAAI was represented solely by the Cumulative Preferred Stock of JAAI. The JAAI Cumulative Preferred Stock controlled over 97.5% of the combined voting power of JAAI capital stock outstanding and accreted at plus or minus 97.5% of the cumulative JAAI net                                             -51-   income or net loss, as the case may be, through the earlier of an Early Redemption Event (as defined) or the fifth anniversary of issuance (unless redemption is prohibited by a JAAI or Company debt covenant).  In December 2004, the Company participated in another recapitalization of JAAI. As part of this recapitalization, the JAAI Cumulative Preferred Stock discussed above was exchanged for 386,100 shares of Class A Common Stock. The initial liquidation value of each Class A common share was $212.38. In addition, each Class A share is entitled to a 6.0% cumulative preferred return. Thereafter, each Class A share participates on an equal basis with each Class B share. The Class A shares hold 100% of the voting rights. In addition, 99,000 of pre-recapitalization common shares were exchanged for 9,900 shares of Class B Common Stock. The Class B common shares carry no voting rights.  The Company continues to consolidate JAAI and its subsidiaries, for financial reporting purposes, as subsidiaries of the Company.  JSP - ---  During 1998, the Company recapitalized Jordan Specialty Plastics, Inc. ("JSP"). As a result of the recapitalization, certain of the Company's affiliates and JSP management own substantially all of the JSP common stock and the Company's investment in JSP was represented solely by the Cumulative Preferred Stock of JSP. The JSP Cumulative Preferred Stock controlled over 97.5% of the combined voting power of JSP capital stock outstanding and accreted at plus or minus 97.5% of the cumulative JSP net income or net loss, as the case may be, through the earlier of an Early Redemption Event (as defined) or the fifth anniversary of issuance (unless redemption is prohibited by a JSP or Company debt covenant).  In December 2004, the Company participated in another recapitalization of JSP. As part of this recapitalization, the JSP Cumulative Preferred Stock discussed above and $33,089 of intercompany debt was exchanged for 388,050 shares of Class A Common Stock. The initial liquidation value of each Class A common share was $85.81. In addition, each Class A share is entitled to a 6.0% cumulative preferred return. Thereafter, each Class A share participates on an equal basis with each Class B share. The Class A shares hold 100% of the voting rights. In addition, 99,500 of pre-recapitalization common shares were exchanged for 9,950 shares of Class B common stock. The Class B common shares carry no voting rights.  The Company continues to consolidate JSP and its subsidiaries, for financial reporting purposes, as subsidiaries of the Company.  M&G Holdings - ------------  Motors and Gears Holdings, Inc., ("M&G Holdings" or "M&G") along with its wholly-owned subsidiary, Kinetek, Inc. ("Kinetek") (formerly Motors and Gears, Inc.), was formed to combine a group of companies engaged in the manufacturing and sale of fractional and sub-fractional motors and gear motors primarily to customers located throughout the United States and Europe.  On May 16, 1997, the Company participated in a recapitalization of M&G Holdings. In connection with the May 16, 1997 recapitalization, M&G Holdings issued 16,250 shares of M&G Holdings common stock (representing approximately 82.5% of the outstanding shares of M&G Holdings common stock) to certain stockholders and affiliates of the Company and M&G Holdings management for total consideration of $2,200 (of which $1,110 was paid in cash and $1,090 was paid through delivery of 8.0% zero coupon notes due 2007). The Company's investment in M&G Holdings was represented solely by the Cumulative Preferred Stock of M&G Holdings (the "M&G                                             -52-   Holdings Junior Preferred Stock"). The M&G Holdings Junior Preferred Stock represented 82.5% of M&G Holdings' stockholder voting rights and 80% of M&G Holdings' net income or loss was accretable to the M&G Holdings Junior Preferred Stock. The Company obtained an independent opinion as to the fairness, from a financial point of view, of the recapitalization to the Company and its public bondholders. The M&G Holdings Junior Preferred Stock was scheduled to discontinue its participation in M&G Holdings' earnings on the fifth anniversary of issuance but was extended to the sixth anniversary.  On December 12, 2002, the Company participated in another recapitalization of M&G Holdings. At that time, 20,000 shares of authorized M&G Holdings common stock were reclassified as 20,000 shares of Class B Common Stock and the M&G Holdings Junior Preferred Stock was reclassified as 80,000 shares of Class A Common Stock. The Class A Common Stock has a liquidation preference of $46,800, is entitled to a cumulative preferential dividend of 6% per annum, and after the preference is satisfied, each share of Class A Common Stock participates on a pro rata basis with each share of Class B Common Stock. Each share of Class A Common Stock and each share of Class B Common Stock are entitled to one vote. After the recapitalization, M&G Holdings will continue to remain a consolidated subsidiary of the Company.  Note 5 - Discontinued Operations - --------------------------------  During 2004, the Company undertook a plan to sell Electrical Design & Control ("ED&C"), a subsidiary of Kinetek and accordingly reflected ED&C as a discontinued operation. On May 2, 2005, the Company sold certain inventory, equipment, intellectual property assets and contracts of ED&C to a third party. The sales price was $0.1 million which was offset by a $0.2 million payment to the buyer to complete those contracts which were not sold. Therefore, the net payment related to the sale was $0.1 million. The Company no longer has any ownership interest in ED&C, however, it will continue to collect on the outstanding receivables which were not sold.  On January 20, 2004, the Company sold certain assets and liabilities of JII Promotions' Ad Specialty and Calendar product lines to a third party for $6,155. Concurrent with the above transaction, the Company agreed to wind down the remaining activities of JII Promotions and to ultimately retain only the pension-related liabilities and various immaterial capital leases. The consolidated financial statements reflect JII Promotions as a discontinued operation for all periods presented. Assets and liabilities of discontinued operations in the condensed consolidated balance sheets represent assets and liabilities of JII Promotions, excluding the retained liabilities discussed above. The Company recorded a loss on the sale of this division of $1,171. There was no tax benefit on the loss on sale or on the loss from operations. JII Promotions had been a part of the Specialty Printing and Labeling segment.  On September 19, 2003, the Company sold the net assets of the School Annual division of JII Promotions to a third party for cash proceeds, net of fees, of $9,400. The Company recognized a gain of $8,190 related to the sale of this division.  Summarized selected financial information for the combined discontinued operations is as follows:                                            2005         2004         2003                                           ----         ----         ----          Revenues                          $1,079       $5,723       $58,291         Loss from discontinued          operations                       (3,416)     (10,529)        (942)                                              -53-   The major classes of assets and liabilities of the combined discontinued operations are as follows:                                                           2005           2004                                                          ----           ----         Current assets                                   $  415      $   2,267         Property, plant and equipment, net                  313          1,134         Other long-term assets                                -             31                                                          ------      ----------            Total assets                                     728          3,432         Current liabilities                                   -            698                                                          ------      ----------            Net assets of discontinued              operations                                  $  728         $2,734                                                          ======         ======  Note 6 - Inventories - --------------------  Inventories consist of:                                             Dec. 31, 2005       Dec. 31, 2004                                            -------------       ------------- Raw Materials                                  $55,149           $57,453 Work-in-process                                 16,230            13,693 Finished goods                                  53,150            58,887                                               --------          --------                                               $124,529          $130,033                                               ========          ========  Note 7- Property, plant and equipment - -------------------------------------  Property, plant and equipment, at cost, consists of:                                                  Dec. 31, 2005    Dec. 31, 2004  Land                                                $13,569          $13,666 Machinery and equipment                             142,139          157,833 Buildings and improvements                           37,474           37,785 Furniture and fixtures                               51,013           53,867                                                    --------         --------                                                     244,195          263,151  Accumulated depreciation and amortization          (164,556)        (178,115)                                                    ---------        ---------                                                     $ 79,639         $ 85,036                                                    ========         ========  Note 8 - Investments in and advances to affiliates - --------------------------------------------------  As of December 31, 2005 and 2004 the Company had $23,015 and $21,942, respectively, of unsecured advances, including net interest receivable, due from JIR Broadcast, Inc. and JIR Paging, Inc. The Chief Executive Officer of each of these companies was Mr. Quinn the Company's President, COO and director, and its stockholders included Messrs. Jordan, Quinn, Zalaznick and Boucher, who are directors and stockholders of the Company as well as other partners, principals and associates of The Jordan Company who are also stockholders of the Company. These companies are engaged in the development of businesses in Russia and Austria, including the broadcast and paging sectors. In February and March 2006, the Company sold, to a third party, 100% of its investment in JIR Broadcast, Inc. and JIR Paging, Inc.  On May 18, 2005, JIR Paging, Inc. repurchased from the Company its promissory note in the amount of $9,200. The proceeds to the Company were $9,449 and consisted of the principal amount of the note plus accrued and unpaid interest                                              -54-   of $249. As discussed above, JIR Paging was subsequently sold in March 2006 to a third party. At closing, the Company received net cash proceeds of $274 for amounts previously invested in JIR Paging. The Company recorded income of $274 in 2005 as a result of reversing reserves previously recorded against the receivable from JIR Paging.  JIR Broadcast, Inc. was sold on February 28, 2006 and resulted in cash proceeds to the Company of $30,250. The proceeds included repayment of amounts previously loaned to, and paid on behalf of, JIR Broadcast of $15,610, accrued interest of $9,187, accrued and unpaid management fees of $1,679, a fee for the termination of the management fee agreement of $3,400, and reimbursement of expenses incurred by the Company during the sale process of $374. Income of $14,453 has been recorded in the Company's financial statements during 2005 related to the JIR Broadcast sale in 2006 due to the reversal of reserves previously recorded by the Company against the loans, interest on its loans, and the recognition of management fee income from JIR Broadcast which was not previously accrued. In 2006, the Company will record income of approximately $5,107 related to the termination of management fee agreement and the collection of previously written off receivables.  The Company, through Kinetek, has a $12,344 investment in the Class A and Class B Preferred Units of JZ International, LLC. These debt securities are not publicly traded and do not have a determinable fair value. The cost method of accounting is used to account for this investment. The Preferred Units have a cumulative 5% annual return. The Class A Preferred Units may be redeemed at any time at the discretion of the Board of Directors of JZ International, but no later than December 31, 2017, whereas the Class B Preferred Units may be redeemed at any time at the discretion of the Board of Directors of JZ International, but no later than December 31, 2018. The Company will record an impairment charge when it believes the investment has experienced a decline in value below its current carrying amount that is other than temporary. JZ International's Chief Executive Officer is David W. Zalaznick, and its members include Messrs. Jordan, Quinn, Zalaznick and Boucher, who are directors and stockholders of the Company. JZ International and its subsidiaries are focused on making European and other international investments. The Company is accounting for this investment under the cost method.  As of December 31, 2005, 2004 and 2003, the Company had $1,700, $2,452 and $2,162, respectively, of net unsecured advances due from Healthcare Products Holdings, Inc. Healthcare Products Holdings' Chief Executive Officer is Mr. Quinn, and its stockholders include Messrs. Jordan, Quinn, Zalaznick and Boucher, who are the Company's directors and stockholders, as well as other partners, principals and associates of The Jordan Company who are also the Company's stockholders.  The Company has a 20% limited partnership interest in a partnership that was formed during 2000 for the purpose of making equity investments primarily in datacom/telecom infrastructure and software, e-commerce products and services, and other Internet-related companies. The Company has a $10,000 capital commitment, of which $3,110 was contributed as of December 31, 2005 and 2004. In addition, the Company funded $80 in promissory notes to the partnership during 2004 for working capital needs. The Company is accounting for this investment using the equity method of accounting. The Company and certain stockholders of the Company are also members in the general partner of the partnership. The Company has an agreement with the partnership to provide management services to                                              -55-   the partnership for annual fees of 1.25% of total partnership committed capital of $50,000 for 2005 and 2004. One half of 2004 and the entire 2005 management fees were waived by the general partner of JZVP.  Management routinely reviews the realizability of these investments, and when necessary, reserves all or a portion of their value.  See Notes 15 and 16 for additional discussion of affiliated and related party transactions.  Note 9 - Accrued liabilities - -----------------------------  Accrued liabilities consist of:                                                   Dec. 31, 2005    Dec. 31, 2004                                                  -------------    -------------  Accrued vacation                                    $2,539           $2,756 Accrued income taxes                                   272            3,552 Accrued other taxes                                  2,435            2,082 Accrued commissions                                  2,224            2,805 Accrued interest payable                            15,893           16,047 Accrued payroll and payroll taxes                    4,368            3,749 Accrued rebates                                      3,636            4,828 Accrued professional fees                            1,465            6,175 Accrued medical & worker's compensation             11,331            9,534 Accrued management fees                              9,652            9,641 Accrued other expenses                              19,400           20,282                                                    -------         --------                                                    $73,215          $81,451                                                    =======          =======  Note 10 - Operating leases - --------------------------  Certain subsidiaries lease land, buildings, and equipment under non-cancelable operating leases.  Total minimum rental commitments under non-cancelable operating leases at December 31, 2005 are:             2006                 $13,902            2007                  11,926            2008                  10,236            2009                   7,796            2010                  10,105         Thereafter                5,100                                 -------                                 $59,065                                 =======  Rental expense amounted to $17,879, $15,751, and $14,929 for 2005, 2004, and 2003, respectively.  Two subsidiaries of Kinetek, Merkle-Korff and Motion Control, in addition to Seaboard, lease certain production, office and warehouse space from related parties. Rent expense, including real estate taxes attributable to these leases, was $1,563, $1,664, and $1,703 for the years ended December 31, 2005, 2004, and 2003, respectively.  Note 11- Benefit plans and pension plans - ----------------------------------------  Substantially all of the Company's subsidiaries participate in the JII 401(k) Savings Plan (the "Plan"), a defined-contribution plan for salaried and hourly employees. In order to participate in the Plan, employees must be at least 21 years old and have worked at least 1,000 hours during the first 12 months of employment. Each eligible employee may contribute from 1% to 15% of his or her before-tax wages into the Plan. In addition to the JII 401(k) Plan, certain                                            -56-   subsidiaries have additional defined contribution plans in which employees may participate. The Company made contributions to these plans totaling approximately $1,939, $1,563 and $1,830 for the years ended December 31, 2005, 2004 and 2003, respectively.  FIR, a Kinetek subsidiary located in Italy, provides for a severance liability for all employees at 7.8% of each respective employee's annual salary. In addition, the amount accrued is adjusted each year according to an official index (equivalent to 0.75% of the retail price index). This obligation is payable to employees when they leave the company and approximated $3,007 and $3,358 at December 31, 2005 and 2004, respectively.  The Company has two defined benefit pension plans at Alma and retains one defined benefit pension plan at JII Promotions (see Note 5) that cover substantially all of the employees of those subsidiaries. Due to the shutdown of JII Promotions during 2004, all active employees were terminated as of February 13, 2004 and curtailment accounting was performed as of that date. In addition, settlement accounting was performed as of July 31, 2004 and again as of December 31, 2005 as a result of the large amount of lump sums paid during both years. One-time charges of $558 and $53 were recognized immediately due to the settlement accounting in 2004 and 2005, respectively. The following table sets forth the change in benefit obligations, change in plan assets and net amount recognized as of the measurement dates of December 31, 2005 and 2004.  During the second quarter of 2005, one of the Company's subsidiaries, Alma Products, negotiated and approved certain changes to its retirement plan for hourly employees. The effect of these changes resulted in a one-time curtailment charge of $355 to cost of sales in the financial statement as calculated pursuant to FAS 88.  Pension Plans  The funded status of the defined benefit plans were as follows:                                                     2005            2004                                                    ----            ---- Change in Benefit Obligation:  Benefit obligation at beginning of period        $21,131         $20,241    Service cost                                       732             706   Interest cost                                    1,298           1,259   Actuarial loss                                     901           1,367   Benefits paid                                     (944)         (2,596)   Settlements                                         18             441   Curtailments                                         -            (287)                                                  -------         --------  Benefit obligations at end of period             $23,136         $21,131                                                  -------         -------  Change in Plan Assets:  Fair value at beginning of year                  $15,391         $14,856    Actual return on assets                          1,025           1,427   Contributions received                           2,069           1,704   Benefits paid                                     (836)           (930)   Settlements paid                                  (109)         (1,666)                                                  --------        -------- Fair value at end of year                        $17,540         $15,391                                                  --------        --------    Underfunded status of the Plan                  (5,596)         (5,740)   Unrecognized net actuarial loss                  4,987           4,005   Unrecognized prior service cost                    188             584                                                  --------        --------   Accrued benefit cost                           $  (421)        $(1,151)                                                  ========        ========                                            -57-    The following table provides amounts recognized in the balance sheet as of December 31:                                                     Year ended December 31,                                                    -----------------------                                                      2005          2004                                                      ----          ----    Intangible asset                                 $   188       $   580   Accumulated other comprehensive loss               4,411         3,563   Accrued benefit liability                         (5,020)       (5,294)                                                    --------      --------    Net amount recognized                            $  (421)      $(1,151)                                                    ========      ========  The total accumulated benefit obligation for the defined benefit pension plans was $22,558 and $20,619 at December 31, 2005 and 2004, respectively.  The plans' expected long-term rates of return on plan assets range from 7.5% to 8.5% and is based on the aggregate historical returns of the investments that comprise the defined benefit plan portfolio.  The components of net pension costs are as follows:                                                   Year ended December 31,                                                  -----------------------                                              2005         2004        2003                                              ----         ----        ----    Service cost                               $732         $ 706        $780   Interest cost                             1,298         1,259       1,238   Expected return on plan assets           (1,338)       (1,184)     (1,080)   Prior service costs recognized               42            59          59   Recognized net actuarial loss (gain)        198           128         126                                            ------        ------       ------   Net periodic benefit cost                $  932        $  968       $1,123                                            ======        ======       ======  Assumptions used to determine benefit obligations at the end of the year for the defined benefit plans are as follows:                                               Year ended December 31,                                              -----------------------                                              2005               2004                                              ----               ----  Discount rates                            5.50%-6.00%       6.00%-6.25% Rates on increase in compensation leve          4.00%       3.00%-4.00%  Assumptions used to determine net costs for the defined benefit plans are as follows:                                                   Year ended December 31,                                                  -----------------------                                               2005        2004        2003                                               ----        ----        ----  Discount rates                            6.00%-6.25%        6.50%        6.50% Long-term rates of return on plan assets  7.50%-8.50%  7.50%-8.50%  7.50%-8.50% Rates of increase in compensation levels        4.00%  3.00%-4.00%  3.00%-4.00%  The Company's strategy is to fund its defined benefit plan obligations. The need for further contributions will be based on changes in the value of plan assets and the movements of interest rates during the year. During the year, management at Alma periodically reviews with its actuaries its investment strategy and funding needs.                                        -58-   The Company's actual pension plan asset allocation, which approximates the target plan allocation, at December 31, 2005 and 2004 by asset category are as follows:                    Asset Category                Percentage of Plan Assets            ------------------------------    --------------------------------                                                   2005             2004                                                   ----             ----            Cash and equivalents                    3.9%            1.8%            Fixed income securities                35.8%           36.4%            Equity securities                      60.3%           61.8%                                                  ------          ------                                                  100.0%          100.0%  The Company's expected contributions related to these pension plans for 2006 are $1,180, and the estimated future benefit payments related to these pension plans are as follows:                      2006                         $696                    2007                          702                    2008                          706                    2009                          720                    2010                          750                    2011-2015                   4,262  Other Post-Retirement Benefit Plans  During 2005, the Company had one retiree health care plan at Alma and during 2004, the Company had one retiree health care plan at Alma and one at JII Promotions (see Note 5) that covered substantially all of the employees of those subsidiaries. The plans provided for certain medical and prescription drug benefits for those individuals that choose to participate in the plans. Due to the shutdown of JII Promotions during 2004, all active participants of the JII Promotions retiree health care plan were terminated and curtailment accounting was performed on this plan as of February 13, 2004. In addition, the plan was subsequently eliminated for all participants, active and retired, as of March 31, 2004. The impact of this change was reflected as a negative plan amendment in 2004, and a SFAS 106 one-time credit of $932 was recognized immediately. As of December 31, 2005, the Company has no remaining liability to the JII Promotions retiree health care plan.  The funded status of the Company's other post-retirement healthcare benefit plan was as follows as of the measurement dates of December 31, 2005 and 2004:                                                     2005               2004                                                    ----               ---- Change in Benefit Obligation:  Benefit obligation at beginning of period        $ 3,755            $ 5,312    Service cost                                       164                147   Interest cost                                      275                218   Plan amendments                                    169             (1,916)   Actuarial loss                                     942              1,262   Benefits paid                                     (203)              (270)   Settlements                                       (269)                 -   Curtailments                                         -               (998)                                                  --------           --------  Benefit obligations at end of period             $ 4,833             $3,755                                                  --------           --------                                         -59-    Change in Plan Assets:  Fair value at beginning of year                  $     -            $     -    Actual return on plan assets                         -                  -   Employer contributions                             203                270   Benefits paid                                     (203)              (270)                                                  --------          --------- Fair value at end of year                        $     -            $     -                                                  --------          ---------    Underfunded status of the plan                  (4,833)            (3,755)   Unrecognized prior service costs                   161                  -   Unrecognized net actuarial loss                  1,464                884                                                  --------          ---------    Accrued benefit cost                           $(3,208)           $(2,871)                                                  ========          =========  The following table provides amounts recognized in the balance sheet as of December 31:                                                         2005           2004                                                        ----           ----    Accrued benefit liability                          $(3,208)       $(2,871)                                                      --------       --------   Net amount recognized                              $(3,208)       $(2,871)                                                      ========       ========  The components of net periodic post-retirement benefit costs are as follows:                                              2005         2004         2003                                             ----         ----         ----    Service cost                             $ 164        $ 147        $ 184   Interest cost                              275          218          359   Prior service costs recognized               8            -            -   Recognized net actuarial loss               93           19          192                                            -----        -----        -----    Net periodic benefit cost                $ 540        $ 384        $ 735                                            =====        =====        =====  Assumptions used to determine benefit obligations for the Company's post-retirement benefit plans are as follows:                                              2005         2004                                             ----         ----  Discount rate                               6.00%     6.00%-6.25%  Assumptions used to determine net costs for the Company's post-retirement benefit plans are as follows:                                              2005         2004                                             ----         ----  Discount rate                               6.25%        6.50%  A 7.7% annual rate of increase for medical and a 9.5% annual rate of increase for prescription drugs in the per capita cost of covered post-retirement benefits was assumed for 2005. The rate was assumed to decrease gradually to 5% for 2014 and remain at that level thereafter.  Increasing or decreasing the health care trend rates by one percentage point each year would have the following effect:                                          1% Increase    1% Decrease                                         -----------    ----------- Effect on post-retirement benefit obligation                         $446           $(394) Effect on total of service and interest cost components                   $ 42           $ (37)                                       - 60 -   Note 12 - Debt - --------------  Long-term debt consists of:                                                  December 31,     December 31,                                                      2005             2004                                                      ----             ----  Revolving Credit Facilities (A)                   $ 37,184         $ 46,001 Bank Term Loans (B)                                 11,147           14,038 Capital lease obligations (C)                        7,441            8,802 Senior Notes (D)                                   523,640          545,604 Senior Subordinated Discount Debentures (D)         94,786           94,886 Subordinated promissory notes (E)                    5,449            6,476 Other                                                1,115            1,466                                                  ----------       ----------                                                    680,762          717,273 Less current portion                              (319,089)         (27,874)                                                  ----------       ----------                                                   $361,673         $689,399                                                  ==========       ==========  The components of the senior note balance above consist of the following at carrying value:             Description                              2005             2004            -----------                              ----             ----  10.75% Senior Notes (including  unamortized premium  of $666 for  2005 and $1,327 for 2004)                        $270,666        $271,327 5% Senior Secured Notes (including  unamortized discount of $1,433 for  2005 and $2,358 for 2004)                          13,567          12,642 10% Senior Secured Notes (including  unamortized discount of $396 for  2005 and $652 for 2004)                            10,604          10,348 10.375% Series B Senior Notes                       15,219          15,219 10.375% Series D Senior Notes  (including unamortized discount of  $78 for 2005 and $127 for 2004)                    12,084          12,035 13% Exchange Notes                                 201,500         224,033                                                  ----------      ---------- Total                                             $523,640        $545,604                                                  ==========      ==========  The net amount of amortization of debt discount/premium included in the Company's income statement for the year ended December 31, 2005 was $569 and $587 for the year ended December 31, 2004.  Aggregate maturities of long-term debt at December 31, 2005, excluding unamortized premiums and discounts, are as follows:                2006                            $318,423               2007                             233,022               2008                               5,343               2009                              95,317               2010                                 816               Thereafter                           902                                              ----------                                               $653,823  As noted above, 49% of the Company's long-term debt matures within the next year. Currently, the Company is contemplating various avenues of refinancing this debt, and Management is confident that it will do so prior to the maturity.  A.       On August 16, 2001, the Company entered into a new Loan and Security          Agreement ("JII Agreement") with Congress Financial Corporation          ("Congress") and First Union National Bank ("First Union"). The JII          Agreement provides for borrowings of up to $110,000 based on the          value of certain assets, including inventory, accounts receivable and          fixed assets. Interest on borrowings is at the Prime Rate plus an                                       - 61 -            applicable margin, or at the Company's option, the Eurodollar Rate          plus an applicable margin (7.6% and 7.1%, respectively, at December          31, 2005). At December 31, 2005, the Company had outstanding          borrowings of $20,212, which approximates the carrying value,          outstanding letters of credit of $1,531, and excess availability of          $18,007. The JII Agreement is secured by the assets of substantially          all of the Company's domestic Subsidiaries, excluding Kinetek and its          subsidiaries. The JII Agreement expires on August 16, 2006. The          Company intends to replace the agreement in 2006. Management is          confident such refinancing can be obtained under favorable terms to          the Company, however, such terms will be subject to market conditions          which may change significantly.           In conjunction with the Exchange Offer completed by the Company in          February 2004 (see discussion below), the JII Agreement was amended to          reduce, over time, the maximum loan commitment under the facility. As          of December 31, 2004, the maximum loan commitment under the facility          was $75,000. As of June 1, 2005, that commitment was reduced to $55,000          as of March 1, 2006 it was reduced to $45,000 through the remaining          life of the agreement.           On December 18, 2001, Kinetek, Inc. entered into a new Loan and          Security Agreement ("Kinetek Agreement") with Fleet Bank ("Fleet"). The          Kinetek Agreement provides for borrowings of up to $35,000 based on the          value of certain assets, including inventory, accounts receivable,          machinery and equipment, and real estate. Outstanding borrowings bear          interest at a rate of prime plus 1.35% (8.4% at December 31, 2005).          Kinetek had $16,972 of outstanding borrowings, which approximates the          carrying value, $8,702 of outstanding letters of credit, and $6,118 of          excess availability under the Kinetek Agreement at December 31, 2005.          Borrowings are secured by the stock and substantially all of the assets          of Kinetek. The Kinetek Agreement was renewed and extended during 2005          to its new maturity date of December 18, 2006 or 30 days prior to          maturity date of the Senior Notes. The terms of the agreement remain          unchanged.  B.       Bank term loans consist of a mortgage on the Pamco facility, which          bears interest at 6.25% and is due in monthly installments through          2008. The mortgage is secured by the Pamco facility which has a          carrying value of $1,992. There are also mortgages on two Deflecto          facilities, which bear interest at .25% below the prime rate and are          due in 2006 and 2015. The carrying value of these two facilities is          $4,231.           The Company has various bank loans related to one of Kinetek's foreign          subsidiaries. These loans are for real estate and working capital          needs. These loans bear interest from 5.6% to 6.1% and mature in 2006.          Kinetek plans to renew the loans as they mature.           The Company, through its wholly owned subsidiary GramTel, has a term          loan with 1st Source Bank. The balance on this loan was $202, which          approximates the carrying value, at December 31, 2005 and bears          interest at a rate of 6.58% per year. The term loan matures in 2008.  C.       Interest rates on capital leases range from 2.0% to 11.0% and mature          in installments through 2010.                                       - 62 -              The future minimum lease payments as of December 31, 2005 under capital          leases consist of the following:                  2006                                             $2,699                 2007                                              1,634                 2008                                              3,472                 2009                                                370                 2010                                                435                 Thereafter                                            -                                                                       -                                                                 -------                   Total                                           8,610                 Less amount representing interest                (1,169)                                                                 --------                 Present value of future minimum lease                  payments                                        $7,441                                                                 ========           The present value of the future minimum lease payments approximates the          book value of property, plant and equipment under capital leases at          December 31, 2005.  D.       In July 1997, the Company issued $120,000 of 10 3/8% Senior Notes due          2007 ("2007 Seniors"). These notes bear interest at a rate of 10 3/8%          per annum, payable semi-annually in cash on February 1 and August 1 of          each year. The 2007 Seniors are redeemable for 100% of the principal          amount from August 1, 2004 and thereafter plus any accrued and unpaid          interest to the date of redemption. The 2007 Seniors are unsecured          obligations of the parent Company.           In March 1999, the Company issued $155,000 of 10 3/8% Senior Notes due          2007 ("New 2007 Seniors"). These notes have the identical interest and          redemption terms as the 2007 Seniors. The New 2007 Seniors are          unsecured obligations of the parent Company.           On February 18, 2004, the Company completed an Exchange Offer, whereby          it exchanged $173,334 of new Senior Notes (the "Exchange Notes") for          $104,781 of 2007 Seniors and $142,838 of New 2007 Seniors          (collectively, "Old Senior Notes"). The Exchange Notes were co-issued          by JII Holdings LLC, a wholly owned subsidiary of the Company, and its          wholly owned subsidiary, JII Holdings Finance Corporation. The Exchange          Notes bear interest at 13% per annum which is payable semi annually on          February 1 and August 1 of each year, and mature on April 1, 2007. The          notes that were exchanged bore interest at 10 3/8% per annum and paid          interest semi annually on February 1 and August 1. The remaining Old          Senior Notes have a fair value of approximately $16,429 at December 31,          2005 and mature on August 1, 2007. The fair value of the Exchange Notes          was approximately $150,800 at December 31, 2005. The fair value was          calculated using the Old Senior Notes' and Exchange Notes' respective          December 31, 2005 market prices multiplied by the respective face          amounts.           The Exchange Offer has been accounted for as a troubled debt          restructuring in conformity with Statement of Financial Accounting          Standards No. 15, "Accounting by Debtors and Creditors for Troubled          Debt Restructurings" (SFAS No. 15). SFAS No. 15 requires that, when          there is a modification of terms such as this, if the total debt          service of the new debt is less than the carrying amount on the balance          sheet of the old debt, the carrying amount should be reduced to the          total debt service amount. This reduction resulted in a gain of $2,015          at the time of the Exchange, which was required by SFAS No. 15 to be          offset by fees incurred on the transaction. Fees of $7,505, which were          in excess of the gain, were recorded as interest expense during 2004.          There will be no interest expense recognized on the Exchange Notes, and                                       - 63 -            the cash interest payments made will be accounted for as a reduction of          the carrying amount of the Exchange Notes.           Kinetek has outstanding $270,000 of 10 3/4% Senior Notes due November          2006 ("Kinetek Notes"). Interest on the Kinetek Notes is payable in          arrears on May 15 and November 15. The notes are redeemable at the          option of Kinetek, in whole or in part, at any time on or after          November 15, 2001. The fair value of the Kinetek Notes at December 31,          2005 was $253,800. The fair value was calculated using the Kinetek          Notes' December 31, 2005 market price multiplied by the face amount.          The Kinetek Notes are unsecured obligations of Kinetek, Inc.           On April 12, 2002, Kinetek issued $15,000 principal amount of 5% Senior          Secured Notes and $11,000 principal amount of 10% Senior Secured Notes          ("2007 Kinetek Notes") for net proceeds of $20,456. The notes are due          on April 30, 2007 and are guaranteed by Kinetek, Inc. and substantially          all of its domestic subsidiaries. The notes are also secured by a          second priority lien on substantially all of the assets of Kinetek and          its subsidiaries, which lien is subordinate to the existing lien          securing Kinetek, Inc.'s credit facility. Interest on the notes is          payable semi-annually on May 1 and November 1 of each year.           In April 1997, the Company issued $213,636 aggregate principal amount          of 11 3/4% Senior Subordinated Discount Debentures due 2009 ("2009          Debentures"). The 2009 Debentures were issued at a substantial discount          from the principal amount. Interest on the 2009 Debentures is payable          in cash semi-annually on April 1 and October 1 of each year beginning          October 1, 2002. The 2009 Debentures are redeemable for 100% of the          accreted value from April 1, 2004 and thereafter plus any accrued and          unpaid interest. The 2009 Debentures are unsecured obligations of the          Company.           Between May 29, 2002 and June 5, 2002, the Company repurchased $119,000          principal amount of its 2009 Debentures, for total consideration of          $31,360, including expenses. After the purchase, $94,636 principal          amount of 2009 Debentures were outstanding. The Company reported a gain          of $52,518, net of taxes of $36,364 in the 2002 statement of operations          related to this purchase. The fair value of the remaining 2009          Debentures was approximately $18,957 at December 31, 2005. The fair          value was calculated using the 2009 Debentures' December 31, 2005          market price multiplied by the face amount.           In July 1993, the Company issued $133,075 of 11 3/4% Senior          Subordinated Discount Debentures ("Discount Debentures") due August 1,          2005. In April 1997, the Company refinanced substantially all of the          Discount Debentures and issued the 2009 Debentures. At December 31,          2005, $150 of the Discount Debentures were still outstanding and party          to the Waiver Agreement discussed below. As a result of their inclusion          in this agreement, the interest and principal payments on the          outstanding Discount Debentures are subject to the payment limitations          discussed in the following paragraph.           On January 31, 2004, the Company and holders of $89,917 of the          Company's 2009 Debentures and $150 of the Company's Discount Debentures          (collectively, the "Waived Debentures") entered into a Waiver Agreement          which provides that the participating note holders waive any rights to          claim an event of default if the Company does not make the scheduled          interest payments as required in the applicable indenture. The Company          may pay interest on these Waived Debentures only if such payment          complies with the restricted payments covenant in the indenture                                       - 64 -            governing the Exchange Notes. Should the Company be prohibited from or          elect not to make interest payments on these notes, the interest will          continue to accrue on the Waived Debentures at the original rate of 11          3/4% per year and will be due and payable to the holders at the          maturity date of the notes. Pursuant to the Waiver Agreement, the          maturity date of the participating notes is the earlier of (1) the date          on which all of the outstanding principal and interest on the Exchange          Notes and the 2009 and Discount Debentures not participating in the          Waiver Agreement have been paid in full, (2) the date six months after          the original maturity of the participating notes, or (3) the date on          which the Company enters into a bankruptcy proceeding.           On February 18, 2004, certain of the Company's 2009 Debenture note          holders entered into a Modification Agreement which provides for a          reduction in their stated maturity value and a reduction of their          applicable interest rate. The aggregate maturity value of the notes          held by the parties to the Modification Agreement was $22,978 which has          been reduced to $6,893. The interest rate on these notes has been          reduced to a stated rate of 1.61% from 11 3/4%. On April 1, 2004          certain holders of an additional $1,745 of the Company's 2009          Debentures elected to participate in the Modification Agreement. The          maturity value of these notes has been reduced to $524. The holders of          these modified notes retain the right to collect the original maturity          value and interest thereon at the original interest rate if the Company          meets certain financial tests and ratios. Under the terms of the          Modification Agreement, the holders of the modified notes retain the          right to collect the original maturity value and interest thereon at          the original interest rate if the Company meets the Available Cash          requirements (as defined in the Modification Agreement) and the Fixed          Charge Coverage Ratio (as defined in the Indenture to the Exchange          Notes). The Available Cash requirement states that the Company must          have at least $20 million in cash on hand or available under any credit          agreements of the Company or certain subsidiaries (excluding Kinetek)          after giving effect to a pro forma payment of the interest on the          Debentures at the original interest rate, and that cash availability          must have existed since the last interest payment date on the Exchange          Notes. The Fixed Charge Coverage Ratio measures the ratio between          Consolidated Cash Flow and Fixed Charges and must have been at least          2.0 to 1 for the twelve month period preceding the payment of any          contingent principal or contingent interest. At no time since entering          into the Modification Agreement, has the Company met the Available Cash          requirement or the Fixed Charge Coverage Ratio as described above. At          this time we can not estimate when and if these targets will be met.           Under the Modification Agreement, these notes mature on the earlier of          (1) the date that all other 2009 Debenture note holders have been paid          in full, (2) the date that is six months after the original maturity          date, or (3) the date on which the Company enters into a bankruptcy          proceeding.           The Company has determined that this modification will be accounted for          as a troubled debt restructuring as required by SFAS No. 15. The effect          of this accounting treatment will not reduce the carrying value of the          modified notes; however, the interest expense associated with the          modified notes will be calculated using the modified stated interest          rate of 1.61% per annum and the reduced maturity amount.           The remaining 2009 and Discount Debentures that are not party to the          Modification Agreement will continue to accrue interest at 11 3/4% and          represent $70,163 of the total outstanding principal amount of $94,886.                                        - 65 -            The Indentures relating to the 2009 Debentures, the Discount          Debentures, the 2007 Seniors, the New 2007 Seniors, and the Exchange          Notes (collectively the "JII Notes") restrict the ability of the          Company to incur additional indebtedness at its Restricted          Subsidiaries. The Indentures also restrict: the payment of dividends,          the repurchase of stock and the making of certain other restricted          payments; certain dividend payments to the Company by its subsidiaries;          significant acquisitions; and certain mergers or consolidations. The          Indentures also require the Company to redeem the JII Notes upon a          change of control and to offer to purchase a specified percentage of          the JII Notes if the Company fails to maintain a minimum level of          capital funds (as defined).           The Indentures governing the Kinetek Notes and 2007 Kinetek Notes          contain certain covenants which, among other things, restrict the          ability of Kinetek to incur additional indebtedness, to pay dividends          or make other restricted payments, engage in transactions with          affiliates, to complete certain mergers or consolidations, or to enter          into certain guarantees of indebtedness.           The Company is, and expects to continue to be, in compliance with the          provisions of these Indentures.  E.       Subordinated promissory notes payable are due to minority interest          shareholders and former shareholders of certain subsidiaries in          installments through 2006, and bear interest ranging from 8% to 9%. The          loans are unsecured. The approximate carrying value of the promissory          notes at December 31, 2005 is $5,449.           Interest expense includes $6,451, $13,929 and $6,196 of amortization of          debt issuance costs for the years ended December 31, 2005, 2004, and          2003, respectively.  Note 13 - Income taxes - ---------------------- (Loss) income from continuing operations before income taxes and minority interest is as follows:                                               Year ended December 31,                                              -----------------------                                           2005         2004         2003                                           ----         ----         ----          Domestic                      $(10,004)    $(12,314)    $(41,070)          Foreign                          9,883        7,413        5,974                                        ---------    ---------    ---------          Total                         $   (121)    $ (4,901)    $(35,096)                                        =========    =========    =========  The provision (benefit) for income taxes from continuing operations consists of the following:                                              Year ended December 31,                                             -----------------------                                          2005          2004        2003                                          ----          ----        ---- Current: Federal                                $(2,114)      $(5,588)     $    - Foreign                                  5,031         2,453       1,987 State and Local                            847           757       1,155                                        --------      --------     -------                                          3,764        (2,378)      3,142 Deferred: Federal                                   (171)        3,050       3,893 Foreign                                     42         1,381         466 State and Local                            (33)          920         935                                        --------      --------     -------                                           (162)        5,351       5,294                                        --------      --------     ------- Total                                  $ 3,602       $ 2,973      $8,436                                        ========      ========     =======                                       - 66 -    Significant components of the Company's deferred tax liabilities and assets are as follows:                                                  December 31,      December 31,                                                     2005              2004                                                     ----              ----  Deferred tax liabilities: Goodwill                                         $ 10,153         $ 10,357 Property, plant and equipment                         644            2,278 Inter company tax gains                             3,133            3,587 Foreign deferred tax liabilities                    3,940            3,897 Other                                                 676              160                                                   -------         ---------    Total deferred tax liabilities                $ 18,546         $ 20,279                                                   =======         =========  Deferred tax assets: NOL carryforwards                                $ 27,411         $ 39,793 Deferred interest                                  19,485                - Accrued interest on discount debentures             6,977            6,977 Pension obligation                                  1,087            1,273 Vacation accrual                                      863            1,014 Uniform capitalization of inventory                 2,361            2,540 Allowance for doubtful accounts                     1,402            4,636 Deferred financing fees                               241              315 Intangibles other than goodwill                     3,505            4,061 Medical claims reserve                              2,830            2,844 Accrued commissions and bonuses                     1,687            2,425 Warranty accrual                                      549              756 Inventory reserves                                  2,137            1,405 Restructuring reserve                                 333              372 Interest income                                         -            1,550 Other accrued liabilities                           3,517            6,168 Other                                               1,606            3,048                                                  ---------        ---------    Total deferred tax assets                     $ 75,991         $ 79,177 Valuation allowance for deferred tax assets       (71,538)         (73,153)                                                  ---------        ---------    Total deferred tax assets                       $4,453         $  6,024                                                  ---------        ---------    Net deferred tax liabilities                  $ 14,093         $ 14,255                                                  =========        =========  In 2002, the Company adopted SFAS No. 142 which provides that goodwill no longer be amortized for financial reporting purposes. For tax purposes, goodwill continues to be amortized over a fifteen-year life. As such, the tax amortization generates a temporary difference and a corresponding deferred tax liability arises for financial statement purposes. Because goodwill is no longer amortized for financial reporting purposes, the Company cannot determine when the resulting deferred tax liabilities will reverse. Therefore, the Company has not considered any future reversal of the deferred tax liability related to goodwill to support the realization of the deferred tax assets.  During 2004, the Company realized $90,404 of cancellation of indebtedness income for federal income tax purposes as a result of modifications to certain of its outstanding debt obligations. Such cancellation of indebtedness income was offset by the consolidated group's net operating losses.  The provision for income taxes from continuing operations differs from the amount of income tax benefit computed by applying the United States federal                                       - 67 -   income tax rate to loss before income taxes. A reconciliation of the differences is as follows:                                                    Year ended December 31,                                                   -----------------------                                                2005        2004        2003                                                ----        ----        ----  Computed statutory tax (benefit)  provision                                  $   (42)    $ (1,715)    $(12,284) (Increase) decrease resulting from:   Taxable/(non-taxable) income                  922        1,336       (2,168)   Non-deductible expenses                       693          384          612   Goodwill impairment loss                    2,722            -            -   State and local tax, net of federal    benefit                                      813          463        1,383   Valuation allowance                        (2,285)      13,633       24,099   Foreign tax rate differential               1,614         (186)        (540)   Reserve decrease                           (2,114)      (5,589)           -   Other items, net                            1,279       (5,353)      (2,666)                                             --------    ---------    --------- Provision for income taxes                  $ 3,602     $  2,973     $  8,436                                             ========    =========    =========  As of December 31, 2005, total consolidated federal net operating loss carryforwards are approximately $62,220 for regular tax purposes, and expire in various years through 2025. A full valuation allowance has been provided against the federal loss carryforwards.  Note 14 - Sale of Subsidiaries - ------------------------------ On September 8, 2003, the Company sold the net assets of the Midwest Color division of Sate-Lite to a third party for cash proceeds, net of fees, of $678. The Midwest Color division manufactures colorants for the thermoplastics industry. The Company recognized a loss of $401 related to the sale of this division. Sate-Lite is a part of the Jordan Specialty Plastics segment.  On March 24, 2005, the Company sold the assets of Cho-Pat, Inc. ("Cho-Pat") to Cho-Pat's management team for proceeds of $1,209. Cho-Pat is a designer and manufacturer of orthopedic related sports medicine devices and was part of the Consumer and Industrial Products segment. The Company recognized a gain of $251 related to the sale of Cho-Pat.  Note 15 - Affiliate Transactions - -------------------------------- On May 4, 2004, two of the Company's affiliates, DMS Holdings, Inc. and Mabis Healthcare Holdings, Inc., ("DMS/Mabis") were sold to a third party. A portion of the proceeds from the sale was used to repay the Company for unsecured advances and operating expenses which the Company paid on behalf of DMS/Mabis in prior periods, as well as accrued and unpaid management fees due the Company. These repayments totaled $806 and $1,069, respectively. Also as a result of the sale, the Company was paid a fee of $1,725 for the termination of its management fee arrangement with DMS/Mabis, and a fee of $1,600 pursuant to certain advisory agreements. The Company recorded income of approximately $4,309 in the second quarter of 2004 as a result of this transaction.  On May 13, 2004, one of the Company's affiliates, Flavor and Fragrance Holdings, Inc., ("FFG") was sold to a third party. A portion of the proceeds was used to repay the principal and accrued interest on the note the Company received when the net assets of Flavorsource were sold to FFG on January 1, 2002. This principal and accrued interest totaled $12,181. In addition, a portion of the proceeds from the sale was used to repay the Company for unsecured advances and operating expenses which the Company paid on behalf of FFG in prior periods, as well as accrued and unpaid management fees due the Company. These repayments totaled $4,509 and $1,672, respectively. Also as a result of the sale, the Company was paid a fee of $1,705 for the termination of its management fee                                       - 68 -   arrangement with FFG, and a fee of $1,940 pursuant to certain advisory agreements. The Company recorded income of approximately $3,645 in the second quarter of 2004 as a result of this transaction.  On May 18, 2005, JIR Paging, Inc. repurchased from the Company its promissory note in the amount of $9,200. The proceeds to the Company were $9,449 and consisted of the principal amount of the note plus accrued and unpaid interest since the last interest payment date of $249. JIR Paging was subsequently sold in March 2006 to a third party. At closing, the Company received net cash proceeds of $274 for amounts previously invested in JIR Paging. The Company recorded a gain of $274 in 2005 as a result of reversing reserves previously recorded against the receivable from JIR Paging.  On June 10, 2005, the Company's affiliate, Fleet Graphics Holdings, was sold to management of that Company for $6,600. A portion of the proceeds from the sale was used to pay the Company accrued and unpaid management fees and operating expenses which were paid by the Company on behalf of Fleet Graphics Holdings. These repayments totaled $1,577 and $613; respectively. Also as a result of the sale, the Company was paid $1,400 for the termination of its management fee arrangement with Fleet Graphics Holdings and a fee of $1,160 pursuant to certain advisory agreements. The Company also received $1,850 for various fees and charges associated with the transaction. The Company recorded income of $4,410 in the second quarter of 2005 as a result of this transaction.  On July 29, 2005, Healthcare Products Holdings, Inc. ("HPI"), an affiliate of the Company based on partial common ownership, and its operating subsidiary Hoveround, undertook an independent refinancing of its obligations with several new third party lenders. A portion of the proceeds from the refinancing was used to repay obligations to the Company. The Company received proceeds of $15,000 for payment of notes, accrued interest, accrued and unpaid management fees, amounts previously paid by the Company on behalf of HPI and accrued and unpaid financing fees. Due to previous concerns regarding the collectibility of these amounts the Company had reserved against these receivables leaving an unreserved amount of $7,034. As a result, the Company recorded a gain of $7,966 on the transaction. In the fourth quarter, the Company reversed additional reserves related to HPI resulting in an addition to the previously recorded gain of $618. This gain has been recorded as a component of operating income by the Company due to the fact that the original reserves taken by the Company were charged to operating income. At December 31, 2005, the Company had unreserved amounts due from HPI of $1,700.  JIR Broadcast was sold on February 28, 2006 and resulted in cash proceeds to the Company of $30,250. The proceeds included repayment of amounts previously loaned to and paid on behalf of, JIR Broadcast of $15,610, accrued interest of $9,187, accrued and unpaid management fees of $1,679, a fee for the termination of the management fee agreement of $3,400, and reimbursement of expenses incurred by the Company during the sale process of $374. Income of $14,453 has been recorded in the Company's financial statements during 2005 related to the JIR Broadcast sale due to the reversal of reserves previously recorded by the Company against the loans, interest on its loans, and the recognition of management fee income from JIR Broadcast which was not previously accrued. In 2006, the Company will record income of approximately $5,107 related to the termination of management fee agreement fees received by the Company at the close of the transaction.                                        - 69 -   Note 16 - Related party transactions - ------------------------------------ Transaction Advisory Agreement. Each of the Company's subsidiaries are parties to an advisory agreement with the Company, referred to as the Transaction Advisory Agreement, pursuant to which, such subsidiaries pay to the Company (i) investment banking and sponsorship fees of up to 2.0% of the aggregate consideration paid in connection with acquisitions, joint ventures, minority investments or sales by each such subsidiary of all or substantially all of its or its subsidiaries capital stock, businesses or properties; (ii) financial advisory fees of up to 1.0% of the amount obtained or made available pursuant to any debt, equity or other financing or refinancing involving such subsidiary, in each case, arranged with the assistance of the Company or its affiliates; and (iii) reimbursement for the Company's out-of-pocket costs in connection with providing such services. Each Transaction Advisory Agreement contains indemnities in favor of the Company and its affiliates, and The Jordan Company and certain of its affiliates, including TJC Management Corporation, in connection with the Transaction Advisory Agreement and such services. The Transaction Advisory Agreement will expire in December 2007, but is automatically renewed after such date for successive one-year terms, unless any party provides written notice of termination 60 days prior to the scheduled renewal date. The Company recorded fees pursuant to the Transaction Advisory Agreement of $0, $73 and $0 for the years 2005, 2004 and 2003, respectively.  TJC Management Consulting Agreement. JII has entered into a consulting services agreement with TJC Management Corporation, an affiliate of The Jordan Company, referred to as the TJC Management Consulting Agreement, pursuant to which the Company will in turn pay to TJC Management Corporation (i) one-half of the investment banking, sponsorship and financing advisory fees paid to the Company pursuant to the Transaction Advisory Agreement, unless otherwise determined by our Board of Directors; (ii) (A) investment banking and sponsorship fees of up to 2.0% of the purchase price of acquisitions, joint ventures and minority investments or sales involving the Company or its other subsidiaries and (B) financial advisory fees of up to one-half of 1.0% of any debt, equity or other financing or refinancing involving the Company or such subsidiaries, in each case, arranged with the assistance of TJC Management Corporation or its affiliates, unless otherwise determined by the Company's Board of Directors; and (iii) reimbursement for TJC Management Corporation's and The Jordan Company's out-of-pocket costs incurred in connection with such services. The TJC Management Consulting Agreement also contains indemnities in favor of TJC Management Corporation and its affiliates and The Jordan Company and its affiliates in connection with such services. In consideration for these fees, the services of Mr. Jordan and the investment banking, sponsorship and advisory services of TJC Management Corporation will be provided to the Company. The TJC Management Consulting Agreement will expire in December 2007, but is automatically renewed after such date for successive one-year terms, unless either party provides written notice of termination 60 days prior to the scheduled renewal date. The Company did not pay to TJC Management Corporation or The Jordan Company any fees or cost reimbursements for the years 2005, 2004, and 2003 under this agreement. Approximately, $9,652 and $9,641 of such fees and cost reimbursements are accrued and unpaid under this agreement as of December 31, 2005 and December 31, 2004, respectively.  Service and Fee Agreements. Two companies that are not subsidiaries - Healthcare Products Holdings, Inc. and Staffing Consulting Holdings, Inc., - are parties to service and fee agreements or arrangements with the Company and/or TJC Management Corporation, pursuant to which such companies will pay to the Company and/or TJC Management Corporation (i) investment banking and sponsorship fees of up to 2.0% of the aggregate consideration paid in connection with acquisitions,                                       - 70 -    joint ventures, minority investments or sales by such companies of all or substantially all of their or their subsidiaries' capital stock, businesses or properties; (ii) financial advisory fees of up to 1.0% of any amount obtained or made available pursuant to debt, equity or other financing or refinancing involving such company, in each case, arranged with the Company's assistance or that of its affiliates; (iii) fees based upon a percentage of net EBITDA (as defined) or net sales; and (iv) reimbursement for the Company's and/or TJC Management Corporation's out of pocket costs in connection with providing such services. These fee agreements or arrangements contain indemnities in favor of the Company and its affiliates, including TJC Management Corporation, in connection with such services. Pursuant to the TJC Management Consulting Agreement, the Company, in turn, will also pay to TJC Management Corporation one-half of such investment banking, sponsorship and financial advisory fees and its portion of such cost reimbursements, unless otherwise determined by the Company's Board of Directors. These fee agreements or arrangements will expire at various times from 2007 through 2009, but are automatically renewed after such date for successive one year terms, unless any party provides written notice of termination 60 days prior to the scheduled renewal date. Pursuant to these services and fee arrangements the Company received approximately $5,378, $6,648, and $338 for the years ended December 31, 2005, 2004 and 2003 respectively, which includes companies no longer under these agreements.  Legal Counsel. Mr. G. Robert Fisher, a director of, and secretary to, the Company, is a partner of Sonnenschein, Nath & Rosenthal LLP. Mr. Steven L. Rist, the general counsel and assistant secretary to the Company, is also a partner of Sonnenschein, Nath & Rosenthal LLP. Mr. Fisher, Mr. Rist and their law firm have represented the Company and The Jordan Company in the past, and expect to continue representing them in the future. Sonnenschein, Nath & Rosenthal LLP was paid approximately $761, $1,215 and $956 in fees and expenses by the Company in 2005, 2004 and 2003, respectively. The Company believes that the fees paid were equivalent to what it would have paid to an unaffiliated third party law firm for similar services.  Note 17 - Preferred Stock - ------------------------- M&G Holdings has $1,500 of senior, non-voting 8.0% cumulative preferred stock outstanding to its minority shareholders. The liquidation value of the preferred stock was $2,970 and $2,744 as of December 31, 2005 and 2004, respectively.  Note 18 - Business segment information - -------------------------------------- The Company's business operations are classified into five business segments: Specialty Printing and Labeling, Jordan Specialty Plastics, Jordan Auto Aftermarket, Kinetek, and Consumer and Industrial Products.  Specialty Printing and Labeling includes manufacture of pressure sensitive label products for the electronics OEM market by Valmark; manufacture of a wide variety of printed tape and labels by Pamco; and manufacture of printed folding cartons and boxes, insert packaging and blister pack cards at Seaboard.  Jordan Specialty Plastics includes the manufacturing of point-of-purchase advertising displays by Beemak; manufacture and marketing of safety reflectors, lamp components, bicycle reflector kits, modular storage units, and emergency warning triangles by Sate-Lite; and design, manufacture, and marketing of plastic injection-molded products for mass merchandisers, major retailers, and large wholesalers and manufacture of extruded vinyl chairmats for the office products industry by Deflecto.                                       - 71 -   Jordan Auto Aftermarket includes the remanufacturing of transmission sub-systems for the U.S. automotive aftermarket by Dacco; the remanufacturing and manufacturing of transmission sub-systems and the manufacturing of clutch and discs and air conditioning compressors for the U.S. automotive aftermarket at Alma; and manufacture of air-conditioning components for the US automotive aftermarket, heavy duty truck OE, and international markets at Atco.  Kinetek includes the manufacture of specialty purpose electric motors for both industrial and commercial use by Imperial Group and De Sheng; precision gears and gearboxes by Imperial Group; AC and DC gears and gear motors and sub-fractional AC and DC motors and gear motors for both industrial and commercial use by Merkle Korff and FIR; and electronic motion control systems for use in elevators by Motion Control.  Consumer and Industrial Products includes the manufacturing and importing of decorative home furnishing accessories and the specialty retailing of gifts and decorative home accessories by Welcome Home LLC, and the storage of data and access to dedicated Internet connectivity at GramTel.  Measurement of Segment Operating Income and Segment Assets  The Company evaluates performance and allocates resources based on operating income. The accounting policies of the reportable segments are the same as those described in Note 2 - Significant Accounting Policies.  Intra-segment sales exist between Cape and Welcome Home, between Sate-Lite, Beemak and Deflecto and between Atco and Alma. These sales were eliminated in consolidation and are not presented in segment disclosures. No single customer accounts for 15% or more of segment or consolidated net sales.  Operating income by business segment is defined as net sales less operating costs and expenses, excluding interest and corporate expenses. Certain amounts in the prior year have been reclassified to conform with the current year presentation.  Identifiable assets are those used by each segment in its operations. The assets of discontinued operations related to JII Promotions and ED&C are included in identifiable assets of Specialty Printing and Labeling and Kinetek, respectively. Corporate assets consist primarily of cash and cash equivalents, equipment, notes receivable from affiliates and deferred financing costs.  The operating results and assets of entities acquired during the three year period are included in the segment information since their respective dates of acquisition.  Factors Used to Identify the Enterprise's Reportable Segments  The Company's reportable segments are business units that offer different products. The reportable segments are each managed separately because they manufacture and distribute distinct products with different production processes.                                        - 72 -     Summary financial information by business segment is as follows:                                                               Year ended December 31,                                                              -----------------------                                                         2005           2004           2003                                                         ----           ----           ----     Net Sales:   Specialty Printing and Labeling                     $ 49,977        $ 51,085      $ 48,647   Jordan Specialty Plastics                            156,593         147,665       125,974   Jordan Auto Aftermarket                              119,171         141,862       144,874   Kinetek                                              337,524         313,867       278,309   Consumer and Industrial Products                      66,220          68,800        69,127                                                       ---------       ---------     ---------     Total                                             $729,485        $723,279      $666,931                                                       =========       =========     =========  Operating income (loss):   Specialty Printing and Labeling                     $  3,379        $  1,689      $  3,663   Jordan Specialty Plastics                              2,662           9,832         5,482   Jordan Auto Aftermarket                              (24,101)          3,783         7,266   Kinetek                                               40,652          34,153        30,048   Consumer and Industrial Products                        (640)          1,919         2,297                                                       ---------       ---------     ---------     Total business segment operating income             21,952          51,376        48,756   Corporate (expense)/income                            34,096           5,996        (5,959)                                                       ---------       ---------     ---------     Total consolidated operating income               $ 56,048        $ 57,372      $ 42,797                                                       =========       =========     ==========  Depreciation and Amortization:   Specialty Printing and Labeling                     $    991        $  1,318      $  1,464   Jordan Specialty Plastics                              3,339           4,624         5,021   Jordan Auto Aftermarket                                2,488           2,545         2,289   Kinetek                                                5,503           5,621         6,890   Consumer and Industrial Products                       1,470           1,002         1,151                                                       ---------       ---------     ---------     Total business segment amortization and      depreciation                                       13,791          15,110        16,815   Corporate                                                763           1,130         3,910                                                       ---------       ---------     ---------     Total consolidated depreciation      and amortization                                 $ 14,554        $ 16,240      $ 20,725                                                       =========       =========     =========  Capital expenditures:   Specialty Printing and Labeling                     $    134        $    264      $     77   Jordan Specialty Plastics                              2,406           1,905         2,563   Jordan Auto Aftermarket                                  636             826         2,511   Kinetek                                                4,067           3,881         4,063   Consumer and Industrial Products                         753             837           971   Corporate                                                 45             301           330                                                       ---------       ---------     ---------     Total capital expenditures                        $  8,041        $  8,014      $ 10,515                                                       =========       =========     =========                                                                 December 31,                                                                ------------                                                          2005             2004                                                          ----             ---- Identifiable assets (end of year):   Specialty Printing and Labeling                     $ 29,819         $ 34,020   Jordan Specialty Plastics                            113,403          118,224   Jordan Auto Aftermarket                               69,312           99,782   Kinetek                                              363,610          365,746   Consumer and Industrial Products                      17,725           22,262                                                       ---------        ---------    Total consolidated business segment assets          593,869          640,034   Corporate assets                                      17,498           22,372                                                       ---------        ---------    Total consolidated identifiable assets             $611,367         $662,406                                                       =========        =========  Summary financial information by  geographic area is as follows:                           Year ended December 31,                                                           -----------------------                                                         2005             2004         2003                                                         ----             ----         ---- Net sales to unaffiliated customers: United States                                         $621,052         $611,430     $581,838 Foreign                                                108,433          111,849       85,093                                                       ---------        ---------    ---------   Total                                               $729,485         $723,279     $666,931                                                       =========        =========    ========= Identifiable assets (end of year): United States                                         $490,626         $536,957     $574,268 Foreign                                                120,741          125,449      116,364                                                       ---------        ---------    ---------   Total                                               $611,367         $662,406     $690,632                                                       =========        =========    =========                                       - 73 -   Note 19 - Acquisition and formation of subsidiaries - --------------------------------------------------- On September 28, 2005, the Company, through its wholly owned subsidiary, Atco, acquired certain assets including inventory and machinery of Coolstar, Inc. for $393 including fees. Coolstar is a manufacturer of evaporators for the automotive climate control market and its operations were fully integrated into Atco.  On March 28, 2005, the Company, through its wholly owned subsidiary, Kinetek, paid in cash the remaining acquisition cost for its September 30, 2004 acquisition of O'Thompson, a New York City-based elevator control company. The total acquisition cost was originally $968 which was subsequently adjusted to $853 during the first quarter of 2005. Of the total acquisition price, $315 was paid through the end of the third quarter in 2004, $57 was paid during the fourth quarter of 2004, and the remaining $562 was paid during the first quarter of 2005. The operating results of O'Thompson are included with those of Kinetek's wholly owned subsidiary, Motion Control.  The above acquisitions have been accounted for as purchases and their operating results have been consolidated with the Company's results since the respective dates of acquisition. Pro forma results of operations, assuming the acquisitions occurred as of the beginning of the prior year, would not differ materially from reported amounts.  Note 20 - Additional Purchase Price Agreements/Deferred Purchase Price Agreements - ---------------------------------------------------------------------- The Company has a contingent purchase price agreement relating to its acquisition of Deflecto in 1998. The agreement is based on Deflecto achieving certain earnings before interest and taxes and is payable on April 30, 2008. If Deflecto is sold prior to April 30, 2008, the agreement is payable 120 days after the transaction.  The Company also had a deferred purchase price agreement relating to its acquisition of Teleflow in July 1999. This agreement was based upon Teleflow achieving certain agreed upon earnings before interest, taxes, depreciation, and amortization for each year through the year ended December 31, 2003. The Company paid $750 and $328 in 2003 and 2002, respectively, related to this agreement. In 2004, the Company and previous management of Teleflow reached an agreement whereby the recipients of the above payments agreed to repay $950 to the Company over time. The final payment in the repayment schedule was made in December 2005. No other amounts are due by either party in connection with this agreement.  Kinetek has a contingent purchase price agreement relating to its acquisition of Motion Control on December 18, 1997. The terms of this agreement provide for additional consideration to be paid to the sellers. The agreement is exercisable at the sellers' option during a five year period that began in 2003. When exercised, the additional consideration will be based on Motion Control's operating results over the two preceding fiscal years. Payments, if any, under the contingent agreement will be placed in a trust and paid out in cash over a three or four-year period, in annual installments according to a schedule which is included in the agreement. Additional consideration, if any, will be recorded as an addition to goodwill.                                        - 74 -   Note 21 - Settlement of Litigation - ---------------------------------- In June 2003, the Company reached a settlement with the former shareholders of ED&C, a subsidiary of Kinetek, in which the Company received $1,150 in cash, and long-term debt of $3,850 plus accrued interest of $693, was extinguished. The Company recorded a gain of $5,693 which is included in "loss (income) of discontinued operations" for 2003 in the Company's condensed consolidated statements of operations.  Note 22 - Contingencies - ----------------------- The Company is subject to legal proceedings and claims which arise in the ordinary course of its business. The Company believes that the final disposition of such matters will not have a material adverse effect on the financial position or results of operations of the Company.  Note 23 - Quarterly Financial Information (Unaudited) - -----------------------------------------------------                                                                    Three Months Ended                                       December 31 (3)    September 30 (2)      June 30 (1)       March 31                                      ---------------    ----------------       ----------       --------      2005: Net sales                                $177,969           $187,918            $188,145        $175,453 Cost of sales,  excluding depreciation                   124,733            132,912             134,371         125,609 (Loss) income from  continuing operations                     (3,932)             5,934               2,061          (8,160) Net (loss) income                          (3,391)             4,123               2,773          (9,516)  2004: Net sales                                $176,380           $187,663            $190,827        $168,409 Cost of sales,  excluding depreciation                   124,879            131,541             131,081         114,867 (Loss) income from  continuing operations                     (3,406)               665              10,914         (16,579) Net (loss) income                          (9,600)            (1,100)              8,773         (18,179)  (1)    Income from continuing operations for the second quarter of 2005        includes income from the sale of an affiliate of $4,410. Income from        continuing operations for the second quarter of 2004 includes income        from the sale of affiliates of $7,954. (2)    Income from continuing operations for the third quarter of 2005        includes income from the refinancing of an affiliate for $7,966.  (3)    Loss from continuing operations for the fourth quarter of 2005        includes income related to the sale of an affiliate of $14,727 offset        by a goodwill impairment loss of $24,277.    Note 24 - Warranties - -------------------- The Company provides warranties on certain products for varying lengths of time. The Company estimates the costs that may be incurred and records a liability in the amount of such costs at the time product revenue is recognized. Changes to the Company's product warranty accrual during the year are as follows:                                            2005            2004                                           ----            ----  Balance, beginning of year              $ 2,315         $ 1,700 Warranties issued                         1,331           1,697 Change in estimate                         (428)              - Settlements                              (1,596)         (1,082)                                         --------        -------- Balance, end of year                    $ 1,622         $ 2,315                                         ========        ========  Note 25 - Research and Development Costs - ---------------------------------------- The Company incurred $4,895, $4,818 and $4,190 of research and development costs during 2005, 2004 and 2003, respectively.                                       - 75 -   Note 26 - Management Discussion of Liquidity - -------------------------------------------- As discussed in Note 12, one of the Company's revolving credit facilities contains a provision for the step-down in maximum borrowing capacity during 2006. As of March 1, 2006, the Company's maximum borrowings under this agreement decreased from $55,000 to $45,000. This, coupled with the facts that the Company has experienced operating losses in recent years and has used cash in operating activities, has caused the Company's executive management to evaluate various options to improve the Company's liquidity. During 2004, the Company has restructured some of its outstanding debt through the Exchange Offer discussed in Note 12 to the financial statements and the Modification and Waiver Agreements also discussed in Note 12 to the financial statements. The effect of these transactions has been to reduce cash paid for interest in the current year as well as to provide for further reductions in debt maturity payments if certain financial performance is not achieved. In addition, the Company expects improved operating performance in all segments over the prior year. Specifically, new product development and the continued shift of manufacturing to China in the Specialty Plastics and Kinetek groups are expected to improve results. In addition, plans to improve production efficiencies within the Auto Aftermarket Group will increase operating margins. Further, the Company has evaluated its holdings of investments in affiliates (See Note 8) and, when appropriate, will sell certain investments, similar to the sale of the Company's investments in DMS Holdings Inc, Mabis Healthcare Holdings Inc., Flavor and Fragrance Holdings Inc. and JIR Broadcast, Inc. as described in Note 15 to the financial statements. The Company believes that through its efforts discussed above, in conjunction with opportunistic sales of assets, refinancings or market transactions, the Company will have sufficient liquidity to meet its obligations in the coming year. As noted, the Company's subsidiary Kinetek has long-term debt that matures within the next year. Currently, the Company is contemplating various avenues of refinancing this debt, and management is confident that it will do so prior to the maturity. If the Company is unable to refinance or enter into a transaction that allows it to pay off this debt, then there is substantial doubt about the Company's ability to continue as a going concern.  Note 27 - Condensed Consolidating Financial Statements - ------------------------------------------------------ Pursuant to the Exchange Offer described in Note 12, wholly owned subsidiaries of the Company, JII Holdings LLC and JII Holdings Finance Corporation, issued senior secured notes which have been guaranteed by the Company and certain of the Company's subsidiaries. Each of the subsidiary guarantors is "100% owned" (as defined in Rule 3-10 of Regulation S-X) by the Company, and in all cases, the guarantees are full and unconditional and joint and several. The following condensed consolidating financial information is provided in lieu of separate financial statements for the issuers of these notes.                                         - 76 -      Year ended December 31, 2005                                         Jordan         JII         JII                      Non-                                       Industries     Holdings    Finance    Guarantors   Guarantors   Eliminations   Consolidated                                       ----------     --------    -------    ----------   ----------   ------------   ------------         Net Sales                              $       -     $      -     $   -     $ 366,315    $ 363,170     $      -      $ 729,485 Cost of sales,  excluding depreciation                        -            -         -       259,967      257,658            -        517,625 Selling, general, and  administrative expenses,  excluding depreciation                   (3,676)          64         -        88,788       58,890         (280)       143,786 Depreciation                                 721            -         -         7,415        6,246            -         14,382 Amortization of  goodwill and other  intangibles                                   5            -         -            41          126            -            172 Goodwill impairment loss                       -            -         -        26,727            -       (2,450)        24,277 Income from sale of  affiliates                              (12,994)           -         -             -            -            -        (12,994) Management fees and other                (14,592)           -         -         1,765         (984)           -        (13,811)                                        ---------    ---------    --------   ---------    ---------     --------      --------- Operating income                          30,536          (64)        -       (18,388)      41,234        2,730         56,048  Other (income) and  expenses:     Interest expense                      11,288        2,838         -         4,452       36,142            -         54,720     Intercompany interest      (income) expense                     (6,758)     (22,026)        -        21,636        7,147            1              -     Interest income                          (44)           -         -           (62)        (283)         149           (240)     Intercompany      management fee      (income) expense                     (3,366)      (3,745)        -         3,179        3,932            -              -     Gain on sale of      subsidiaries                           (273)           -         -            22            -            -           (251)     Equity in losses of      subsidiaries                         32,424       46,876         -             -            -      (79,300)             -     Other, net                             5,442            -         -           359       (3,857)          (4)         1,940                                        ---------    ---------    --------   ---------    ---------     --------      ---------                                           38,713       23,943         -        29,586       43,081      (79,154)        56,169 (Loss) income from  continuing operations  before taxes and  minority interest                        (8,177)     (24,007)        -       (47,974)      (1,847)      81,884           (121) (Benefit) provision for  income taxes                             (2,166)           -         -        (2,052)       7,820            -          3,602                                        ---------    ---------    --------   ---------    ---------     --------      --------- (Loss) income from  continuing operations  before minority interest                 (6,011)     (24,007)        -       (45,922)      (9,667)      81,884         (3,723)  Minority interest                              -            -         -           374            -            -            374                                        ---------    ---------    --------   ---------    ---------    ---------      --------- (Loss) income from  continuing operations                    (6,011)     (24,007)        -       (46,296)      (9,667)      81,884         (4,097) Discontinued Operations:  Loss from operations,    net of tax                                  -            -         -        (2,082)      (1,334)           -         (3,416)  Gain (loss) on sale of    operations, net of tax                      -            -         -         1,502            -            -          1,502                                        ---------    ---------    --------   ---------    ---------    ---------      ---------   Net (loss) income                      $  (6,011)   $ (24,007)    $   -     $ (46,876)   $ (11,001)   $  81,884      $  (6,011)                                        =========    =========    ========   =========    =========    =========      =========                                                                 - 77 -     Year ended December 31, 2004                                         Jordan         JII         JII                      Non-                                       Industries     Holdings    Finance    Guarantors   Guarantors   Eliminations   Consolidated                                       ----------     --------    -------    ----------   ----------   ------------   ------------         Net Sales                             $       -       $    -     $      -    $ 388,280    $ 334,999     $      -      $ 723,279 Cost of sales,  excluding depreciation                       -            -            -      272,331      230,037            -        502,368 Selling, general, and  administrative expenses,  excluding depreciation                   1,947            -            -       84,910       64,354            -        151,211 Depreciation                               (413)           -            -        8,700        7,795            -         16,082 Amortization of  goodwill and other  intangibles                                  5            -            -           19          134            -            158 Goodwill impairment loss                      -            -            -        3,676            -            -          3,676 Income from sale of  affiliates                              (7,954)           -            -            -            -            -         (7,954) Management fees and other                   365         (375)           -          299           77            -            366                                       ---------    ---------    ---------    ---------    ---------    ---------      --------- Operating income                          6,050          375            -       18,345       32,602            -         57,372  Other (income) and  expenses:     Interest expense                     15,612        9,871            -        4,609       35,956            -         66,048     Intercompany interest      (income) expense                   (11,840)     (20,764)           -       24,444        8,159            1              -     Interest income                      (2,095)           -            -           (1)        (309)         138         (2,267)     Intercompany      management fee      (income) expense                    (3,762)      (3,229)           -        2,984        4,007            -              -     Loss on sale of      subsidiaries                             -            -            -            -            -            -              -     Equity in losses of      subsidiaries                        31,777       26,006            -            -            -      (57,783)             -     Other, net                            5,596            -            -          478       (7,581)          (1)        (1,508)                                       ---------    ---------    ---------    ---------    ---------    ---------      ---------                                          35,288       11,884            -       32,514       40,232      (57,645)        62,273 (Loss) income from  continuing operations  before taxes and  minority interest                      (29,238)     (11,509)           -      (14,169)      (7,630)      57,645         (4,901) (Benefit) provision for  income taxes                            (5,977)           -            -        2,305        6,645            -          2,973                                       ---------    ---------    ---------    ---------    ---------    ---------      --------- (Loss) income from  continuing operations  before minority interest               (23,261)     (11,509)           -      (16,474)     (14,275)      57,645         (7,874)  Minority interest                             -            -            -          532            -            -            532                                       ---------    ---------    ---------    ---------    ---------    ---------      --------- (Loss) income from  continuing operations                  (23,261)     (11,509)           -      (17,006)     (14,275)      57,645         (8,406) Discontinued Operations:  Loss from operations,    net of tax                                 -            -            -       (4,674)      (5,855)           -        (10,529)  Gain (loss) on sale of    operations, net of tax                 3,155            -            -       (4,326)           -            -         (1,171)                                       ---------    ---------    ---------    ---------    ---------    ---------      ---------                                           3,155            -            -       (9,000)      (5,855)           -        (11,700)                                       ---------    ---------    ---------    ---------    ---------    ---------      ---------  Net (loss) income                     $ (20,106)   $ (11,509)   $       -    $ (26,006)   $ (20,130)   $  57,645      $ (20,106)                                       =========    =========    =========    =========    =========    =========      =========                                                                   - 78 -        Year ended December 31, 2003                                         Jordan         JII         JII                      Non-                                       Industries     Holdings    Finance    Guarantors   Guarantors   Eliminations   Consolidated                                       ----------     --------    -------    ----------   ----------   ------------   ------------         Net Sales                             $       -      $      -    $      -    $ 373,063    $ 293,868    $       -      $ 666,931 Cost of sales, excluding depreciation                                  -             -           -      255,665      194,643            -        450,308 Selling, general, and  administrative  expenses, excluding  depreciation                             2,708             -           -       87,381       61,897            -        151,986 Depreciation                              1,503             -           -        8,892        9,833            -         20,228 Amortization of  goodwill and other  intangibles                                  5             -           -          323          169            -            497 Goodwill impairment loss                      -             -           -          696            -            -            696 Management fees and  other                                       43             -           -          376            -            -            419                                       ---------     ---------    --------    ---------    ---------    ---------      --------- Operating (loss) income                  (4,259)            -           -       19,730       27,326            -         42,797  Other (income) and  expenses:     Interest expense                     43,028             -           -        4,906       35,281            -         83,215     Intercompany      interest (income)      expense                             (3,970)      (24,597)          -       24,315        4,251            1              -     Interest income                      (1,209)            -           -           (1)        (260)         118         (1,352)     Intercompany      management fee      (income) expense                    (2,917)       (4,074)          -        3,321        3,669            1              -     Loss on sale of      subsidiaries                             -             -           -          401            -            -            401     Equity in losses      of subsidiaries                      5,419        21,268           -            -            -      (26,687)             -     Other, net                            1,102             -           -          601       (6,073)          (1)        (4,371)                                       ---------     ---------    --------    ---------    ---------    ---------      ---------                                          41,453        (7,403)          -       33,543       36,868      (26,568)        77,893 (Loss) income from  continuing operations  before taxes and  minority interest                      (45,712)        7,403           -      (13,813)      (9,542)      26,568        (35,096) Provision for income  taxes                                        -             -           -        3,487        4,949            -          8,436                                       ---------     ---------    --------    ---------    ---------    ---------      --------- (Loss) income from  continuing operations  before minority  interest                               (45,712)        7,403           -      (17,300)     (14,491)      26,568        (43,532)  Minority interest                             -             -           -          193            -            -            193                                       ---------     ---------    --------    ---------    ---------    ---------      --------- (Loss) income from  continuing operations                  (45,712)        7,403           -      (17,493)     (14,491)      26,568        (43,725) Discontinued Operations:  Loss (income) from  operations, net of   tax                                         -             -           -       (2,729)       1,787            -           (942)  Gain (loss) on sale   of operations, net   of tax                                  9,235             -           -       (1,045)           -            -          8,190                                       ---------     ---------    --------    ---------    ---------    ---------      ---------                                           9,235             -           -       (3,774)       1,787            -          7,248                                       ---------     ---------    --------    ---------    ---------    ---------      ---------  Net (loss) income                     $ (36,477)    $   7,403    $      -    $ (21,267)   $ (12,704)   $  26,568      $ (36,477)                                       =========     =========    ========    =========    =========    =========      =========                                                                 - 79 -      Balance Sheet as of December 31, 2005                                         Jordan       JII           JII         Non-                                       Industries   Holdings      Finance    Guarantors   Guarantors   Eliminations    Consolidated                                       ----------   --------      -------    ----------   ----------   ------------    ------------         Current assets:     Cash and equivalents               $   2,135    $       -    $      -    $   1,315    $  12,249     $      -       $  15,699     Intercompany receivables              38,896      (38,516)          -       (4,364)      16,803      (12,819)              -     Accounts receivable, net                   -            -           -       41,270       68,820            -         110,090     Inventories                                -            -           -       67,803       56,726            -         124,529     Assets of discontinued      operations                                -            -           -          313          415            -             728     Income tax receivable                      -            -           -            -        1,926            -           1,926     Investment in and      advances to affiliates               23,015            -           -            -            -            -          23,015     Prepaids and other      current assets                        2,890            -           -        8,338        4,079       (4,794)         10,513                                        ---------    ---------    --------    ---------    ---------    ---------       ---------     Total current assets                  66,936      (38,516)          -      114,675      161,018      (17,613)        286,500  Property, plant and  equipment, net                            1,045            -           -       42,888       35,706            -          79,639 Investments and advances to  affiliates                                1,700            -           -            -       12,344            -          14,044 Investments in subsidiaries               55,476      211,890           -            -            -     (267,366)              - Equity in earnings of  subsidiaries                           (259,593)    (114,472)          -            -            -      374,065               - Goodwill, net                                  -            -           -       51,808      181,980      (13,274)        220,514 Intercompany notes  receivable                               (1,000)     206,345           -            -        1,000     (206,345)              - Other assets                                 140        3,548           -        2,175        4,807            -          10,670                                        ---------    ---------    --------    ---------    ---------    ---------       ---------     Total assets                       $(135,296)   $ 268,795    $      -    $ 211,546    $ 396,855    $(130,533)      $ 611,367                                        =========    =========    ========    =========    =========    =========       =========  Current liabilities:     Accounts payable                   $       -    $       -    $      -    $  20,921    $  37,238    $       -       $  58,159     Accrued liabilities                   27,775        9,389           -       23,845       17,438       (5,232)         73,215     Intercompany payables                      -            -           -      (10,087)      13,189       (3,102)              -     Current portion of long      term debt                               530            -           -       24,598      293,961            -         319,089                                        ---------    ---------    --------    ---------    ---------    ---------       ---------     Total current      liabilities                          28,305        9,389           -       59,277      361,826       (8,334)        450,463  Long term debt                           121,559      201,500           -        7,401       31,213            -         361,673 Other non current  liabilities                              18,628            -           -        8,321        5,203            -          32,152 Intercompany note payables               (50,424)           -           -      226,596       31,722     (207,894)              - Deferred income taxes                     (1,653)           -           -      (17,281)      33,027            -          14,093 Minority interest                              -            -           -        1,377            -            -           1,377 Preferred stock of a  subsidiary                                 (350)           -           -       40,327        2,970      (39,977)          2,970 Shareholders' equity (deficit)                               (251,361)      57,906           -     (114,472)     (69,106)     125,672        (251,361)                                        ---------    ---------    --------    ---------    ---------    ---------       ---------     Total liabilities and      shareholders deficit              $(135,296)   $ 268,795    $      -    $ 211,546    $ 396,855    $(130,533)      $ 611,367                                        =========    =========    ========    =========    =========    =========       =========                                                                  - 80 -      Balance Sheet as of December 31, 2004                                         Jordan       JII           JII         Non-                                       Industries   Holdings      Finance    Guarantors   Guarantors   Eliminations    Consolidated                                       ----------   --------      -------    ----------   ----------   ------------    ------------         Current assets:     Cash and equivalents               $   2,152    $       -     $    -     $   1,693    $  11,567    $       -        $  15,412     Intercompany receivables               9,543      (25,053)         -        (2,245)      14,931        2,824                -     Accounts receivable, net                   -            -          -        42,656       66,898            -          109,554     Inventories                                -            -          -        73,883       56,150            -          130,033     Assets of discontinued      operations                                -            -          -         1,409        2,023            -            3,432     Income tax receivable                      -            -          -             -        3,631            -            3,631     Prepaids and other      current assets                        4,625            -          -         9,236        4,878       (6,376)          12,363                                        ---------    ---------    -------     ---------    ---------    ---------        ---------     Total current assets                  16,320      (25,053)         -       126,632      160,078       (3,552)         274,425  Property, plant and  equipment, net                            1,721            -          -        45,828       37,487            -           85,036 Investments and advances to  affiliates                               28,538            -          -             -       12,344            -           40,882 Investments in subsidiaries               52,241      202,512          -             -            -     (254,753)               - Equity in earnings of  subsidiaries                           (222,701)     (82,684)         -             -            -      305,385                - Goodwill, net                                  -            -          -        78,648      182,385      (15,724)         245,309 Intercompany notes  receivable                               (1,000)     204,871          -             -        1,000     (204,871)               - Other assets                                 395        6,387          -         3,887        6,085            -           16,754                                        ---------    ---------    -------     ---------    ---------    ---------        ---------     Total assets                       $(124,486)   $ 306,033    $     -     $ 254,995    $ 399,379    $(173,515)       $ 662,406                                        =========    =========    =======     =========    =========    =========        =========  Current liabilities:     Accounts payable                   $       -    $       -    $     -     $  25,662    $  37,134    $       -        $  62,796     Accrued liabilities                   37,895        9,389          -        22,662       18,277       (6,772)          81,451     Liabilities of      discontinued      operations                                -            -          -           150          548            -              698     Intercompany payables                      -            -          -       (15,740)       4,501       11,239                -     Current portion of long      term debt                               250            -          -         5,387       22,237            -           27,874                                        ---------    ---------    -------     ---------    ---------    ---------        ---------     Total current      liabilities                          38,145        9,389          -        38,121       82,697        4,467          172,819  Long term debt                           121,890      224,033          -        41,779      301,697            -          689,399 Other non current  liabilities                              10,830            -          -         8,711        5,626            -           25,167 Intercompany note payables               (50,384)           -          -       223,537       31,722     (204,875)               - Deferred income taxes                     (1,636)           -          -       (13,497)      29,388            -           14,255 Minority interest                              -            -          -         1,003            -            -            1,003 Preferred stock of a  subsidiary                                 (350)           -          -        38,025        2,744      (37,675)           2,744 Shareholders' equity (deficit)                               (242,981)      72,611          -       (82,684)     (54,495)      64,568         (242,981)                                        ---------    ---------    -------     ---------    ---------    ---------        ---------     Total liabilities and      Shareholders' deficit             $(124,486)   $ 306,033    $     -     $ 254,995    $ 399,379    $(173,515)       $ 662,406                                        =========    =========    =======     =========    =========    =========        =========                                                                         - 81 -       Year ended December 31, 2005                                         Jordan       JII           JII         Non-                                       Industries   Holdings      Finance    Guarantors   Guarantors   Eliminations    Consolidated                                       ----------   --------      -------    ----------   ----------   ------------    ------------         Net cash provided by  operating activities                  $  2,947     $     -      $     -     $  4,937     $  6,904     $       -       $ 14,788  Cash flows from investing  activities:     Proceeds from sales of      fixed assets                             -           -            -          665          144             -            809     Capital expenditures                    (45)          -            -       (3,483)      (4,513)            -         (8,041)     Intercompany transfers              (22,533)     22,533            -            -            -             -              -     Net proceeds from sale      of discontinued      operations                           1,002           -            -            -            -             -          1,002     Net proceeds from sale      of affiliates                        6,600           -            -            -            -             -          6,600     Acquisiton of       subsidiaries                            -           -            -         (393)        (562)            -           (955)     Net proceeds from sales      of subsidiaries                      1,209           -            -            -            -             -          1,209     Net proceeds from sale      of affiliate      promissory note                      9,449           -            -            -            -             -          9,449     Net proceeds from      refinancing of      affiliate                           15,000           -            -            -            -             -         15,000                                        --------    --------      -------     --------     --------     ---------       -------- Net cash provided by (used  in) investing activities                10,682      22,533            -      (3,211)       (4,931)            -         25,073  Cash flows from financing  activities:     (Payments on) proceeds      from revolving      credit facility                    (13,546)          -            -           6         4,729             -         (8,811)     Payment of deferred      financing costs                          -           -            -           -             -             -              -     Repayment of long term      debt                                  (100)    (22,533)           -      (2,631)      (12,927)            -        (38,191)     Proceeds from other      borrowings                               -           -            -         521         8,490             -          9,011                                        --------    --------      -------     --------     --------     ---------       -------- Net cash (used in) provided   by financing activities               (13,646)    (22,533)           -      (2,104)          292             -        (37,991)  Effect of exchange rate  changes on cash                              -           -            -           -        (1,583)            -         (1,583)                                        --------    --------      -------     --------     --------     ---------       -------- Net (decrease) increase in  cash and equivalents                       (17)          -            -        (378)          682             -            287 Cash and equivalents at  beginning of year                        2,152           -            -        1,693       11,567             -         15,412                                        --------    --------      -------     --------     --------     ---------       -------- Cash and equivalents at  end  of year                          $  2,135    $      -      $     -     $  1,315     $ 12,249     $       -       $ 15,699                                        ========    ========      =======     ========     ========     =========       ========                                                                  - 82 -      Year ended December 31, 2004                                         Jordan       JII           JII         Non-                                       Industries   Holdings      Finance    Guarantors   Guarantors   Eliminations    Consolidated                                       ----------   --------      -------    ----------   ----------   ------------    ------------         Net cash (used in) provided   by operating activities              $(13,835)    $     -      $    -      $ 23,396     $ (3,380)    $       -       $  6,181  Cash flows from investing  activities     Proceeds from sales of      fixed assets                             -           -           -           487          620             -          1,107     Capital expenditures                   (115)          -           -        (3,677)      (4,222)            -         (8,014)     Intercompany transfers              (23,533)     23,533           -             -            -             -              -     Net proceeds from sale      of discontinued      operations                           6,155           -           -             -            -             -          6,155     Net proceeds from sale      of affiliates                       27,207           -           -             -            -             -         27,207     Acquisiton of       subsidiaries                            -           -           -             -         (372)            -           (372)     Additional purchase     price payments                            -           -           -             -            -             -              -     Proceeds from sales of      subsidiaries                             -           -           -             -            -             -              -                                        --------    --------    --------      --------     --------     ---------       -------- Net cash provided by (used  in) investing activities                 9,714      23,533           -        (3,190)      (3,974)            -         26,083  Cash flows from financing  activities     (Payments on) proceeds      from revolving                           -           -           -       (15,286)      12,244             -         (3,042)      credit facility     Payment of deferred      financing costs                          -      (3,942)          -             -            -             -         (3,942)     Repayment of long term      debt                                   (28)    (19,591)          -        (5,465)     (11,834)            -        (36,918)     Proceeds from other      borrowings                               -           -           -           500        8,083             -          8,583                                        --------    --------    --------      --------     --------     ---------       -------- Net cash (used in) provided   by financing activities                   (28)    (23,533)          -       (20,251)       8,493             -        (35,319)  Effect of exchange rate  changes on cash                              -           -           -             -        2,950             -          2,950                                        --------    --------    --------      --------     --------     ---------       -------- Net (decrease) increase in  cash and equivalents                    (4,149)          -           -           (45)       4,089             -           (105) Cash and equivalents at  beginning of year                        6,301           -           -         1,738        7,478             -         15,517                                        --------    --------    --------      --------     --------     ---------       -------- Cash and equivalents at end  of year                               $  2,152    $      -    $      -      $  1,693     $ 11,567     $       -       $ 15,412                                        ========    ========    ========      ========     ========     =========       ========                                                                  - 83 -      Year ended December 31, 2003                                         Jordan       JII           JII         Non-                                       Industries   Holdings      Finance    Guarantors   Guarantors   Eliminations    Consolidated                                       ----------   --------      -------    ----------   ----------   ------------    ------------          Net cash (used in) provided  by operating activities               $(6,998)     $    -       $    -      $  305       $(5,419)     $      -        $(12,112)  Cash flows from investing  activities     Proceeds from sales of      fixed assets                            -           -            -           57        3,788             -           3,845     Capital expenditures                   (72)          -            -       (5,034)      (5,409)            -         (10,515)     Acquisitions of      subsidiaries                            -           -            -            -            -             -               -     Additional purchase      price payments                          -           -            -         (750)           -             -            (750)     Cash acquired in      purchase of      subsidiaries                            -           -            -            -            -             -               -     Proceeds from sales of      subsidiaries                          678           -            -            -            -             -             678     Proceeds from sale of      discontinued      operations                          9,400           -            -            -            -             -           9,400     Proceeds from sale of      affiliates                              -           -            -            -            -             -               -                                        -------      ------       ------      -------      -------       -------         ------- Net cash provided by (used  in) investing activities               10,006           -            -       (5,727)      (1,621)            -           2,658  Cash flows from financing  activities     Proceeds of debt      issuance - Kinetek                      -           -            -            -            -             -               -     Repurchase of 2009      debentures                              -           -            -            -            -             -               -     Proceeds from revolving      credit facility                         -           -            -       11,802            -             -          11,802     Payment of financing      fees                                   (8)          -            -         (142)           -             -            (150)     Repayment of long term      debt                                  (33)          -            -       (7,495)      (7,913)            -         (15,441)     Proceeds from other      borrowings                              -           -            -        1,975          874             -           2,849                                        -------      ------       ------      -------      -------      --------         -------- Net cash (used in) provided   by financing activities                  (41)          -            -        6,140       (7,039)            -            (940)  Effect of exchange rate  changes on cash                             -           -            -            -        6,194             -           6,194                                        -------      ------       ------      -------      -------      --------         ------- Net increase (decrease) in  cash and equivalents                    2,967           -            -          718       (7,885)            -          (4,200) Cash and equivalents at  beginning of year                       3,334           -            -        1,020       15,363             -          19,717                                        -------      ------       ------      -------      -------      --------         -------- Cash and equivalents at end  of year                               $ 6,301      $    -       $    -      $ 1,738      $ 7,478      $      -         $15,517                                        =======      ======       ======      =======      =======      ========         =======                                                                    - 84 -
None.
Since December 31, 2005, there have been no changes in the internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
- 85 -
The following sets forth the names and ages of each of the Company's directors and executive officers and the positions they hold at the Company:  Name                          Age     Position with the Company - ----                          ---     ------------------------- John W. Jordan II              58     Chairman of the Board of Directors and                                       Chief Executive Officer. Thomas H. Quinn                58     Director, President and Chief Operating                                       Officer. Gordon L. Nelson               48     Senior Vice President and Treasurer. Norman R. Bates                44     Chief Financial Officer, Vice President                                       and Assistant Secretary. Joseph S. Steinberg            61     Director. David W. Zalaznick             50     Director. Jonathan F. Boucher            49     Director, Vice President and Assistant                                       Secretary. G. Robert Fisher               66     Director and Secretary. Steven L. Rist                 47     General Counsel and Assistant Secretary. Jesse Clyde Nichols III        66     Director.  Each of the directors and executive officers of the Company will serve until the next annual meeting of the stockholders or until their death, resignation or removal, whichever is earlier. Directors are elected annually and executive officers for such terms as may be determined by the Company's board of directors (the "Board of Directors").  Set forth below is a brief description of the business experience of each director and executive officer of the Company.  Mr. Jordan has served as Chairman of the Board of Directors and Chief Executive Officer of the Company since 1988. Mr. Jordan is a managing principal of The Jordan Company, a private merchant banking firm which he founded in 1982. Mr. Jordan is also President of Jordan Zalaznick Advisors, Inc. and TJC Management Corporation, Manager of JZ International, LLC, Managing Partner of Jordan Zalaznick Capital Company and Managing Member of Resolute Fund Partners, LLC. Mr. Jordan is also a director of Sensus Metering Systems, Inc., TAL International Group, Inc. and Kinetek, Inc. as well as other privately held companies.  Mr. Quinn has served as a director, President and Chief Operating Officer of the Company since 1988. From November 1985 to December 1987, Mr. Quinn was a Group Vice President for Baxter International, Inc. ("Baxter"). From September 1970 through 1985, Mr. Quinn was employed by American Hospital Supply Corporation ("American Hospital") in a variety of management capacities, where he was a Group Vice President of the Hospital Group and a corporate officer when American Hospital was acquired by Baxter. Mr. Quinn is also Chairman and a member of the board of directors of a number of privately held companies. He is also a senior principal of The Jordan Company LP.  Mr. Nelson has served as the Company's Senior Vice President and Treasurer since he joined the Company in 1996.  Mr. Bates has served as Chief Financial Officer, Vice President, and Assistant Secretary of the Company since June 2004. Prior to that, Mr. Bates had been the Vice President of Business Development of Kinetek since April 2000, and Chief Financial Officer of Kinetek from April 1997 through March 2000.                                       - 86 -    Mr. Steinberg has served as a director of the Company since 1988. Since 1979, Mr. Steinberg has been the President and a director of Leucadia National Corporation, a holding company. He is also a director of White Mountains Insurance Group Limited and Finova Group, Inc. Mr. Steinberg is also Chairman of the Board of Home Fed.  Mr. Zalaznick has served as a director of the Company since June 1997. Since 1982, Mr. Zalaznick has been a managing principal of The Jordan Company. Mr. Zalaznick is also LP and Chief Executive Officer of JZ International, LLC, Managing Member of Resolute Fund Partners, LLC, President of TJC Management Corporation and chairman of Jordan/Zalaznick Advisors, Inc. and President of Jordan/Zalaznick Capital Company. Mr. Zalaznick is a director of Sensus Metering Systems, Inc., TAL International Group, Inc., Marisa Christina, Inc., and Kinetek, Inc. as well as other privately held companies.  Mr. Boucher has served as a Vice President, Assistant Secretary and director of the Company since 1988. Since 1983, Mr. Boucher has been a partner of The Jordan Company. Mr. Boucher is also a Senior Principal of The Jordan Company, LLC and a Consultant to TJC Management Corporation. Mr. Boucher is also a director of Sensus Metering Systems, Inc., Motors & Gears Holdings, Inc. and W-H Energy Sources, Inc., and Jackson Products, Inc. as well as several other privately held companies.  Mr. Fisher has served as a director and Secretary of the Company since 1988. Mr. Fisher also served as General Counsel of the Company from 1988 until 1996. Since February 1999, Mr. Fisher has been a member of the law firm of Sonnenschein, Nath & Rosenthal LLP, a firm that represents the Company in various legal matters. From June 1995 until February 1999, Mr. Fisher was a member of the law firm of Bryan Cave LLP. For the prior 27 years, Mr. Fisher was a member of the law firm of Smith, Gill, Fisher & Butts, P.C., which combined with Bryan Cave LLP in June 1995.  Mr. Rist has served as General Counsel of the Company since 1996 and as an Assistant Secretary of the Company since 1998. Since January 1999, Mr. Rist has been a member of the law firm of Sonnenschein, Nath & Rosenthal LLP, a firm that represents the Company in various legal matters. From June 1995 until January 1999, Mr. Rist was a member of the law firm of Bryan Cave LLP. For the prior 12 years, Mr. Rist was a member of the law firm of Smith, Gill, Fisher & Butts. P.C., which combined with Bryan Cave LLP in June 1995.  Mr. Nichols has served as a director since 2005. Mr. Nichols is a private investor and from May 1974 through 2000, he was President of Nichols Industries, Inc. Mr. Nichols is also a director of Leucadia National Corporation, a holding company.  Code of Ethics. The Board of Directors has adopted a Code of Ethics for the Chief Executive Officer, the Chief Financial Officer, the Chief Operating Officer, and other senior financial personnel. A copy of the Code is available on the Company's website at www.jordanind.com. The Company will disclose any amendments or waivers of the Code of Ethics on the same website.  Audit Committee. The Company is not a "listed company" under SEC rules and is therefore not required to have an audit committee comprised of independent directors. The Company does not currently have an audit committee and does not have an audit committee financial expert. The Board of Directors has determined that each of its members is able to read and understand fundamental financial statements and has substantial business experience that results in that member's                                        - 87 -    financial sophistication. Accordingly, the Board of Directors believes that each of its members have the sufficient knowledge and experience necessary to fulfill the duties and obligations that an audit committee would have.                                                                      - 88 -
Summary Compensation Table                                                  Annual Compensation                                  ----------------------------------------------                                                                        Other Name and Principal Position       Year      Salary         Bonus    Compensation - ---------------------------       ----      ------         -----    ------------ John W. Jordan II, Chief Executive Officer(1)              2005    $       -      $     -      $    -                                   2004    $       -      $     -      $    -                                   2003            -            -           - Thomas H. Quinn, President and Chief Operating Officer       2005       500,000           -      13,800                                   2004     1,000,000     825,000      13,800                                   2003     1,000,000           -      13,800 Norman R. Bates, Chief Financial Officer                 2005       243,000     100,000           -                                   2004       223,000      55,000           -                                   2003             -           -           -   ________________________ (1)      Mr. Jordan derived his compensation from The Jordan Company for his          services to the Company and its subsidiaries. He received no          compensation from the Company or its subsidiaries for his services as          Chief Executive Officer.           Employment Agreement. Mr. Quinn has entered into an employment agreement with the Company which provides for his employment as President and Chief Operating Officer of the Company. The employment agreement can be terminated at any time by the Company. His base salary is $1,000,000 per year, and he is provided with a guaranteed bonus of $100,000 per year, which amounts are inclusive of any compensation, fees, salary, bonuses or other payments to Mr. Quinn by any of the subsidiaries or affiliates of The Jordan Company. In 2005, Mr. Quinn, waived $500,000 of his base salary. All provisions of his employment contract remain in force in 2006 and through the termination date of his contract. Under the employment agreement, if Mr. Quinn's employment is terminated for reasons other than voluntary termination, cause, disability or death, he will be paid a severance equal to the greater of $350,000 or the sum of his most recent base annual salary plus $100,000. If employment is terminated for reasons of cause or voluntary termination, no severance payment is made.           Directors Compensation. The Company compensates its directors quarterly at $20,000 per year for each director. The Indenture permits directors fees of up to $250,000 per year in the aggregate. In addition, the Company reimburses directors for their travel and other expenses incurred in connection with attending Board meetings (and committees thereof) and otherwise performing their duties as directors of the Company.                                         - 89 -
The following table furnishes information, as of March 24, 2006, as to the beneficial ownership of the Company's Common Stock by (i) each person known by the Company to beneficially own more than 5% of the outstanding shares of Common Stock (ii) each director and executive officer of the Company, and (iii) all officers and directors of the Company as a group.                                               Amount of Beneficial Ownership                                              ------------------------------                                                Number of        Percentage                                                 Shares           Owned(1)                                                 ------           -------- Executive Officers and Directors John W. Jordan, II (2) (3) (4) (5)            17,772.9119          18.0% David W. Zalaznick (3) (6)                    19,965.0000          20.3% Thomas H. Quinn (7)                                0.0000           0.0% Leucadia Investors, Inc. (3)                   9,969.9999          10.1% Jonathan F. Boucher                            5,533.8386           5.6% G. Robert Fisher (4) (8)                         624.3496           0.6% Joseph S. Steinberg (9)                            0.0000           0.0% Jesse Clyde Nichols III                            0.0000           0.0% Norman R. Bates                                    0.0000           0.0% All directors and officers as a group (5 persons) (3)                               53,866.1000          54.6%  University of Notre Dame                       8,547.9968           8.7%  ______________________  (1)    Calculated pursuant to Rule 13d-3 (d) under the Exchange Act. Under Rule        13d-3 (d), shares not outstanding which are subject to options, warrants,        and rights of conversion privileges exercisable within 60 days are deemed        outstanding for the purpose of calculating the number and percentage        owned by such person, but not deemed outstanding for the purpose of        calculating the percentages owned by each other person listed. As of        December 31, 2005, there were 98,501.0004 shares of Common Stock issued        and outstanding.  (2)    Includes 1 share held personally and 17,771.9119 shares held by the John        W. Jordan II Revocable Trust. Does not include 309.2933 shares held by        Daly Jordan O'Brien, a sister of Mr. Jordan, 309.2933 shares held by        Elizabeth O'Brien Jordan, also a sister of Mr. Jordan, or 309.2933 shares        held by George Cook Jordan, Jr., the brother of Mr. Jordan.  (3)    Does not include 100 shares held by The Jordan/Zalaznick Capital Company        ("JZCC") or 3,500 shares held by JZ Equity Partners PLC ("JZEP"), a        publicly traded U.K. investment trust advised by an Affiliate of The        Jordan Company (controlled by Messrs. Jordan and Zalaznick). Mr. Jordan,        Mr. Zalaznick and Leucadia, Inc. are the sole partners of JZCC. Mr.        Jordan and Mr. Zalaznick own and manage the advisor to JZEP.  (4)    Does not include 3,248.3332 shares held by the Jordan Family Trust,        of which John W. Jordan II, George Cook Jordan, Jr., and G. Robert        Fisher are the trustees.  (5)    Does not include 12,000 shares held by the John W. Jordan II Family        Limited Liability Company of which John W. Jordan II is a Manager.  (6)    Does not include 82.1697 shares held by Bruce Zalaznick, the brother        of Mr. Zalaznick.  (7)    Excludes 13,000 shares held by TQF, LLC of which Thomas H. Quinn is        the Manager.  (8)    Includes 624.3496 shares held by G. Robert Fisher, as trustee of the        G. Robert Fisher Irrevocable Gift Trust, U.T.I., dated December 26,        1990.  (9)    Excludes 9,969.9999 shares held by Leucadia Investors, Inc., of        which Joseph S. Steinberg is President and a director.                                        - 90 -             Stockholder Agreement. Each holder of outstanding shares of Common Stock of the Company is a party to a Stockholder Agreement, dated as of June 1, 1988 (the "Stockholder Agreement"), by and among the Company and such stockholders. The Stockholder Agreement subjects the transfer of shares of Common Stock by such stockholders to a right of first refusal in favor of the Company and "co-sale" rights in favor of the other stockholders, subject to certain restrictions. Under certain circumstances, stockholders holding 60% or more of the outstanding shares of Common Stock, on a fully diluted basis, have certain rights to require the other stockholders to sell their shares of Common Stock.
Employment Agreements; Stock Transactions. On February 25, 1988, the Company entered into an employment agreement with Thomas H. Quinn, pursuant to which Mr. Quinn became the President and Chief Operating Officer of the Company, effective January 1, 1988. See "Item 11-Employment Agreement".  JIR. As of December 31, 2003, 2004 and 2005 the Company had $18.5 million, $21.9 million and $23.0 million, respectively, of unsecured advances due from JIR Broadcast, Inc. and JIR Paging, Inc. The Chief Executive Officer of each of these companies is Mr. Quinn and its stockholders include Messrs. Jordan, Quinn, Zalaznick and Boucher, who are directors and stockholders of the Company as well as other partners, principals and associates of The Jordan Company who are also stockholders of the Company. These companies are engaged in the development of businesses in Russia and Austria, including the broadcast and paging sectors. In February and March of 2006, the Company sold 100% of their interests in JIR Broadcast and JIR Paging to a third party. The cash proceeds from the sales repaid the net receivables on the Company's books from these entities. Subsequent to the sales, the Company has no amounts due and owing from JIR Broadcast or JIR Paging.  JZ International, LLC. The Company, through Kinetek, has a $12.3 million investment in the Class A and Class B Preferred Units of JZ International, LLC. These debt securities are not publicly traded and do not have a determinable fair value. The cost method of accounting is used to account for this investment. The Preferred Units have a cumulative 5% annual return. The Class A Preferred Units may be redeemed at any time at the discretion of the Board of Directors of JZ International, but no later than December 31, 2017, whereas the Class B Preferred Units may be redeemed at any time at the discretion of the Board of Directors of JZ International, but no later than December 31, 2018. Each quarter, the Company evaluates the recoverability of this investment using information obtained from the management of this company. Based on the information obtained, the Company will record an impairment charge when it believes the investment has experienced a decline in value below its current carrying amount that is other than temporary. JZ International's Chief Executive Officer is David W. Zalaznick, and its members include Messrs. Jordan, Quinn, Zalaznick and Boucher, who are directors and stockholders of the Company. JZ International and its subsidiaries are focused on making European and other international investments. The Company is accounting for this investment under the cost method.  Healthcare Products Holdings, Inc. As of December 31, 2003, 2004 and 2005, the Company had $2.2 million, $2.5 million and $1.7 million, respectively, of net unsecured advances due from Healthcare Products Holdings, Inc. Healthcare Products Holdings' Chief Executive Officer is Mr. Quinn, and its stockholders                                       - 91 -   include Messrs. Jordan, Quinn, Zalaznick and Boucher, who are the Company's directors and stockholders, as well as other partners, principals and associates of The Jordan Company who are also the Company's stockholders.  Transaction Advisory Agreement. Each of the Company's subsidiaries are parties to an advisory agreement with the Company, referred to as the Transaction Advisory Agreement, pursuant to which, such subsidiaries pay to the Company (i) investment banking and sponsorship fees of up to 2.0% of the aggregate consideration paid in connection with acquisitions, joint ventures, minority investments or sales by each such subsidiary of all or substantially all of its or its subsidiaries capital stock, businesses or properties; (ii) financial advisory fees of up to 1.0% of the amount obtained or made available pursuant to any debt, equity or other financing or refinancing involving such subsidiary, in each case, arranged with the assistance of the Company or its affiliates; and (iii) reimbursement for the Company's out-of-pocket costs in connection with providing such services. Each Transaction Advisory Agreement contains indemnities in favor of the Company and its affiliates, and The Jordan Company and certain of its affiliates, including TJC Management Corporation, in connection with the Transaction Advisory Agreement and such services. The Transaction Advisory Agreement will expire in December 2007, but is automatically renewed after such date for successive one-year terms, unless any party provides written notice of termination 60 days prior to the scheduled renewal date. The Company recorded fees pursuant to the Transaction Advisory Agreement of $0 million, $0.1 million and $0 million for the years 2003, 2004 and 2005, respectively.  TJC Management Consulting Agreement. JII has entered into a consulting services agreement with TJC Management Corporation, an affiliate of The Jordan Company, referred to as the TJC Management Consulting Agreement, pursuant to which the Company will in turn pay to TJC Management Corporation (i) one-half of the investment banking, sponsorship and financing advisory fees paid to the Company pursuant to the Transaction Advisory Agreement, unless otherwise determined by our Board of Directors; (ii) (A) investment banking and sponsorship fees of up to 2.0% of the purchase price of acquisitions, joint ventures and minority investments or sales involving the Company or its other subsidiaries and (B) financial advisory fees of up to one-half of 1.0% of any debt, equity or other financing or refinancing involving the Company or such subsidiaries, in each case, arranged with the assistance of TJC Management Corporation or its affiliates, unless otherwise determined by the Company's Board of Directors; and (iii) reimbursement for TJC Management Corporation's and The Jordan Company's out-of-pocket costs incurred in connection with such services. The TJC Management Consulting Agreement also contains indemnities in favor of TJC Management Corporation and its affiliates and The Jordan Company and its affiliates in connection with such services. In consideration for these fees, the services of Mr. Jordan and the investment banking, sponsorship and advisory services of TJC Management Corporation will be provided to the Company. The TJC Management Consulting Agreement will expire in December 2007, but is automatically renewed after such date for successive one-year terms, unless either party provides written notice of termination 60 days prior to the scheduled renewal date. The Company did not pay TJC Management Corporation or The Jordan Company any fees or cost reimbursements for the years 2003, 2004 or 2005 under this agreement. Approximately, $9.7 million of such fees and cost reimbursements are accrued and unpaid under this agreement as of December 31, 2005.                                       - 92 -   Management Consulting Agreement. Each of the Company's subsidiaries are party to a consulting agreement with the Company, referred to as the Management Consulting Agreement, pursuant to which they pay to the Company annual consulting fees of up to the greater of (i) 3% of the net EBITDA (as defined) and other non-cash charges of each such subsidiary in each case, charged, expensed or accrued against such net income or (ii) 1.0% of such subsidiary's net sales for such services, payable quarterly, and will reimburse the Company for its out-of-pocket costs related to its services. The Management Consulting Agreement expires in December 2007, but is automatically renewed for successive one year terms, unless either party to the agreement provides written notice of termination 60 days prior to the scheduled renewal date.  JI Properties Services Agreement. The Company's nonrestricted subsidiary, JI Properties, Inc., entered into a services agreement, referred to as the JI Properties Services Agreement, with the Company and each of its other subsidiaries, pursuant to which JI Properties grants to the Company the right to use certain of its assets and provides certain services to the Company and such subsidiaries in connection with the use and/or operation of such assets. Pursuant to the JI Properties Services Agreement, the Company's subsidiaries will be charged the costs incurred in the use and/or operation of such assets used or operated by the Company and their allocable portion of costs associated with owning such assets which are not directly attributable to the operation or use of such assets and their relative revenues as compared with other subsidiaries. The JI Properties Services Agreement will expire in December 2007, but is automatically renewed for successive one year terms, unless either party provides written notice of termination 60 days prior to the scheduled renewal date. None of the Company's subsidiaries paid any fees to JI Properties under the JI Properties Service Agreement for the years 2003, 2004 or 2005.  The Company also allocates overhead, general and administrative charges and expenses among the Company's subsidiaries based on the respective revenues and usage of corporate overhead by its subsidiaries. The Company received approximately $7.1 million, $5.8 million and $4.6 million for the years ended December 31, 2003, 2004 and 2005, respectively, in respect of overhead allocation reimbursement.  Service and Fee Agreements. Two companies that are not subsidiaries - Healthcare Products Holdings, Inc. and Staffing Consulting Holdings, Inc. - are parties to service and fee agreements or arrangements with the Company and/or TJC Management Corporation, pursuant to which such companies will pay to the Company and/or TJC Management Corporation (i) investment banking and sponsorship fees of up to 2.0% of the aggregate consideration paid in connection with acquisitions, joint ventures, minority investments or sales by such companies of all or substantially all of their or their subsidiaries' capital stock, businesses or properties; (ii) financial advisory fees of up to 1.0% of any amount obtained or made available pursuant to debt, equity or other financing or refinancing involving such company, in each case, arranged with the Company's assistance or that of its affiliates; (iii) fees based upon a percentage of net EBITDA (as defined) or net sales; and (iv) reimbursement for the Company's and/or TJC Management Corporation's out of pocket costs in connection with providing such services. These fee agreements or arrangements contain indemnities in favor of the Company and its affiliates, including TJC Management Corporation, in connection with such services. Pursuant to the TJC Management Consulting Agreement, the Company, in turn, will also pay to TJC Management Corporation one-half of such investment banking, sponsorship and financial advisory fees and                                       - 93 -   its portion of such cost reimbursements, unless otherwise determined by the Company's Board of Directors. These fee agreements or arrangements will expire at various times from 2007 through 2009, but are automatically renewed after such date for successive one year terms, unless any party provides written notice of termination 60 days prior to the scheduled renewal date. Pursuant to these services and fee arrangements, the Company received approximately $0.3 million, $6.6 million, and $5.4 million for the years ended December 31, 2003, 2004 and 2005 respectively, which includes companies no longer under these agreements.  Tax Sharing Agreements. Each of the Company's subsidiaries and the Company are parties to a tax sharing agreement. Pursuant to the tax sharing agreement, each of the Company's consolidated subsidiaries owes to the Company, on an annual basis, an amount determined by reference to the separate return tax liability of the subsidiary as defined in Treasury Regulation Section 1.1552-1(a)(2)(ii). These income tax liabilities reflected a U.S. federal income tax rate of approximately 35% of each subsidiary's pre-tax income.  Legal Counsel. Mr. G. Robert Fisher, a director of, and secretary to, the Company, is a partner of Sonnenschein, Nath & Rosenthal LLP. Mr. Steven L. Rist, the general counsel and assistant secretary to the Company, is also a partner of Sonnenschein, Nath & Rosenthal LLP. Mr. Fisher, Mr. Rist and their law firm have represented the Company and The Jordan Company in the past, and expect to continue representing them in the future. In 2005, Sonnenschein, Nath & Rosenthal LLP was paid approximately $0.8 million in fees and expenses by the Company. The Company believes that the fees paid were equivalent to what it would have paid to an unaffiliated third party law firm for similar services.  Directors and Officers Indemnification. The Company has entered into indemnification agreements with certain members of the Company's Board of Directors whereby the Company has agreed, subject to certain exceptions, to indemnify and hold harmless each director from liabilities incurred as a result of such persons status as director of the Company.  Future Agreements. The Company has adopted a policy that future transactions between it and its officers, directors and other affiliates (including the Kinetek subsidiaries) must (i) be approved by a majority of the members of the Company's Board of Directors and by a majority of the disinterested members of the Company's Board of Directors and (ii) be on terms no less favorable to the Company than could be obtained from unaffiliated third-parties.                                                   - 94 -
The following table presents fees for professional services rendered by Ernst & Young LLP for the audit of the Company's annual financial statements for the years ended December 31, 2005 and 2004, and fees billed for other services rendered by Ernst & Young during those periods.                                         Year Ended December 31,                                        -----------------------                                        2005               2004                                        ----               ----           Audit                        $1,392             $1,499          Audit related                    23                123          Tax                             352                682                                       -------            -------             Total                     $1,767             $2,304                                       =======            =======                                                      - 95 -                                           Part IV
(1)      Financial Statements          --------------------          Reference is made to the Index to Consolidated Financial Statements          appearing at Item 8, which is incorporated herein by reference.  (2)      Financial Statement Schedule          ----------------------------          The following financial statement schedule for the years ended December          31, 2005, 2004, and 2003 is submitted herewith:           Item                                                    Page Number          ----                                                    -----------          Schedule II - Valuation and qualifying accounts              99           All other schedules for which provision is made in the applicable          accounting regulations of the Securities and Exchange Commission are          not required under the related instructions, are not applicable and          therefore have been omitted, or the information has been included in          the consolidated financial statements.  (3)      Exhibits          --------          An index to the exhibits required to be listed under this Item 15(a)          (3) follows the "Signatures" section hereof and is incorporated herein          by reference.                                                            - 96 -                                           SIGNATURES           Pursuant to the requirements of Section 13 or 15(d) of the Securities and Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.                                               JORDAN INDUSTRIES, INC.                                              By   /s/ John W. Jordan II                                               ---------------------------------                                               John W. Jordan II Dated:  March 24, 2006                        Chief Executive Officer                    Pursuant to the requirements of the Securities and 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.                                               By   /s/ John W. Jordan II                                               ---------------------------------                                               John W. Jordan, II Dated:  March 24, 2006                        Chairman of the Board of                                               Directors and Chief                                               Executive Officer                                                    By   /s/ Thomas H. Quinn                                               ---------------------------------                                               Thomas H. Quinn Dated:  March 24, 2006                        Director, President and                                               Chief Operating Officer                                                    By   /s/ Jonathan F. Boucher                                               ---------------------------------                                               Jonathan F. Boucher Dated:  March 24, 2006                        Director, Vice President,                                               and Assistant Secretary                                            - 97 -                                                 By   /s/ G. Robert Fisher                                               ---------------------------------                                               G. Robert Fisher Dated:  March 24, 2006                        Director, General Counsel                                               and Secretary                                                    By   /s/ David W. Zalaznick                                               ---------------------------------                                               David W. Zalaznick Dated:  March 24, 2006                        Director                                                    By   /s/ Joseph S. Steinberg                                               ---------------------------------                                               Joseph S. Steinberg Dated:  March 24, 2006                        Director                                                    By   /s/ Norman R. Bates                                               ---------------------------------                                               Norman R. Bates Dated:  March 24, 2006                        Vice President, Chief                                               Financial Officer                                                     - 98 -                                                                                                   Schedule II                                         JORDAN INDUSTRIES, INC.                                   VALUATION AND QUALIFYING ACCOUNTS                                        (dollars in thousands)                                                                  Uncollectible                                                 Additions        balances                                  Balance at     charged to      written off                    Balance                                  beginning       cost and         net of                      at end of                                  of period       expenses       recoveries         Other        period                                  ---------      ----------     -------------       -----      ---------       December 31, 2003:  Allowance for   doubtful accounts                6,298          2,947           (2,366)            433         7,312  December 31, 2004:  Allowance for   doubtful accounts                7,312          2,528           (2,695)             88         7,233 December 31, 2005:  Allowance for   doubtful accounts                7,233          1,336           (3,823)            233         4,979  December 31, 2003:  Valuation allowance                                   33,863         21,562               -                -        55,425 December 31, 2004:  Valuation allowance                                   55,425         17,728               -                -        73,153 December 31, 2005:  Valuation allowance               73,153         (1,615)              -                -        71,538                                                 - 99 -                                      EXHIBIT INDEX                                   ------------- 2(a)(4)       -- Agreement and Plan of Merger between Thos. D. Murphy Company                  and Shaw-Barton, Inc. 2(b)(5)       -- Asset Purchase Agreement between Alma Piston Company and                  Alma Products Holdings, Inc. dated as of February 26, 1999. 3(a)(1)       -- Articles of Incorporation of the Registrant. 3(b)(1)       -- By-Laws of the Registrant. 4(a)(8)       -- Series C and Series D 10 3/8% Senior Notes Indenture, dated                  March 22, 1999, between Jordan Industries, Inc. and U.S. Bank                  Trust National Association. 4(b)(7)       -- Series A and Series B 10 3/8% Senior Notes Indenture, dated                  July 25, 1997, between Jordan Industries, Inc. and First                  Trust National Association, as Trustee. 4(c)(8)       -- First Supplemental Indenture, dated March 9, 1999, between                  Jordan Industries, Inc. and U.S. Bank & Trust Company f/k/a                  First Trust National Association, as Trustee, to the 10 3/8%                  Senior Notes Indenture, dated July 25, 1997. 4(d)(7)       -- Series A and Series B 11 3/4% Senior Subordinated Discount                  Debentures Indenture, dated April 2, 1997, between Jordan                  Industries, Inc. and First Trust National Association, as                  Trustee. 4(e)(7)       -- First Supplemental Indenture, dated as of July 25, 1997,                  between Jordan Industries, Inc. and First Trust National                  Association, as Trustee, to the 11 3/4% Senior Subordinated                  Discount Debentures Indenture, dated as of April 2, 1997. 4(f)(8)       -- Second Supplemental Indenture, dated as of March 9, 1999,                  between Jordan Industries, Inc. and First Trust National                  Association, as Trustee, to the 11 3/4% Senior Subordinated                  Discount Debentures Indenture, dated as of April 2, 1997. 4(g)(8)       -- Global Series D Senior Note. 4(h)(7)       -- Global Series B Senior Note. 4(i)(7)       -- Global Series B Senior Subordinated Discount Debenture. 4(j)(11)      -- Indenture, dated November 7, 1996, between Kinetek, Inc. and                  Fleet National Bank. 4(k)(12)      -- First Supplemental Indenture, dated December 17, 1997,                  between Kinetek, Inc. and State Street Bank and Trust                  Company, as Trustee. 4(l)(12)      -- Indenture, dated December 17, 1997, between Kinetek, Inc.                  and State Street Bank and Trust Company, as Trustee. 4(m)(13)      -- 5% Indenture, dated as of April 12, 2002, among Kinetek                  Industries, Inc., U.S. Bank National Association, as Trustee                  and the Guarantors listed therein. 4(n)(16)      -- 13% Senior Secured Notes Indenture, dated February 18, 2004,                  by and among JII Holdings, LLC, JII Holdings Finance                  Corporation, Jordan Industries, Inc. and U.S. Bank National                  Association, as Trustee. 4(o)(16)      -- 13% Senior Secured Notes issued by JII Holdings, LLC and JII                  Holdings Finance Corporation (included in Exhibit 4(n)). 10(a)(1)      -- Stockholders Agreement, dated as of June 1, 1988, by and                  among the Registrant's holders of Common Stock. 10(b)(1)      -- Employment Agreement, dated as of February 25, 1988, between                  the Registrant and Thomas H. Quinn. 10(c)(1)      -- Restricted Stock Agreement, dated February 25, 1988, between                  the Registrant and Jonathan F. Boucher. 10(d)(1)      -- Restricted Stock Agreement, dated February 25, 1988, between                  the Registrant and Jack R. Lowden. 10(e)(1)      -- Restricted Stock Agreement, dated February 25, 1988, between                  the Registrant and Thomas H. Quinn. 10(f)(1)      -- Stock Purchase Agreement, dated June 1, 1988, between Leucadia                  Investors, Inc. and John W. Jordan, II. 10(g)(1)      -- Zero Coupon Note, dated June 1, 1988, issued by John W.                  Jordan, II to Leucadia Investors, Inc. 10(h)(1)      -- Pledge, Security and Assignment Agreement, dated June 1, 1988                  by John W. Jordan, II. 10(i)*        -- Amended and Restated Non-Negotiable Subordinated Note, dated                  as of June 30, 2002, issued by Pamco Printed Tape and Label                  (f/k/a Pamco Holdings, Inc.) in the initial principal amount                  of $6,112,501.                                        - 100 -    10(j)(2,14)   -- Tax Sharing Agreement, dated as of June 29, 1994, among the                  Company and the subsidiaries signatory thereto. 10(k)(7,2)    -- Properties Services Agreement, dated as of July 25, 1997,                  between Jordan Industries, Inc. and its subsidiaries. 10(l)(7,2)    -- Transition Agreement, dated as of July 25, 1997,                  between Jordan Industries, Inc. and Motors & Gears, Inc. 10(m)(7)      -- New TJC Management Consulting Agreement, dated as of July                  25, 1997, between TJC Management Corp. and Jordan Industries,                  Inc. 10(n)(7)      -- Termination Agreement, dated as of July 25, 1997, between                  Jordan Industries, Inc. and its subsidiaries. 10(o)(7,15)   -- Form of Indemnification Agreement between Jordan Industries,                  Inc. and its subsidiaries and their directors. 10(p)(14)     -- Non-Negotiable Subordinated Note, dated as of February 11,                  1998, issued by Deflecto (f/k/a Deflecto Holdings, Inc.) in                  the initial principal amount of $5,000,000. 10(q)(14)     -- Non-Negotiable Subordinated Note, dated as of February 27,                  1998, issued by Rolite (f/k/a Rolite Holdings, Inc.) in the                  initial principal amount of $900,000. 10(r)(14)     - Non-Negotiable Subordinated Note, dated as of June 2, 2000,                  issued by Instachange (f/k/a IDL Holdings Limited) in the                  initial principal amount of $3,714,285 (Canadian Dollars). 10(s)(2,14)   -- Management Consulting Agreement, dated as of August 10,                  2001, among JII, Inc. and the subsidiaries signatory thereto. 10(t)(2,14)   -- Transaction Advisory Agreement, dated as of August 10, 2001,                  among JII, Inc. and the subsidiaries signatory thereto. 10(u)(9)      -- Loan and Security Agreement, dated as of August 16, 2001,                  among JII, Inc. as borrower, the Company as parent guarantor,                  the subsidiaries signatory thereto as subsidiary guarantors,                  Congress Financial Corporation (Central) as agent and First                  Union Bank as lender. 10(v)(2,14)   -- Intercompany Loan Agreement, dated as of August 16, 2001,                  among JII, Inc. and the subsidiaries signatory thereto, and                  accompanying Demand Notes. 10(w)(10)     -- Loan and Security Agreement, dated as of December 18, 2001,                  among Kinetek Industries, Inc. as borrower, Kinetek, Inc. as                  parent guarantor, the subsidiaries signatory thereto as                  borrowers or subsidiary guarantors and Fleet Capital                  Corporation as agent. 10(x)(10)     -- Management Consulting Agreement, dated as of December 14,                  2001, among the Company, Motors and Gears Holdings, Inc. and                  the subsidiaries signatory thereto. 10(y)(10)     -- Transaction Advisory Agreement, dated as of December 14,                  2001, among the Company, Motors and Gears Holdings, Inc. and                  the subsidiaries signatory thereto. 10(z)(10)     -- Properties Services Agreement, dated as of December 14,                  2001, among JI Properties, Inc., Motors and Gears Holdings,                  Inc. and the subsidiaries signatory thereto. 10(aa)(10)    -- Agreement to Join in the Filing of Consolidated Income Tax                  Returns, dated as of December 14, 2001, among the Company,                  Motors and Gears Holdings, Inc. and the subsidiaries                  signatory thereto. 10(bb)(11)    -- Merkle-Korff Industries, Inc. Non-Negotiable Subordinated                  Note in the principal aggregate amount of $5,000,000 payable                  to John D. Simms Revocable Trust Under Agreement. 10(cc)(12)    -- Electrical Design and Control Company, Inc. Non-Negotiable                  Subordinated Note in the principal aggregate amount of                  $1,333,333 payable to Tina Levire.                                 - 101 -   10(dd)(12)    -- Electrical Design and Control Company, Inc. Non-Negotiable                  Subordinated Note in the principal aggregate amount of                  $1,333,333 payable to Marta Monson. 10(ee)(12)    -- Electrical Design and Control Company, Inc. Non-Negotiable                  Subordinated Note in the principal aggregate amount of                  $1,333,334 payable to Eric Monson. 10(ff)(16)    -- Amendment No. 5 to Loan and Security Agreement, dated as of                  February 18, 2004 by and among the financial institutions                  listed on the signature pages thereto, Congress Financial                  Corporation (Central), as agent for the lenders, and JII LLC. 10(gg)(16)    -- Intercreditor Agreement, dated as of February 18, 2004, by                  and between U.S. Bank National Association, as Collateral                  Agent, and Congress Financial Corporation (Central), as                  Administrative Agent. 10(hh)(16)    -- Waiver Agreement, dated as of January 31, 2004, by and                  between Jordan Industries, Inc. and the other persons                  signatory thereto. 10(ii)(16)    -- Modification Agreement, dated as of February 18, 2004, by                  and among Jordan Industries, Inc. and those holders of Jordan                  Industries' 11 3/4% Senior Subordinated Discount Debentures                  due 2009 identified on Schedule A attached thereto, including                  Addendum thereto dated April 1, 2004. 12*           -- Statements re. Computation of Ratios. 21*           -- Subsidiaries of the Registrant. 31(a)*        -- Certification of John W. Jordan II 31(b)*        -- Certification of Norman R. Bates 32(a)*        -- Certification of John W. Jordan II pursuant to Section 906 of                  The Sarbanes-Oxley Act of 2002. 32(b)*        -- Certification of Norman R. Bates pursuant to Section 906 of                  The Sarbanes-Oxley Act of 2002.                                                     - 102 -   (1)      Incorporated by reference to the Company's Registration Statement on          Form S-1 (no. 33-24317) (2)      The Company entered into Inter-company Demand Notes, Inter-company          Management Consulting Agreements, Inter-company Transaction Advisory          Agreements, Inter-company Properties Services Agreements and          Inter-company Tax Sharing Agreements with each subsidiary not a          signatory to the agreements incorporated by reference in this report,          which are identical in all material respects with the notes and          agreements incorporated by reference in this Report. Copies of such          additional notes and agreements have therefore not been included as          exhibits to this filing, in accordance with Instruction 2 to Item 601          of Regulation S-K.  (3)      Incorporated by reference to the Company's 1988 Form 10-K. (4)      Incorporated by reference to the Company's 1989 First Quarter          Form 10-Q. (5)      Incorporated by reference to the Company's Form 8-K filed          April 1, 1999. (6)      Incorporated by reference to the Company's 1990 Third Quarter          Form 10-Q. (7)      Incorporated by reference to the Company's Registration Statement          on Form S-4 (No.333-34529) filed September 9, 1997. (8)      Incorporated by reference to the Company's Registration Statement on          Form S-4 (No. 333-77667) filed May 4, 1999. (9)      Incorporated by reference to the Company's Form 8-K filed          August 31, 2001. (10)     Incorporated by reference to the 2001 Form 10-K of Kinetek, Inc.          filed March 28, 2002. (11)     Incorporated by reference to the 1996 Form S-4 Registration Statement          of Kinetek, Inc. (12)     Incorporated by reference to the 1998 Form S-4 Registration Statement          of Kinetek, Inc. (13)     Incorporated by reference to the 8-K of Kinetek, Inc., dated          May 8, 2002. (14)     Incorporated by reference to the Company's 2001 Form 10-K. (15)     The form of indemnification agreement was entered into with all of          the Company's directors and is identical in all material respects          with the form included. Copies of the additional indemnification          agreements have therefore not been included as exhibits to this          filing, in accordance with Instruction 2 to Item 601 of Regulation          S-K. (16)     Incorporated by reference to the 2004 Form S-4 Registration          Statement (File No. 333-116554) of Jordan Industries, Inc.  *        Filed herewith.                                                  - 103 -      EX-12 2 ex-12.txt                                                                         EXHIBIT 12                               JORDAN INDUSTRIES, INC.              COMPUTATIONS OF THE RATIOS OF EARNINGS TO FIXED CHARGES                              (dollars in thousands)                                                     Year Ended December 31,                                          --------------------------------------                                             2005          2004          2003                                             ----          ----          ---- Fixed Charges:      Interest expense                     $54,720       $66,048       $83,215      Rental expenses included       in fixed charges                      5,900         5,198         4,927                                           --------      --------      --------               Total Fixed Charges          60,620        71,246        88,142 Earnings:      Pre-tax (loss)                          (122)       (4,901)      (35,096)      Plus: fixed charges                   60,620        71,246        88,142                                           --------      --------      --------               Total Earnings               60,498        66,345        53,046                                           --------      --------      --------  Ratio of Earnings to Fixed Charges           1.00          0.93          0.60                                              ====          ====          ====                    EX-21 3 ex-21.txt   As of March 24, 2006                                                EXHIBIT 21                       SUBSIDIARIES OF JORDAN INDUSTRIES, INC.                      ---------------------------------------                                                                   Jurisdiction Subsidiaries                                                   of Incorporation - ------------                                                   ---------------- JII Holdings, LLC                                                  Delaware - ----------------- ArborLake Centre 1751 Lake Cook Road, Suite 550 Deerfield, Illinois 60015  JII Holdings Finance Corporation (1)                               Delaware - -------------------------------- ArborLake Centre 1750 Lake Cook Road, Suite 550 Deerfield, Illinois 60015  JII LLC (1)                                                        Delaware - ------- ArborLake Centre 1751 Lake Cook Road, Suite 550 Deerfield, Illinois 60015  The Old Imperial Electric Company (inactive)(1)                      Ohio - -------------------------------------------- ArborLake Centre 1751 Lake Cook Road, Suite 550 Deerfield, Illinois 60015  The Old Scott Motors Company (inactive) (2)                        Delaware - --------------------------------------- ArborLake Centre 1751 Lake Cook Road, Suite 550 Deerfield, Illinois 60015  Old Gear Research, Inc. (inactive) (2)                             Delaware - ---------------------------------- ArborLake Centre 1751 Lake Cook Road, Suite 550 Deerfield, Illinois 60015  Sate-Lite Manufacturing Company (3)                                  Ohio - ------------------------------- 6220-30 Gross Point Road Niles, Illinois 60714  Sate-Lite HK, Inc. (4)                                             Delaware - ------------------ 6220-30 Gross Point Road Niles, Illinois 60714  Deflecto Asia, Ltd. (name change) (4)                              Hong Kong - ---------------------------------  Sate-Lite (Foshan) Traffic Equipment, Ltd. (5)                     China - ------------------------------------------ No. 2 Xinchi Industrial Park, LeLiu Town Foshan City, Guangdong The People's Republic of China  Sate-Lite (Foshan) Plastics Co., Ltd. (5)                          China - ------------------------------------- No. 2 Xinchi Industrial Park, LeLiu Town Foshan City, Guandong The People's Republic of China                                           1                                                                      Jurisdiction Subsidiaries                                                   of Incorporation - ------------                                                   ----------------  DACCO, Incorporated (6)                                            Ohio - ------------------- 741 Dacco Drive/769 Dacco Drive P.O. Box 2789/P.O. Box 38502 Cookeville, Tennessee 38506  710 Cumberland Ave. P.O. Box 250/37345 Huntland, Tennessee 37345  1903 Bowser Road P.O. Box 2789/P.O. Box 38502 Cookeville, Tennessee 38506  TruTest Converters Company (assumed name of DACCO, Inc.) 3015 W. Montrose Chicago, Illinois 60618  Transparts of Chicago, Inc. (assumed name of DACCO, Inc.) 2952 W. 95th Street Evergreen Park, Illinois  401 Terrace Drive Mundelein, IL 60445  4440 West 147th Street Midlothian, Illinois 60445  Detroit Transmission Products Co.(7)                            California - --------------------------------- 2622 North Wigwam Stockton, California 95205  10115 Mission Gorge Road Santee, CA  1541 West Brooks Street Ontario, CA  DACCO/Detroit of Ohio, Inc.(7)                                     Ohio - --------------------------- 3316 Refugee Road Columbus, Ohio 43232  2280A East Central Avenue Miamisburg, Ohio 45342  1245 South Cleveland-Massillon Road Suite 4, Warehouse C Akron, OH 44321  6750 Brookpark Road #212, 213, 214 P.O. Box 1302 - Akron, Ohio 44309-1302 Cleveland Ohio 44129                                      2                                                                    Jurisdiction Subsidiaries                                                   of Incorporation - ------------                                                   ----------------  ABC Transmission Parts Warehouse, Inc.(7)                        Tennessee - -------------------------------------- 115 West Anderson Avenue Knoxville, Tennessee 37917  Nashville Transmission Parts, Inc.(7)                            Tennessee - ---------------------------------- 210 North First Street Nashville, Tennessee 37213  DACCO/Detroit of Florida, Inc. (7)                               Florida - ------------------------------ 3611 W. Chestnut, St. Tampa, Florida 33607  3697 N.W. 15th Street Lauderhill, Florida 33311  613 Triumph Court, Bay 6 Orlando, Florida 32805  9900-D N. Palafax Street Pensacola, Florida 32534  1822 Wabasso Drive West Palm Beach, Florida 33409  DACCO/Detroit of Minnesota, Inc.(7)                              Minnesota - -------------------------------- 817 Vandalia Street, Unit 2A St. Paul, Minnesota 55114  DACCO/Detroit of Indiana, Inc.(7)                                 Indiana - ------------------------------ 4839 East 23rd Street Indianapolis, Indiana 46218  8601 Indiana Street Merrillville, Indiana 46410  401 North 7th Avenue Evansville, Indiana 47710  DACCO/Detroit of Missouri, Inc.(7)                               Missouri - ------------------------------- 3115 Locust Street St. Louis, Missouri 63103  DACCO/Detroit of North Carolina, Inc.(7)                      North Carolina - ------------------------------------ (inactive) 741 DACCO Drive P.O. Box 2789 Cookeville, Tennessee 38506  DACCO/Detroit of Memphis, Inc.(7)                                Tennessee - ------------------------------ 2689 Longate Drive Memphis, Tennessee 38132                                       3                                                                    Jurisdiction Subsidiaries                                                   of Incorporation - ------------                                                   ----------------  DACCO/Detroit of Nebraska, Inc.(7)                                 Nebraska - ------------------------------- 3314 North 88th Plaza Omaha, Nebraska 68134  DACCO/Detroit of Alabama, Inc. (7)                                  Alabama - ------------------------------ 3925 2nd Avenue South Birmingham, Alabama 35222  3943-D Government Blvd. Mobile, Alabama 36693  3060 Leeman Ferry Road SW P.O. Box 102 (35804) Huntsville, Alabama 35801  9580 Highway 20, West, Suite 2 Madison, Alabama 35758  360 Oliver Road, Suite B Montgomery, Alabama 36117  DACCO/Detroit of New Jersey, Inc.(7)                              New Jersey - --------------------------------- (inactive) 741 Dacco Drive P.O. Box 2789 Cookeville, Tennessee 38506  DACCO/Detroit of Michigan, Inc.(7)                                 Michigan - ------------------------------- 3514 South Saginaw Street Flint, Michigan 48503  DACCO/Detroit of Arizona, Inc.(7)                                   Arizona - ------------------------------ 2301 North 35th Avenue Phoenix, Arizona 85009  145 West Juanita, Suite 4 Mesa, Arizona 85210  DACCO/Detroit of Oklahoma, Inc.(7)                                 Oklahoma - ------------------------------- 2500 West Lindley Oklahoma City, Oklahoma 73107  DACCO/Detroit of Texas, Inc.(7)                                      Texas - ---------------------------- 2504 Weaver Street Haltom City, Texas 76117  2636 Farrington Street Dallas, Texas 75207  DACCO/Detroit of South Carolina, Inc.(7)                        South Carolina - ------------------------------------- 128A Grace Drive Easley, South Carolina 29640                                       4                                                                    Jurisdiction Subsidiaries                                                   of Incorporation - ------------                                                   ----------------  DACCO/Detroit of West Virginia, Inc.(7)                          West Virginia - ------------------------------------ 5518 MacCorkle Avenue, S.W. South Charleston, West Virginia 25309  DACCO/Detroit of Pennsylvania, Inc. (7)                          Pennsylvania - ----------------------------------- 250 Paulson Street Pittsburgh, Pennsylvania 15206  DACCO/Detroit of Chattanooga, Inc.(7)                              Tennessee - ---------------------------------- 2315 Cannon Avenue Chattanooga, Tennessee 37408  DACCO/Detroit of Virginia, Inc.(7)                                 Virginia - ------------------------------- 5016 Byrd Industrial Drive Richmond, Virginia 23231  1395 Air Rail Avenue Virginia Beach, Virginia 23455  DACCO/Detroit of Kentucky, Inc.(7)                                 Kentucky - ------------------------------- 904 Ulrich Avenue Louisville, Kentucky 40219  DACCO/Detroit of Georgia, Inc.(7)                                   Georgia - ------------------------------ 3810 Lake Street Macon, Georgia 31204  485 Buford Drive, Unit 218 Lawrenceville, Georgia 30045  1880 Commerce Road Athens, GA 30607  DACCO/Detroit of Nevada, Inc. (7)                                   Nevada - ----------------------------- 4620 Mitchell St., Suite H North Las Vegas, Nevada 89081  DACCO/Detroit of Maryland, Inc.(7)                                 Maryland - ------------------------------- 175 Penrod Court, Suite M Glen Burnie, Maryland 21061  DACCO/Detroit of Wisconsin, Inc.(7)                                Wisconsin - -------------------------------- 2102 South 55th Street, Unit 3 West Allis, Wisconsin 53219  DACCO Transmission Parts (NY), Inc.(7)                             New York - ----------------------------------- 80 Dubelbeiss Lane Rochester, New York 14622  DACCO Transmission Parts (NM)(7)                                   New Mexico - ----------------------------- 1500 3rd Street NE, Suite C Albuquerque, NM 87102                                       5                                                                    Jurisdiction Subsidiaries                                                   of Incorporation - ------------                                                   ----------------  JI Properties, Inc.(1)                                             Delaware - ------------------- 767 Fifth Avenue, 48th Floor New York, New York 10153  Welcome Home LLC (8)                                               Delaware - ---------------- 309-D Raleigh Street Wilmington, North Carolina 28412  SPL Holdings, Inc.(9)                                              Illinois - ------------------ ArborLake Centre, Suite 550 1751 Lake Cook Road Deerfield, Illinois 60015  Valmark Industries, Inc.(10)                                       Delaware - ------------------------ 7900 National Drive Livermore, California 94550  JII Promotions, Inc.(inactive) (10)                                Delaware - -------------------- ArborLake Centre, Suite 550 1751 Lake Cook Road Deerfield, Illinois 60015  Seaboard Folding Box Corporation (10)                              Delaware - -------------------------------- 35 Daniels Street Fitchburg, Massachusetts 01420-7606  Pioneer Paper Corporation (11)                                     Delaware - ------------------------- 50 Triangle Boulevard Carlstadt, New Jersey  07072  Pamco Printed Tape & Label Co, Inc.(12)                            Delaware - ----------------------------------- 2200 South Wolf Road Des Plaines, Illinois 60018  Old Viewsonics, Inc. (inactive)(1)                                 Delaware - -------------------- ArborLake Centre 1751 Lake Cook Road, Suite 550 Deerfield, Illinois 60015  Old DL, Inc.(inactive)(1)                                          Delaware - ------------ ArborLake Centre 1751 Lake Cook Road, Suite 550 Deerfield, Illinois 60015  Old Cambridge Products Corporation (inactive)(1)                   Delaware - ---------------------------------- ArborLake Centre 1751 Lake Cook Road, Suite 550 Deerfield, Illinois 60015  Old Johnson Components, Inc. (inactive)(1)                         Delaware - ---------------------------- ArborLake Centre 1751 Lake Cook Road, Suite 550 Deerfield, Illinois 60015                                       6                                                                    Jurisdiction Subsidiaries                                                   of Incorporation - ------------                                                   ----------------  Cho-Pat, Inc.(inactive)(8)                                       Delaware Arbor Lake Centre 1751 Lake Cook Road, Suite 550 Deerfield, Illinois 60015  Jordan Specialty Plastics, Inc.(13)                              Delaware ArborLake Centre 1751 Lake Cook Road, Suite 550 Deerfield, Illinois 60015  Beemak Plastics, Inc.(3)                                         Delaware 13921 Bettencourt Street Cerritos, California 90703  Deflecto Corporation (3)                                         Delaware 7035 East 86th Street Indianapolis, Indiana 46250  Deflecto Canada, Ltd. (14)                                        Canada 221-223 Bunting Road St. Catherines, Ontario L2M 3Y2  Rolite Plastics, Inc.(14)                                        Delaware 303 Oxford Street Dover, Ohio  44622  Tele-Flow, Inc. (14)                                             Delaware - --------------- 8101 Fite Road Pearland, Texas 77584  YT Holdings, Inc. (14)                                           Delaware - ----------------- ArborLake Centre 1751 Lake Cook Road, Suite 550 Deerfield, Illinois 60015  Yearntree Limited (15)                                        United Kingdom Units 1-5 Estuary Road Queensway Meadows Industrial Estate Newport Wales NP9 0SL  Jordan Auto Aftermarket, Inc. (13)                               Delaware ArborLake Centre 1751 Lake Cook Road, Suite 550 Deerfield, Illinois 60015  Alma Products I, Inc. (6)                                        Michigan 2000 Michigan Avenue Alma, MI 48801                                       7                                                                    Jurisdiction Subsidiaries                                                   of Incorporation - ------------                                                   ----------------  Specialty Internet Holdings, LLC (inactive) (16)                 Delaware ArborLake Centre 1751 Lake Cook Road, Suite 550 Deerfield, Illinois 60015  Instachange Displays, Ltd. (14)                                 Nova Scotia 230 Edward Street Aurora, Ontario L4G 3S8  JI Ventures, Inc. (8)                                            Delaware - ----------------- ArborLake Centre 1751 Lake Cook Road, Suite 550 Deerfield, Illinois 60015  Atco Products, Inc. (6)                                          Delaware 601 Interstate 45 Ferris, Texas 75125  GramTel, LLC (17)                                                Delaware - ------------ ArborLake Centre 1751 Lake Cook Road, Suite 550 Deerfield, IL 60015  GramTel USA, Inc. (18)                                           Delaware - ----------------- 316 East Monroe Street Southbend, Indiana 46601  GramTel - Midwest, Inc. (19)                                     Delaware 316 East Monroe Street Southbend, Indiana 46601  GramTel - Illinois, Inc. (19)                                    Delaware 316 East Monroe Street Southbend, Indiana 46601  GramTel Internet Service, Inc.(19)                               Delaware 316 East Monroe Street Southbend, Indiana 46601  GramTel Europe, LLC (20)                                         Delaware - -------------------- 316 East Monroe Street Southbend, Indiana 46601  Material Assets - --------------- The Parent owns all of the outstanding Class A Common Stock issued by Motors & Gears Holdings, Inc. and Preferred Stock of SIH and GramTel USA, Inc. JII LLC a wholly-owned subsidiary of the Parent owns all of the Class A Common Stock of JAAI and JSP.                                        8     Footnotes - ---------  (1)      A wholly-owned subsidiary of JII Holdings, LLC  (2)      A wholly-owned subsidiary of The Old Imperial Electric Company  (3)      A wholly-owned subsidiary of Jordan Specialty Plastics, Inc.  (4)      A wholly-owned subsidiary of Sate-Lite Manufacturing Company  (5)      A wholly-owned subsidiary of Sate-Lite Manufacturing Company organized          as a Chinese Wholly Owned Foreign Entity  (6)      A wholly-owned subsidiary of Jordan Auto Aftermarket, Inc.  (7)      A wholly-owned subsidiary of DACCO, Incorporated  (8)      A wholly-owned subsidiary of JII LLC  (9)      JII LLC owns 100% of the voting rights and 83.3% of the common shares          of the company. 16.7% of the common shares of the company are owned by          shareholders of Jordan Industries, Inc. and certain other persons.  (10)     A wholly-owned subsidiary of SPL Holdings, Inc.  (11)     A wholly-owned subsidiary of Seaboard Folding Box Corporation  (12)     SPL Holdings, Inc. owns 100% of the voting rights and 80% of the          common stock.  (13)     JII LLC owns 100% of the voting rights, is entitled to a 6.0% return on          its investment, and following such return, is entitled to 97.5% of the          economic rights. The common shares of the company are owned by Jordan          Industries, Inc., Jordan Industries, Inc. shareholders and certain          other persons.  (14)     A wholly-owned subsidiary of Deflecto Corporation  (15)     A wholly-owned subsidiary of YT Holdings, Inc.  (16)     Jordan Industries, Inc. owns 80% of the voting rights, 51% of the          economic rights and participates in 51% of the cumulative net income or          net loss of the company. The common units of the company are owned by          shareholders of Jordan Industries, Inc. and certain other persons. The          Company is inactive.  (17)     The common units of GramTel, LLC are owned by shareholders of Jordan          Industries, Inc. and certain other persons.  (18)     JII LLC owns 100% of the voting rights, 51% of the economic rights and          participates in 51% of the cumulative net income or net loss of the          company. 99% of the common shares of the company are owned by GramTel,          LLC.  (19)     A wholly-owned subsidiary of GramTel USA, Inc.  (20)     Jordan Industries, Inc. owns 80% of the voting rights.  100% of the          common shares of the company are owned by GramTel, LLC.                                        9                              MOTORS AND GEARS HOLDINGS, INC.                                   SUBSIDIARIES                          ------------------------------                                                                   Jurisdiction Subsidiaries                                                   of Incorporation - ------------                                                   ----------------   Kinetek, Inc. (1)                                                   Delaware - ------------- (f/k/a) Motors and Gears, Inc. ArborLake Centre 1751 Lake Cook Road, Suite 550 Deerfield, IL 60015  Kinetek Industries, Inc. (2)                                        Delaware - ----------------------- (f/k/a) Motors and Gears Industries, Inc. ArborLake Centre 1751 Lake Cook Road, Suite 550 Deerfield, IL 60015  Merkle-Korff Industries, Inc.(3)                                    Illinois - ---------------------------- 1776 Winthrop Drive Des Plaines, IL 60018-1980  Merkle-Korff de Mexico S.A. de C.V.(4)                              Mexico - ----------------------------------- Av. C.F.E. No. 830, Parque Industrial Millennium Zona Industrial del Potosi San Luis Potosi, S.L.P. C.P. 78395  The Imperial Electric Company (3)                                   Delaware - ----------------------------- 1503 Exeter Road Akron, Ohio 44306  Gear Research, Inc. (5)                                             Delaware - ------------------- 4329 Eastern Avenue, S.E. Grand Rapids, Michigan 49508  Motion Holdings, Inc. (3)                                           Delaware - -------------------- ArborLake Centre 1751 Lake Cook Road, Suite 550 Deerfield, IL 60015  Motion Control Engineering, Inc. (6)                                California - ------------------------------- 11380 White Rock Road Rancho Cordova, CA 95742  Old ED& C, Inc. (3)                                                 Delaware - --------------- ArborLake Centre 1751 Lake Cook Road, Suite 550 Deerfield, IL 60015  Advanced D.C. Holdings, Inc. (3)                                    Delaware - ---------------------------- ArborLake Centre 1751 Lake Cook Road, Suite 550 Deerfield, IL 60015  Advanced D.C. Motors, Inc. (7)                                      New York - -------------------------- 6268 East Molloy Road East Syracuse, NY 13057                                        10                                                                    Jurisdiction Subsidiaries                                                   of Incorporation - ------------                                                   ----------------  MW Corporation (8)                                                  Georgia - -------------- 6268 East Molloy Road East Syracuse, NY 13057  Sermed S.A.R.L. (9)                                                 France - --------------- Eternoz - 25330 Amancey France  Advanced D.C. Motors GmbH (10)                                      Germany - -------------------------  FIR Group Holdings, Inc. (3)                                        Delaware - ------------------------ ArborLake Centre 1751 Lake Cook Road, Suite 550 Deerfield, IL 60015  SelinSistemi, S.p.A. (12)                                           Italy - -------------------- Via Chiaravagna, 28 16153 Genova-Sestri P  FIR Electromeccanica, S.p.A. (12)                                   Italy - --------------------------- Via Roma n. 19 26041 Casalmaggiore   CR  T.E.A. International, S.r.l.(12)                                    Italy - ----------------------------  Kinetek Asia Holdings, Inc. (3)                                     Delaware - -------------------------- ArborLake Centre, Suite 550 1751 Lake Cook Road Deerfield, IL 60015  Kinetek De Sheng (Foshan) Motor Co., Ltd. (13)                      China - ----------------------------------------- No. 82, Jizhou Section, Shiliang Road Lunjiao Town, Shunde City Guangdong Province The People Republic of China 528308  KII Canada, Inc. (3)                                                Nova Scotia - ---------------- ArborLake Centre 1751 Lake Cook Road, Suite 550 Deerfield, IL 60015                                        11    Footnotes  (1)      A wholly owned subsidiary of Motors and Gears Holdings, Inc.  (2)      A wholly owned subsidiary of Kinetek, Inc.  (3)      A wholly owned subsidiary of Kinetek Industries, Inc.  (4)      Merkle-Korff Industries, Inc. owns 99.99% of the capital stock of          the corporation and Kinetek, Inc. owns the remaining capital stock          of the corporation.  (5)      A wholly owned subsidiary of The Imperial Electric Company  (6)      A wholly owned subsidiary of Motion Holdings, Inc.  (7)      A wholly owned subsidiary of Advanced D.C. Holdings, Inc.  (8)      A wholly owned subsidiary of Advanced D.C. Motors, Inc.  (9)      A 99% owned subsidiary of Advanced D.C. Motors, Inc.  (10)     A 90% owned subsidiary of Advanced D.C. Motors, Inc.  (11)     A wholly owned subsidiary of FIR Group Holdings, Inc.  (12)     A wholly owned subsidiary of FIR Group Holdings, Italia, s.r.l.  (13)     An 80% owned subsidiary of Kinetek Asia Holdings, Inc.                                                     12    EX-31.(A) 4 ex-31a.txt                                                                    Exhibit 31(a)                                     CERTIFICATE  I, John W. Jordan II, certify that:  1)       I have reviewed this annual report on Form 10-K of Jordan Industries,          Inc;  2)       Based on my knowledge, this annual report does not contain any untrue          statement of a material fact or omit to state a material fact necessary          to make the statements made, in light of the circumstances under which          such statements were made, not misleading with respect to the period          covered by this annual report;  3)       Based on my knowledge, the financial statements, and other financial          information included in this annual report, fairly present in all          material respects the financial condition, results of operations and          cash flows of the registrant as of, and for, the periods presented in          this annual report;  4)       The registrant's other certifying officers and I are responsible for          establishing and maintaining disclosure controls and procedures (as          defined in Exchange Act Rules 13a-15 and 15d-15) for the registrant and          we have:           a) Designed such disclosure controls and procedures, or caused such             disclosure controls and procedures to be designed under our             supervision, to ensure that material information relating to the             registrant, including its consolidated subsidiaries, is made known             to us by others within those entities, particularly during the             period in which this annual report is being prepared;           b) Evaluated the effectiveness of the registrant's disclosure controls             and procedures, and presented in this annual report our conclusions             about the effectiveness of the disclosure controls and procedures,             as of the end of the period covered by this annual report based on             such evaluation; and           c) Disclosed in this annual report any change in the registrant's             internal control over financial reporting that occurred during the             period covered by the annual report that has materially affected,             or is reasonably likely to materially affect, the registrant's             internal control over financial reporting;  5)       The registrant's other certifying officer and I have disclosed, based          on our most recent evaluation of internal control over financial          reporting, to the registrant's auditors and the audit committee of the          registrant's board of directors (or persons performing the equivalent          function):           a) All significant deficiencies and material weaknesses in the design             or operation of internal control over financial reporting which are             reasonably likely to adversely affect the registrant's ability to             record, process, summarize and report financial information; and           b) Any fraud, whether or not material, that involves management or             other employees who have a significant role in the registrant's             internal control over financial reporting.      Date: March 24, 2006                                                    /s/  John W. Jordan II                                                    --------------------------                                                    Name: John W. Jordan II                                                    Title: Chairman and CEO      EX-31.(B) 5 ex-31b.txt                                                                    Exhibit 31(b)                                     CERTIFICATE  I, Norman R. Bates, certify that:  1)       I have reviewed this annual report on Form 10-K of Jordan Industries,          Inc;  2)       Based on my knowledge, this annual report does not contain any untrue          statement of a material fact or omit to state a material fact necessary          to make the statements made, in light of the circumstances under which          such statements were made, not misleading with respect to the period          covered by this annual report;  3)       Based on my knowledge, the financial statements, and other financial          information included in this annual report, fairly present in all          material respects the financial condition, results of operations and          cash flows of the registrant as of, and for, the periods presented in          this annual report;  4)       The registrant's other certifying officers and I are responsible for          establishing and maintaining disclosure controls and procedures (as          defined in Exchange Act Rules 13a-15 and 15d-15) for the registrant and          we have:           a) Designed such disclosure controls and procedures, or caused such             disclosure controls and procedures to be designed under our             supervision, to ensure that material information relating to the             registrant, including its consolidated subsidiaries, is made known             to us by others within those entities, particularly during the             period in which this annual report is being prepared;           b) Evaluated the effectiveness of the registrant's disclosure controls             and procedures, and presented in this annual report our conclusions             about the effectiveness of the disclosure controls and procedures,             as of the end of the period covered by this annual report based on             such evaluation; and           c) Disclosed in this annual report any change in the registrant's             internal control over financial reporting that occurred during the             period covered by the annual report that has materially affected,             or is reasonably likely to materially affect, the registrant's             internal control over financial reporting;  5)       The registrant's other certifying officer and I have disclosed, based          on our most recent evaluation of internal control over financial          reporting, to the registrant's auditors and the audit committee of the          registrant's board of directors (or persons performing the equivalent          function):           a) All significant deficiencies and material weaknesses in the design             or operation of internal control over financial reporting which are             reasonably likely to adversely affect the registrant's ability to             record, process, summarize and report financial information; and           b) Any fraud, whether or not material, that involves management or             other employees who have a significant role in the registrant's             internal control over financial reporting.   Date: March 24, 2006                                            /s/     Norman R. Bates                                            ----------------------------                                            Name: Norman R. Bates                                            Title: VP, Chief                                            Financial Officer         EX-32.(A) 6 ex-32a.txt                                                                     EXHIBIT 32(a)                    CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER             PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002        The undersigned, being the Chief Executive Officer of Jordan Industries, Inc., an Illinois corporation (the "Registrant"), hereby certifies that the Annual Report on Form 10-K (the "Annual Report") of the Registrant for the year ended December 31, 2005, which accompanies this certification, fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934 (15 U.S.C. ss.78m(a)) and that the information contained in the Annual Report fairly presents, in all material respects, the financial condition and results of operations of the Registrant.  Date: March 24, 2006  /s/ John W. Jordan II - ----------------------------- John W. Jordan II Chairman and Chief Executive Officer     EX-32.(B) 7 ex-32b.txt                                                                      EXHIBIT 32(b)                    CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER             PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002        The undersigned, being the Chief Financial Officer of Jordan Industries, Inc., an Illinois corporation (the "Registrant"), hereby certifies that the Annual Report on Form 10-K (the "Annual Report") of the Registrant for the year ended December 31, 2005, which accompanies this certification, fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934 (15 U.S.C. ss.78m(a)) and that the information contained in the Annual Report fairly presents, in all material respects, the financial condition and results of operations of the Registrant.  Date: March 24, 2006  /s/ Norman R. Bates - -------------------------- Norman R. Bates Chief Financial Officer, Vice President and Assistant Secretary         -----END PRIVACY-ENHANCED MESSAGE-----