Dorel Industries Inc.

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Dorel Industries Inc.

1255 Greene Avenue, Suite 300
Westmount, Quebec H3Z 2A4
Canada
Telephone: (514) 323-5701
Fax: (514) 323-2030
Web site: http://www.dorel.com

Public Company
Incorporated: 1962 as Dorel Co., Ltd.
Employees: 3,600
Sales: $992.1 million (2002)
Stock Exchanges: NASDAQ Toronto
Ticker Symbols: DIIBF (NASDAQ) DII.B (Toronto)
NAIC: 337122 Nonupholstered Wood Household Furniture Manufacturing; 337124 Metal Household Furniture Manufacturing; 337214 Office Furniture (Except Wood) Manufacturing; 421210 Furniture Wholesalers; 337215 Showcase, Partition, Shelving, and Locker Manufacturing; 337121 Upholstered Household Furniture Manufacturing

Dorel Industries Inc. manufactures a broad range of juvenile furniture products, ready-to-assemble (RTA) furniture, and home furnishings, which it sells primarily through such mass merchants as Wal-Mart and Toys "R" Us, department stores, and specialty retailers. In addition to facilities in Canada and the United States, the company also has European operations. Dorel markets its ready-to-assemble furniture under the Ameriwood, Ridgewood, and Charleswood names; its juvenile products under the Cosco and Maxi-Miliaan names; and home furnishings under the Cosco and Sealy names.

The First 30 Years: A Family Business Growing Through Acquisitions

In 1962, Leo Schwartz founded Dorel Co. Ltd. in the basement of his home in Montreal, Quebec. Initially a small seller of crib mattresses, Schwartz by the 1970s had established a national sales network for his products. In 1987, Dorel merged with Ridgewood Industries Ltd., a wire-making company turned ready-to-assemble furniture maker, founded in 1969 by Schwartz's son, Martin, and his son-in-law. The merger completed, Dorel held its initial public offering, raising $9.4 million, which it put toward acquisitions, and changed its name to Dorel Industries Inc./Les Industries Dorel Inc.

Dorel made its first acquisition in 1988, purchasing Cosco, Inc., an American manufacturer of children's accessories and furniture. Cosco was three times the size of Dorel and had a distribution network that included clients such as Wal-Mart and Kmart. Despite the fact that Cosco was ailing, Dorel maintained production at Cosco's Columbus plant and raised its executives' salaries. Dorel also acquired Charleswood Corporation in 1990, another manufacturer of ready-to-assemble furniture and an apparently losing venture. Taking a different course than it had with Cosco, Dorel immediately cut Charleswood's staff in half and established new product lines for the company.

By 1990, Dorel's management consisted of Leo Schwartz, his three sons, Martin, Alan, and Jeffrey, and his son-in-law, Jeff Segal. Industry analysts considered the group a strong management team, capable of turning money-losing acquisitions into winners. Having weathered the Canada-U.S. Free Trade Agreement of 1989 and the devastating Canadian recession of 1990–91, which halved the ranks of Canada's furniture manufacturers, Dorel's management decided to become far more competitive and tackle the U.S. market. "Free trade made us realize that we couldn't hide behind borders," Jeffrey Schwartz, one of Dorel's vice-presidents, told Canadian Business in 1998. "In order to compete, we had to have world-class manufacturing facilities—and that's something we didn't have… ." Management resolved to take a more active role in the operations of both its acquisitions, repositioning the top management at Charleswood and naming a new president for Cosco.

The company also engaged in several more acquisitions—companies that had overspent, were not efficient enough, and had the markets and relationships that Dorel did not have, according to Martin Schwartz, company president, in a 1992 Canadian Business article. In 1993, having purchased the assets of the Carol Anne furniture company, Dorel created Leadra Designs, a new Canadian division, to manufacture and distribute a line of mid-market bedroom sets, wall units, tables, and chairs. In 1994, it acquired Maxi-Miliaan and began to market the Maxi-Cosi brand of higher-end juvenile products.

These acquisitions provided Dorel not only with a broader line of products, but with a foothold in the United States and Europe; they transformed the company into an American corporation with a Canadian head office. Dorel also created Infantino Inc. in 1992, a California-based company that operated within its juvenile products division; it brought on line three new facilities as well: a new metal furniture manufacturing plant, a sewing facility, and a distribution center.

The Mid-1990s: Heavy Debt Load and Other Problems

Yet growth came at the expense of profits. Although sales quadrupled between 1988 and 1993 to reach $260 million, Dorel had accumulated an unhealthy amount of debt during its acquisition years. By 1994, the 2,500-employee company, ranked the 13th largest furniture manufacturer in North America by Furniture Today, carried a debt-load of $125 million. That same year it earned just $8 million in income on sales of $334 million.

The company faced another problem as well. Although Dorel exported to more than 40 countries by the early 1990s, 78 percent of its sales occurred in the United States in 1993, with only 17 percent in Canada and 5 percent internationally. More troublesome yet, Dorel was largely reliant on one client for distribution of its products; Wal-Mart booked 30 percent of its total sales.

To address this unhealthy balance, Dorel started shying away from acquisitions in 1995 to concentrate on building a more efficient and profitable set of consumer products businesses. It expanded its distribution through home centers, office superstores, and catalog merchants. In the second half of the 1990s, it began to produce futons for mass merchants, and in 1997, to manufacture and distribute futons under the Sealy brand name. The plan paid off, and Dorel doubled in size between 1995 and 1998. Its revenues in 1997 rose 25 percent to attain $532 million with earnings at $25 million. In 1998, sales increased another 44 percent to reach $767 million.

By 1998, the company was expanding rapidly in the ready-to-assemble furniture sector, growing both internally and by acquisition to become one of North America's top three or four RTA manufacturers in the lower end of the market. As a result, Dorel needed more production capacity. Once again turning to acquisition, it bought Okla Homer Smith, an American wood crib and dresser manufacturer, and Ameriwood Industries International Corp. in 1998. It also shut down its Leadra division, which, according to the company, had never made any money. Further, it began to wean itself from dependence on Wal-Mart, winnowing total sales to the mass merchant from 56 percent to 50. The following year, Dorel expanded its ready-to-assemble plant in Ontario. Sales for 1999 continued to increase—30 percent over the previous year—to reach $642 million.

Increasing the Focus on Core Juvenile Products: Early 2000s

In 2000, Dorel made the decision to focus on its major brands and core juvenile products. The company embarked on a sweep of internal housekeeping to realize this decision, selling its Infantino unit to the division's existing management team. In its largest acquisition ever, it purchased Safety 1st, manufacturer of child-safety and other juvenile products, such as nursery monitors, booster seats, and bathtubs. Safety 1st was known widely for inventing the "Baby on Board" signs. Dorel combined Safety 1st with Cosco to form its new juvenile furnishings group. It also consolidated Ameriwood and Ridgewood under Ridgewood; this newly formed division focused on expanding into Japan and the United Kingdom. Lastly, Dorel signed a licensing agreement with Hasbro's Playskool brand in 2000. This agreement became the company's fourth such venture; it had earlier signed licensing agreements with Eddie Bauer, NASCAR, and Walt Disney.

Company Perspectives:

Dorel is committed to continuous new product development and innovation, across a vertically integrated, low-cost manufacturing base. This is a key to our success and has been a major factor in placing us ahead of the competition.

Key Dates:

1962:: Leo Schwartz founds Dorel Co. Ltd.
1987:: Company goes public and changes its name to Dorel Industries Inc./Les Industries Dorel Inc.
1988:: Dorel acquires Cosco, Inc.
1990:: Company acquires Charleswood Corporation; lists its shares on the Toronto Stock Exchange.
1991:: Company holds a second public offering.
1992:: Dorel acquires Infantino Inc.; Martin Schwartz assumes the position of head of the company.
1993:: Dorel acquires Carol Anne Furniture Manufacturing Company Ltd. and then incorporates a new subsidiary, Leadra Design Inc., to continue Carol Anne operations.
1994:: The company acquires Maxi Gerance B.V.
1998:: Dorel acquires Ameriwood Industries International Corp. and Okla Homer Smith; the company begins trading on the NASDAQ and closes its Leadra unit.
2000:: Company acquires Safety 1st, Inc. and sells Infantino, Inc.
2001:: Dorel acquires Quint B.V. and closes its Okla Homer facility.

Dorel continued its internal reorganization into the year 2001. Its growth strategy became one of concentrating on recession-resistant products with strong brand names and on intensive product development. It acquired Quint B.V., maker of Quinny brand strollers, which it integrated into Maxi-Miliaan's operations. In response to ongoing losses, the company closed its Okla Homer facility mid-year and began to outsource its major futon components, which it sold mainly to its large customers. It entered the North American tricycle market with a line of trikes and bikes made in China and marketed under the Safety 1st brand.

In 2002, Dorel turned its attention to increasing market share and brand recognition in Europe. It rolled out a new line of car seats and strollers for Europe's mass retailers under the Safety 1st and Safekid brands. Quint introduced a new stroller and travel system. The company acquired Ampa, which expanded its reach into France, Spain, Italy, and Portugal and further into the Netherlands, Germany, Britain, and Belgium. Revenue reached a new record of $992 million in 2002, up from $917 million in 2001—an accomplishment all the more impressive, according to Martin Schwartz, company head, "in light of the continuing sluggish U.S. and European economies."

Principal Subsidiaries

Ameriwood Industries; Ampa Group; Cosco, Inc.; Dorel Asia Ltd.; Dorel Financial Inc.; Dorel (U.K.) Limited; Dorel Home Products; Maxi-Miliaan B.V.; Ridgewood Industries.

Principal Competitors

Bush Industries, Inc.; Evenflo Companies, Inc.; Fischer Price Inc.; Newell Rubbermaid Inc.; O'Sullivan Industries Holdings, Inc.; Sauder Woodworking Co.