1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 8-K/A
AMENDMENT NO. 1 TO
CURRENT REPORT
Pursuant to Section 13 or 15 (d) of the Securities Exchange Act of 1934
Date of Report August 31, 1999
(Date of earliest event reported) July 2, 1999
JLG INDUSTRIES, INC.
(Exact name of registrant as specified in its charter)
Commission file number: 0-8454
PENNSYLVANIA 25-1199382
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1 JLG Drive, McConnellsburg, PA 17233-9533
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code:
(7l7) 485-5161
Not Applicable
(Former name of former address, if changed since last report)
2
Item 2. Acquisition or Disposition of Assets
(a) On June 18, 1999, JLG Industries, Inc. (the Company) completed the
merger of its wholly owned subsidiary with and into Gradall Industries,
Inc. (Gradall). Following its tender offer, the Company acquired 100%
or 9,834,871 voting common shares of Gradall for $20.00 per share.
Shares of Gradall common stock not tendered in the tender offer were
converted into the right to receive $20.00 per share in cash. The
acquisition was financed by the proceeds from the revolving credit
facility described in Item 5 (a) below.
(b) Gradall is a leading manufacturer of rough-terrain, variable-reach
material handlers and telescoping hydraulic excavators used in
infrastructure, residential, non-residential and institutional
construction and is one of the industry's most recognized brand names.
Item 5. Other Events
(a) The Company entered into a Credit Agreement dated June 18, 1999
(the "Credit Agreement") by and among the Company, certain of its
subsidiaries, and certain financial institutions named therein. The
Credit Agreement provides for a five year revolving credit facility,
with an aggregate commitment of $250 million. The Credit Agreement
commitment is available for the costs of the acquisition, repaying
pre-acquisition indebtedness and working capital and general corporate
purposes.
Borrowings under the Credit Agreement bear interest at a rate per annum
equal to, at the Company's option, either LIBOR plus a margin ranging
from .55% to 1.125%, depending on the Company's ratio of funded debt to
EBITDA, or the greater of prime rate or federal funds rate plus .50%.
The Company is also required to pay an underwriting fee of .75% of the
commitment and an annual administrative fee of $35,000, and a facility
fee ranging from .20% to .275%, depending on the Company's ratio of
funded debt to EBITDA. The Credit Agreement contains customary
affirmative and negative covenants, including financial covenants
requiring the maintenance of specific consolidated interest coverage
and leverage ratios and a minimum consolidated net worth.
(b) On June 18, 1999, the Company modified an existing credit agreement
to reduce the maximum borrowing amount from $40 million to $20 million.
3
Item 7. Financial Statements and Exhibits
At the time of the filing of the Current Report, it was impractical for the
Company to provide financial statements for Gradall, or pro forma financial
information for the Company relative to the acquisition of Gradall. Pursuant to
the instructions for Item 7 of the Current Report, the Company hereby amends
item 7 to the Current Report to include the previously omitted information as
follows:
(a) Financial Statements of Business Acquired.
Audited balance sheets of Gradall Industries, Inc. for the years ended
December 31, 1998 and 1997 and income statements and cash flow
statements for each of the three years ended December 31, 1998.
Unaudited balance sheet of Gradall Industries, Inc. as of March 31,
1999 and income statements and cash flows for the three months ended
March 31, 1999 and 1998.
(b) Pro Forma Financial Information.
Unaudited pro forma combined income statements for the nine months
ended April 30, 1999.
Unaudited pro forma combined income statements for the twelve months
ended July 31, 1998.
Unaudited pro forma combined balance sheet as of April 30, 1999.
Notes to the unaudited pro forma combined financial statements.
(c) Exhibits
10.1 Agreement and Plan of Merger dated as of May 10, 1999, among
Gradall Industries, Inc., the Company and JLG Acquisition
Corp. (incorporated by reference to Exhibit (c)(1) to the
Company's Report on Form 14D-1 filed on May 17, 1999.)
10.2 First Union Credit Agreement
23.1 Consent of PricewaterhouseCoopers LLP for Gradall Industries,
Inc.
4
GRADALL INDUSTRIES, INC.
FINANCIAL STATEMENTS
CONTENTS
Consolidated balance sheets for the years ended December 31, 1998 and 1997
Consolidated statements of income for the years ended December 31, 1998, 1997
and 1996
Statement of changes in shareholders' equity for the years ended December 31,
1998, 1997 and 1996
Consolidated statement of cash flows for the years ended December 31, 1998, 1997
and 1996
Notes to the consolidated financial statements
5
Gradall Industries, Inc.
Consolidated Balance Sheets
(dollars in thousands, except share amounts)
DECEMBER 31
1998 1997
------------------------------------
ASSETS
Current assets:
Cash $ 2,457 $ 1,605
Accounts receivable trade, net of allowance for doubtful accounts of $69 26,983 25,290
and $56
Inventories 32,872 25,564
Prepaid expenses and deferred charges 2,510 1,645
Deferred income taxes 985 742
------------------------------------
Total current assets 65,807 54,846
Deferred income taxes 5,985 5,402
Property, plant and equipment, net 25,838 15,108
Other assets:
Deferred financing costs, net of accumulated amortization of $698 and $404 152 446
Other 1,205 933
------------------------------------
Total other assets 1,357 1,379
====================================
Total assets $98,987 $76,735
====================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of capital lease obligation 307 297
Current portion of long-term debt 6,919 -
Accounts payable - trade 16,288 17,113
Accrued other expenses:
Profit sharing 1,404 1,327
Floor plan interest 1,341 1,444
Warranty 1,853 1,075
Deferred revenue 2,286 -
Income taxes 2,208 1,115
Other 5,359 5,966
------------------------------------
Total current liabilities 37,965 28,337
------------------------------------
Long-term obligations:
Capital lease obligation 405 412
Long-term debt - 9,603
Accrued post-retirement benefit cost 16,554 15,719
Other long-term liabilities 1,688 1,445
------------------------------------
Total long-term obligations 18,647 27,179
------------------------------------
Total liabilities 56,612 55,516
------------------------------------
Stockholders' equity:
Serial preferred shares, par value $.001 per share 2,000,000 shares
authorized, none issued and outstanding Common stock, $.001 par value;
18,000,000
shares authorized; 9,508,231 and 8,940,194 issued and outstanding in 1998
and 1997, respectively 10 9
Additional paid-in capital 45,805 38,894
Accumulated deficit (2,733) (17,087)
Accumulated other comprehensive loss (707) (597)
------------------------------------
Total stockholders' equity 42,375 21,219
====================================
Total liabilities and stockholders' equity $98,987 $76,735
====================================
The accompanying notes are an integral part of these consolidated financial
statements.
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Gradall Industries, Inc.
Consolidated Statements of Income
(dollars in thousands, except share amounts)
FOR THE YEARS ENDED DECEMBER 31,
1998 1997 1996
-------------------------------------------------
Net sales $ 182,607 $ 158,659 $ 140,909
Cost of sales 140,456 120,663 108,098
-------------------------------------------------
Gross profit 42,151 37,996 32,811
Research and development and product
engineering costs 4,039 3,644 3,081
Selling general and administrative expenses 14,149 13,712 11,815
-------------------------------------------------
Operating income 23,963 20,640 17,915
Other expense:
Interest expense 380 696 3,108
Other 31 257 1,018
-------------------------------------------------
Net other expense 411 953 4,126
-------------------------------------------------
Income before income taxes
and extraordinary item 23,552 19,687 13,789
Income tax provision 9,198 7,696 5,503
-------------------------------------------------
Income before extraordinary item 14,354 11,991 8,286
-------------------------------------------------
Extraordinary item, loss from early extinguishment of
debt, net of tax benefit of $622 - - 973
-------------------------------------------------
Net income $ 14,354 $ 11,991 $ 7,313
=================================================
Basic:
Weighted average shares outstanding 9,230,768 8,939,605 6,956,507
Earnings per share:
Before extraordinary item $1.56 $1.34 $1.19
After extraordinary item $1.56 $1.34 $1.05
Diluted:
Weighted average shares outstanding 9,316,466 9,013,760 7,003,200
Earnings per share:
Before extraordinary item $1.54 $1.33 $1.18
After extraordinary item $1.54 $1.33 $1.04
The accompanying notes are an integral part of these consolidated financial
statements.
7
Gradall Industries, Inc.
Statements of Changes in Stockholders' Equity
(dollars in thousands, except per share amounts)
Additional
Additional Paid-In
Preferred Common Paid-In Capital-
Stock Stock Capital Warrants
--------------------------------------------------------------
Balance December 31, 1995 $ 2,000 $ 6 $ 11,994 $ 1,000
Issuance of 2,950,000
shares of common stock 3 24,913
Redemption of
140 preferred shares (2,000) 2,000
Redemption of 449,294
common stock warrants (1,000)
Net income
Minimum pension liability adjustment
Total comprehensive income
--------------------------------------------------------------
Balance December 31, 1996 - 9 38,907 -
Additional expense
resulting from the initial
public offering (19)
Stock options exercised 6
Net income
Minimum pension liability adjustment
Total comprehensive income
--------------------------------------------------------------
Balance December 31, 1997 - 9 38,894 -
Issuance of 562,500 shares
of common stock 1 6,876
Stock options exercised 35
Net income
Minimum pension liability adjustment
Total comprehensive income
==============================================================
Balance December 31, 1998 $ - $ 10 $ 45,805 $ -
==============================================================
Accumulated
Other
Accumulated Comprehensive
Deficit Income (loss) (1) Total
--------------------------------------------------------
Balance December 31, 1995 $ (37,391) $ (728) $(23,119)
Issuance of 2,950,000
shares of common stock 24,916
Redemption of
140 preferred shares
Redemption of 449,294
common stock warrants 1,000
Net income 7,313 7,313
Minimum pension liability adjustment (34) (34)
----------------
Total comprehensive income 7,279
--------------------------------------------------------
Balance December 31, 1996 (29,078) (762) 9,076
Additional expense
resulting from the initial
public offering (19)
Stock options exercised 6
Net income 11,991 11,991
Minimum pension liability adjustment 165 165
----------------
Total comprehensive income 12,156
--------------------------------------------------------
Balance December 31, 1997 (17,087) (597) 21,219
Issuance of 562,500 shares
of common stock 6,877
Stock options exercised 35
Net income 14,354 14,354
Minimum pension liability adjustment (110) (110)
----------------
Total comprehensive income 14,244
========================================================
Balance December 31, 1998 $ (2,733) $ (707) $ 42,375
========================================================
(1) All items included in accumulated other comprehensive income (loss) are
shown net of income taxes. The tax effect for the minimum pension liability
adjustment was $70, $(93) and $17 for 1998, 1997, and 1996 respectively.
The accompanying notes are an integral part of these consolidated financial
statements.
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Gradall Industries, Inc.
Consolidated Statements of Cash Flows
(dollars in thousands)
FOR THE YEARS ENDED DECEMBER 31,
1998 1997 1996
--------------------------------------------------
Cash flows from operating activities:
Net income $14,354 $11,991 $ 7,313
Adjustments to reconcile net income
to net cash provided by operating activities:
Extraordinary item, before tax benefit - - 1,595
Change in pension liability adjustment (110) 165 (34)
Post-retirement benefit transition obligation 835 1,115 780
Depreciation 2,420 1,721 1,391
Amortization 294 157 344
Deferred income taxes (826) 264 106
Equity loss on investment - - 44
Gain on sale of property, plant and equipment (98) (1) (111)
Increase in accounts receivable (1,693) (8,444) (4,710)
Increase in inventories (7,308) (4,238) (2,816)
Increase in prepaid expenses (865) (1,150) (51)
Increase in other assets (272) (135) (152)
Increase in accounts payable and accrued expenses 4,147 2,204 3,941
Increase (decrease) in accrued other long-term liabilities 243 (239) 28
--------------------------------------------------
Net cash provided by operating activities 11,121 3,410 7,668
--------------------------------------------------
Cash flows from investing activities:
Proceeds from sale of property, plant and equipment 223 12 104
Purchase of property, plant and equipment (13,275) (5,305) (2,300)
--------------------------------------------------
Net cash used in investing activities (13,052) (5,293) (2,196)
--------------------------------------------------
Cash flows from financing activities:
Net proceeds from initial public offering - - 26,916
Payment of term debt - - (10,000)
Payment of subordinated debt - - (10,000)
Issuance of 900 common shares - 6 -
Issuance of 5,540 common shares 35 - -
Redemption of preferred stock - - (2,000)
Net proceeds from follow on public offering 6,877 - -
Proceeds (repayments) on capital leases 3 90 (172)
Net advances (repayments) on revolving line of credit (2,684) 2,312 (10,808)
Proceeds from (payments of) bank overdraft (1,448) 884 (730)
Other - (19) -
--------------------------------------------------
Net cash provided by (used in) financing activities 2,783 3,273 (6,794)
--------------------------------------------------
Net increase (decrease) in cash 852 1,390 (1,322)
Cash, beginning of year 1,605 215 1,537
--------------------------------------------------
Cash, end of year $ 2,457 $ 1,605 $ 215
==================================================
Supplemental disclosure:
Cash paid for:
Income taxes $ 8,931 $ 7,650 $ 2,875
==================================================
Interest $ 409 $ 604 $ 3,572
==================================================
Other:
Amounts financed through capital leases $ 290 $ 287
===================================
The accompanying notes are an integral part of these consolidated financial
statements.
9
Gradall Industries, Inc.
Notes to Consolidated Financial Statements
(dollars in thousands, except per share amounts)
1. NATURE OF BUSINESS AND BASIS OF PRESENTATION:
Gradall Industries, Inc. (the "Company"), Incorporated in Delaware, formerly ICM
Industries Inc. (ICM), is a holding Company. The consolidated financial
statements include the Company and its wholly owned subsidiaries, The Gradall
Company, The Gradall Orrville Company and Gradall Investment Company. The
Gradall Investment Company was dissolved in 1996.
The Gradall Company manufactures and sells excavating and material handling
equipment and related parts to public and private sector customers throughout
the world through independent distribution organization.
On September 3, 1996, the Company completed an initial public offering in which
2,950,000 shares of common stock were issued for a total sum of $29.5 million.
Expenses incurred in connection with the issue approximated $2.6 million. The
net proceeds of the offering were used as follows:
Repay outstanding term debt $ 9,550
Repay subordinate debt 10,000
Redeem preferred stock. 2,000
Reduce revolving credit liability 5,379
In connection with the offering, the Company increased the number of its
authorized shares of common stock from 2,200 to 18,000,000 and effected a
5,540-to-1 stock split. All applicable share and per share data have been
retroactively adjusted for the stock split.
On June 29, 1998, the Company completed a public offering in which 562,500
shares of common stock were issued by the Company for a total sum of $7.3
million. Expenses incurred in connection with the issue approximated $0.5
million including $0.1 million related to selling shareholders. The net proceeds
of the offering were used to repay the revolving credit facility.
On October 13, 1998, a new company, The Gradall Orrville Company, was formed as
a wholly owned subsidiary of Gradall Industries, Inc., to purchase a new
production plant at Orrville, Ohio. The new facility, formerly the Volvo Truck
Assembly plant, contains 330,000 square feet and will provide additional
production space for the material handler product.
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Gradall Industries, Inc.
Notes to Consolidated Financial Statements
(dollars in thousands, except per share amounts)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Principles of Consolidation: The accompanying consolidated financial statements
include the accounts of the Company and its wholly owned subsidiaries. All
significant intercompany accounts and transactions have been eliminated.
Use of Estimates: The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the amounts reported in the financial statements and
related notes. Actual results may differ from those estimates.
Source of Supply of Labor: Virtually all of the Company's hourly employees are
represented by the International Association of Machinists and Aerospace Workers
under a three-year contract which expires April 16, 2000.
Revenue Recognition: The Company's revenue recognition policy is to recognize
revenue when products are shipped. In 1998, the Company entered into a
twelve-month lease agreement for certain inventories which includes a guarantee
by the Company at the end of the lease agreement. Revenues equal to the amount
of the guarantee are deferred.
Product Financing: The Company provides its distributors with product financing
through agreements with third party financing companies. Such financings include
a Wholesale Floor Plan for distributors and a Retail Finance Plan for end-users,
each with reduced interest rates subsidized by the Company, and a Rental Plan
for distributors.
Product Warranty Costs: In general, the Company provides warranty on equipment
for a period of up to twelve months or for a specified period of use after sale
or rental by the distributor. Reserves for estimated warranty costs are
established at the time of sale.
Inventories: Inventories are stated at cost not in excess of market value using
the last-in, first-out (LIFO) method of inventory costing. Inventory cost
includes materials, direct labor, manufacturing overhead, and outside service
costs. Market value is determined by comparison with recent purchases or
realizable value.
Property, Plant and Equipment: Expenditures for property, plant and equipment
and for renewals and betterments which extend the originally estimated economic
lives of assets are capitalized at cost. Expenditures for maintenance and
repairs are charged to expense. Items which are sold, retired, or otherwise
disposed of are removed from the asset and accumulated depreciation accounts and
any gains or losses are reflected in income. The Company's depreciation and
amortization methods are as follows:
11
Gradall Industries, Inc.
Notes to Consolidated Financial Statements
(dollars in thousands, except per share amounts)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED:
DESCRIPTION USEFUL LIFE METHOD
- ---------------------------------------- -------------------------------------- --------------------------------------
Machinery and equipment 3 - 10 years Straight-line
Buildings and improvements 10 - 24 years Straight-line
Furniture and fixtures 3 - 10 years Straight-line
Patents: The cost of patents is being amortized on a straight-line basis over
the remaining legal life of the patents.
Deferred Financing Costs: Costs incurred to obtain financing have been
capitalized and are being amortized over the life of the respective financing
arrangements.
Income Taxes: The Company follows the provisions of Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes." Deferred income
taxes arise from reporting certain items of income and expense for tax purposes
in a different period than for financial reporting purposes.
Fair Value of Financial Instruments: The Company's financial instruments consist
principally of cash, accounts receivable, accounts payable and accrued
liabilities in which the fair value of these financial instruments approximates
the carrying value. The Company's revolving line of credit provides for periodic
changes in interest rates which approximate current rates and therefore, the
fair value of the debt approximates carrying value.
Research and Development Costs: Expenditures relating to the development of new
products and processes, including significant improvements to existing products,
are expensed as incurred. Research and development expenses were $2,552, $1,722
and $1,641 in 1998, 1997 and 1996, respectively. In addition, the Company
incurred other engineering expenses relating to new product development (that do
not meet the accounting definition of "Research and Development") in the amount
of $1,487, $1,922 and $1,440 in 1998, 1997 and 1996, respectively.
Stock Based Compensation: The Company accounts for stock based compensation
awards pursuant to Accounting Principles Board Opinion No. 25, "Accounting for
Stock Issued to Employees," and its related interpretations which prescribe the
use of the intrinsic value based method. No compensation cost has been
recognized for its fixed stock option plans. However, the Company has adopted
the disclosure requirements of Statement of Financial Accounting Standards No.
123, "Accounting for Stock Based Compensation," See Note 10 for additional
information.
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Gradall Industries, Inc.
Notes to Consolidated Financial Statements
(dollars in thousands, except per share amounts)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED:
Earnings Per Common Share: In the fourth quarter of 1997, the Company adopted
the provisions of Statement of Financial Accounting Standards No. 128 ("SFAS
128"), "Earnings per Share," which specifies the computation, presentation, and
disclosure requirements of earnings per common share. Basic earnings per share
are based on the weighted average number of common shares outstanding during the
period. Diluted earnings per common share are based on the weighted average
number of common shares outstanding during the period plus, if dilutive, the
incremental number of common shares issuable on a pro forma basis upon the
exercise of employee stock options, assuming the proceeds are used to repurchase
outstanding shares at the average market price during the year. All prior
periods have been restated to conform to the provisions of this statement. A
reconciliation of the Basic and Diluted per share computations are provided
below:
1998 1997 1996
------------------- ---------------- -----------------
Common Shares
Weighted average common shares outstanding
Basic 9,230,768 8,939,605 6,956,507
Additional common shares issuable for stock options
85,698 74,155 46,693
------------------- ---------------- -----------------
Common shares - Diluted 9,316,466 9,013,760 7,003,200
=================== ================ =================
Comprehensive Income: Statement of Financial Accounting Standards No. 130,
"Reporting Comprehensive Income." was adopted during the first quarter of 1998.
The standard established guidelines for the reporting and display of
comprehensive income (loss) and its components in financial statements.
Comprehensive income includes net income and adjustments to the minimum pension
liability. The Company has changed the format of its Consolidated Statement of
Changes in Stockholders' Equity to present comprehensive income and its
components.
Segment Information: Statement of Financial Accounting Standards No. 131,
"Disclosures about Segments of an Enterprise and Related Information," was
adopted in the fourth quarter of 1998 and supersedes Statement of Financial
Accounting Standards No. 14, "Financial Reporting for Segments of a Business
Enterprise." The new standard established guidelines for reporting information
on operating segments in interim and annual financial statements. The adoption
of the standard did not affect the Company's financial position, results of
operations or cash flows (see Note 14).
13
Gradall Industries, Inc.
Notes to Consolidated Financial Statements
(dollars in thousands, except per share amounts)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED:
Future Accounting Requirements: In June 1998, the Financial Accounting Standards
Board issued Statement of Financial Accounting Standards No. 133, "Accounting
for Derivative Instruments and Hedging Activities." This Statement requires that
all derivative instruments be recorded on the balance sheet at their fair value.
Changes in the fair value of derivatives will be recorded each period in current
earnings or other comprehensive income. The new rules will be effective the
first quarter of 2000. The Company is in the process of determining the impact
of this new standard and, based on current market conditions, anticipates that
it will not have a material impact on the Company's financial statements when
effective.
Reclassifications: Certain prior years' balances have been reclassified to
conform to the current year's presentation.
3. INVENTORIES:
Inventories are comprised of:
1998 1997
--------------------- --------------------
Raw materials $ 1,401 $ 921
Work in process 24,501 24,739
Finished goods 13,058 5,474
--------------------- --------------------
38,960 31,134
Less LIFO reserve 6,088 5,570
--------------------- --------------------
Total inventory $32,872 $25,564
===================== ====================
14
Gradall Industries, Inc.
Notes to Consolidated Financial Statements
(dollars in thousands, except per share amounts)
4. PROPERTY, PLANT AND EQUIPMENT:
The major classes of property, plant and equipment are summarized as follows:
1998 1997
------------------------------------------
Land $ 963 $ 513
Machinery and equipment 23,998 16,910
Buildings and improvements 11,087 5,587
Furniture and fixtures 3,212 2,277
Construction in progress 2,584 4,109
------------------------------------------
41,844 29,396
Less accumulated depreciation 16,006 14,288
------------------------------------------
Net property, plant and equipment $ 25,838 $ 15,108
==========================================
5. FINANCING:
Long-term debt includes:
1998 1997
------------------------------------------
Revolving credit $ 6,919 $9,603
Less current maturities 6,919 0
------------------------------------------
$ 0 $9,603
==========================================
At December 31, 1998, the Company maintained a loan and security agreement with
Heller Financial, Inc. which provided for up to $25 million in revolving loan
commitments. Amounts borrowed under the borrowing base, as defined, could be
repaid and reborrowed at any time prior to August 31, 1999, the termination
date. Amounts outstanding under this agreement were reclassified to current
portion of long-term debt at December 31, 1998.
15
Gradall Industries, Inc.
Notes to Consolidated Financial Statements
(dollars in thousands, except per share amounts)
5. FINANCING, CONTINUED:
The revolving line of credit bears interest at either LIBOR plus 1% or prime
minus .50%. At December 31, 1998, the prime rate was 7.75%. There were no
borrowings under the LIBOR option at year end. The average annual interest rate
in effect for the revolving line of credit was 7.25%. At December 31, 1997, the
prime rate was 8.5%, LIBOR was 5.97%, and the average annual interest rate in
effect for the revolving line of credit was 7.86%. The Company also pays an
unused line fee of 0.25 percent per annum.
The terms of the financing agreement contain, among other provisions,
restrictions on the level of capital expenditures and various financial ratios,
as defined. The financing agreements are collateralized by substantially all the
assets of the Company.
On January 27, 1999 the Company's Loan and Security Agreement with Heller
Financial, Inc. was paid in full and terminated. A new revolving line of credit
for $17 million was established with KeyBank National Association (the "Lender")
with an unsecured demand promissory note. The note bears interest at either
LIBOR plus .80% or prime minus 1.40%. The note renews annually and terminates at
the earlier of the Lender's demand or the Company's decision to terminate by
written or oral communication to the Lender.
6. LEASE OBLIGATIONS
The Company leases certain machinery and equipment under capital leases expiring
between 1999 and 2001. The assets and liabilities under capital leases are
recorded at the original purchase cost. The assets are depreciated over their
estimated productive lives. Depreciation of assets under capital leases is
included in depreciation expense.
In addition, the Company leases certain equipment under operating leases. A
number of these leases have renewal options.
The following is a summary of property held under capital leases:
1998 1997
--------------------- --------------------
Machinery and equipment $1,020 $1,020
Information systems 571 287
--------------------- --------------------
Total capital leases 1,591 1,307
Less accumulated depreciation 572 364
--------------------- --------------------
$1,019 $ 943
===================== ====================
16
Gradall Industries, Inc.
Notes to Consolidated Financial Statements
(dollars in thousands, except per share amounts)
6. LEASE OBLIGATIONS, CONTINUED:
The following is a summary of future minimum payments under capitalized and
operating leases that have remaining noncancelable lease terms in excess of one
year at December 31, 1998:
OPERATING YEAR ENDING CAPITAL OPERATING
DECEMBER 31 LEASES LEASES
- ----------------------------------------------------------- --------------------
1999 $356 $160
2000 370 86
2001 60 32
-------------------- --------------------
Total minimum lease payments
$786 $278
==================== ====================
Interest $ 74
--------------------
Liability under capital lease payments
712
Current portion 307
--------------------
Long-term capitalized lease obligation
$405
====================
Rental expense for operating leases amounted to $394, $409 and $397 for the
years ended December 31, 1998, 1997, and 1996 respectively.
7. EMPLOYEE BENEFIT PLANS:
Pension and Postretirement Benefit Plans: Substantially all employees are
covered by pension plans which provide for monthly pension payments to eligible
former employees who have retired. Prior to March 24, 1997 the Company sponsored
two plans, one for members of the collective bargaining unit and one for
salaried and other eligible employees.
Benefits paid under the collective bargaining unit plan are based on a benefit
multiplier times years of credited service, reduced by benefits under a prior
plan. Such prior plan benefits are guaranteed under the terms of group annuity
contracts. Benefits paid under the salary plan are based on the greater of a
benefit multiplier times years of credited service or a percentage of
pre-retirement earnings. Pension costs are funded as actuarially determined and
to the extent cash contributions are deductible for federal income tax purposes.
The collective bargaining unit plan uses the entry age normal actuarial cost
method to determine annual contributions to the plan. The salary plan uses the
unit credit actuarial cost method to determine contributions.
17
Gradall Industries, Inc.
Notes to Consolidated Financial Statements
(dollars in thousands, except per share amounts)
7. EMPLOYEE BENEFIT PLANS, CONTINUED:
Effective March 24, 1997 the Company adopted the IAM National Pension Plan to
replace the existing collective bargaining unit plan for future service
benefits. The collective bargaining unit plan benefits were frozen and the
Company continues to fund the plan for past service benefits. The expense
related to funding the IAM National Pension Plan for years ending December 31,
1998 and 1997 was $371 and $254 respectively.
Postretirement Benefits: The Company provides eligible retired employees with
health care and life insurance benefits. These benefits are provided on a
non-contributory basis for life insurance and contributory basis for medical
coverage. Currently, the Company does not pre-fund these benefits.
Statement of Financial Accounting Standards No. 87, "Employers' Accounting for
Pension," contains a provision which requires the recognition of a liability
(including unfunded accrued pension costs) that is at least equal to the
unfunded accumulated benefit obligation (the excess of the accumulated benefit
obligation over the fair value of plan assets). Recognition of an additional
minimum liability is required if an unfunded accumulated benefit exists and the
liability already recognized as unfunded accrued pension cost is less than the
unfunded accumulated benefit obligation. The additional minimum liability of
$1,160 and $980 at December 31, 1998 and 1997, respectively, has been included
in other long-term liabilities and has been reported net of income tax effect
within stockholders' equity.
The following table sets forth the both plan's funded status and amounts
recognized in the Company's consolidated financial statements.
PENSION BENEFITS POSTRETIREMENT BENEFITS
1998 1997 1998 1997
---------------- --------------- --------------- ---------------
Change in Benefit Obligation
Projected Benefit Obligation
(PBO)/Accumulated postretirement benefit obligation
(APBO), beginning or year $12,637 $10,990 $18,874 $16,515
Service cost 487 505 678 583
Interest cost 889 819 1,166 1,232
Plan amendments (509)
Plan curtailments 17
Actuarial (gain)loss 375 946 (1,355) 1,279
Benefits paid (649) (640) (1,056) (735)
--------------- ---------------- --------------- ---------------
PBO/APBO, end of year $13,739 $12,637 $17,798 $18,874
=============== ================ =============== ===============
18
Gradall Industries, Inc.
Notes to Consolidated Financial Statements
(dollars in thousands, except per share amounts)
7. EMPLOYEE BENEFIT PLANS, CONTINUED:
PENSION BENEFITS POSTRETIREMENT BENEFITS
1998 1997 1998 1997
--------------- --------------- --------------- ---------------
Change in plan assets
Fair value of plan assets, beginning of the year $11,197 $ 9,081
Actuarial return on plan assets 837 1,838
Employer contribution 930 918 $1,056 $735
Benefits paid (649) (640) (1,056) (735)
--------------- --------------- --------------- ---------------
Fair value of plan assets, end of year $12,315 $11,197 - -
=============== =============== =============== ===============
Funded Status (1,424) (1,440) (17,798) (18,874)
Prior service costs 98 108 (509)
Cumulative net (gain) or loss 1,691 1,227 1,753 3,155
--------------- --------------- --------------- ---------------
(Accrued)prepaid pension/postretirement cost $ 365 $ (105) $(16,554) $(15,719)
=============== =============== =============== ===============
Amounts recognized in the statement of financial
position consist of:
Prepaid benefit cost $ 365 $ (105)
Accrued benefit liability $(16,554) $(15,719)
Intangible asset
Accumulated other comprehensive income (1,160) (980)
--------------- --------------- --------------- ---------------
Net amount recognized $ (795) $(1,085) $(16,554) $(15,719)
=============== =============== =============== ===============
PENSION BENEFITS POSTRETIREMENT BENEFITS
1998 1997 1996 1998 1997 1996
------------ ---------- ---------- ------------- ------------ ----------
Weighted average assumptions as of December 31 7.0% 7.0% 7.5% 7.0% 7.0% 7.5%
Long-term rate of return on assets 8.5% 8.5% 8.5% N/A N/A N/A
Rate of compensation increase 4.5% 4.5% 4.5%
Medical trend rates 5% to 8% 5% to 8% 5% to 8%
19
Gradall Industries, Inc.
Notes to Consolidated Financial Statements
(dollars in thousands, except per share amounts)
7. EMPLOYEE BENEFIT PLANS, CONTINUED:
For measurement purposes, an 8 percent annual rate increase in the per capita
cost of covered health care benefits was assumed for 1998. The rate was assumed
to decrease gradually to 5 percent by 2011 and remain at that level hereafter.
Assumed health care cost trend rates have a significant effect on the amounts
reported for the health care plan. A one-percent point change in assumed health
care cost trend rates would have the following effects:
1 PERCENTAGE POINT 1 PERCENTAGE POINT
INCREASE DECREASE
Effect on total of service and interest cost components $ 346 $ (270)
effect on postretirement benefit obligation $2,876 $(2,060)
PENSION BENEFITS POSTRETIREMENT BENEFITS
1998 1997 1996 1998 1997 1996
---------- ---------- ---------- ---------- ---------- ----------
Components of net periodic
pension/postretirement cost
Service cost $487 $505 $693 $ 679 $ 584 $ 539
Interest cost 889 819 739 1,166 1,232 1,143
Expected return on assets (954) (775) (658)
Amortization of unrecognized
Prior service costs 10 10 13 (18) 34 17
(Gain)/Loss 28 44 59
Cumulative net (gain) loss 17
---------- ---------- ---------- ---------- ---------- ----------
Net periodic pension/postretirement cost $460 $620 $846 $1,827 $1,850 $1,699
========== ========== ========== ========== ========== ==========
Savings and Investment Plan: Substantially all employees are eligible to
participate in a savings and investment plan. The Company sponsors two plans,
one for members of the collective bargaining unit and one for salaried and other
eligible employees. The plans provide for contributions by employees, through
salary reductions, and for a matching contribution by the Company based on a
rate determined for each plan year by the Board of Directors of the Company. The
plans also provide for a discretionary contribution by the Company. No Company
contributions were made to the plan in 1998, 1997 or 1996.
Deferred Compensation Program: The Company has a deferred compensation program
under which certain employees may elect to postpone receipt of a portion of
their earnings. The amounts so deferred are deposited in a trust account, but
remain assets of the Company. The trustees of the program are officers and a key
employee of the Company.
20
Gradall Industries, Inc.
Notes to Consolidated Financial Statements
(dollars in thousands, except per share amounts)
7. EMPLOYEE BENEFIT PLANS, CONTINUED:
Profit Sharing Plan: The Company maintains a profit sharing plan covering union
and salaried employees. The amount of the profit sharing bonus is determined by
the Company's return on sales and is calculated based upon the wages of eligible
employees. Company contributions for 1998, 1997 and 1996 were $1,404, $1,327 and
$794 respectively.
8. INCOME TAXES:
The provision for income taxes for the years ended December 31, 1998, 1997 and
1996 consisted of the following:
1998 1997 1996
----------------- ----------------- ----------------
Federal $8,576 $6,327 $3,433
State 1,448 1,105 642
Deferred (826) 264 806
----------------- ----------------- ----------------
9,198 7,696 4,881
Tax effect of extraordinary item (shown separately). 622
----------------- ----------------- ----------------
$9,198 $7,696 $5,503
================= ================= ================
The Company's effective tax rate differed from the federal statutory rate as
follows:
1998 1997 1996
----------------- ----------------- ----------------
Federal statutory rate 35.0% 35.0% 35.0%
Effect of state and local taxes 4.0% 3.7% 3.6%
Change in tax liability - - -
Other 0.1% 0.4% 1.4%
----------------- ----------------- ----------------
39.1% 39.1% 40.0%
================= ================= ================
21
Gradall Industries, Inc.
Notes to Consolidated Financial Statements
(dollars in thousands, except per share amounts)
8. INCOME TAXES, CONTINUED:
The components of the net deferred tax benefits (liabilities) as of December 31,
1998 and 1997 were as follows:
1998 1997
-------------------- ------------------
Current:
Inventories $ (659) $ (705)
Accrued expenses 1,644 1,628
Other - (181)
-------------------- ------------------
$ 985 $ 742
Long-term:
Basis of property and equipment $(1,862) $(1,618)
Postretirement benefits liability 6,761 6,420
Accrued expenses 1,086 600
-------------------- ------------------
$ 5,985 $ 5,402
==================== ==================
The sources of timing differences and the related deferred tax effects were as
follows:
1998 1997 1996
--------------------- -------------------- --------------------
Accrued expenses $(647) $340 $970
Postretirement benefits liability (341) (456) (318)
Depreciation 244 225 212
Inventories (46) (57) (52)
Other (26) 212 (6)
--------------------- -------------------- --------------------
$(816) $264 $806
===================== ==================== ====================
Valuation allowances are established when necessary to reduce deferred tax
assets to the amounts expected to be realized.
22
Gradall Industries, Inc.
Notes to Consolidated Financial Statements
(dollars in thousands, except per share amounts)
9. PREFERRED STOCK, CONTINUED:
The Company is authorized to issue shares of Series A preferred stock in which
each share has one vote with a fixed aggregate of 12% of the total vote. The
holders of this preferred stock will vote together with the holders of the
Company's common stock on all matters submitted to the Company's stockholders.
Holders may require the Company to redeem preferred shares proportionately to
any reduction in shares held by MLGA Fund II, L.P. At December 31, 1998 and 1997
no Series A preferred stock was outstanding.
The Board of Directors is authorized, subject to any limitations prescribed by
law, to issue preferred stock in one or more classes or series and to fix the
designations, voting powers, preferences, rights, qualifications, limitations or
restrictions of any such class or series, including dividend rights, dividend
rates, redemption prices and terms, conversion rights and liquidation
preferences of each class or series of preferred stock, without any further vote
or action by the stockholders of the Company.
10. STOCK OPTIONS:
On October 13, 1995, the stockholders approved a qualified incentive stock
option program under which 315,226 shares of the Company's common stock are
reserved for grants to key employees (The "1995 Stock Option Plan"). The option
price is to be determined by the Board, but may not be less than 100% of the
fair market value of the Company's common stock at the time of the grant and
options must be exercised within ten years from the date of grant. The options
vest and become exercisable in three annual installments commencing on the first
anniversary of the date of the grant. On June 3, 1997, the stockholders approved
an amendment to the 1995 Stock Option Plan increasing the number of shares of
the Company's common stock reserved for grants under the program to 515,226.
On May 20, 1998, the stockholders approved a qualified incentive stock option
plan under which 300,000 shares of the Company's common stock are reserved for
grants to key employees. The plan includes provisions for pricing and vesting
which are the same as the above plan. The stockholders also approved an employee
stock purchase plan under which 300,000 shares of the Company's common stock may
be sold at a 15% market price reduction. Common shares sold through the plan are
being purchased in the open market.
23
Gradall Industries, Inc.
Notes to Consolidated Financial Statements
(dollars in thousands, except per share amounts)
10. STOCK OPTIONS, CONTINUED:
The following summarizes the changes in the number of Common Shares under
option:
(Options in thousands) 1998 1997 1996
----------------- ---------------- -----------------
Options outstanding at beginning of year 514 278 132
Options granted during the year - 237 151
Options exercised during the year (5) (1)
Options canceled during the year (5)
----------------- ---------------- -----------------
Options outstanding at end of year 509 514 278
----------------- ---------------- -----------------
Option price range per share $2.71- $2.71- $2.71-
$13.75 $13.75 $6.32
The Company's current option plans, which provide for a total of 815 options (6
of which have been exercised), have 300 options remaining for future grants at
December 31, 1998.
The ranges of exercise prices and the remaining contractual life of options as
of December 31, 1998 were:
Range of exercise prices: $2.71 $6.32 $12-$13.75
-------------------- -------------------- --------------------
Options outstanding in thousands:
Outstanding as of December 31, 1998 132 140 237
Weighted-average remaining contractual life (in
years) 6.78 7.30 8.45
Weighted-average exercise price $2.71 $6.32 $13.47
Options exercisable in thousands:
Outstanding as of December 31, 1998 132 53 79
Weighted-average remaining contractual life (in
years) 6.78 7.30 8.45
Weighted-average exercise price $2.71 $6.32 $13.47
On August 15, 1996, an unqualified stock option for 10,000 shares of common
stock was granted to a director at the exercise price of $2.71.
24
Gradall Industries, Inc.
Notes to Consolidated Financial Statements
(dollars in thousands, except per share amounts)
10. STOCK OPTIONS, CONTINUED:
In October 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 123, "Accounting for Stock-Based
Compensation." This statement defines a fair value based method of accounting
for an employee stock option or similar equity instrument. The statement does,
however, allow an entity to continue to measure compensation cost for those
plans using the intrinsic value based method of accounting prescribed by
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued To
Employees."
In 1996, the Company adopted provisions of SFAS No. 123 by providing disclosures
of the pro forma effect on net income and earnings per share that would result
if the fair value compensation element were to be recognized as expense. The
following table shows the pro forma earnings and earnings per share for 1998,
1997 and 1996 along with significant assumptions used in determining the fair
value of the compensation amounts.
1998 1997 1996
------------------- ------------------- ------------------
Pro forma amounts:
Net income $14,019 $11,777 $7,242
Earnings per share (basic) 1.52 1.32 1.04
Earnings per share (diluted) 1.51 1.31 1.03
Assumptions:
Dividend yield 0 0 0
Expected volatility 36.75% 36.75% 34.46%
Risk free interest rate 6.20-6.73% 6.20-6.73% 6.30%
Expected lives 4 years 4 year 4 years
During fiscal years 1997 and 1996 the weighted average grant-date fair value of
options granted was $5.08 and $2.31 per share, respectively. No options were
granted in 1998.
11. CONTINGENCIES:
The Company is involved in certain claims and litigation related to its
operations. Based upon the facts known at this time, management is of the
opinion that the ultimate outcome of all such claims and litigation will not
have a material adverse effect on the financial condition, results of operations
or cash flows of the Company.
25
Gradall Industries, Inc.
Notes to Consolidated Financial Statements
(dollars in thousands, except per share amounts)
12. PRO FORMA INFORMATION:
Net income and net income per share are presented below as if the 1995
Recapitalization, the issuance of shares of common stock pursuant to the initial
public offering and the application of the net proceeds thereof to the reduction
in debt, all had occurred as of January 1, 1995.
1996
-------------------
Net Income as reported $7,313
Extraordinary charge 973
Reduction in interest expense using an average interest rate of 8.2% including
the elimination of amortization of deferred financing costs 2,013
Increase in income taxes related to the pro forma adjustments (763)
-------------------
Pro forma net income $9,536
===================
Average shares outstanding as if the initial public offering had occurred on
January 1, 1995 8,939,294
Pro forma net income per share $1.07
13. EXTRAORDINARY ITEM:
The early repayment of the term debt and subordinated debt with the proceeds of
the initial public offering resulted in the write-off of $723 of deferred
financing costs and unamortized discount on the subordinated debt of $872 which
have been accounted for as an extraordinary charge resulting from early
extinguishment of debt net of applicable income taxes of $622. Total income
before taxes after consideration of these extraordinary expenses amounted to
$12,194 for the year ended December 31, 1996.
14. SEGMENT REPORTING:
During the fourth quarter of 1998, the Company adopted Statement of Financial
Accounting Standard No. 131, "Disclosure about Segments of an Enterprise and
Related Information." Management has determined that the Company operates in a
single industry segment, construction equipment. The Company's operations
involve manufacturing specialized construction equipment and parts. While the
Company's chief operating decision maker monitors the revenue streams of the
different products, operations are managed and financial performance is measured
in the construction equipment segment.
26
Gradall Industries, Inc.
Notes to Consolidated Financial Statements
(dollars in thousands, except per share amounts)
14. SEGMENT REPORTING, CONTINUED:
Products and Services: The Company groups its products and services into the
following categories:
1. Material Handlers-Machines typically used to move a variety of construction
materials around jobsites and industrial facilities. 2. Excavators-Machines used
for ditching, sloping, finish grading, general maintenance and infrastructure
projects. 3. Parts & Distribution-Parts and service support for Gradall
machines.
The revenues generated by these products and services at December 31 were:
($ IN THOUSANDS) 1998 1997 1996
- ---------------------------------------------------------- ------------------- ------------------- -------------------
Material Handlers $110,161 $ 84,004 $ 70,409
Excavators 54,580 57,361 55,096
Parts & Distribution 17,866 17,294 15,404
------------------- ------------------- -------------------
$182,607 $158,659 $140,909
=================== =================== ===================
Foreign and Domestic Sales: The Company sells equipment and parts to countries
outside of the United States. There were no foreign countries with sales greater
than 10% of total revenue. The domestic and foreign revenues generated at
December 31 by domestic and foreign were:
($ IN THOUSANDS) 1998 1997 1996
- ---------------------------------------------------------- ------------------- ------------------- -------------------
United States $176,796 $153,444 $138,330
All other countries 5,811 5,215 2,579
------------------- ------------------- -------------------
$182,607 $158,659 $140,909
=================== =================== ===================
Major Customers: For the years ended December 31, 1998 and 1996, one customer
accounted for 10% or more of the Company's total revenue. No customers have
accounted for 10% or more of the Company's total revenue for the year ended
December 31, 1997. At December 31, 1998, the customer accounted for 13%, and at
December 31, 1996, the customer accounted for 11% of the Company's total
revenue.
27
Gradall Industries, Inc.
Notes to Consolidated Financial Statements
(dollars in thousands, except per share amounts)
15. SELECTED SUMMARY QUARTERLY DATA (UNAUDITED):
QUARTERS ENDED (2)
1997
MAR. 31, JUN. 30, SEP. 30 DEC. 31,
-------------- --------------- -------------- --------------
Net Sales $35,910 $38,356 $40,310 $44,083
Gross Profit 8,618 9,267 9,814 10,297
Operating Income 4,674 4,735 5,310 5,921
Income Before Income Taxes 4,363 4,231 5,250 5,843
Net Income 2,657 2,577 3,199 3,558
Earnings Per Share (1)
Basic $.30 $.29 $.36 $.40
Dilutive $.30 $.29 $.35 $.39
QUARTERS ENDED (2)
1998
MAR.31 JUN. 30, SEP. 30, DEC. 31,
-------------- -------------- -------------- ----------------
Net Sales $41,541 $49,789 44,138 $47,139
Gross Profit 9,551 11,143 9,980 11,477
Operating Income 5,234 6,018 5,779 6,932
Income Before Income Taxes 5,011 5,878 5,926 6,737
Net Income 3,054 3,582 3,612 4,106
Earnings Per Share (1)
Basic $.34 $.40 $.38 $.43
Dilutive $.34 $.40 $.38 $.43
(1) Based on average shares outstanding during the quarter.
(2) The sum of each year's quarterly data may not equal the total year results
due to rounding.
28
Report of Independent Accountants
TO THE BOARD OF DIRECTORS AND STOCKHOLDERS OF GRADALL INDUSTRIES, INC.
In our opinion, the accompanying consolidated balance sheets and related
consolidated statements of income, changes in stockholders' equity and cash
flows present fairly, in all material respects, the financial position of
Gradall Industries, Inc. and its subsidiaries (the "Company") at December 31,
1998 and 1997, and the results of their operations and their cash flows for each
of the three years in the period ended December 31, 1998, in conformity with
generally accepted accounting principles. These financial statements are the
responsibility of the Company's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these statements in accordance with generally accepted auditing
standards which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, 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 the opinion expressed above.
/s/ PricewaterhouseCoopers LLP
Cleveland, Ohio
February 23, 1999
29
GRADALL INDUSTRIES, INC.
FINANCIAL STATEMENTS
THREE MONTHS ENDED MARCH 31, 1999
CONTENTS
Unaudited condensed income statement for the three months ended March 31, 1999
and March 31, 1998
Unaudited condensed balance sheet as of March 31, 1999
Unaudited condensed statement of cash flows for the three month period ended
March 31, 1999 and 1998
Noted to the unaudited condensed financial statements
30
GRADALL INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
THREE MONTHS
ENDED
MARCH 31, 1999 MARCH 31, 1998
---------------------- ----------------------
Net Sales $50,532 $41,541
Cost of sales 38,617 31,990
---------------------- ----------------------
Gross profit 11,915 9,551
Operating expenses:
Research, development and product
engineering costs 1,346 1,054
Selling, general and administrative expenses 4,191 3,263
---------------------- ----------------------
Operating income 6,378 5,234
Interest, net 173 218
Other, net 34 5
---------------------- ----------------------
Income before provision for taxes 6,171 5,011
Income tax provision 2,410 1,957
---------------------- ----------------------
Net income $ 3,761 3,054
====================== ======================
Earning per common share:
Basic:
Weighted average shares outstanding 9,512,408 8,940,194
Earnings per common share $0.40 $0.34
Diluted:
Weighted average shares outstanding 9,605,028 9,023,295
Earning per common share $0.39 $0.34
The accompanying notes are an integral part of these condensed consolidated
financial statements
31
GRADALL INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
MARCH 31, 1999
-----------------
ASSETS
Current assets:
Cash $ 730
Accounts receivable - trade, net of allowance for doubtful accounts. 34,237
Inventories 36,857
Prepaid expenses and deferred charges 1,834
Deferred income taxes 985
-----------------
Total current assets 74,643
Deferred income taxes 6,060
Property, plant and equipment, net 25,925
Other assets 1,205
-----------------
Total assets $107,833
=================
LIABILITIES & STOCKHOLDERS' EQUITY Current liabilities:
Current portion long term debt $ 11,034
Accounts payable - trade 17,569
Accrued other expenses 14,303
-----------------
Total current liabilities 42,906
-----------------
Long term obligations:
Long-term debt, net of current portion 332
Accrued post-retirement benefit cost 16,748
Other long term liabilities 1,688
-----------------
Total long term obligations 18,768
-----------------
Total liabilities 61,674
-----------------
Stockholders' equity:
Common stock, $.001 par value; 18,000,000 shares. Authorized; 9,515,460 and
9,508,231 issued and outstanding on March 31, 1999 and December 31, 1998,
respectively 10
Additional paid-in capital 45,828
Retained earnings 1,028
Accumulated other comprehensive loss (707)
-----------------
Total stockholders' equity 46,159
-----------------
Total liabilities and stockholders' equity. $107,833
=================
The accompanying notes are an integral part of these condensed consolidated
financial statements.
32
GRADALL INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
THREE MONTHS ENDED
------------------------------------------
MARCH 31, MARCH 31,
1999 1998
------------------------------------------
Operating Activities:
Net income $3,761 $3,054
Adjustments to reconcile net income to net cash used in operating
activities:
Post-retirement benefit transition obligation 194 350
Depreciation and amortization 1,000 575
Gain on sale of property - (26)
Deferred income taxes (75) (137)
Increase in accounts receivable (7,254) (1,000)
Increase in inventories (3,985) (270)
Decrease in prepaid expenses 676 1,161
Increase (decrease) in accounts payable and accrued expenses 1,133 (3,482)
--------------------- --------------------
Net cash provided by (used) in operating activities (4,550) 225
--------------------- --------------------
Investing Activities:
Proceeds from the sale of property, plant & equipment - 66
Purchase of property, plant and equipment (935) (985)
--------------------- --------------------
Net cash used in investing activities (935) (919)
--------------------- --------------------
Financing Activities:
Issuance of 7,229 shares common stock 23 -
Net borrowing under lines of credit 3,839 1,261
Repayments on capital leases (104) (68)
--------------------- --------------------
Net cash provided by financing activities 3,758 1,193
--------------------- --------------------
Net (decrease) increase in cash (1,727) 499
--------------------- --------------------
Cash at beginning of year 2,457 1,605
--------------------- --------------------
Cash at end of period $ 730 2,104
===================== ====================
The accompanying notes are an integral part of these condensed consolidated
financial statements.
33
GRADALL INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
1. BASIS OF PRESENTATION:
The unaudited interim financial information as of March 31, 1999 and for the
three months ended March 31, 1999 and 1998 has been prepared on the same basis
as the audited financial statements. In the opinion of management such unaudited
information includes all adjustments (consisting only of normal recurring
adjustments) necessary for a fair presentation of the interim information.
Operating results for the three months ended March 31, 1999 are not necessarily
indicative of the results that may be expected for the entire year ending
December 31, 1999.
These financial statements and the notes thereto should be read in conjunction
with the Company's audited financial statements included in its Annual Report or
Form 10-K for the fiscal year ended December 31, 1998.
2. OTHER COMPREHENSIVE INCOME:
The Company has no significant items of other comprehensive income.
3. NEW ACCOUNTING STANDARDS:
In March 1998 the Accounting Standards Executive Committee issued Statement of
Position ("SOP") 98-1, "Accounting for the Costs of Computer Software Developed
or Obtained for Internal Use," which is effective for financial years beginning
after December 15, 1998. The Company adopted the provisions of this SOP
beginning January 1, 1999, which had no significant effect on the Company's
consolidated financial statements.
4. INVENTORIES:
Inventories were comprised of
MAR. 31, 1999
---------------------
Raw materials $ 1,292
Work in process 24,475
Finished goods 17,178
---------------------
42,945
LIFO reserve (6,088)
---------------------
Total inventories $ 36,857
=====================
34
GRADALL INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
5. EARNINGS PER COMMON SHARE:
The computation of the earnings per common share are as follows:
MARCH 31, MARCH 31,
1999 1999
--------------------- ---------------------
Common shares:
Weighted average common shares outstanding - basic 9,512,408 8,940,194
Additional common shares issuable for stock options 92,620 83,101
--------------------- ---------------------
Common shares - diluted 9,605,028 9,023,295
===================== =====================
6. FINANCING:
In January 1999 the Company's Loan and Security Agreement with Heller Financial,
Inc. was paid in full and terminated. A new revolving line of credit for $17
million was established with KeyBank National Association (the "Lender") with an
unsecured demand promissory note. At March 31, 1999, borrowing under the new
revolving credit facility totaled $10.8 million, and $4.2 million was available
under the facility. On April 21, 1999 the revolving line of credit with KeyBank
was increased to $22 million,. The note bears interest at either LIBOR plus .80%
or prime minus 1.40%. The note renews annually and terminates at the earlier of
the Lender's demand or the Company's decision to terminate by written or oral
communication to the Lender.
7. CONTINGENCIES:
The Company is involved in certain claims and litigation related to its
operations. Based upon the facts known at this time, management is of the
opinion that the ultimate outcome of all such claims and litigation will not
have a material adverse effect on the financial condition, results of operations
or cash flows of the Company.
8. NEW COMPANY:
On October 13, 1998, a new company, The Gradall Orrville Company, was formed as
a wholly owned subsidiary of Gradall Industries, Inc., to purchase a new
production plant at Orrville, Ohio. The new facility, formerly the Volvo Truck
Assembly plant, contains 330,000 square feet and will provide additional
production space for the material handler product.
35
JLG INDUSTRIES, INC.
UNAUDITED PRO-FORMA COMBINED FINANCIAL STATEMENTS
CONTENTS
Introduction to the unaudited pro forma combined financial statements
Unaudited pro forma combined income statement for the nine months ended April
30, 1999
Unaudited pro forma combined income statement for the twelve months ended July
31, 1998
Unaudited Pro forma combined balance sheet as of April 30, 1999
Notes to the unaudited pro forma combined financial statements
36
JLG INDUSTRIES, INC.
INTRODUCTION TO THE UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
The unaudited pro forma combined financial statements give retroactive effect to
the acquisition of Gradall Industries, Inc. by the Company effective June 15,
1999 (the date that control of Gradall was transferred to the Company). The
acquisition of Gradall was accounted for by the Company as a purchase.
Pro forma adjustments to the unaudited pro forma combined statements of income
assume that the transaction were consummated on August 1, 1997, the commencement
of the Company's 1998 fiscal year, and are based on the allocated purchase price
as reported in the pro forma combined balance sheet at April 30, 1999.
The purchase price for the acquisition of Gradall was $208,194 including
expenses of $6,700. The purchase price was allocated as follows:
Cash $ 5,064
Accounts receivable 25,672
Inventories, net 52,715
Other current assets 1,219
Property and equipment, net 31,458
Other assets, non-current 6,289
Goodwill 155,531
--------
Total assets $277,948
Current portion of long-term debt 12,879
Accounts payable 18,152
Accrued expenses 14,065
Long term debt - less current portion 457
Accrued employee benefits 24,138
--------
69,691
--------
Total purchase price $208,257
========
37
JLG INDUSTRIES, INC.
INTRODUCTION TO THE UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
(CONTINUED)
(DOLLARS IN THOUSANDS)
The value of goodwill will be amortized over a twenty-five year period, and will
be reviewed if the facts and circumstances suggest that the value of the
goodwill is impaired, based on analysis of future cash flows from the Gradall
business. If this review indicates that the goodwill will not be recoverable,
the Company's carrying value of the goodwill will be reduced accordingly.
These unaudited pro forma combined financial statements may not be indicative of
the results that may be obtained in the future. The unaudited pro forma combined
financial statements, including the notes thereto, should be read in conjunction
with the historical financial statements of the Company and Gradall.
The Company has a fiscal year end of July 31st while Gradall has a year end of
December 31st. For purposes of preparing these pro forma unaudited combined
financial statements, an annual twelve month period end of July 31, 1998 and
June 30, 1998 was utilized for the Company and Gradall, respectively. In
addition, a nine month period end of April 30, 1999 and March 31, 1999 was
utilized for the Company and Gradall, respectively. Management of the Company
does not believe that the results of operations reported on the same fiscal
period end as the Company and Gradall would be materially different than as
reported using the aforementioned period ends.
38
JLG INDUSTRIES, INC.
UNAUDITED PRO FORMA COMBINED INCOME STATEMENT
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
NINE MONTHS ENDED
PRO FORMA
JLG GRADALL COMBINED
APRIL 30, MARCH PRO FORMA APRIL 30,
1999 31,1999 ADJUSTMENTS 1999
----------------------------------------------------------
Net sales $463,637 $141,809 $605,446
Cost of sales 358,293 108,437 399 (a) 467,129
----------------------------------------------------------
Gross profit 105,344 33,372 (399) 138,317
Selling, administrative and product
development expense 49,858 14,283 64,141
Goodwill amortization 4,864 (b) 4,864
- -
----------------------------------------------------------
Income from operations 55,486 19,089 (5,263) 69,312
Other income (deductions):
Interest expense (219) (176) (9,930) (c) (10,325)
Miscellaneous, net 1,743
1,822 (79)
----------------------------------------------------------
Income before income taxes 57,089 18,834 (15,193) 60,730
Income tax provision 18,210 7,355 (4,039) (d) 21,526
----------------------------------------------------------
Net income $38,879 $11,479 ($11,154) $39,204
==========================================================
Earnings per common share $0.89 $0.90
============ ===============
Earnings per common share -
assuming dilution $0.87 $0.87
============ ===============
Weighted average shares outstanding 43,792 43,792
============ ===============
Weighted average shares outstanding -
assuming dilution 44,915 44,915
============ ===============
39
JLG INDUSTRIES, INC.
UNAUDITED PRO FORMA COMBINED INCOME STATEMENT
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
TWELVE MONTHS ENDED
PRO FORMA
JLG GRADALL COMBINED
JULY 31, JUNE 30, PRO FORMA JULY 31,
1998 1998 ADJUSTMENTS 1998
----------------------------------------------------------
Net sales $530,859 $175,723 $706,582
Cost of sales 402,702 134,918 532 (a) 538,152
----------------------------------------------------------
Gross profit 128,157 40,805 (532) 168,430
Selling, administrative and product
development expense 55,388 18,322 73,710
Goodwill amortization 6,486 (b)
- - 6,486
Restructuring charges
1,689 - 1,689
----------------------------------------------------------
Income from operations 71,080 22,483 (7,018) 86,545
Other income (deductions):
Interest expense (254) (659) (13,240) (c) (14,153)
Miscellaneous, net (356) 158 (198)
----------------------------------------------------------
Income before income taxes 70,470 21,982 (20,258) 72,194
Income tax provision 23,960 8,589 (5,385) (d) 27,164
----------------------------------------------------------
Net income $46,510 $13,393 ($14,873) $45,030
==========================================================
Earnings per common share $1.07 $1.03
============ =============
Earnings per common share -
assuming dilution $1.05 $1.01
============ =============
Weighted average shares outstanding 43,666 43,666
============ =============
Weighted average shares outstanding -
assuming dilution 44,431 44,431
============ =============
40
JLG INDUSTRIES, INC.
UNAUDITED PRO FORMA COMBINED BALANCE STATEMENT
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
PRO FORMA
JLG GRADALL COMBINED
APRIL 30, MARCH 31, PRO FORMA APRIL 30,
1999 1999 ADJUSTMENTS 1999
---------------------------------------------------------------
ASSETS
Current assets
Cash $ 37,989 $ 730 $209,613 (e) $ 25,778
(198,647) (f)
(10,966) (g)
(12,941) (h)
Accounts receivable 135,878 34,237 (400) (i) 169,715
Inventories 75,565 36,857 10,744 (j) 123,166
Other current assets 8,315 2,819 (116) (k) 11,018
---------------------------------------------------------------
Total current assets 257,747 74,643 (2,713) 329,677
Property, plant and equipment, net 56,250 25,925 1,995 (l) 84,170
Equipment held for rental, net of
accumulated depreciation of $5,166
30,667 - 30,667
Other assets 13,405 7,265 1,949 (m) 21,168
(1,451) (n)
Goodwill 162,143 (o) 162,143
---------------------------------------------------------------
$358,069 $107,833 $161,923 $627,825
===============================================================
41
JLG INDUSTRIES, INC.
UNAUDITED COMBINED BALANCE STATEMENT
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
PRO FORMA
JLG GRADALL COMBINED
APRIL 30, MARCH 31, PRO FORMA APRIL 30,
1999 1999 ADJUSTMENTS 1999
-------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Current portion of long-term debt $ 1,256 $11,034 $207,493 (e) $208,817
(10,966) (g)
Accounts payable 59,168 17,569 3,137 (p) 79,874
Accrued expenses and other current 14,303 1,347 (q) 48,394
liabilities 32,214 530 (r)
-------------------------------------------------------------------
Total current liabilities 92,638 42,906 201,541 337,085
Long-term debt - less current portion 2,254 332 2,586
Provisions for contingencies 10,510 1,688 360 (s) 12,558
Accrued employee benefits 6,701 16,748 6,181 (t) 29,630
Shareholders' equity
Capital stock:
Authorized shares: 100,000 at
$0.20 par value. Issued and
outstanding shares: 44,096 8,820 10 (10) (u) 8,820
Additional paid-in capital 15,534 45,828 (45,828) (u) 15,534
Unearned compensation (1,464) - (1,464)
Accumulated other comprehensive
income (4,760) (707) 707 (u) (4,760)
Retained earnings 227,836 1,028 (1,028) (u) 227,836
-------------------------------------------------------------------
Total shareholders' equity 245,966 46,159 (46,159) 245,966
-------------------------------------------------------------------
$358,069 $107,833 $161,923 $627,825
===================================================================
42
JLG INDUSTRIES, INC.
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
(a) Pro forma adjustment to cost of sales relates to the additional pro forma
depreciation expense associated with the write up of property, plant and
equipment to replacement cost.
(b) Pro forma adjustment to reflect straight-line amortization of $161,318 of
goodwill over a twenty-five year life.
(c) In connection with the acquisition, the Company obtained financing from a
third party. This adjustment reflects the pro forma interest expense at a
pro forma annual average rate of 6.193%. In addition, the pro forma
interest expense adjustment reflects amortization of deferred financing
costs amortized over the five year life of the debt.
(d) This adjustment relates to the tax benefit associated with the pro forma
adjustments for depreciation and interest expense. Goodwill amortization
is non-deductible.
(e) Pro forma adjustment reflects the debt issued in connection with the
acquisition of Gradall.
(f) This pro forma adjustment to cash represents the pro forma acquisition
cost associated with the acquisition of the outstanding shares of Gradall.
(g) In connection with the issuance of the debt issued as noted in note (f)
above, certain debt of Gradall was repaid at the time of the closing by
the Company. This adjustment reflects the repayment of this debt.
(h) Pro forma adjustment to cash represents the payment of the expenses
associated with the Gradall acquisition.
(i) This pro forma adjustment represents an adjustment to state accounts
receivable at net realizable value.
(j) Pro forma adjustment to inventory is to finished inventory and work in
process to be recorded at estimated selling prices less the sum of (a)
costs of disposal and (b) a reasonable profit allowance for the selling
effort of the acquiring corporation and raw materials at replacement cost.
(k) This pro forma adjustment states other current assets at net realizable
value.
(l) Pro forma adjustment to record property, plant and equipment at
replacement cost.
(m) Pro forma adjustment to record the deferred financing costs associated
with new debt issued in connection with the acquisition.
(n) This pro forma adjustment represents the reduction in the net deferred tax
asset, non-current, associated with the accounting for the various
adjustments to reflect the balance sheet at net realizable value and
replacement costs.
(o) This pro forma adjustment represents the pro forma excess purchase price
over net assets acquired.
(p) The pro forma adjustment to accounts payable represents the recording of
the liability for inventory received by the closing date which had not
been invoiced by the closing date.
(q) This pro forma adjustment reflects the accrual of expenses of the
acquisition.
(r) Pro forma adjustment to current tax provisions.
(s) The pro forma adjustment represents the accrual for product liability.
43
JLG INDUSTRIES, INC.
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
(CONTINUED)
(DOLLARS IN THOUSANDS)
(t) The pro forma adjustment to employee benefits represents the unrecognized
net obligation associated with the defined benefit pension plans, post
retirement medical insurance plans and other retirement plans.
(u) Elimination of Gradall capital.
44
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned, hereunto duly authorized.
JLG Industries, Inc.
(Registrant)
By: /s/ Charles H. Diller, Jr.
---------------------------------------
Charles H. Diller, Jr.
Executive Vice President and Chief
Financial Officer
DATED: August 30, 1999