SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[x] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ______ TO _________
Commission File No. 001-12049
GRADALL INDUSTRIES, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 36-3381606
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
406 MILL AVENUE S.W., NEW PHILADELPHIA, OHIO 44663
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (330) 339-2211
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK, $.001 PAR VALUE
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes X No
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Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. X .
---
The aggregate market value of the voting stock held by non-affiliates of
the registrant as of February 28, 1997 was $65,957,541.
The number of shares outstanding of registrant's common stock, without
par value, as of February 28, 1997 was 8,939,294.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant's Proxy Statement to be filed pursuant to
Regulation 14A with respect to the 1997 Annual Meeting of Shareholders are
incorporated in Part III of this Form.
PART I
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Item 1. BUSINESS
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THE COMPANY
Gradall Industries, Inc. (the "Company") was incorporated in Delaware in
1985 as a holding company to acquire all of the outstanding capital stock of
The Gradall Company, an Ohio corporation.
The Gradall Company is a leading manufacturer of wheeled hydraulic
excavators and rough-terrain variable reach material handlers. The Gradall
Company was established in 1946 by the Warner and Swasey Company to
manufacture and market a newly designed hydraulic excavator featuring a unique
rotating, telescopic boom and a truck mounted design. In 1982, The Gradall
Company acquired a product line of material handlers which it redesigned to
incorporate its telescopic boom technology and rough-terrain expertise.
In 1995, the Company consummated a series of transactions which resulted
in a new capitalization and ownership structure (the "1995 Recapitalization")
pursuant to which (i) MLGA Fund II, L.P. and its affiliates acquired 82.5% of
the Company's common stock, (ii) certain officers and key employees acquired
10% of the Company's common stock, (iii) the percentage ownership of the
Company's common stock held by its existing stockholders was reduced to 7.5%
through the redemption of 92.5% of the previously outstanding common stock and
(iv) the Company issued $2,000,000 of preferred stock to the existing
stockholders. As part of the 1995 Recapitalization, the Company sold $10
million of 12.5% senior subordinated notes in a private placement and obtained
a $10 million term loan and a $ 22 million revolving credit facility.
In September 1996, the Company sold 2,950,000 shares of its common stock
in an initial public offering at a price of $10 per share. Net proceeds to
the Company after underwriting discounts and offering costs were approximately
$26.9 million. Proceeds from the offering were used to redeem the outstanding
preferred stock and the senior subordinated notes, to repay the term loan and
to reduce the Company's debt under the revolving credit facility. The
Company's common stock is listed on the Nasdaq National Market under the
symbol "GRDL."
The Company's principal offices are located at 406 Mill Avenue S.W., New
Philadelphia, Ohio 44663, and its telephone number is (330) 339-2211. Unless
the context otherwise requires, the "Company" or "Gradall" refers to Gradall
Industries, Inc. and its wholly-owned subsidiary, The Gradall Company.
OVERVIEW
Gradall is a leading manufacturer of wheeled hydraulic excavators and
rough-terrain variable reach material handlers as well as related service
parts. The Company's products are marketed
under the widely respected Gradall tradename and are distinguished by their
telescopic boom technology, versatility, productivity and reliability.
Gradall's telescopic booms, which are manufactured from high-strength
specialty steel, are unique both in their shape and engineering design, which
provide added strength with minimal weight, and, in the case of excavators,
their ability to rotate a full 360 degrees. Gradall products serve niche
markets within the construction equipment industry and typically command
premium prices. In 1996, total sales were $140.9 million, comprised of $55.1
million in sales of excavators, $70.4 million in sales of material handlers
and $15.4 million in sales of service parts. Since January 1993, the Company
has introduced 12 new products which accounted for in excess of 50% of
Gradall's net sales in 1996.
Gradall excavators are typically used by general contractors and
government agencies for ditching, sloping, finish grading, general maintenance
and infrastructure projects. The Company's excavators are sold through
approximately 47 independent distributors at approximately 142 locations
throughout North America. The introduction and ongoing development of the
Company's XL Series excavators featuring the unique Gradall rotating,
telescopic booms with high-pressure hydraulics have allowed the Company to
continue to dominate its traditional niche market of wheeled, telescopic boom
excavators and to strengthen its competitive position in the larger market of
conventional crawler excavators, a market historically dominated by
knuckle-boom technology.
Gradall rough-terrain variable reach material handlers are typically used
by residential, non-residential and institutional building contractors for
lifting, transporting and placing a wide variety of materials at their point
of use or storage. The Company's material handlers are sold through
approximately 45 independent distributors at approximately 135 locations
throughout North America. In addition, Gradall material handlers are
available at national rental companies at over 130 locations. The Company
continues to introduce new material handlers with Gradall's unique 90
rear-pivot steering, hydrostatic drive and low profile design which provide an
exceptional combination of maneuverability, versatility and stability. This
new product development has allowed the Company to remain competetive in the
rapidly growing rough-terrain variable reach material handler market.
Gradall's strategy is to design and produce high quality hydraulic
excavators and material handlers for niche markets while simultaneously
reducing manufacturing costs and increasing production efficiencies.
Gradall's ability to design and customize each of its product lines to fit the
specifications of its customers augments the uniqueness of the Company's
products. In addition, in 1995, the Company commenced a multi-year program
designed to expand plant capacity and reduce production costs by increasing
labor efficiency and equipment productivity and improving quality. The
Company invested $4.2 million in 1995 and $2.2 million in 1996, with an
additional $2.0 million in capital improvements ordered in 1996 but not
received until the first quarter of 1997. During the balance of 1997, the
Company currently plans to invest approxiately $4.2 million for additional
capital improvements under this program. Management believes that these
strategies have enabled the Company to increase substantially its
profitability in recent years.
THE INDUSTRY
Gradall competes principally in the construction equipment industry. In
1995, the latest year for which U.S. industry figures have been published,
sales of construction equipment exceeded $15 billion. In 1996, total
construction spending was approximately $503 billion. The construction
equipment industry is highly competitive and global in scope. The U.S.
construction equipment industry consists of about 700 manufacturers. The
demand for construction equipment is largely driven by general economic
conditions.
Since the beginning of 1993, the construction equipment industry has
grown due to improved general economic conditions, increased public funding
for infrastructure projects and increased demand for rental equipment. The
U.S. Department of Commerce has estimated that more than half of the country's
major highways and one-third of the bridges are in need of some repair.
Gradall management believes that the need for such repairs will continue to
benefit the demand for the Company's products to the extent that funding for
such repairs is available. In addition, construction machinery rentals have
increased due to the need for specific, high-cost equipment for short
durations, strong construction market demand for equipment with broad
applications and the lack of an investment tax credit for purchasers. In
particular, the market for material handlers, which typically are rented by
distributors or other rental companies before being sold in the retail market,
has notably increased over the past several years consistent with the trend
towards rental of construction equipment. Another important element of the
current demand for construction machinery is the replacement of older machines
with new and more versatile ones. The Company believes that the present
popularity of machines with multiple functions, faster work cycles, ease of
transport and special attachments, such as Gradall products, will continue in
the future.
Excavators. The total market for hydraulic excavators in North America
grew from approximately 11,000 units in 1993 to 16,000 units in 1995 and
decreased to 14,700 units in 1996. The growth in the market through 1995 was
due to improved general economic conditions and expanding applications of
hydraulic excavators. The market decrease from 1995 to 1996 was primarily due
to adverse weather conditions which caused a slow first quarter in 1996.
Excavators were traditionally used for earth moving and below-ground
applications such as trenching, road construction, site development, mining
and irrigation. The use of excavators has expanded to include many
above-ground applications such as demolition, bridge work, hazardous waste
clean-up, scrap handling and forestry work as well as applications at
industrial sites such as mines and steel mills.
The excavator market may be divided into two product categories
consisting of track-mounted "crawler" excavators (which is further divided
into several size classes) and wheel-mounted "wheeled" excavators, which in
recent years have constituted approximately 96% and 4% of the total market for
excavators, respectively. The conventional crawler excavator market has been
traditionally dominated by knuckle-boom technology. The Company manufactures
telescopic boom crawler excavators in three size classes - 11-14 tons, 19-21
tons and 24-28 tons - which in 1996 accounted for approximately 10%, 23% and
10% of the total crawler excavator market, respectively, for a total of
approximately 43%. The remainder of the crawler excavator market is
represented by size classes which are smaller or larger than the sizes
currently manufactured by the Company. Gradall is a leading manufacturer of
wheeled telescopic boom excavators. Based on industry data, the Company
estimates that its market share of wheeled excavators exceeded 45% and that
its market share of highway speed, telescopic boom excavators is 85-90%.
Material handlers. The market for rough-terrain variable reach material
handlers has experienced dynamic growth in recent years due to new
applications, increased rental demand and displacement of straight-mast
forklifts and small rough-terrain cranes. The retail market for material
handers has grown from approximately 1,900 units in 1993 to more than 6,300
units in 1996. Material handlers are typically used for lifting, transporting
and placing a wide variety of materials such as bricks, blocks, lumber,
drywall, structural steel and roofing materials at their point of use or
storage. The increased use of new attachments such as buckets, augers,
winches, truss booms, side shifting/fork positioning carriages and swing
carriages has contributed to the development of new applications of material
handlers.
The rough-terrain variable reach material handler market is divided into
several size classes. The Company manufactures and markets material handlers
in three sizes - 6-7,000 lbs., 8-9,000 lbs. and 10,000 lbs. and over - which
in the aggregate represent over 90% of the total market for material handlers.
Based on industry data, the Company estimates that its market share of
rough-terrain variable reach material handlers is approximately 17%.
GROWTH STRATEGY
The Company's growth strategy is to design and produce high quality
hydraulic excavators and material handlers for niche markets while
simultaneously reducing manufacturing costs and increasing production
capacity. Since 1993, the Company has introduced 12 new products, and its
sales increased from $72.2 million in 1993 to $140.9 million in 1996 and
operating income increased from $1.8 million in 1993 to $17.9 million in 1996.
The key components of the Company's strategy are:
Develop unique products. The Company remains committed to devoting
significant resources toward engineering and producing unique excavators and
material handlers. With the development of its XL Series excavators, the
Company introduced new products to the conventional crawler excavator market.
The XL Series excavators are exceptional because they combine the versatility
of the Gradall rotating, telescopic boom with the productivity of
high-pressure hydraulics. Shipments of the XL 2200, the latest XL Series
model which will compete in the 11-14 ton size class, are expected to commence
in April 1997, assuming, that the Company is able to successfully resolve the
current work stoppage. In 1994, the Company significantly strengthened its
material handler product line with the introduction of a new model in the
8-9,000 lbs. size class; and, in March 1996, Gradall introduced a new material
handler in the 10,000 lbs. and over size class which is one of the largest
material handlers in the industry. The Company's product development
engineers are currently designing additional new excavators and material
handlers which Gradall plans to market in the near future.
Target niche markets. The Company is committed to maintaining its
leading position in its traditional niche market of highway speed, telescopic
boom excavators and to gain a strong position in several niche markets in the
rough terrain and conventional crawler market. Prior to 1993, the Company
focused on the wheeled excavator market which represents approximately 4% of
the total excavator market. Although this niche market accounts for a small
portion of the overall excavator market, it is an increasing market that
generates consistent profit margins. With the introduction of the XL Series
excavators in 1993, the Company significantly strengthened its competitive
position in several size classes of the conventional crawler excavator market
which in the aggregate currently represent approximately 43% of that market.
Gradall believes that it is well-positioned to take advantage of the niches in
the crawler excavator market which demand premium full-featured products. In
the material handler market, the Company focuses on the segment which demands
a reliable, premium product that offers a high level of versatility and
maneuverability. The Company believes it is well-positioned to compete in
this dynamically growing market.
Improve manufacturing processes. An important element of Gradall's
growth strategy is to expand profit margins through improved manufacturing
processes. In 1995, the Company commenced a multi-year program designed to
expand plant capacity and reduce production costs by increasing labor
efficiency and equipment productivity and improving quality. The Company
invested $4.2 million in 1995 and $2.2 million in 1996, with an additional
$2.0 million in capital improvements ordered in 1996 but not received until
the first quarter of 1997. During the balance of 1997, the Company currently
plans to invest approximately $4.2 million for additional capital improvements
under this program. The recent capital improvements have included robotic
welding systems, fabrication equipment and direct computer-controlled
equipment for cellular production. Gradall has also adopted programs designed
to reward its employees for improvements in overall productivity and
profitability. In addition, the Company has implemented aggressive quality
programs in the areas of statistical process control, warranty expense
reduction and quality assurance. Gradall believes its recent and planned
investments in automation and technology, material control, productivity
incentives and quality programs should improve its manufacturing processes
and benefit profit margins in the future.
Emphasize quality. Gradall has adopted a "continuous improvement"
strategy for every facet of its operation. The Company has carried the
continuous improvement concept beyond the scope of the traditional quality
definition to include product development and employee training and
development. This strategy has led to significant reductions in the Company's
total cost of quality (defined as warranty, rework and scrap expenses), which
declined from 2.6% of sales in 1993 to 1.7% in 1996. The Company has
implemented statistical process controls, a monitored product quality review
program and a formal supplier quality assurance program.
Increase distributor support. The Company believes that its distribution
network is among the strongest in the industry and a core strength for its
future growth. The Company plans to further enhance its distribution network
by continuing to produce unique new products, provide marketing and sales
support through its regional sales managers, and provide technical and service
support through its district service managers.
Expand service parts business. Management has focused on expanding the
Company's service parts business to increase revenues and profits by taking
advantage of the growth in the working population of Gradall excavators and
material handlers. As a part of this focus, the Company has implemented the
Gradall On Line Distributor ("GOLD") computer system which links the Company
and its distributors to facilitate communications regarding orders,
availability and other information involving Gradall service parts.
Pursue joint venture and international business opportunities. Although
substantially all of the Company's business has been focused in North
American, the Company believes its increased product development efforts
should enable the Company to take advantage of international opportunities,
including infrastructure development in emerging markets in the former Soviet
Union and Asia. The Company currently has a joint venture to manufacture and
market material handlers in Eastern Europe and is exploring other
international opportunities. In addition, the Company has embarked on a
program to obtain its ISO 9001 certification in order to assist the
international marketing of its products.
Capitalize on greater financial flexibility. The Company intends to take
advantage of its improved financial position to expand the scope of its
operations through further development of its products, manufacturing process
and distribution network and through the pursuit of possible acquisitions.
The Company believes it will have the opportunity to participate in the
current trend of consolidation in the construction equipment industry,
although it is not currently involved in any active discussions in this
regard.
PRODUCTS AND MARKETS
The Company engineers, manufactures and markets premium hydraulic
excavators and material handlers which incorporate Gradall's unique design
features. In addition, the Company manufactures and markets service parts for
its excavators and material handlers. Since January 1993, the Company has
introduced 12 new products which accounted for more than 50% of total sales in
1996.
REVENUE BY PRODUCT CATEGORY (1)
YEAR ENDED DECEMBER 31,
-----------------------
1992 1993 1994 1995 1996
------ ----- ----- ------ ------
(DOLLARS IN MILLIONS)
Excavators $ 33.8 $40.2 $45.2 $ 49.2 $ 55.1
Material handlers 12.2 21.4 30.7 53.6 70.4
Service parts 11.6 10.7 12.9 15.6 15.4
------ ----- ----- ------ ------
Total $ 57.7 $72.2 $88.8 $118.4 $140.9
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<FN>
_______________
(1) The sum in any column may not equal the indicated total due to rounding.
Excavators
All Gradall excavators are distinguished by their rotating telescopic
boom technology, versatility, productivity and reliability. Gradall
excavators are typically used for ditching, sloping, finished grading and
general maintenance which often require precise boom and bucket movements
which conventional knuckle-boom excavators cannot provide. Gradall excavators
are also used at various construction sites with restricted overhead clearance
areas or other operating requirements where it would be difficult for
conventional knuckle-boom excavators to operate. Gradall's highway speed
excavators are particularly useful to customers who require their equipment to
be at multiple locations within short periods of time. Gradall excavators
compete in the wheeled excavator category and three size classes in the
crawler excavator category.
A brief description of Gradall excavator models is as follows:
G3WD Series E. This model is a single-engine highway speed excavator
purchased primarily by state and local government agencies. The mobility and
versatility of this product are its primary market strengths since it enables
the user to do the work of three machines - an excavator, grader and wheeled
loader. The Company's ability to customize this product to meet the
specifications required by government agency bid contracts gives it a
particular competitive advantage.
XL Series. The Company formally introduced the XL Series in March 1993 to
enhance its competitive position in the larger market segment of conventional
crawler excavators. The XL Series products compete in the 11-14 ton, 19-21 ton
and 24-28 ton size classes which in the aggregate constitute approximately 43%
of the entire crawler excavator market. The XL Series products combine the
versatility of the Gradall telescopic boom technology with the performance of
high-pressure hydraulics. The XL Series products have more than twice the
productivity and efficiency of the Gradall models they replaced.
XL2000 Series. This model, shipments of which are expected to commence in
April 1997, assuming, that the Company is able to successfullly resolve the
current work stoppage, competes in the 11-14 ton class which represents
approximately 10% of the total crawler excavator market. This model is
designed to meet the needs of residential and general contractors. In
addition, the Company's plans for the XL2000 Series include a rough-terrain
wheeled version and special industrial versions for use in mines and steel
mills, respectively.
XL4000 Series. This model competes in the 19-21 ton class which represents
approximately 23% of the total crawler excavator market. The XL4000 Series is
available in both wheeled and crawler versions. This model is widely used by
municipalities and general contractors.
XL5000 Series. This model competes in the 24-28 ton class traditionally
dominated by conventional crawler knuckle-boom excavators. This class accounts
for approximately 10% of the total crawler excavator market. The XL5000 Series
is the largest high-pressure hydraulic excavator manufactured by the Company
and is available in both wheeled and crawler versions. It is well-accepted
among infrastructure and highway contractors.
In addition to the above-mentioned models which are primarily used in
construction applications, the Company offers excavators in both wheeled and
crawler versions which are used in industrial applications such as mines and
steel mills, respectively. Certain specialized Gradall crawler models are the
accepted standard in the steel industry for cleaning furnaces and ladles and
for other steel mill applications. Gradall excavators have also been specially
designed for mine scaling applications at limestone and salt mines.
The primary features of Gradall excavators are:
Telescopic boom. The rotating, telescopic boom is well-known for its
versatility and strength. The unique design is excellent for production work
such as trenching and earth moving as well as precision work including
finished grading and clean-up.
Wheeled carriers. The Company's highway speed, wheeled carriers are
designed and manufactured by Gradall to meet the needs for a reliable and
durable carrier. They are offered in two, four or six-wheel drive
configurations.
Remote control, single cab operation. All Gradall wheeled excavators
are designed with two cabs-one for the operation of the carrier and the other
for the operation of the excavator. They are engineered so that one operator
can control the carrier by remote control from the excavator cab. This allows
for greater versatility and adds significantly to the productivity of the
machine.
Crawler undercarriages. Gradall crawler undercarriages are
specifically designed and manufactured by the Company to provide the speed,
increased productivity and stability requirements of XL Series excavators.
Options/attachments. In addition to a variety of standard features,
Gradall also offers specialized options as requested by customers including
air conditioning, work lights, vandal covers and special auxiliary hydraulics.
Gradall recently announced the introduction of the "telestick" boom attachment
which extends the reach of the XL4000 and XL5000 Series excavators
approximately 50% to 45'5" and 50'9", respectively.
Material Handlers
All Gradall material handlers are renowned for their maneuverability,
versatility and dependability. Gradall material handlers are typically used
for lifting, transporting and placing a variety of materials such as bricks,
blocks, lumber, drywall, structural steel and roofing materials at their point
of use or storage. The Company manufactures five basic models of material
handlers in three size classes.
A brief description of Gradall material handler models is as follows:
522/524. The 522/524 competes in the 6-7,000 lbs. class which represents
approximately 55% of the total material handler market. It is available in
both two-section and three-section booms which provide a maximum lift height
of 24' and 32', respectively. This model is very cost efficient and is ideally
suited for less demanding applications.
534C-6. The 534C-6 is the most popular Gradall material handler. It also
competes in the 6-7,000 lbs. class and has a maximum lift height of 36'. This
model has been very well-accepted by mason and roofing contractors and the
rental industry.
534C-9. The 534C-9 competes in the 8-9,000 lbs. class which represents
approximately 30% of the market and has a maximum lift height of 40'. This
model was introduced in the fall of 1994 and has a strong appeal to framing
and general contractors.
534C-10. The 534C-10 competes in the 10,000 lbs. and over class which
represents approximately 7% of the market. It has a maximum lift height of 40'
and is ideally suited for operations requiring heavy lifting. This model has
stabilizers as standard equipment to increase its overall capacity at full
reach.
544C. The 544C was introduced in March 1996 and also competes in the
10,000 lbs. and over class. It is one of the industry's largest material
handlers and has a maximum lift height of 55'. This model permits working on
buildings as high as six stories and also includes stabilizers as standard
equipment.
The primary features of Gradall material handlers are:
90 rear-pivot steering. This is the key feature of a Gradall material
handler which provides excellent maneuverability by allowing the machines to
turn within a tight radius. The design keeps the forks and the load inside the
turning radius while providing the ability to maneuver the vehicle in tight
areas.
Strong and versatile boom. Gradall material handlers feature one of the
industry's strongest booms. The Gradall boom is capable of handling a variety
of attachments which leads to a high degree of versatility. In addition,
Gradall has a proprietary design to facilitate changing the attachments called
QuickSwitch.
Low profile. A significant advantage of the Gradall material handler is
its low overall height. The vehicle can move under doorways as low as eight
feet while providing excellent ground clearance.
Hydrostatic drive. Hydrostatic drive provides the benefits of easier,
no-shift operations, inching capability, quick accelerations and a smooth,
even ride.
Stability. Gradall material handlers operate with the industry's longest
wheelbase and shortest overall length which increase their capacity and
stability. The mid-mounted engine within the frame provides uniform weight
distribution and improved visibility.
Service Parts
In addition to engineering, manufacturing and marketing hydraulic
excavators and material handlers, the Company produces and sells related
service parts. This is an important source of revenue and profitability for
the Company. Since the Company's products are kept operational for years with
parts and service support, each Gradall product that enters the market
provides the Company with a potential long-term revenue source. Sales of
service parts typically generate high gross margins and historically have been
less sensitive to industry cycles.
In order to increase sales of service parts in the face of growing
competition, the Company focuses on parts availability, marketing and sales
activities. As a part of this focus, the Company has implemented the Gradall
On Line Distributor ("GOLD") computer system which links the Company and its
distributors to facilitate communications regarding orders, availability and
other information involving Gradall service parts. The Company emphasizes the
importance of stocking and marketing service parts and has developed a
delivery system to provide quick shipment of emergency and unit down parts.
The Company provides same day shipment on unit down orders and promotes
distributor incentives for stock orders.
Specialized Machines
Gradall has the ability to modify its products to suit the specific needs
of its customers. This ability to produce specialized machines is a part of
Gradall's overall strategy to serve specialty, higher margin markets within
the construction equipment industry. Over 35% of all Gradall excavators are
modified from standard models to meet customer requirements with add-on and/or
special attachments. Gradall is able to design and produce specialized
machines while meeting the delivery schedule of its customers. Some of the
specialized machines developed by the Company are now being marketed as
standard models; for example, special excavators created for mine scaling,
steel mills and other special industrial applications have become Gradall
standard models.
MARKETING & DISTRIBUTION
The Company primarily markets and distributes its products through a
network of independent distributors and rental companies who, in turn, sell or
rent the products to end-users. The Company also sells directly through its
own marketing staff to certain major accounts as well as to customers located
outside the United States.
The Company has agreements with its distributors under which the
distributors purchase products from the Company at agreed upon prices for
resale within the distributor's territory. While the agreements are not
exclusive, the Company's practice has been to have only one distributor
for either excavators or material handlers in each territory. Although the
Company's distributors are not required to purchase any minimum number of
products. They are required to maintain agreed-upon inventory levels. Either
party may terminate the distributor agreement upon the occurrence of certain
events, including bankruptcy or breach, or in the event either party is
dissatisfied with the other party's performance, upon thirty days notice after
a sixty day dispute resolution procedure. In addition to the Company's
products, distributors typically sell construction equipment manufactured
by third parties, including competitors of the Company.
Gradall excavators are primarily used by general contractors and
government agencies. Gradall material handlers are customarily used by
residential, non-residential and institutional building contractors. Since
these are distinct user bases, the Company markets excavators and material
handlers and their related service parts through two separate distribution
networks. The Company's excavator distribution network is comprised of
approximately 47 independent distributors at approximately 142 locations in
North America. The Company's material handler distribution network is composed
of approximately 45 independent distributors at approxi-mately 135 locations.
In addition, Gradall material handlers are available at national rental
companies at over 130 locations. One distributor or rental company accounted
for approximately 11% of the Company's sales in 1996. No other distributor or
rental company acounted for more that 10% of the Company's sales in 1996.
The Company believes that its ongoing distributor support and training
programs help enhance the competitiveness and increase the strength of its
distribution network. The Company supports the sales, service and rental
activities of its distributors with product advertising, sales literature,
product training and major trade show participation. The independent
distribution network is serviced by the Company's five regional sales managers
for excavators and six regional sales managers for material handlers. Each
regional sales manager is also responsible for developing new distributors
within his region.
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.
The Company supports the servicing of its products through a field
service organization consisting of four district service managers located
throughout the United States. The district service managers provide service
training and technical support to the distributors, and act as a liaison among
customers, distributors and the Company on service related matters. The
district service managers are also involved in service parts marketing, sales
call support and product demonstrations. In addition, the Company has three
service representatives at its principal offices who are responsible for
fulfilling the Company's commitment to product reliability.
MANUFACTURING
The Company fabricates, welds, machines and assembles the chassis,
telescopic booms, attachments and many component parts for its excavators and
material handlers. The goals of the Company's manufacturing operation are
quality, efficiency, productivity, cost control and on-time delivery. The
Company strives to increase its manufacturing capacity, productivity and
quality through automation and technology, material control, productivity
incentives for employees and quality programs.
Automation and technology. In 1995, the Company commenced a multi-year
program designed to expand plant capacity and reduce production costs by
increasing labor efficiency and equipment productivity and by improving
quality. The Company invested $4.2 million in 1995 and $2.2 million in 1996,
with an additional $2.0 million in capital improvements ordered in 1996, but
not received until the first quarter of 1997. During the balance of 1997, the
Company currently plans to invest approximately $4.2 million for additional
capital improvements under this program. Thus far, capital improvements have
included robotic welding systems, laser cutting machines, oxygen assist plasma
cutting machines and direct computer-controlled equipment designed for
cellular production. Planned expenditures will include additional robotic
welding systems, laser cutting machines, oxygen assist plasma cutting machines
and a large computerized boring machine. Gradall believes that the recently
completed capital improvements, which have reduced production costs, expanded
plant capacity and improved quality, and planned capital improvements, should
benefit profit margins in the future.
Material control. The Company has instituted and continues to institute
material control improvements. These improvements include just-in-time
inventory management, the relocation of certain inventory to the shop floor to
support cell manufacturing, set-up reduction programs and the reduction and
control of obsolete and surplus inventory.
Productivity incentives. The Company operates a productivity sharing
plan for its unionized, hourly employees. The plan is an Improshare plan
called "Gainsharing." Gainsharing is a group incentive program that is
calculated from a Company-wide measure of productivity. The productivity of
the plant is measured against a base period. Each employee receives a
Gainshare bonus based upon the percentage increase in productivity. The
Company has an active labor management cooperative committee which is
supported by employee positive action teams. These teams implement changes in
the manufacturing processes which improve quality and productivity, which in
turn support the Gainsharing program.
Quality programs. The Company has implemented comprehensive quality
programs, including the following:
Statistical process control. The Company maintains control charts in
machining, welding and assembly as well as a pre-shipment quality audit
program on finished machines. The Company plans to continue expanding the use
of statistical process control charts.
Quality feedback/warranty reduction. Gradall reviews critical quality
issues on an ongoing basis and initiates corrective actions. A computerized
warranty system captures early warning reports from field service managers as
well as details of warranty claims which provide additional input to the
quality feedback program.
Supplier quality assurance. The Company monitors supplier quality through a
computer system which records and tracks reports on defective material
allowing the Company to execute corrective action measures.
Gradall's commitment to automation and technology, material control,
productivity incentives for employees and quality programs have improved the
capacity, productivity and quality of the Company's manufacturing operations.
From 1993 to 1996, the Company increased its unit production by 115.1% with
only a 24.3% increase in its workforce. The Company's total cost of quality
(defined as warranty, rework and scrap expenses) declined from 2.6% in 1993 to
1.7% of sales in 1996.
ENGINEERING AND DESIGN
Gradall believes that its engineering and design capabilities are among
the Company's major strengths. The engineering and design functions are
closely integrated with the Company's manufacturing and marketing activities.
This allows the Company to integrate new production technology with specific
needs of customers, resulting in expanded market opportunities and increased
profitability for the Company. In 1996, more than 35% of Gradall excavators
were modified from standard models to meet customer requirements with add-on
and/or special attachments.
The Company's manufacturing engineers are involved in both product design
and implementation of capital improvements in order to maximize manufacturing
processes and efficiencies. In addition, the implementation of "concurrent
engineering," in which personnel from engineering, manufacturing, materials
procurement and marketing are simultaneously engaged in new product
development programs, has led to faster new product development time, reduced
costs and improved quality.
Gradall has made significant investments in its engineering systems,
which currently includes a computer-aided design (CAD) system with finite
element analysis (FEA) and three-dimensional solids design capabilities. This
system has greatly expanded Gradall's design capabilities and has
significantly reduced the time required for engineering and design functions.
COMPETITION
The markets in which the Company operates are highly competitive. The
Company faces competition in each of its product lines from a number of
different manufacturers, some of which have greater financial and other
resources than the Company. The principal competitive factors affecting the
markets for the Company's products include performance, functionality, price,
brand recognition, customer service and support, and product availability.
The excavator market may be divided into two product categories -
track-mounted "crawler" excavators (which is further divided into several size
classes) and wheel-mounted "wheeled" excavators. In recent years, crawler
excavators have constituted approximately 96% of the total market for
excavators and wheeled excavators have accounted for 4%. The conventional
crawler excavator market has been traditionally dominated by knuckle-boom
technology. The leading producers of conventional crawler excavators are
Caterpillar Inc., Deere & Co., Hitachi Corporation and Komatsu, Ltd. The
Company manufactures telescopic boom crawler excavators in three size classes
- - - 11-14 tons, 19-21 tons and 24-28 tons - which in 1996 accounted for
approximately 10%, 23% and 10% of the total crawler excavator market,
respectively, for a total of approximately 43%. Gradall's XL Series
excavators are designed to appeal to niche markets in these size classes which
require the versatility of the Gradall telescopic boom technology with the
performance of high-pressure hydraulics. The remainder of the crawler
excavator market is represented by size classes which are smaller or larger
than the sizes currently manufactured by the Company.
Gradall is a leading manufacturer of wheeled telescopic boom excavators.
Based on industry data, the Company estimates that its market share of all
wheeled excavators exceeded 45% and that its market share of highway speed,
telescopic boom excavators is 85-90%. The Company has only one competitor in
the highway speed, telescopic boom excavator market.
The rough-terrain variable reach material handler market is divided into
several size classes. The Company manufactures material handlers in three
size classes - 6-7,000 lbs., 8-9,000 lbs. and 10,000 lbs. and over - which in
the aggregate represent over 90% of the total market for material handlers.
Based on industry data, the Company estimates that its market share of all
material handlers is approximately 17%. Other than Gradall, the principal
producers of variable reach material handlers are JCB International Co., Ltd.,
Omniquip International and Caterpillar, Inc.
BACKLOG
As of December 31, 1996, the Company's backlog of orders aggregated
approximately $14.8 million compared to approximately $17.9 million at
December 31, 1995 and approximately $23.3 million at December 31, 1994. The
decrease in backlog of orders at December 31, 1996 was due primarily to
decrease in orders for both material handlers and excavators. Substantially
all backlog orders at December 31, 1996 are expected to be shipped by April
30, 1997.
SUPPLIERS
The Company purchases component parts and raw materials from a variety of
manufacturers, the most significant of which are set forth below:
SUPPLIER COMPONENTS
- - -------------------------- --------------------
Rexroth Hydraulics
Rockwell International Axles
Cummins Engine Engines
Bethlehem Steel Steel
Parker Hannifin Hydraulic components
Iowa Industrial Hydraulics Cylinders
Robinson Steel Steel
Auburn Gear Torque hubs
Firestone/Bridgestone Tires
Kurdziel Industries Counterweights
The Company selects suppliers that can provide the lowest cost, highest
quality and best product availability. The quality and timely delivery of the
Company's supplies are important to the Company's overall product quality.
Whenever possible, the Company attempts to establish long-term purchasing
agreements to control cost, quality and availability, and identify alternative
sources of supply to protect its manufacturing process against the
unavailability of component parts and raw materials.
EMPLOYEES
As of December 31, 1996, Gradall employed 632 people -- 426 hourly and
206 salaried. The Company's 426 hourly employees are represented by the
International Association of Machinists and Aerospace Workers. The Company's
existing contract with the union expired March 23, 1997. The Company had been
actively negotiating a new contract with the union and reached a tentative
agreement between negotiators for the Company and the union. On March 22,
1997, the union membership failed to ratify the proposed new three year
contract and authorized a work stoppage which began upon the expiration of the
existing contract on March 23rd. There can be no assurance that the Company
will be able to negotiate a satisfactory contract with the union. A prolonged
work stoppage would have a material adverse effect on the operation and
financial condition of the Company. No assurance can be given as to the
duration of the present work stoppage.
ENVIRONMENTAL REGULATION
The Company is subject to various federal, state and local environmental
laws and regulations, including those governing discharges into the air and
water, as well as the handling and disposal of solid and hazardous wastes.
Pursuant to these laws and regulations, the Company may be required from time
to time to remediate environmental contamination associated with releases of
hazardous substances. The Company has made and will continue to make capital
and other expenditures to comply with such environmental laws and regulations.
Such expenditures are not presently material and the Company currently
anticipates that such expenditures will not be material in the future.
Item 2. PROPERTIES
----------
The Company operates from a single facility in New Philadelphia, Ohio
which it owns. The facility contains 429,320 square feet and is located on a
66 acre site. The facility accommodates the Company's corporate offices,
manufacturing operations and warehouse.
Item 3. LEGAL PROCEEDINGS
------------------
Due to the nature of its products, the Company may be subject to
significant claims for product liability. The Company is a party to various
lawsuits seeking damages for alleged product liability arising from the use of
its products. The Company currently maintains product liability insurance
with an annual aggregate limit of $6 million subject to a self-insurance
retention in the amount of $225,000 per claim. There can be no assurance that
the proceeds available under the Company's insurance policy would be adequate
to cover potential product liability claims. A successful claim against the
Company in excess of the Company's insurance coverage could have an adverse
effect on the financial results of the Company. In each of the fiscal years
ended December 31, 1996, 1995 and 1994, the Company's product liability costs
for any claim have not exceeded its self-insurance retention amount.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
-----------------------------------------------------------
Not applicable.
EXECUTIVE OFFICERS OF THE REGISTRANT
Executive officers of the Company as of February 28, 1997 were as
follows:
Name Age Position
- - ------------------ --- -------------------------------------------
Barry L. Phillips 55 President - CEO
David S. Williams 56 Vice President , Marketing and Sales
Joseph H. Keller 50 Vice President, Engineering and Secretary
James C. Cahill 44 Vice President, Manufacturing
Bruce A. Jonker 54 Vice President, Chief Financial Officer and
Treasurer
Mr. Phillips has served as President and Chief Executive Officer of the
Company since 1995 and has served as President of The Gradall Company since
1985. Prior to 1985, Mr. Phillips spent 26 years with International Harvester
and was the plant manager of its Farmall Plant in Rock Island, Illinois.
Mr. Williams has served as Vice President, Marketing and Sales of the
Company since 1995 and has served as Vice President, Marketing and Sales of
The Gradall Company since 1986. Prior to that, Mr. Williams served as
President of Claas of America and held various management positions at
International Harvester, including General Sales Manager.
Mr. Keller joined The Gradall Company in 1981 and has served as its Vice
President, Engineering and Secretary since 1987. Mr. Keller has served as
Vice President, Engineering and Secretary of the Company since 1995.
Mr. Cahill joined The Gradall Company in 1982 and has served as its Vice
President, Manufacturing since 1990. Mr. Cahill has served as Vice President,
Manufacturing of the Company since 1995.
Mr. Jonker joined The Gradall Company in 1973 and has served as its Vice
President and Chief Financial Officer since July 1994 and its Treasurer since
November 1995. Mr. Jonker has served as Vice President, Finance and
Administration and Treasurer of the Company since November 1995 and as Vice
President, Chief Financial Officer and Treasurer of the Company since April
1996.
PART II
Item 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
TRADING INFORMATION
The Company's Common Stock has been traded on the Nasdaq National Market
under the symbol "GRDL" since August 28, 1996.
The following table sets forth the high and low sales prices for the
Common Stock of the Company for the periods indicated as reported by the
Nasdaq National Market:
Sale Price
----------
1996 High Low
- - --------------------------- ------- -------
Third Quarter(1) $11 7/8 $ 10
Fourth Quarter 13 5/8 10 3/4
1997
- - ---------------------------
First Quarter $16 1/4 $ 12
(through February 28, 1997)
(1) Trading commenced on August 28, 1996
RECORD HOLDERS
The approximate number of record holders of the Company's equity
securities at February 28, 1997 was as follows:
Title of Class Number of Record Holders
-------------- ------------------------
Common Stock 121
DIVIDENDS
The Company currently intends to retain its future earnings to finance
growth and development of its business and therefore does not anticipate
paying cash dividends on the Common Stock for the foreseeable future. Any
future determinations to pay dividends will be at the discretion of the Board
of Directors and will be dependent on the Company's financial condition,
results of operations, capital requirements and such other factors as the
Board of Directors deems relevant. The Company's existing credit facility
restricts the payment of dividends.
Item 6. SELECTED FINANCIAL DATA
The following table sets forth selected consolidated financial data for
the Company for the five years ended December 31, 1996 that have been taken or
derived from the historical financial statements of the Company and are
qualified in their entirety by reference to such financial statements and
notes included therein. See "Consolidated Financial Statements."
YEAR ENDED DECEMBER 31,
--------------------------------------
1992 1993 1994 1995 1996
---- ---- ---- ---- ----
(dollars in thousands, except share data)
INCOME STATEMENT DATA:
Net sales $57,665 $72,208 $88,820 $ 118,438 $ 140,909
Cost of sales 48,780 59,274 71,280 92,637 108,098
-------- -------- -------- ----------- ----------
Gross profit 8,885 12,934 17,540 25,801 32,811
Operating expenses:
Engineering. 1,477 1,848 2,123 2,504 3,081
Selling and marketing 3,345 4,232 4,728 5,365 6,509
Administrative 2,986 5,075 4,618 5,138 5,306
-------- -------- -------- ----------- ----------
Operating income 1,077 1,779 6,071 12,794 17,915
Amortization of FAS 106(1) --- ---- (3,626) --- ---
Interest expense 1,062 1,055 1,146 1,642 3,108
Other, net (376) (549) 234 865 1,018
-------- -------- -------- ----------- ----------
Income before provision for
taxes 391 1,273 8,317 10,287 13,789
Income tax provision 334 550 3,152 3,680 5,503
-------- -------- -------- ----------- ----------
Net income before change
in accounting and extraordinary
item 57 723 5,165 6,607 8,286
Extraordinary Item(2) 973
Change in accounting (243) 9,014 --- --- ----
-------- -------- -------- ----------- ----------
(gain)/loss(3)
Net income (loss)(4) $ 300 $(8,291) $ 5,165 $ 6,607 7,313
======== ======== ======== =========== ==========
Net income per common share(5)
Before extraordinary change $ 1.17 $ 1.19
After extraordinary change 1.17 1.05
Pro forma(6)
Net Income Per Share $ .77 $ 1.07
Weighted Average Shares
Outstanding 8,939,294 8,939,294
BALANCE SHEET DATA:
Working capital $ 10,735 $ 14,907
Total assets 52,024 $ 58,226
Total debt 37,922 $ 7,910
Stockholders' (deficit) equity (23,119) $ 9,076
_______________
(1) The FAS 106 gain in 1994 resulted from the reduction in the
post-retirement health care benefits liability reflecting a change in
actuarial assumptions related to the projected growth in medical costs.
(2) An extraordinary charge of $1.0 million, net of taxes, related to
early extinguishment of senior and subordinated debt was incurred in September
1996 to write off unamortized deferred financing costs and the discount on
subordinated debt which was paid off with the proceeds from the initial public
offering on September 3, 1996.
(3) Reflects in 1992 a $0.2 million after-tax increase in net income
resulting from the adoption of a new accounting standard for income taxes (FAS
109) and in 1993 a $9 million after-tax decrease in net income resulting from
the adoption of the accrual basis of accounting for post-retirement health
care benefits (FAS 106).
(4) Net income (loss) per share data have been omitted for years prior to
1995 as such amounts are not comparable due to the 1995 Recapitalization.
(5) Presented based on actual earnings and average shares outstanding in
the periods indicated after giving effect to the 5,540-for-1 stock split and
the conversion of the outstanding Warrants.
(6) Presented 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 reduction in debt, all had occured effective
January 1, 1995. Pro forma net income per share data does not include the
extraordinary charge.
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following discussion of results of operations and financial condition
is based upon and should be read in conjunction with the Company's
Consolidated Financial Statements and Notes thereto, the Selected Financial
Data and other financial data appearing elsewhere herein.
GENERAL
The Company's 426 hourly employees are represented by the International
Association of Machinists and Aerospace Workers. The Company's existing
contract with the union expired March 23, 1997. The Company had been actively
negotiating a new contract with the union and reached a tentative agreement
between negotiators for the Company and the union. On March 22, 1997, the
union membership failed to ratify the proposed new three year contract and
authorized a work stoppage which began upon the expiration of the existing
contract on March 23rd. There can be no assurance that the Company will be
able to negotiate a satisfactory contract with the union. A prolonged work
stoppage would have a material adverse effect on the operation and financial
condition of the Company. No assurance can be given as to the duration of the
present work stoppage.
Gradall Industries operates in two segments of the construction equipment
market. Historically, the majority of the Company's revenues has been
generated by the sale of telescopic boom excavators and related parts, while
sales of rough-terrain variable reach material handlers and related parts
accounted for the balance of the revenues. Beginning in 1995, and continuing
through 1996, the Company's product mix shifted and sales of material handlers
exceeded sales of excavators. The growth of Gradall's material handler
business reflects the strong growth of the material handler market and
Gradall's continued market share of approximately 17%. Gradall's excavator
business has grown with the increased sales of the Company's XL Series of
excavators. Gradall was able to increase its sales of excavators in 1996 while
the overall excavator industry experienced a decline of approximately 8%.
The Company's consolidated net sales grew from $88.8 million in 1994 to
$140.9 million in 1996, an increase of $52.1 million or 26.0% per annum. This
increase is largely due to significant growth in the rough-terrain variable
reach material handler market and to the increasing penetration of the
excavator market by the Company's XL Series of excavators. Of the $52.1
million total increase of net sales in 1996, $41.1 million or 78.9% reflects
growth in the Company's material handlers business (including related service
parts), and $11.0 million or 21.1% relates to the growth of its excavator
business (including related service parts).
From 1994 to 1996, sales of material handlers grew from $30.7 million to
$70.4 million representing an increase of 51.4% per annum. This growth is due
to the overall growth in the market for material handlers and to an increase
in demand for the Company's material handlers. Over the same period, the
rough-terrain variable reach material handler market has grown at an overall
rate of 34% per annum. This dynamic industry growth is due to new
applications, increased rental demand and displacement of straight-mast
forklifts and small rough-terain cranes.
From 1994 to 1996, sales of excavators grew from $45.2 million to $55.1
million, representing an increase of 10.4% per annum. This growth is due to
the success of the Company's XL Series excavators during both an expanding
excavator market in 1995 and an 8% declining excavator market in 1996. The XL
Series excavators strengthened Gradall's competitive position in the market
for conventional crawler excavators. Approximately 75% of excavator units
sold by the Company in 1996 were XL Series models. In April 1997, assuming
the Company is able to successfully resolve the current work stoppage, Gradall
intends to ship its first production units of the new XL 2200 excavator in the
11-14 ton size class. The Company believes that this new model is
well-positioned to take advantage of growth in the niche market for smaller,
more versatile high-pressure excavators.
The Company manufactures and markets service parts for its excavators and
material handlers. Although sales of service parts declined slightly in 1996
from 1995 levels, over a two year period, sales of service parts grew from
$12.9 million in 1994 to $15.4 million in 1996, representing an increase of
9.3% per annum. In 1995, $0.6 million of the $15.6 million service parts
sales was associated with a one-time military subcontract. Approximately 75%
of service parts sales are related to the excavator product line.
Net income before change in accounting and extrordinary item benefited
from a $3.6 million gain in 1994 resulting from the reduction in the projected
rate of growth of the Company's post-retirement health care obligation. Net
income was reduced by an extraordinary charge of $1.0 million, net of taxes,
in 1996 due to the write off of unamortized deferred financing costs and the
discount on subordinated debt resulting from the repayment of indebtedness
from the proceeds of the Company's initial public offering of common stock.
In 1993, net income was reduced by a charge of $9.0 million, net of taxes,
resulting from the adoption of the accrual basis of accounting for
post-retirement health care benefits. In 1992, net income benefited from a
$0.2 million gain, net of taxes resulting from the adoption of new accounting
standards for income taxes.
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, items in the
Company's income statements as a percentage of net sales for the periods
indicated(1):
Year Ended December 31,
-----------------------
1994 1995 1996
------ ------ ------
Net Sales:
Excavators 50.9% 41.5% 39.1%
Material handlers 34.6 45.3 50.0
Service parts 14.5 13.2 10.9
------ ------ ------
Total net sales 100.0% 100.0% 100.0%
Cost of sales. 80.3 78.2 76.7
------ ------ ------
Gross profit 19.7 21.8 23.3
Operating expenses:
Engineering 2.4 2.1 2.2
Selling and marketing 5.3 4.5 4.6
Administrative 5.2 4.3 3.8
------ ------ ------
Total operating expenses 12.9 11.0 10.6
------ ------ ------
Operating income 6.8 10.8 12.7
Other expense (income):
Amortization of FAS 106 (gain) (4.1) 0.0 0.0
Interest expense 1.3 1.4 2.2
Other, net 0.3 0.7 0.7
------ ------ ------
Income before provision for taxes 9.4 8.7 9.8
Income tax provision 3.5 3.1 3.9
------ ------ ------
Net income before change in accounting 5.8% 5.6% 5.9%
====== ====== ======
<FN>
______________
(1) The sum in any column may not equal the indicated total due to rounding.
Results of Operations Fiscal 1996 Compared to Fiscal 1995
Net sales. Net sales were $140.9 million for fiscal 1996, an increase of
$22.5 million or 19.0% compared to $118.4 million for fiscal 1995. The
increase in net sales was substantially attributable to a significant increase
in unit volume of material handlers and a moderate increase in unit volume of
excavators. Price increases affecting both product lines had a modest
favorable impact. Net sales of excavators was $55.1 million for fiscal 1996,
an increase of $5.9 million or 12.0% compared to $49.2 million for fiscal
1995. Net sales of material handlers was $70.4 million for fiscal 1996, an
increase of $16.8 million or 31.3% compared to $53.6 million for fiscal 1995.
Net sales of service parts was $15.4 million for fiscal 1996, a decrease of
$0.2 million or 1.2% compared to $15.6
million for fiscal 1995. In 1995 $0.6 million of the $15.6 million was
revenue associated with a one-time miliary subcontract. Although the Company
expects net sales to increase in the future, assuming that the Company is able
to successfully resolve the current work stoppage, it anticipates that the
rate of growth, especially with respect to sales of material handlers, will
not continue at the rate of growth experienced in 1996.
Gross Profit. Gross profit amounted to $32.8 million for fiscal 1996, an
increase of $7.0 million or 27.2% compared to $25.8 million for fiscal 1995.
Gross profit as a percentage of net sales increased to 23.3% for fiscal 1996
from 21.8% for fiscal 1995, primarily due to improved production efficiencies
and the economies of higher production volume.
Engineering. Engineering expense was $3.1 million for fiscal 1996, an
increase of $0.6 million or 23.0% compared to $2.5 million for fiscal 1995.
This increase was due to the addition of engineering personnel to support new
product development.
Selling and Marketing. Selling and marketing expense was $6.5 million,
an increase of $1.1 million or 21.3% compared to $5.4 million for fiscal 1995.
This increase was primarily attributable to the expenses related to the 1996
ConExpo, a major trade show held every three years, and marketing costs tied
to the increased sales volume.
Administrative. Administrative expenses were $5.3 million for fiscal
1996, an increase of $0.2 million or 3.3% compared to $5.1 million for fiscal
1995. This increase was primarily attributable to higher legal expenses in
connection with the settlement of litigation and the addition of professional
employees to support quality control and management information systems.
Interest Expense. Interest expense was $3.1 million for fiscal 1996, an
increase of $1.5 million or 89.3% compared to $1.6 million for fiscal 1995.
This increase in interest expense was due to increased borrowings in
connection with the recapitalization which occurred on October 13, 1995.
Fourth quarter 1996 interest was reduced as a result of the application of the
net proceeds of the Company's initial public offering to reduce outstanding
indebtedness. On an annualized basis interest expense will be reduced by
approximately $2.6 million.
Income Tax Provision. Income tax expense was $5.5 million for fiscal
1996, an increase of $1.8 million or 49.5% compared to $3.7 million for fiscal
1995, and represented an effective tax rate of 39.9% and 35.8%, respectively.
Extraordinary Charge. An extraordinary charge of $1.0 million, net of
taxes, related to early extinguishment of senior and subordinated debt was
incurred in September 1996 to write off unamortized deferred financing costs
and the discount on subordinated debt which was paid off with the proceeds
from the Company's initial public offering on September 3, 1996.
Net Income. Net Income was $7.3 million for fiscal 1996, an increase of
$0.7 million or 10.7% compared to $6.6 million for fiscal 1995. The higher
level of sales in fiscal 1996 generated higher operating margins which were
partially offset by the additional interest cost related to the debt incurred
with the 1995 Recapitalization and the extraordinary charge.
Earnings Per Share After Extraordinary Charge. Earnings per share after
extraordinary charge were $1.05 for fiscal 1996, a decrease of $0.12 or 10.3%
from $1.17 for fiscal year 1995, principally as a result of the extraordinary
charge described above and a higher number of shares outstanding after the
initial public offering.
Results of Operations Fiscal 1995 Compared to Fiscal 1994
Net sales. Net sales were $118.4 million for fiscal 1995, an increase of
$29.6 million or 33.3%, compared to $88.8 million for fiscal 1994. The
increase in net sales was substantially attributable to a significant increase
in unit volume of material handlers and a moderate increase in unit volume of
excavators. Price increases affecting both product lines had a modest
favorable impact. Net sales of excavators were $49.2 million for fiscal 1995,
an increase of $4.0 million or 8.9%, compared to $45.2 million for fiscal
1994. Net sales of material handlers were $53.6 million for fiscal 1995, an
increase of $22.9 million or 74.6%, compared to $30.7 million for fiscal 1994.
Net sales of service parts were $15.6 million for fiscal 1995, an increase of
$2.7 million or 20.9%, compared to $12.9 million for fiscal 1994. In 1995,
$0.6 of the $15.6 million was revenue associated with a one-time military
subcontract.
Gross Profit. Gross profit amounted to $25.8 million for fiscal 1995, an
increase of $8.3 million or 47.1% compared to $17.5 million for fiscal 1994.
Gross profit as a percentage of net sales increased to 21.8% for fiscal 1995
from 19.7% for fiscal 1994, primarily due to improved production efficiencies
and the economies of higher production volume.
Engineering. Engineering expense was $2.5 million for fiscal 1995, an
increase of $0.4 million or 17.9%, compared to $2.1 million for fiscal 1994.
This increase was due to the addition of engineering personnel to support new
product development.
Selling and marketing. Selling and marketing expenses were $5.4 million
for fiscal 1995, an increase of $0.6 million or 13.5%, compared to $4.7
million for fiscal 1994. This increase was primarily attributable to greater
spending for advertising, higher interest expense for distributor financing
plans and prepaid freight on stock service orders.
Administrative. Administrative expenses were $5.1 million for fiscal
1995, an increase of $0.5 million or 11.3%, compared to $4.6 million for
fiscal 1994. This increase was primarily attributable to greater
post-retirement health care expenses and an increase in legal expenses.
Interest expense. Interest expense was $1.6 million for fiscal 1995, an
increase of $0.5 million or 43.3%, compared to $1.1 million for fiscal 1994.
This increase was due to increased borrowings associated with the 1995
Recapitalization which occurred in October 1995.
Income tax provision. Income tax expense was $3.7 million for fiscal
1995, an increase of $0.5 million or 16.8%, compared to $3.2 million for
fiscal 1994 and represented an effective tax rate of 35.8% for fiscal 1995 and
37.9% for fiscal 1994.
Net Income. Net Income was $6.6 million for fiscal 1995, an increase of
$1.4 million or 27.9%, compared to $5.2 million for fiscal 1994. The higher
level of sales in fiscal 1995 generated higher operating margins, which were
partially offset by the additional interest cost related to the debt incurred
with the 1995 Recapitalization. Additionally, net income for fiscal 1994
benefited from a $3.6 million gain resulting from the reduction in the
projected rate of growth of the Company's post retirement health care
obligation.
LIQUIDITY AND CAPITAL RESOURCES
In September, 1996, Gradall completed the initial public offering of
2,950,000 newly issued shares of common stock at $10.00 per share. As part of
the offering, existing shareholders sold 1,075,000 shares of common stock
including the shares received upon exercise of all the warrants issued in
connection with the 1995 Recapitalization. The $26.9 million of net proceeds
to the Company were used to redeem $2 million in preferred stock, to repay in
full $10.0 million in subordinated debt and $9.6 million in senior term debt,
and to reduce the Company's revolving credit borrowings by $5.4 million. As a
result of the application of the proceeds from the initial public offering,
Gradall incurred an after tax extraordinary charge in the fourth quarter of
1996 of $973,000, net of $622,000 of income tax benefits, to write off
unamortized discount and deferred financing charges related to the warrants
and the repayment of indebtedness.
The Company has funded its operations primarily with cash generated from
operations. The Company generated net cash from operating activities of $6.9
million in 1996 compared to $7.6 million for 1995. Net cash from operating
activities for 1996 primarily resulted from $7.3 million of net income and
$4.1 million of non-cash charges to income, primarily depreciation and the
write off of $1.6 million deferred financing, which were more than offset by
$4.5 million of net cash used by changes in operating assets and liabilities,
primarily a $4.7 million increase in accounts receivable due to strong
shipments. Net cash from operating activities for 1995 resulted primarily
from $6.6 million of net income, $.9 million of non-cash charges to income
less deferred taxes and $55,000 of net cash provided by changes in operating
assets and liabilities, primarily a $4.1 million increase in payables and
accruals that more than offset a $3.6 million increase in inventory.
Net cash used by investing activities, consisting of purchases of
property and equipment, was $2.2 million with an additional $2.0 million of
capital equipment on order but not received in 1996 and $4.2 million in 1995.
These capital expenditures were incurred primarily in connection with the
Company's multi-year program to increase production efficiencies, labor
productivity and the output of the Company's manufacturing facility through
investments in new capital equipment. The Company's capital investments in
1996 under this program totaled $2.3 million which was funded by cash from
operations. Management expects to invest approximately $4.2 million of
additional capital in 1997 for improvements under the multi-year program which
would also be funded from internally generated cash flow as well as from
borrowings under available credit facilities.
On December 20, 1996, the Company's revolving credit facility was
amended. The facility was increased to $25 million and the maturity date was
extended to August 31, 1999. Borrowings under the revolving credit facility
are limited by a borrowing base, which is based on the value of the Company's
inventory and receivables from time to time. At December 31, 1996,
borrowings under the revolver totaled $7.3 million and $14.7 million was
available under the facility. Outstanding balances under the amended facility
generally bear interest at the Company's choice of either LIBOR plus 1% or
prime minus 0.5%. On December 31, 1996, the weighted average interest rate
under the facility was 7%. The Company is not required to make any principal
repayments of the amount outstanding under the facility until August 31, 1999.
Borrowings under the amended credit facility are secured principally by
the Company's inventory and receivables. The amended facility continues to
require the Company to maintain various financial ratios and defined levels of
tangible net worth and to restrict asset acquisitions and dispositions,
additional indebtedness and certain payments, including cash dividends.
A substantial amount of the Company's working capital is invested in
accounts receivable and inventories. The Company periodically reviews
accounts receivable for noncollectability and inventories for obsolescense and
establishes allowances that it believes are appropriate. In addition, the
Company continuously monitors the level of its purchase orders for raw
materials and correlates these orders, and its inventory balances of various
raw materials, to its current production schedule. To avoid shortages of raw
materials during periods of increased demand, the Company may from time to
time increase its level of purchases to meet its anticipated future level of
production.
The Company's hourly work force is currently participating in a work
stoppage which began on March 23, 1997, after the union failed to ratify a
tentative agrement reached between the Company and the union bargaining
committee. If the Company is unable to successfully negotiate an end to this
work stoppage, on a timely basis, it can be expected to have a material
adverse effect on the Companys liquidity and capital resources. Assuming,
that the Company is able to timely negotiate an end to the current work
stoppage, the Company believes that cash flow from operations together with
funds available under its amended credit facility will be adequate to fund its
working capital and capital expenditure requirements for the foreseeable
future.
ACCOUNTING PRONOUNCEMENTS
Statement of Financial Accounting Standards No. 121, "Accounting for the
Impairment of Long-Lived Assets and Long-Lived Assets to Be Disposed Of," is
effective for the year ended December 31, 1996. In the opinion of management,
this statement did not materially impact the Company's financial position or
results of operations.
Statement of Financial Accounting Standards No. 123, "Accounting for
Stock Based Compensation," is effective for the year ended December 31, 1996.
For further details, see Note 10 to the Consolidated Financial Statements.
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Index to Consolidated Financial Statements and Schedule on page F-1
sets forth the financial statements and supplementary schedule included in
this Annual Report on Form 10-K and their location herein. Schedules I, III
and IV have been omitted as not required or not applicable or because the
information required to be presented is included in the consolidated financial
statements and related notes.
F-1
GRADALL INDUSTRIES, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
PAGES
-----
Report of Independent Accountants on the Consolidated Balance Sheets
as of December 31, 1996 and 1995 and the Consolidated Statements
of Income, Changes in Stockholders' Equity and Cash Flows for each
of the three years in the period ended December 31, 1996 F-2
Financial Statements:
Consolidated Balance Sheets, December 31, 1996 and 1995 F-3
Consolidated Statements of Income for the years ended
December 31, 1996, 1995 and 1994 F-5
Consolidated Statements of Changes in Stockholders' Equity
for the years ended December 31, 1996, 1995 and 1994 F-6
Consolidated Statements of Cash Flows for the years ended
December 31, 1996, 1995 and 1994 F-7
Notes to the Consolidated Financial Statements F-9
Schedule:
II - Valuation and Qualifying Accounts F-22
F-2
REPORT OF INDEPENDENT ACCOUNTANTS
Board of Directors
Gradall Industries, Inc.
We have audited the accompanying consolidated balance sheets of Gradall
Industries, Inc. and Subsidiaries as of December 31, 1996 and 1995, and the
related consolidated statements of income, stockholders' equity and cash flows
and the financial statement Schedule II for each of the three years in the
period ended December 31, 1996. These consolidated financial statements and
the financial statement schedule are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements and the financial statement schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position
of Gradall Industries, Inc. and Subsidiaries as of December 31, 1996 and 1995,
and the consolidated results of their operations and their cash flows for each
of the three years in the period ended December 31, 1996, in conformity with
generally accepted accounting principles. In addition, in our opinion, the
financial statement schedule referred to above, when considered in relation to
the basic financial statements taken as a whole, presents fairly, in all
material respects, the information required to be included therein.
/s/ Coopers & Lybrand L.L.P.
Cleveland, Ohio
March 7, 1997, except for
Note 14, as to which
the date is March 23,1997
F-3
GRADALL INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
as of December 31, 1996 and 1995
(Dollars in thousands)
ASSETS 1996 1995
------- -------
Current assets: Cash $ 215 $ 1,537
Accounts receivable - trade, net of allowance
for doubtful accounts of $76 and $62 16,846 12,136
Inventories 21,326 18,510
Prepaid expenses and deferred charges 495 444
Deferred income taxes 1,151 1,371
------- -------
Total current assets 40,033 33,998
Deferred income taxes 5,257 5,143
Property, plant and equipment, net 11,535 10,619
Other assets:
Deferred financing costs, net of accumulated
amortization of $242 and $80 608 1,573
Other 793 691
------- -------
Total other assets 1,401 2,264
------- -------
Total assets $58,226 $52,024
======= =======
<FN>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
GRADALL INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS, CONTINUED
as of December 31, 1996 and 1995
(Dollars in thousands)
LIABILITIES AND STOCKHOLDERS' EQUITY 1996 1995
--------- ---------
Current liabilities:
Capital lease obligation, current portion $ 174 $ 172
Long-term debt, current portion 1,350
Accounts payable - trade 13,405 14,672
Accrued other expenses:
Salaries 1,061 514
Legal 1,800 1,256
Vacation 1,130 1,050
Warranty 1,225 1,272
Income taxes 1,333 (2,156)
Other 4,998 5,133
--------- ---------
Total current liabilities 25,126 23,263
--------- ---------
Long term obligations:
Capital lease obligation, net of current portion 445 619
Long-term debt, net of current portion 7,291 35,781
Accrued post-retirement benefit cost 14,604 13,824
Other long term liabilities 1,684 1,656
--------- ---------
Total long term obligations 24,024 51,880
--------- ---------
Total liabilities 49,150 75,143
--------- ---------
Stockholders' equity:
Common stock, $.001 par value; 18,000,000 shares
authorized;8,939,294 and 5,540,000 issued and
outstanding in 1996 and 1995, respectively 9 6
Series A preferred stock, par value $.01 per share;
300 shares authorized 140 issued and outstanding
in 1995 2,000
Serial preferred shares, par value $.001 per share
2,000,000 shares authorized, none issued and outstanding
Additional paid-in capital 38,907 11,994
Additional paid-in capital - warrants 1,000
Accumulated deficit (29,840) (38,119)
--------- ---------
Total stockholders' equity (deficit) 9,076 (23,119)
--------- ---------
Total liabilities and stockholders' equity $ 58,226 $ 52,024
========= =========
<FN>
The accompanying notes are an integral part of these consolidated financial statements.
F-5
GRADALL INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
for the years ended December 31, 1996, 1995 and 1994
(Dollars in thousands)
1996 1995 1994
---------- ---------- ---------
Net sales $ 140,909 $ 118,438 $ 88,820
Cost of sales 108,098 92,637 71,280
---------- ---------- ---------
Gross profit 32,811 25,801 17,540
Operating expenses:
Engineering 3,081 2,504 2,123
Selling and marketing 6,509 5,365 4,728
Administrative 5,306 5,138 4,618
---------- ---------- ---------
Total operating expenses 14,896 13,007 11,469
---------- ---------- ---------
Operating income 17,915 12,794 6,071
Other expense (income): Amortization of FAS 106 gain (3,626)
Interest expense 3,108 1,642 1,146
Other 1,018 865 234
---------- ---------- ---------
Net other expense (income) 4,126 2,507 (2,246)
---------- ---------- ---------
Income before income taxes and extraordinary item 13,789 10,287 8,317
Income tax provision 5,503 3,680 3,152
---------- ---------- ---------
Income before extraordinary item 8,286 6,607 5,165
Extraordinary item, loss from early extinguishment of
debt, net of income tax benefit of $622 973
---------- ---------- ---------
Net income $ 7,313 $ 6,607 $ 5,165
========== ========== =========
Weighted average shares outstanding 6,956,507 5,637,244
========== ========== =========
Net income per share:
Before extraordinary item $ 1.19 $ 1.17
After extraordinary item $ 1.05 $ 1.17
<FN>
The accompanying notes are an integral part of these consolidated financial statements.
F-6
GRADALL INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
(DOLLARS IN THOUSANDS)
Additional
Additional Paid-In
Common Preferred Paid-In Capital Accumulated
Stock Stock Capital Warrants Deficit Total
------- ----------- ------------ ---------- --------- -------------
Balance December 31, 1993 $ (8,326) $ (8,326)
Net income 5,165 5,165
Change in unfunded pension obligation 27 27
------- ----------- ------------ ---------- --------- -------------
Balance December 31, 1994 (3,134) (3,134)
Net income 6,607 6,607
Stock dividend $ 5 $ (4) (1)
Issuance of 4,570,500 shares 5 10,495 10,500
Issuance of 554,000 shares to employees 1 1,499 1,500
Redemption of 4,570,500 shares (5) 4 (39,591) (39,592)
Issuance of 449,294 common stock warrants $ 1,000 1,000
Issuance of 140 preferred shares $ 2,000 (2,000)
------- ----------- ------------ ---------- --------- -------------
Balance December 31, 1995 6 2,000 11,994 1,000 (38,119) (23,119)
Issuance of 2,950,000 shares of common stock 3 24,913 24,916
Redemption of 140 preferred shares (2,000) 2,000
Redemption of 449,294 common stock warrants (1,000) 1,000
Net income 7,313 7,313
Change in unfunded pension obligation (34) (34)
------- ----------- ------------ ---------- --------- -------------
Balance December 31, 1996 $ 9 $ $ 38,907 $ $(29,840) $ 9,076
======= =========== ============ ========== ========= =============
<FN>
The accompanying notes are an integral part of these consolidated financial statements.
F-7
GRADALL INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
(DOLLARS IN THOUSANDS)
1996 1995 1994
--------- --------- --------
Cash flows from operating activities:
Net income $ 7,313 $ 6,607 $ 5,165
Adjustments to reconcile net income to net cash provided
by operating activities:
Extraordinary charge, before tax benefit 1,595
Change in unfunded pension obligation (34) 27
Post-retirement benefit transition obligation 780 779 (3,085)
Depreciation 1,391 1,081 929
Amortization 344 125 16
Deferred income taxes 106 (1,161) 992
Equity loss on investment 44 43 14
(Gain) loss on sale of property, plant and equipment (111) 41 (13)
Increase in accounts receivable (4,710) (492) (1,338)
Increase in inventory (2,816) (3,618) (2,906)
(Increase) decrease in prepaid expenses (51) (157) 48
(Increase) decrease in other assets (152) 13 10
Increase in accounts payable and accrued expenses 3,211 4,106 5,804
Increase (decrease) in accrued other long-term liabilities 28 203 (579)
--------- --------- --------
Net cash provided by operating activities 6,938 7,570 5,084
--------- --------- --------
Cash flows from investing activities:
Proceeds from sale of property, plant and equipment 104 30 21
Purchase of property, plant and equipment (2,300) (4,189) (1,214)
Investment in joint venture (100)
--------- --------- --------
Net cash used in investing activities (2,196) (4,159) (1,293)
--------- --------- --------
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 4,570,500 common shares 10,500
Redemption of preferred stock (2,000)
Issuance of 554,000 common shares to employees 1,500
Proceeds from note payable 2,448
Redemption of 4,570,500 common shares (39,592)
New debt incurred in connection with the recapitalization,
including $1 million of common stock warrants 38,941
Debt repaid in the recapitalization transaction (10,802)
Recapitalization expenses (1,654)
Repayments on capital leases (172) (102) (86)
Net advances (repayments) on revolving line of credit (10,808) (825) (3,461)
Payments on notes payable (3,026)
Net cash used in financing activities (6,064) (2,034) (4,125)
--------- --------- --------
Net (decrease) increase in cash (1,322) 1,377 (334)
--------- --------- --------
Cash, beginning of year 1,537 160 494
--------- --------- --------
Cash, end of year $ 215 $ 1,537 $ 160
========= ========= ========
<FN>
The accompanying notes are an integral part of these consolidated financial statements.
F-8
GRADALL INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS, CONTINUED
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
(DOLLARS IN THOUSANDS)
1996 1995 1994
------ ------ ------
SUPPLEMENTAL DISCLOSURE:
CASH PAID FOR:
INCOME TAXES $2,875 $4,460 $1,273
====== ====== ======
INTEREST $3,572 $1,029 $ 858
====== ====== ======
OTHER:
AMOUNTS FINANCED THROUGH CAPITAL LEASES $ - $ 476 $ 430
====== ====== ======
<FN>
The accompanying notes are an integral part of these consolidated financial
statements.
F-9
GRADALL INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands)
1. NATURE OF BUSINESS AND BASIS OF PRESENTATION:
Gradall Industries, Inc. (the Company), formerly ICM Industries Inc. (ICM), is
a holding company. The consolidated financial statements include the Company
and its wholly-owned subsidiaries, The Gradall Company and Gradall Investment
Company. Gradall Investment Company was dissolved in 1996.
The Gradall Company manufacturers and sells excavating and materials handling
equipment to public and private sector customers throughout the world through
their distribution organization.
On September 15, 1995, ICM entered into a Recapitalization Agreement (the
"Recapitalization" or the "Agreement"), which was effective October 13, 1995,
under which ICM (a) issued common shares comprising an 82.5% common equity
interest to MLGA Fund II, L.P. and partners for a price of $10.5 million; (b)
redeemed a portion of the common shares owned by Jack D. Rutherford and David
T. Shelby at a purchase price of $44.5 million, less costs and expenses of the
transaction, certain payments to officers and employees, amounts required to
retire existing indebtedness of The Gradall Company, and further adjusted as
required in the Agreement for working capital, income taxes, property
additions and cash balances as of the effective date of the transaction; (c)
issued 140 shares of Preferred Stock with a liquidation preference of $2
million to Messrs. Rutherford and Shelby; (d) issued common shares
representing 10% of its outstanding common stock to certain officers and
employees, and (e) distributed certain non-Gradall investments to Messrs.
Rutherford and Shelby pursuant to a plan of partial liquidation.
The Recapitalization was financed under a Loan and Security Agreement with
Heller Financial, Inc. for a $10 million term loan repayable in installments
through September 30, 2000 and up to $22 million in revolving loan commitments
for a period of five years, along with a Securities Purchase Agreement with
The Marlborough Capital Investment Fund, L.P. and Mellon Ventures, Inc. for
$10 million of 12.5% Senior Subordinated Notes due October 31, 2003 and
warrants for 449,294 shares of common stock. These transactions were
accounted for as a leveraged recapitalization under which the existing basis
of accounting was continued, and assets and liabilities of the continuing
business were carried forward. Under the Agreement the name of ICM was
changed to Gradall Industries, Inc.
Sources and uses of cash in connection with these transactions are summarized
below:
Sources of cash:
Purchase of 4,570,500 shares by MLGA Fund II, LP $10,500
Purchase of 554,000 shares by employees 1,500
Borrowing from Heller Financial, Inc. - Term Loan 10,000
Borrowing from Heller Financial, Inc. - Revolvers 17,941
12.5% Senior Subordinated Notes 10,000
Company funds 2,809
-------
$52,750
=======
Uses of cash:
Repayment of State of Ohio debt $ 1,320
Repayment of Bank One Debt, including accrued interest of $43 9,482
Acquisition of 4,570,500 shares from Rutherford and Shelby 39,592
Financing and other transaction costs 2,356
-------
$52,750
=======
F-10
GRADALL INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands)
1. NATURE OF BUSINESS AND BASIS OF PRESENTATION, CONTINUED:
The purchase price was further adjusted based on the actual tax liabilities as
of the closing date including consideration of any taxes resulting from the
distribution of the non-Gradall investments to Messrs. Rutherford and Shelby.
Subsequent adjustments to date have not had a material impact on the
accompanying financial statements.
Former wholly-owned subsidiaries of ICM, Magna Power and International
Consulting Management were transferred to Messrs. Rutherford and Shelby in
connection with the Recapitalization described above. For purposes of these
consolidated financial statements, this spin-off transaction has been treated
as a change in the reporting entity and these entities have been excluded from
the accompanying financial statements for all periods presented on the basis
that these companies operated in different industries, were autonomous and had
only incidental transactions with the Company. Management fees to these
former subsidiaries of $288 and $550 for the years ended December 31, 1995 and
1994, respectively, are included in the accompanying consolidated statements
of income.
The following table summarizes the October 12, 1995 book values of the
companies transferred and excluded from these financial statements:
Cash $ 944
Accounts receivable 5,976
Inventory 6,948
Property and equipment 3,350
Other 579
-------
$17,797
=======
Accounts payable $ 3,229
Accrued liabilities 3,044
Debt 10,789
Net assets 735
-------
$17,797
=======
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.
F-11
GRADALL INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands)
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.
REVENUE RECOGNITION: The Company's revenue recognition policy is to recognize
revenue when products are shipped.
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:
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" ("Statement 109").
Deferred income taxes arise from reporting certain items of income and expense
for tax purposes in a different period than for financial reporting purposes.
The principle difference relates to accounting for post-retirement health
benefits.
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.
F-12
GRADALL INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED:
PER SHARE DATA: The per share data is based on the weighted average number of
shares of common stock and common stock equivalents outstanding during each
year.
RECLASSIFICATIONS: Certain 1995 and 1994 balances have been reclassified to
conform to the current year's presentation.
3. INVENTORIES:
Inventories are comprised of:
1996 1995
------- -------
Raw materials $ 1,167 $ 936
Work in process 18,402 16,585
Finished goods 7,187 6,150
------- -------
26,756 23,671
Less LIFO reserve 5,430 5,161
------- -------
Total inventory $21,326 $18,510
======= =======
4. PROPERTY, PLANT AND EQUIPMENT:
The major classes of property, plant and equipment are summarized as
follows:
1996 1995
------- -------
Land $ 513 $ 513
Machinery and equipment 14,836 14,001
Buildings and improvements 5,587 5,291
Furniture and fixtures 1,652 1,340
Construction in progress 1,380 670
------- -------
23,968 21,815
Less accumulated depreciation 12,433 11,196
------- -------
Net property, plant and equipment $11,535 $10,619
======= =======
F-13
GRADALL INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands)
5. LONG-TERM DEBT:
Long term debt includes:
1996 1995
------ -------
Term loan $10,000
Revolving credit $7,291 18,100
12.5% Senior subordinated notes, net of discount
of $968,719 related to warrants 9,031
-------
7,291 37,131
Less current portion 1,350
-------
$7,291 $35,781
====== =======
In 1995, the Recapitalization was financed under a Loan and Security Agreement
with Heller Financial, Inc. which provided for a $10 million term loan
repayable in installments through September 30, 2000 and up to $22 million in
revolving loan commitments for a period of five years, along with a Securities
Purchase Agreement with The Marlborough Capital Investment Fund, L.P. and
Mellon Ventures, Inc. for $10 million of 12.5% Senior Subordinated Notes due
October 31, 2003 and warrants for 449,294 shares of common stock.
In 1996, the Company's Loan and Security Agreement with Heller Financial, Inc.
was amended and restated as of December 20, 1996. This agreement provides for
up to $25 million in revolving loan commitments. There are no aggregate
maturities on the revolving loan commitment. Amounts borrowed based on the
borrowing base, as defined, may be repaid and reborrowed at any time prior to
the earlier of a default or August 31, 1999, the termination date.
The revolving line of credit bears interest at either LIBOR plus 1% or prime
minus .50% at December 31, 1996. At December 31, 1996, the prime rate was
8.25% and LIBOR was 5.66% and the actual interest rate in effect for the
revolving line of credit was 6.97%. The Company also pays an unused line fee
of 1/4 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.
6. LEASE OBLIGATIONS:
The Company leases certain machinery and equipment under capital leases
expiring beginning in the year 1998. 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.
F-14
GRADALL INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands)
6. LEASE OBLIGATIONS, CONTINUED:
In addition, the Company leases certain equipment under operating leases
having terms up to 5 years which are for equipment. A number of these leases
have renewal options.
The following is a summary of property held under capital leases:
1996 1995
-------- --------
Machinery and equipment $ 1,020 $ 1,020
Less accumulated depreciation 230 128
-------- --------
$ 790 $ 892
======== ========
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, 1996:
Capital Operating
Leases Leases
-------- ----------
Year ending December 31,
- - --------------------------------------
1997 $ 221 $ 227
1998 236 46
1999 97 21
2000 171 13
2001 5
-------- ----------
Total minimum lease payments 725 $ 312
==========
Interest 106
--------
Liability under capital lease payments 619
Current portion 174
--------
Long-term capitalized lease obligation $ 445
========
Rental expense for operating leases amounted to $397, $319 and $336 for the
years ended December 31, 1996, 1995 and 1994, respectively.
7. EMPLOYEE BENEFIT PLANS:
PENSION PLANS: Substantially all employees are covered by pension plans which
provide for monthly pension payments to eligible former employees who have
retired. The Company sponsors two plans, one for members of the collective
bargaining unit and one for salaried and other eligible employees.
F-15
GRADALL INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands)
7. EMPLOYEE BENEFIT PLANS, CONTINUED:
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.
The components of net periodic pension cost for the years ended December 31,
1996, 1995 and 1994 are as follows:
1996 1995 1994
-------- -------- ------
Service cost $ 693 $ 566 $ 611
Interest cost 738 644 554
Actual return of plan assets (1,118) (1,399) 50
Net amortization and deferral 532 943 (473)
-------- -------- ------
Total pension cost $ 845 $ 754 $ 742
======== ======== ======
The funded status of the plans as of December 31, 1996 and 1995 are as
follows:
1996 1995
------------ -----------
Collective Collective
Bargaining Salaried Bargaining Salaried
Unit Plan Plan Unit Plan Plan
------------ --------- ----------- ---------
Accumulated benefit obligation:
Vested $ 5,612 $ 3,129 $ 5,117 $ 2,693
Nonvested 699 276 491 144
------------ --------- ----------- ---------
$ 6,311 $ 3,405 $ 5,608 $ 2,837
============ ========= =========== =========
Projected benefit obligation 6,311 4,679 5,608 4,011
Plan assets at fair value, primarily stock and
bond funds 5,213 3,867 4,275 3,287
------------ --------- ----------- ---------
Projected benefit obligation in excess of plan assets 1,098 812 1,333 724
Unrecognized net asset 1 1
Unrecognized net loss 1,154 218 1,103 232
Unrecognized prior service cost 17 118 20 128
------------ --------- ----------- ---------
(Prepaid asset)/pension liability recognized in other
current assets and other current liabilities,
respectively $ (73) $ 475 $ 210 $ 363
============ ========= =========== =========
F-16
GRADALL INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands)
7. EMPLOYEE BENEFIT PLANS, CONTINUED:
The actuarial assumptions used were as follows:
1996 1995 1994
----- ----- -----
Discount rate 7.5% 7.5% 8.5%
Rate of increase in compensation levels 4.5% 4.5% 4.5%
Expected long-term rate of return on assets 8.5% 8.5% 8.5%
Statement of Financial Accounting Standards No. 87 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 $1,171 and $1,123 at December
31, 1996 and 1995, respectively, has been included in other long-term
liabilities and an intangible pension asset of $17 and $20 at December 31,
1996 and 1995, respectively, has been recorded in an amount not exceeding the
amount of unrecognized prior service cost. The difference between the
long-term liabilities and the intangible asset has been reported net of income
tax effect within equity.
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.
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 of the Company.
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.
POST-RETIREMENT 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.
F-17
GRADALL INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands)
7. EMPLOYEE BENEFIT PLANS, CONTINUED:
The components of periodic net post-retirement benefit cost for the years
ended December 31, 1996, 1995 and 1994 are as follows:
1996 1995 1994
----- ----- --------
Service cost $ 539 $ 393 $ 328
Interest cost 1,143 1,098 916
Amortization of loss (gain) 17 (3,626)
-------- -------- --------
Net periodic post retirement benefit cost $ 1,699 $ 1,491 $(2,382)
======== ======== ========
The following table displays the plans' funded status at December 31, 1996 and
1995 based on the most recent actuarial analysis at December 31, 1996 and
1995:
1996 1995
-------- --------
Accumulated post-retirement benefit obligations:
Retirees $ 7,155 $ 6,943
Fully-eligible active plan participants 4,401 4,006
Other active plan participants 4,959 4,683
-------- --------
Total $16,515 $15,632
======== ========
Plan assets at fair value $ - $ -
Accumulated post-retirement benefit obligation in excess of assets 16,515 15,632
Unrecognized net actuarial loss (1,911) (1,808)
-------- --------
Accrued post-retirement benefit cost $14,604 $13,824
======== ========
The gain amount shown in 1994 is the result of a change in the estimated
medical inflation rate assumption and the Company's decision to fully
recognize this gain at that time. The gain in amortization in 1994 is
included in other income (expense).
For measuring the expected, Post-Retirement Benefit Obligation, an 8% annual
rate increase in the per capita cost of covered health care benefits was
assumed for 1997. This rate was assumed to decrease to 5.5% by 2012 and
remain constant thereafter. The weighted average discount rate used in
determining the Accumulated Post-retirement Benefit Obligation was 7.5% at
December 31, 1996 and 1995.
If the health care cost trend rate were increased 1% the Accumulated
Post-Retirement Obligation as of December 31, 1996 would have increased by
$2,178 and the effect of this change on the aggregate of service and interest
costs for 1996 would be an increase of $138 and $142, respectively.
F-18
GRADALL INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands)
8. INCOME TAXES:
The provision for income taxes for the years ended December 31, 1996, 1995 and
1994 consisted of the following:
1996 1995 1994
------ -------- ------
Federal $3,433 $ 3,888 $1,842
State 642 849 384
Deferred 806 (1,057) 926
------ -------- ------
4,881 3,680 3,152
------ -------- ------
Tax effect of extraordinary charge (shown
separately) 622
------ -------- ------
$5,503 $ 3,680 $3,152
====== ======== ======
The Company's effective tax rate differed from the federal statutory rate as
follows:
1996 1995 1994
------ ------ ------
Federal statutory rate 35.0 % 34.0 % 34.0 %
Effect of state and local taxes 3.6 4.8 3.0
Change in tax liability (3.0) -
Other 1.4 - 0.9
------ ------ ------
40.0 % 35.8 % 37.9 %
====== ====== ======
The components of the net deferred tax benefits (liabilities) as of December
31, 1996 and 1995 were as follows:
1996 1995
-------- --------
Current:
Inventories $ (762) $ (813)
Accrued expenses 1,882 2,184
Other 31 -
-------- --------
$ 1,151 $ 1,371
======== ========
Long-term:
Basis of property and equipment $(1,393) $(1,352)
Post-retirement benefits liability 5,964 5,646
Accrued expenses 686 849
-------- --------
$ 5,257 $ 5,143
======== ========
F-19
GRADALL INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands)
8. INCOME TAXES, CONTINUED:
The sources of timing differences and the related deferred tax effects were as
follows:
1996 1995 1994
------ -------- -------
Accrued expenses $ 970 $ (577) $ (444)
Post-retirement benefits liability (318) (308) 1,049
Depreciation 212 84 29
Inventory (52) 20 (27)
Other (6) (276) 319
----- -------- -------
$ 806 $(1,057) $ 926
====== ======== =======
Valuation allowances are established when necessary to reduce deferred tax
assets to the amounts expected to be realized.
9. PREFERRED STOCK:
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, 1996 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 an incentive stock option
program under which 315,226 shares of the Company's common stock are reserved
for grants to key employees. 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 generally be exercised
within ten years from the date of grant. On October 13, 1995, 132,406 options
were granted at an exercise price of $2.71 and on April 18, 1996, 150,965
options were granted at an exercise price of $6.32 of which 5,540 options were
forfeited.
The Board of Directors adopted an amendment to the Company's stock option
program on March 10, 1996 in which an additional 200,000 shares would be
available for issuance under the program subject to stockholders' approval at
the annual meeting on May 14, 1997.
F-20
GRADALL INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands)
10. STOCK OPTIONS, CONTINUED:
In October 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards 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 1996 and 1995 along with significant assumptions used in determining
the fair value of the compensation amounts.
1996 1995
--------- ---------
Pro forma amounts:
Net income $ 7,242 $ 6,603
Earnings per share $ 1.04 $ 1.17
Assumptions:
Dividend yield 0 0
Expected volatility 34.46 % 35.01 %
Risk free interest rate 6.3 % 5.7 %
Expected lives 4 years 4 years
11. CONTINGENCIES:
The Company was 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 or results of
operations of the Company.
F-21
GRADALL INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands)
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 1995
----------- -----------
Net income as reported $ 7,313 $ 6,607
Extraordinary charge 973
Reduction in interest expense using an average interest rate of
8.2% including the elimination of amortization of deferred
financing costs 2,013 434
Increase in income taxes related to the pro forma adjustments (763) (180)
----------- -----------
Pro forma net income $ 9,536 $ 6,861
=========== ===========
Average shares outstanding as if the initial public
offering had occurred on January 1, 1995 8,939,294 8,939,294
Pro forma net income per share $ 1.07 $ .77
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. WORK STOPPAGE:
Virtually all of the Company's hourly employees are represented by the
International Association of Machinists and Aerospace Workers under a contract
which expired on March 23, 1997. On March 22, 1997 the Union membership
failed to ratify a proposed new three year contract, and a work stoppage has
ensued. A prolonged work stoppage could have a material adverse effect on the
operation and financial condition of the Company.
F-22
GRADALL INDUSTRIES, INC. AND SUBSIDIARIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
(DOLLARS IN THOUSANDS)
Additions
-----------------------
Balance at Charged to Charged to Balance at
Beginning Costs and Other End of
Description of Period Expenses Accounts Deductions Period
----------- ----------- ----------- ---------- ----------- ------------
LIFO inventory reserve:
Year ended December 31, 1994 $ 4,725 $ 480 $ 5,205
Year ended December 31, 1995 5,205 (44) 5,161
Year ended December 31, 1996 5,161 269 5,430
Allowance for doubtful accounts;
Year ended December 31, 1994 55 34 (a) 23 (b)
33 (c) 33
Year ended December 31, 1995 33 12 43 (a) 4 (b)
22 (c) 62
Year ended December 31, 1996 62 17 16 (a) 4 (b)
15 (c) 76
Allowance for inventory obsolescence:
Year ended December 31, 1994 658 591 291 (d) 958
Year ended December 31, 1995 958 527 629 (d) 856
Year ended December 31, 1996 856 751 735 (d) 872
<FN>
(a) Late fees assessed and fully reserved
(b) Doubtful accounts written off
(c) Revenue recognized from late fees collected
(d) Write off of obsolete inventories
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
Not applicable.
PART III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information with respect to the directors of the Company is
incorporated by reference to the Company's proxy statement to be filed for its
1997 Annual Meeting of Stockholders.
Item 11. EXECUTIVE COMPENSATION
Information with respect to executive compensation is incorporated herein
by reference to the Company's proxy statement to be filed for its 1997 Annual
Meeting of Stockholders.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
Information with respect to security ownership of certain beneficial
owners and management is incorporated herein by reference to the Company's
proxy statement to be filed for its 1997 Annual Meeting of Stockholders.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information with respect to certain relationships and related
transactions is incorporated herein by reference to the Company's proxy
statement to be filed for its 1997 Annual Meeting of Stockholders.
PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON
FORM 8-K
(a) Documents filed as part of this report:
1. Financial Statements
The financial statements listed in the accompanying Index to
Consolidated Financial Statements are filed as part of this Annual Report on
Form 10-K.
2. Financial Statement Schedules
The financial statement schedules listed in the accompanying
Index to Consolidated Financial Statements are filed as part of this Annual
Report on Form 10-K.
3. Exhibits
The exhibits in the accompanying Exhibit Index are filed as
part of this Annual Report on Form 10-K.
(b) Reports on Form 8-K
No reports on Form 8-K were filed by the Company during the last quarter
of the year covered by this report.
(c) Exhibits required by Item 601 of Regulation S-K
Exhibits required to be filed pursuant to Item 601 of Regulation S-K are
listed in the Exhibit Index as Exhibits 10.04 - 10.14.
(d) Financial Statement Schedules required by Regulation S-X
The items listed in the accompanying Index to Consolidated Financial
Statements are filed as part of this Annual Report on Form 10-K.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
GRADALL INDUSTRIES, INC.
March 10, 1997 By:/s/ BARRY L. PHILLIPS
- - ---------------- ---------------------
Date Name: Barry L. Phillips
Title: President
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Signature Title Date
- - --------------------- ---------------------------------------- --------------
/s/ BARRY L. PHILLIPS President (Principal Executive Officer
- - ---------------------
Barry L. Phillips and Director) March 10, 1997
--------------
/s/ BRUCE A. JONKER Vice President, Chief Financial Officer
- - ---------------------
Bruce A. Jonker and Treasurer (Principal Financial
Officer and Principal Accounting
Officer) March 10, 1997
--------------
/s/ SANGWOO AHN Chairman of the Board and Director
- - ---------------------
Sangwoo Ahn March 10, 1997
--------------
/s/ ERNEST GREEN Director
- - ---------------------
Ernest Green March 10, 1997
--------------
/s/ PERRY J. LEWIS Director
- - ---------------------
Perry J. Lewis March 10, 1997
--------------
/s/ JOHN A. MORGAN Director
- - ---------------------------
John A. Morgan March 10, 1997
--------------
/s/ WILLIAM C. UGHETTA, JR. Director
- - ---------------------------
William C. Ughetta, Jr. March 10, 1997
--------------
/s/ DAVID S. WILLIAMS Director
- - ---------------------------
David S. Williams March 10, 1997
--------------
/s/ JACK RUTHERFORD Director
- - ---------------------------
Jack Rutherford March 10, 1997
--------------
EXHIBIT INDEX
Sequential
Exhibit No. Description Page No.
- - ----------- ---------------------------------------------------------------------- ----------
3.01 Amended and Restated Certificate of Incorporation of the
Registrant - incorporated by reference to Exhibit 3.01 to the
Company's Registration Statement on Form S-1 (No. 333-06777)
3.02 Amended and Restated Bylaws of the Registrant - incorporated by
reference to Exhibit 3.02 to the Company's Registration Statement
on Form S-1 (No. 333-06777)
10.01 Recapitalization Agreement dated as of September 15, 1995 among
ICM Industries, Inc., MLGA Fund II, L.P., Jack D. Rutherford and
David T. Shelby (excluding exhibits and schedules) - incorporated
by reference to Exhibit 10.01 to the Company's Registration
Statement on Form S-1 (No. 333-06777)
10.02 Amendment to Recapitalization Agreement dated as of October 12,
1995 - incorporated by reference to Exhibit 10.02 to the
Company's Registration Statement on Form S-1 (No. 333-06777)
10.03 Amended and Restated Shareholders Agreement dated as of
August 20, 1996 - incorporated by reference to Exhibit 10.03 to
the Company's Registration Statement on Form S-1
(No. 333-06777)
10.04 Amended and Restated Employment Agreement dated October 13,
1995 between The Gradall Company and Barry L. Phillips -
incorporated by reference to Exhibit 10.4 to the Company's
Registration Statement on Form S-1 (No. 333-06777)
10.05 Amended and Restated Employment Agreement dated October 13,
1995 between The Gradall Company and David S. Williams -
incorporated by reference to Exhibit 10.05 to The Company's
Registration Statement on Form S-1 (No. 333-06777)
10.06 Deferred Compensation Agreement dated July 19, 1989 between
The Gradall Company and Barry L. Phillips - incorporated by
reference to Exhibit 10.06 to the Company's Registration Statement
on Form S-1 (No. 333-06777)
10.07 Amended and Restated Deferred Compensation Agreement dated
August 30, 1995 between The Gradall Company and David S.
Williams - incorporated by reference to Exhibit 10.07 to the
Company's Registration Statement on Form S-1 (No. 333-06777)
10.08 Split-Dollar Life Insurance Agreement dated as of August 30, 1995
between The Gradall Company and Barry L. Phillips - incorpo
rated by reference to Exhibit 10.08 to the Company's Registration
Statement on Form S-1 (No. 333-06777)
10.09 Gradall Industries, Inc. 1995 Stock Option Plan - incorporated by
reference to Exhibit 10.09 to the Company's Registration Statement
on Form S-1 (No. 333-06777)
10.10 Employment Agreement dated as of November 1, 1995 between
The Gradall Company and Bruce A. Jonker - incorporated by
reference to Exhibit 10.10 to the Company's Registration Statement
on Form S-1 (No. 333-06777)
10.11 Employment Agreement dated as of November 1, 1995 between
The Gradall Company and Joseph H. Keller, Jr. - incorporated by
reference to Exhibit 10.11 to the Company's Registration Statement
on Form S-1 (No. 333-06777)
10.12 Employment Agreement dated as of November 1, 1995 between
The Gradall Company and James C. Cahill - incorporated by
reference to Exhibit 10.12 to the Company's Registration Statement
on Form S-1 (No. 333-06777)
10.13 The Gradall Company Amended and Restated Supplemental
Executive Retirement Plan - incorporated by reference to Exhibit
10.13 to the Company's Registration Statement on Form S-1
(No. 333-06777)
10.14 The Gradall Company Benefit Restoration Plan - incorporated by
reference to Exhibit 10.14 to the Company's Registration Statement
on Form S-1 (No. 333-06777)
10.15 Amended and Restated Loan and Security Agreement dated as of
December 20, 1996, among The Gradall Company, Gradall
Industries, Inc. and Heller Financial, Inc., as agent and lender, The
CIT Group/Business Credit, Inc. and Bank One Columbus, N.A.,
as lenders (excluding exhibits and schedules)*
10.16 Supply Agreement between The Gradall Company and Iowa
Industrial Hydraulics, Inc., dated January 1, 1995 (excluding
exhibits) - incorporated by reference to Exhibit 10.16 to the
Company's Registration Statement on Form S-1 (No. 333-06777)
21.01 Subsidiaries of the Registrant - incorporated by reference to
Exhibit 21.01 to the Company's Registration Statement on Form
S-1 (No. 333-06777)
27.01 Financial Data Schedule*
_______________
* Filed herewith