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, 1997
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 (I.R.S. Employer
of 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
---
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.________
The aggregate market value of the voting stock held by non-affiliates of
the registrant as of February 27, 1998 was $82,856,725.
The number of shares outstanding of registrant's common stock, par value
.001 per share, as of February 27, 1998 was 8,940,194.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant's Annual Report to Shareholders for the fiscal
year ended December 31, 1997, are incorporated by reference into Part II of this
Form 10-K.
Portions of the registrant's Proxy Statement to be filed pursuant to
Regulation 14A with respect to the 1998 Annual Meeting of Shareholders are
incorporated by reference into Part III of this Form 10-K.
The Exhibit index appears on sequential page 29.
<PAGE>
PART I
------
Item 1. BUSINESS
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 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 82.5% of the previously outstanding common stock and the issuance
of 10% of stock to certain officers and key employees 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 hydraulic excavators and rough-terrain
variable reach material handlers as well as related service parts. The
Company's products are marketed
<PAGE>
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 1997, total sales were $158.7 million, comprised of $57.4 million in sales
of excavators, $84.0 million in sales of material handlers and $17.3 million in
sales of service parts. Since January 1993, the Company has introduced 14 new
products which accounted for in excess of 60% of Gradall's net sales in 1997.
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 48 independent distributors at approximately 152 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
44 independent distributors at approximately 127 locations throughout North
America. In addition, Gradall material handlers are available at national
rental companies at over 250 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 competitive 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, $2.2 million in 1996, and $5.3 million in 1997. During 1998 the Company
plans to invest approximately $6.5 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.
<PAGE>
THE INDUSTRY
Gradall competes principally in the construction equipment industry. In
1996, the latest year for which U.S. industry figures have been published, new
orders for construction, mining and material handling equipment exceeded $41
billion. In 1997, total construction spending is estimated to be $577 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 over
18,000 units in 1997. The market growth is due to improved general economic
conditions and expanding applications of hydraulic excavators. 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, 12-14 tons, 19-21 tons and 24-28 tons,
which in 1997 accounted for approximately 9%, 22% and 10% of the total crawler
excavator market, respectively, for a total of approximately 41%. 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. Based upon
industry data, the Company estimates that its market share of the crawler
excavator market that it competes in is approximately 1%.
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 8,500 units in 1997. 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 92% 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 between 15% and 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 14 new products, and its sales increased
from $72.2 million in 1993 to $158.7 million in 1997 and operating income
increased from $1.8 million in 1993 to $20.6 million in 1997. 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
competes in the 12-14 ton size class, commenced in May,1997, and has been well
received by distributors and customers. In mid-1997 the Company introduced the
newest XL model, XL2210, which is operated with a remote control device, making
it popular for steel and aluminum metal mill maintenance work as well as
hazardous waste cleanup and other potentially dangerous jobs. In July, 1997,
Gradall introduced a new D Series material handler in the 10,000 lbs. and over
size class which is one of the largest material handlers in the industry. In
January, 1998, the Company introduced seven new D Series models, completing the
D Series family. The eight new D Series models provide state of the industry
operator protection, new instrumentation, wider seating and excellent visibility
in all directions. The machines are designed for easy operation, shortening the
operator training process and encouraging faster, more efficient work with
advantages like no-shift transmissions. 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 strengthened its competitive position in several size classes
of the conventional crawler excavator market which in the aggregate currently
represent approximately 41% 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, $2.2 million in 1996 and $5.3 million in 1997. During 1998, the
Company plans to invest approximately $6.5 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 1.5% in 1997. 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 increased marketing and sales
support through additional regional sales managers, and provide technical and
service support through additional 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. In 1997 the Company invested
significant resources toward the development of CD ROM operators, service and
parts manuals which will be available to all dealers in 1998. Service parts
sales and marketing activities are supported by three regional parts managers
who are dispersed geographically throughout the U.S.
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. The registration audit for this certification is scheduled for the
fourth quarter 1998.
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.
<PAGE>
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 14 new products which accounted for more than 60% of total sales in
1997.
<TABLE>
<CAPTION>
REVENUE BY PRODUCT CATEGORY
YEAR ENDED DECEMBER 31,
-------------------------
<S> <C> <C> <C> <C> <C>
1993(1) 1994 1995 1996 1997
------------------------- ----- ------ ------ ------
(DOLLARS IN MILLIONS)
Excavators. . . . . . . $ 40.2 $45.2 $ 49.2 $ 55.1 $ 57.4
Material handlers . . . 21.4 30.7 53.6 70.4 84.0
Service parts . . . . . 10.7 12.9 15.6 15.4 17.3
------------------------- ----- ------ ------ ------
Total . . . . . . . . . $ 72.2 $88.8 $118.4 $140.9 $158.7
========================= ===== ====== ====== ======
</TABLE>
______________
(1) The sum in this 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 12-14 ton, 19-21 ton
and 24-28 ton size classes which in the aggregate constitute approximately 41%
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. Shipments of the new crawler model XL2200 commenced in May 1997,
and it competes in the 12-14 ton class which represents approximately 9% of the
total crawler excavator market. This model is designed to meet the needs of
residential and general contractors. In August 1997 the Company commenced
shipments of a remote controlled crawler model XL2210, which is a special
industrial version for use in mines and steel mills. During 1998 the Company
plans to introduce a rough-terrain wheeled version of the XL2000 series.
XL4000 Series. This model competes in the 19-21 ton class which represents
approximately 22% 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 highway speed
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. In
1996 Gradall introduced 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:
522/524D. The 522/524D was introduced in January 1998 and competes in the
6-7,000 lbs. class which represents approximately 48% 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.
534D-6. The 534D-6 was introduced in January 1998 and 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.
534D-9. The 534D-9 was introduced in January 1998 and 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 has a strong appeal to framing and
general contractors.
534D-10. The 534D-10 was introduced in January, 1998, and 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.
<PAGE>
544D. The 544D was introduced in July 1997 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 a very competitive market,
the Company focuses on parts availability, marketing and sales activities. As an
element 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. In 1997 the Company invested significant resources
to the development of CD ROM operators, service and parts manuals which will be
available to all dealers in 1998.
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 30% 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. 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 48 independent
distributors at approximately 152 locations in North America. The Company's
material handler distribution network is composed of approximately 44
independent distributors at approxi-mately 127 locations. In addition, Gradall
material handlers are available at national rental companies at over 250
locations. No distributor or rental company accounted for more that 10% of the
Company's sales in 1997.
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 seven 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, $2.2 million in 1996 and $5.3
million in 1997. During 1998, the Company plans to invest approximately $6.5
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, and an additional
machining center. 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.
<PAGE>
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 a Gradall productivity sharing
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 1997, the Company increased its unit production by 169.1% with only
a 33.5% 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 1.5% of
sales in 1997.
<PAGE>
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 1997, approximately 30% 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, 12-14 tons, 19-21 tons
and 24-28 tons, which in 1997 accounted for approximately 9%, 22% and 10% of the
total crawler excavator market, respectively, for a total of approximately 41%
of the total crawler market. Based upon industry data, the Company estimates
that its market share of the crawler excavator market that it competes in is
approximately 1%. 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 92% of the total market for material handlers. Based
on industry data, the Company estimates that its market share of all material
handlers is between 15% and 17%. Other than Gradall, the principal producers of
variable reach material handlers are JCB International Co., Ltd., Gehl, Omniquip
International and Caterpillar, Inc.
BACKLOG
As of December 31, 1997, the Company's backlog of orders aggregated
approximately $11.3 million compared to approximately $14.8 million at December
31, 1996 and approximately $17.9 million at December 31, 1995. The decrease in
backlog of orders at December 31, 1997 was due primarily to the increase in the
Company's production schedules and higher fourth quarter shipments.
Substantially all backlog orders at December 31, 1997 are expected to be shipped
by April 30, 1998.
PATENTS AND TRADEMARKS
The Company owns a number of patents and trademarks. Although the Company
does not believe that the expiration or loss of any one patent would materially
affect its business considered as a whole, it does consider certain of them to
be important to the conduct of its business in certain product lines. "Gradall"
is a registered trademark which the Company considers material to sales and
earnings results.
<PAGE>
SUPPLIERS
The Company purchases component parts and raw materials from a variety of
manufacturers, the most significant of which are set forth below:
<TABLE>
<CAPTION>
<S> <C>
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
</TABLE>
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, 1997, Gradall employed 681 people, 455 hourly and 226
salaried. The Company's 455 hourly employees are represented by the
International Association of Machinists and Aerospace Workers (IAM) and are
currently working under a three-year contract which will expire on April 16,
2000. The Company's current contract with the IAM was approved after a
three-week work stoppage which occurred when the union failed to ratify a
proposed new three-year contract. During the three-week work stoppage the
Company was able to continue production and shipment, although at a reduced
level. There can be no assurance that the Company will be able to negotiate
satisfactory contracts with the union in the future or that the Company's union
employees will not participate in any work stoppage which could have an adverse
effect on the operations of the Company.
SEASONAL TRENDS
Generally, the Company's sales are not subject to significant seasonal
variations; however, its sales and earnings tend to be somewhat lower in January
and February due to adverse weather conditions in the Northern climates.
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 $11 million subject to a self-insurance retention
in the amount of $200,000 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.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
<PAGE>
EXECUTIVE OFFICERS OF THE REGISTRANT
Executive officers of the Company as of February 27, 1998 were as follows:
<TABLE>
<CAPTION>
Name Age Position
- - ------------------ --- -----------------------------------------------------
<S> <C> <C>
Barry L. Phillips 56 President - CEO
David S. Williams 57 Vice President , Marketing and Sales
Joseph H. Keller. 51 Vice President, Engineering and Secretary
James C. Cahill . 45 Vice President, Manufacturing
Bruce A. Jonker . 55 Vice President, Chief Financial Officer and Treasurer
</TABLE>
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.
<PAGE>
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:
<TABLE>
<CAPTION>
Sale Price
-----------
1996 High Low
- - ---------------------- ----------- -------
<S> <C> <C>
Third Quarter(1) . . . $ 11 7/8 $ 10
Fourth Quarter . . . . 13 5/8 10 3/4
1997
- - ----------------------
First Quarter. . . . . $ 16 1/4 $ 12
Second Quarter . . . . 16 1/4 12
Third Quarter. . . . . 17 3/8 14 3/4
Fourth Quarter . . . . 16 7/8 15
1998
- - ----------------------
First Quarter through. 18 7/8 15 1/4
February 27, 1998
<FN>
(1) Trading commenced on August 28, 1996
</TABLE>
RECORD HOLDERS
The approximate number of record holders of the Company's equity securities
at February 27, 1998 was as follows:
Title of Class Number of Record Holders
---------------- ------------------------
Common Stock 129
<PAGE>
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 CONSOLIDATED FINANCIAL DATA
The information required by this item is incorporated by reference to the
"Selected Consolidated Financial Data" on pages 12 and 13 of the 1997 Annual
Report to Shareholders.
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The information required by this item is incorporated by reference to
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" on pages 33 through 40 of the 1997 Annual Report to Shareholders.
This report and the foregoing Management's Discussion and Analysis of
Financial Condition and Results of Operations contain various "forward looking
statements" within the meaning of Section 27A of the Securities Act of 1933, as
amended, and Section 21E of the Securities Exchange Act of 1934, as amended. The
Company's Annual Report to Shareholders, any Report on Form 10-K, Form 10-Q,
Form 8-K or any other written or oral statements made by or on behalf of the
Company may include forward looking statements. Forward looking statements
represent the Company's expectations or beliefs concerning future events. Any
forward looking statements made by or on behalf of the Company are subject to
uncertainties and other factors that could cause actual results to differ
materially from such statements.
Undue reliance should not be placed on any forward looking statements made
by or on behalf of the Company as such statements speak only as of the date
made. The Company undertakes no obligation to publicly update or revise any
forward looking statement, whether as a result of new information, the
occurrence of future events or otherwise.
<PAGE>
Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
This item is not applicable for the fiscal year ending December 31, 1997,
as the Company's total market capitalization is less than $2.5 billion.
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information required by this item is incorporated by reference to pages
14 through 32 of the 1997 Annual Report to Shareholders.
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
Not applicable.
<PAGE>
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
1998 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 1998 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 1998 Annual Meeting of Stockholders.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information with respect to certain relationships and related transactions
is incorporated by reference to the Company's proxy statement to be filed for
its 1998 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 following consolidated financial statements of the Company
and its subsidiaries and the Report of the Independent Accountants included in
the 1997 Annual Report to Shareholders on pages 14 through 32 are incorporated
by reference in Part II, Item 8.
Report of Independent Accountants
Consolidated Balance Sheets - December 31, 1997 and December 31,
1996
Consolidated Statements of Income for the three years ended
December 31, 1997
Consolidated Statements of Changes in Shareholders' Equity for
the three years ended December 31, 1997
Consolidated Statements of Cash Flows for the three years ended
December 31, 1997
Notes to Consolidated Financial Statements (including unaudited
quarterly financial information)
2. Financial Statement Schedules
The following financial statement schedules of the Company and
its subsidiaries and the report of independent auditors thereon are filed as
part of this Annual Report on Form 10-K and should be read in conjunction with
the consolidated financial statements of the Company and its subsidiaries
included in the 1997 Annual Report to Shareholders.
<TABLE>
<CAPTION>
Schedule Page No.
- - ----------------------------------------------- --------
<S> <C>
Independent Auditors Report . . . . . . . . . . 27
Schedule II - Valuation and Qualifying Accounts 28
</TABLE>
All other schedules have been omitted because they are not
applicable or not required or because the required information is included in
the consolidated financial statements or the notes thereto.
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.
<PAGE>
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 25, 1998 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.
<TABLE>
<CAPTION>
Signature Title Date
- - --------------------------- ---------------------------------------- --------------
<S> <C> <C>
/s/ Barry L. Phillips . . . President (Principal Executive Officer
- - ---------------------------
Barry L. Phillips . . . . . and Director) March 25, 1998
--------------
/s/ Bruce A. Jonker . . . . Vice President, Chief Financial Officer
- - ---------------------------
Bruce A. Jonker . . . . . . and Treasurer (Principal Financial
Officer and Principal Accounting
Officer) March 25, 1998
--------------
/s/ Sangwoo Ahn . . . . . . Chairman of the Board and Director
- - ---------------------------
Sangwoo Ahn March 25, 1998
--------------
/s/ Ernest Green. . . . . . Director
- - ---------------------------
Ernest Green March 25, 1998
--------------
/s/ Perry J. Lewis. . . . . Director
- - ---------------------------
Perry J. Lewis March 25, 1998
--------------
<PAGE>
/s/ John A. Morgan. . . . . Director
- - ---------------------------
John A. Morgan March 25, 1998
--------------
/s/ William C. Ughetta, Jr. Director
- - ---------------------------
William C. Ughetta, Jr. March 25, 1998
--------------
/s/ David S. Williams . . . Director
- - ---------------------------
David S. Williams March 25, 1998
--------------
/s/ Jack Rutherford . . . . Director
- - ---------------------------
Jack Rutherford March 25, 1998
--------------
</TABLE>
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
---------------------------------
To the Board of Directors and Stockholders of Gradall Industries, Inc.:
Our report on the consolidated financial statements of Gradall Industries,
Inc., has been incorporated by reference in this Annual Report on Form 10-K from
page 32 of the 1997 Annual Report to Stockholders of Gradall Industries, Inc. In
connection with our audits of such financial statements, we have also audited
the related financial statement schedule listed in the index on page 24 of this
Form 10-K Annual Report.
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.
----------------------------
COOPERS & LYBRAND L.L.P.
Cleveland, Ohio
February 23, 1998
<PAGE>
<TABLE>
<CAPTION>
GRADALL INDUSTRIES, INC. AND SUBSIDIARIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
(DOLLARS IN THOUSANDS)
Additions
---------------------
Description Balance at Charged to Charged Balance at
- - -------------------------------------
Beginning Costs and to Other End of
of Period Expenses Accounts Deductions Period
------------ ------------ ---------- ------------ ------
<S> <C> <C> <C> <C> <C>
LIFO inventory reserve:
Year ended December 31, 1995 . . . . $ 5,205 $ (44) $ 5,161
Year ended December 31, 1996 . . . . 5,161 269 5,430
Year ended December 31, 1997 . . . . 5,430 140 5,570
Allowance for doubtful accounts:
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
Year ended December 31, 1997 . . . . 76 3 4 (a) 11 (b)
16 (c) 56
Allowance for inventory obsolescence:
Year ended December 31, 1995 . . . . 958 527 629 (d) 856
Year ended December 31, 1996 . . . . 856 751 735 (d) 872
Year ended December 31, 1997 . . . . 872 347 407 (d) 812
<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.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT INDEX
Exhibit Sequential
No Description Page No.
------------ ----------- ----------
<S> <C> <C> <C>
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 January 1,
1998 between The Gradall Company and Barry L. Phillips*
** . . 10.05 Amended and Restated Employment Agreement dated January 1,
1998 between The Gradall Company and David S. Williams*
** . . 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)
<PAGE>
** . . 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 Amended and Restated Employment Agreement dated as of
January 1, 1998 between The Gradall Company and Bruce A.
Jonker*
** . . 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)
<PAGE>
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) - incorporated by
reference to Exhibit 10.15 in the Company's annual report on Form
10-K filed for the year ended December 31, 1996
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)
** . . 10.17 Gradall Industries, Inc., 1998 Stock Option Plan*
13.01 Annual Report to Shareholders for the year ended December 31,
1997 (only to the extent expressly incorporated herein by
reference)*
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)
23.01 Consent of Coopers & Lybrand L.L.P. regarding S-8 registration*
27.01 Financial Data Schedule*
<FN>
_______________
* Filed herewith
** Management contract or compensatory plan or arrangement identified pursuant
to Item 14(c) of this Form 10-K.
</TABLE>
AMENDED AND RESTATED
EMPLOYMENT AGREEMENT
THIS AGREEMENT is made this ___ day of _________, 1998, by and between THE
GRADALL COMPANY, an Ohio corporation (the "Company"), and BARRY L. PHILLIPS
("Executive").
WITNESSETH THAT:
WHEREAS, the Executive has been employed by the Company as its President
pursuant to the terms of an employment agreement by and between the Company and
the Executive dated September 5, 1985, as restated and amended by agreements
dated July 21, 1987, January 19, 1988, July 20, 1988, July 17, 1989, February 5,
1993 and October 13, 1995 (the "Prior Employment Agreement");
WHEREAS, the Company and the Executive desire to amend and restate the
Prior Employment Agreement to provide for the continued employment of the
Executive upon the terms and conditions hereinafter set forth; and
WHEREAS, the Executive's services are of great value to the Company and it
is recognized that substantial inducement must be offered to the Executive in
order that the Company may retain his services.
NOW, THEREFORE, in consideration of the mutual covenants hereinafter set
forth, the parties agree as follows:
SECTION 1. DUTIES. The Company hereby agrees to continue to employ the
Executive as President and Chief Executive Officer of the Company, and the
Executive hereby agrees to continue to serve the Company in that capacity in
accordance with the terms and conditions set forth herein:
(a) The Executive shall be vested with all powers and rights attendant
to the office of President and Chief Executive Officer, and shall have full
authority and responsibility, subject to the general direction, approval and
control of the Board of Directors of the Company, to formulate policies and
administer the Company in all respects.
(b) If elected or appointed by the Board of Directors, the Executive
shall serve as a director of the Company without additional compensation.
(c) During the term of this Agreement, the Executive shall devote all
of his business time, attention, energy and skill to the performance of the
duties and services described herein, and shall not engage directly or
indirectly in any other business activity, whether or not such business activity
is pursued for gain, profit or other pecuniary advantage, except with the
written consent of the Company's Board of Directors, provided, that the
provisions of this Section 1(c) shall not restrict the Executive's investment of
his personal assets or the Executive's participation in any professional,
academic or civic activity.
SECTION 2. TERM. Subject to prior termination as set forth in Section 10
hereof, the term of the Executive's employment under this Agreement shall be for
a period of one year, beginning on the date hereof, which term shall be
automatically renewed for successive one year periods until terminated as set
forth in Section 10 hereof; provided, however, that upon the occurrence of a
Change in Control, as hereinafter defined, the term of this Agreement and the
Executive's employment hereunder shall continue for a period of three (3) years
beginning on the date of such Change in Control.
SECTION 3. COMPENSATION. The Company shall pay to the Executive as
compensation for his services hereunder a base salary of Two Hundred Twenty-five
Thousand Dollars ($225,000) per year, payable in equal semi-monthly
installments, subject to withholding and other applicable taxes. The salary
provided herein shall be subject to adjustment based on annual reviews conducted
by the Company (as so adjusted from time to time, "Base Salary").
SECTION 4. INCENTIVE COMPENSATION. The Executive shall be entitled to
participate in any incentive compensation plans established by the Company from
time to time.
SECTION 5. EXPENSES. The Executive is authorized to incur reasonable
expenses in connection with the business of the Company and the performance of
his duties hereunder, including expenses for entertainment, travel and similar
items. The Company will pay or reimburse the Executive for all expenses upon
the presentation by the Executive of an itemized account of such expenditures
and any other documentation or substantiation of expenses which may be required
for compliance with applicable state and federal tax laws.
SECTION 6. VACATIONS. The Executive shall be entitled to four (4) weeks
of vacation each year, during which time his compensation shall be paid in full.
SECTION 7. AUTOMOBILE ALLOWANCE. During the term of the Executive's
employment hereunder, the Company shall provide the Executive with a monthly car
allowance in accordance with the Company's policy in effect at the date hereof
for all expenses incurred in connection with the maintenance of an automobile
for the Executive's business use including, but not limited to, acquisition
costs, fuel, maintenance and insurance. The Company shall pay to the Executive
such additional amount as may be necessary to reimburse the Executive for any
federal, state or local income taxes the Executive is required to pay as a
result of the Company's payments pursuant to this Section 7, including such tax
reimbursement payments.
SECTION 8. EXECUTIVE BENEFITS. (a) The Executive shall be entitled to
all benefits offered by the Company to any of its executive or salaried
employees including, but not limited to, major medical health insurance,
hospitalization insurance, life insurance, travel and accident insurance, and
disability insurance, including, but not limited to, those benefits the
Executive currently receives from the Company.
(b) DISABILITY. The Company shall maintain in full force and effect
and pay all premiums due under that certain disability insurance policy,
insuring the Executive and issued by The New England Insurance Companies under
Policy No. DO99437 (the "Disability Policy"). In the event that the Executive
is unable to perform his duties hereunder by reason of illness or incapacity,
the Executive shall continue to receive all amounts payable under this
Agreement, until the Executive receives payments under the Disability Policy.
If the Executive receives the full benefit amount payable under the Policy, the
Company shall have no further obligation to make payments under this Agreement
to the Executive during the period in which the Executive is receiving the full
benefit under the Disability Policy. During any such period of disability, the
Executive shall continue to receive all benefits theretofore received by the
Executive. Upon the termination of the Executive's disability and the
Executive's right to receive the full benefit payable under the Disability
Policy, the Executive's full compensation shall be reinstated in full, subject
to the provisions of Section 10(b).
SECTION 9. DEFERRAL OF COMPENSATION. The Executive shall be entitled to
participate in the Company's Supplemental Executive Retirement Plan and any
other deferred compensation program maintained by the Company.
SECTION 10. TERMINATION. The Executive's employment hereunder may be
terminated in accordance with the following terms and conditions:
(a) The Company may terminate the Executive's employment hereunder at
any time prior to a Change in Control (as defined below), without cause, upon
ninety (90) days written notice to Executive. However, in such event, the
Company shall pay or provide to the Executive
(i) a severance allowance of at least twelve (12) months Base
Salary (less all amounts required to be withheld and deducted), payable on a
monthly basis, starting on the last day of the first full month following
termination;
(ii) all amounts the Executive would have received under the
Short and Long Term Management Incentive Plans (less all amounts required to
Be withheld and deducted) during the twelve (12) month period following the
effective date of such termination; and
(iii) benefits equivalent to those previously received by the
Executive including, but not limited to, benefits provided under Sections 7 and
8 of this Agreement, for the twelve (12) month period following the effective
date of such termination.
(b) The Company may terminate the Executive's employment hereunder upon
ninety (90) days written notice to the Executive, in the event that the
Executive has been unable to perform his duties by reason of illness or
incapacity, which inability continues for a consecutive twelve month period,
provided, that the Executive is receiving the full benefit amount payable under
the Disability Policy.
(c) Notwithstanding anything herein to the contrary, the Company shall
have the right to terminate the Executive's employment hereunder, effective upon
written notice of such termination, and shall not have an obligation to pay any
amounts provided under Section 10(a) or 10(e) hereof upon the happening of any
of the following events:
(i) the failure by the Executive to observe the restrictive
covenants set forth in Sections 11, if applicable, and 12 hereof, as determined
by a court of competent jurisdiction;
(ii) the commission by the Executive of a material theft or
embezzlement of Company property;
(iii) the conviction of the Executive for a crime resulting in
injury to the business or property of the Company; or
(iv) the commission of any act by the Executive in the performance
of his duties hereunder adjudged by a court of competent jurisdiction to amount
to gross, willful or wanton negligence.
(d) The Executive may terminate his employment with the Company upon
ninety (90) days written notice to the Company. Upon the effective date of such
termination, the Company shall have no further obligation to pay any amounts
provided for in this Agreement, except as set forth in Sections 10(e) and 10(h)
hereof.
(e) In the event the Executive's employment with the Company (or any
successor company) is terminated within three (3) years following a Change in
Control and such termination is due to the Executive's dismissal (other than
pursuant to Sections 10(b) or 10(c)), or the Executive's resignation for Good
Reason, as hereinafter defined, the Company (or such successor company) shall:
(i) continue to pay the Executive for a period equal to the
remaining term of this Agreement as set forth in Section 2 (the "Continuation
Period") (A) his Base Salary, including any portion thereof the receipt of which
the Executive may previously have elected to defer, plus (B) for each month in
the Continuation Period, 1/12 of his incentive compensation awarded with respect
to services rendered during the calendar year preceding such termination
(including any portion thereof which the Executive elected to defer), which
incentive compensation shall in no event be less than forty percent (40%) of his
Base Salary for such year,
(ii) continue for the duration of the Continuation Period the
Executive's participation in the major medical, health, hospitalization, life,
travel and accident and disability insurance plans or programs provided to the
Executive prior to the Change in Control, or provide equivalent benefits, at no
cost to him,
(iii) provide a monthly car allowance during the Continuation
Period in an amount not less than the amount of such allowance provided during
the calendar year preceding such termination,
(iv) treat the Executive as if he had retired at the expiration of
the Continuation Period at age 60 for the purpose of determining benefits due
and payable to him under the Company's Employees' Retirement Plan and The
Gradall Company Benefit Restoration Plan,
(v) provide the Executive with outplacement services by a firm
selected by the Executive, at the expense of the Company, in an amount up to
fifteen percent (15%) of the Executive's Base Salary, and
(vi) provide the Executive with the benefits set forth in Section
15.
(f) The term "Change in Control" shall mean the occurrence of any of
the following events: (i) the Company or Gradall Industries, Inc. sells or
transfers all or substantially all its assets to another corporation or entity,
(ii) the Company or Gradall Industries, Inc. is merged or consolidated with
another corporation and as a result thereof less than a majority of the
outstanding voting securities of the surviving or resulting corporation are
owned in the aggregate by the holders of shares of the Company or Gradall
Industries, Inc., as the case may be, immediately prior to such merger or
consolidation, (iii) twenty-five percent (25%) or more of the outstanding voting
securities of Gradall Industries, Inc. become owned (whether directly,
indirectly, beneficially or of record) by any person or group (within the
meaning of Section 13(d) or Section 14(d) of the Securities Exchange Act of
1934), other than MLGA Fund II, L.P. or a pension, retirement, profit sharing,
employee stock ownership or other employee benefit plan of the Company or
Gradall Industries, Inc., and the percentage of voting securities so owned by
such person or group exceeds the percentage of voting securities then owned by
MLGA Fund II, L.P. or (iv) the individuals who, at the beginning of any period
of two consecutive years, constituted the directors of Gradall Industries, Inc.
cease for any reason to constitute a majority thereof (provided, however, that
for purposes of this clause (iv), each new director whose nomination for
election was approved by the vote of at least two-thirds of the directors still
in office who were directors at the beginning of any such period will be deemed
to have been a director of Gradall Industries, Inc. at the beginning of such
period. The term "Good Reason" shall mean (i) a material breach of this
Agreement by the Company or its successor, (ii) a reduction in the Executive's
responsibilities, authority, compensation or employee benefits, or (iii) the
relocation of the Executive's principal work place without his consent to a
location outside the New Philadelphia, Ohio, metropolitan area.
(g) Any termination of the Executive's employment by the Company
following the commencement of any discussions with a third party that ultimately
results in a Change in Control shall be deemed to be a termination of the
Executive's employment after a Change in Control.
(h) In the event of termination pursuant to Sections 10(a), 10(b),
10(c), 10(d) or 10(e) hereof, the Executive shall receive the entire balance of
any sums earned by him prior to termination and such other benefits which may be
due him including, but not limited to, a prorata portion of amounts earned by
the Executive under any incentive compensation plans maintained by the Company.
(i) Upon termination of his employment, for any reason, the Executive
shall promptly surrender to the Company all property provided him by the Company
for use in relation to his employment, and, in addition, the Executive shall
surrender to the Company any and all documents, files, records or other material
and information of or pertaining to the Company or its business operations.
(j) The Company (or any successor company) shall pay or reimburse the
Executive for all costs and expenses including, without limitation, court costs
and reasonable attorneys' fees, incurred by Executive in connection with any
claim, action or proceeding brought to enforce or interpret any provision of
this Section 10 or challenging the validity or enforceability of any provision
thereof.
SECTION 11. NON-COMPETITION. During the period of his employment with the
Company and for a period of six months after any termination of his employment,
other than a termination following a Change in Control, the Executive covenants
and agrees that he shall not do any of the following:
(a) Own, manage, operate, join, control, be employed by, participate
in, or be connected in any manner with the ownership, management, operation, or
control of any business that is competitive with the types of businesses
conducted by the Company at that time within any areas in which the Company
intends to conduct business, as known to Executive by reason of Executive's
affiliation with the Company. Nothing herein shall prohibit Executive from
owning stock or other securities of a competitor, provided that Executive's
equity interest shall not exceed five percent (5%) of the total outstanding
stock of such competitor, and provided Executive, in fact, does not have the
power to control or direct the management or policies of such competitor and
does not serve as a director or officer thereof, and is not otherwise associated
with any competitor, except as consented to by the Company.
(b) Induce or influence any employee, independent contractor, agent,
customer or supplier of the Company to terminate or curtail his, her or its
employment or business relationship with the Company.
(c) Solicit or sell any product or service which is competitive with
those offered by the Company to any customer which did business with the Company
at any time during the term of Executive's employment with the Company.
SECTION 12. CONFIDENTIALITY. During the period of his employment by the
Company and for a period of six (6) months following its termination, for any
reason, the Executive covenants and agrees that he shall not use, disseminate,
or disclose, for his own benefit, or for the benefit of any person, firm,
business, or other entity, any confidential information pertaining to the
Company unless such information is first made public by the Company; the Company
authorizes, in writing, the use, dissemination, or disclosure of such
information; or as otherwise required by law. For purposes of this
subparagraph, confidential information is information which is not generally
known to the Company's industry, and relates, by way of example and not by way
of limitation, to the Company's manufacturing process, cost and pricing data,
supply sources, contracts, and customer lists.
SECTION 13. MITIGATION. The Executive shall not be obligated to seek
other employment following termination of employment hereunder; however, any
amounts owing to Executive under Sections 10(a) or 10(e) (other than subsection
(ii) thereof) of this Agreement shall be offset against all amounts earned by
the Executive from other employment (including self employment) beginning one
year after termination of employment hereunder. The Executive's entitlements
under Section 10(e)(ii) shall terminate immediately upon the Executive's
becoming entitled to coverage of a similar nature under benefit plans of a
subsequent employer, subject to the Executive's rights to continuation coverage
under the Company's plans at his expense under COBRA.
SECTION 14. GOLDEN PARACHUTE EXCISE TAX. (a) If any of the payments or
benefits received or to be received by the Executive in connection with a Change
in Control or the Executive's termination of employment (whether pursuant to the
terms of this Agreement or any other plan, arrangement or agreement) (such
payments or benefits, excluding the Gross-Up Payment defined below, being
hereinafter referred to as the "Total Payments") will be subject to the excise
tax imposed under Section 4999 (the "Excise Tax"), then the provisions of either
subclause (i) or (ii) of this section shall apply: (i) if the Total Payments are
less than 115% of the maximum amount of such payments that could be made without
imposition of Excise Tax (the "Safe Harbor Amount"), then the Total Payments
will be reduced to the Safe Harbor Amount; or (ii) if the Total Payments equal
or exceed 115% of the Safe Harbor Amount, the Company shall pay to the Executive
an additional amount (the "Gross-Up Payment") such that the net amount retained
by the Executive, after deduction of any Excise Tax on the Total Payments and
any federal, state and local income and employment taxes and Excise Tax upon the
Gross-Up Payment, shall be equal to the Total Payments.
(b) The calculations necessary to give effect to this section shall be
performed by the accounting firm which was immediately prior to the Change in
Control, the Company's independent auditor (the "Auditor"). For purposes of
determining whether any of the Total Payments will exceed the Safe Harbor Amount
and the amount of the Excise Tax, if any, (i) all of the Total Payments shall be
treated as "parachute payments" (within the meaning of section 280G(b)(2) of the
Code) unless, in the opinion of tax counsel ("Tax Counsel") reasonably
acceptable to the Executive and selected by the Auditor, such payments or
benefits (in whole or in part) do not constitute parachute payments, including
by reason of section 280G(b)(4)(A) of the Code, (ii) all "excess parachute
payments" within the meaning of section 280G(b)(1) of the Code shall be treated
as subject to the Excise Tax unless, in the opinion of Tax Counsel, such excess
parachute payments (in whole or in part) represent reasonable compensation for
services actually rendered (within the meaning of section 280G(b)(4)(B) of the
Code) in excess of the Base Amount allocable to such reasonable compensation, or
are otherwise not subject to the Excise Tax, and (iii) the value of any noncash
benefits or any deferred payment or benefit shall be determined by the Auditor
in accordance with the principles of sections 280G(d)(3) and (4) of the Code.
For purposes of determining the amount of the Gross-Up Payment, the Executive
shall be deemed to pay federal income tax at the highest marginal rate of
federal income taxation in the calendar year in which the Gross-Up Payment is to
be made and state and local income taxes at the highest marginal rate of
taxation in the state and locality of the Executive's residence on the date of
termination of employment, net of the maximum reduction in federal income taxes
which could be obtained from deduction of such state and local taxes.
(c) In the event that subclause (i) of this Section 14(a) applies, the
Executive and the Company shall jointly agree on the allocation of any reduction
in the Total Payments.
(d) The provisions of this Section 14 shall be applied without giving
effect to any cap or limitation on benefits under the Company's Supplemental
Executive Retirement Plan that is intended to avoid Excise Tax, and the Company
hereby waives the application of any such provision to the Executive.
SECTION 15. SUPPLEMENTAL RETIREMENT BENEFITS. In the event that the
Executive's employment is terminated under circumstances entitling him to the
payments and benefits set forth in Section 10(e), the Executive shall be
entitled to the following additional benefits:
(a) Under the Company's Supplemental Executive Retirement Plan (i)
three years of additional service credit for vesting purposes; and (ii) three
additional years of Company contributions, each in an amount not less than the
Company contribution for the year prior to the year of termination of
employment.
(b) Under the Deferred Compensation Agreement between the Executive and
the Company dated July 19, 1989, the Executive shall be treated as if he had
retired from the Company on or after age 65.
(c) The Company shall continue to pay all premiums due under The New
England Mutual Life Insurance Company Policy No. 6801161 insuring the life of
Executive in the amount of $500,000 and shall otherwise comply with the
provisions of the Split-Dollar Life Insurance Agreement between the Company and
the Executive dated August 30, 1995.
SECTION 16. NOTICES. Any notice required or desired to be given pursuant
to this Agreement shall be in writing and sent by certified mail to the parties
at the following addresses, or to such other addresses as either may designate
in writing to the other party:
To the Company: The Gradall Company
406 Mill Avenue S.W.
New Philadelphia, Ohio 44663
To Executive: Barry L. Phillips
403 Hillcrest Drive N.E.
New Philadelphia, Ohio 44663
SECTION 17. WAIVER. Failure to insist upon strict compliance with any of
the terms, covenants, or conditions hereof shall not be deemed a waiver of such
term, covenant, or condition, nor shall any waiver or relinquishment of any
right or power hereunder at any one or more times be deemed a waiver or
relinquishment of such right or power at any other time or times.
SECTION 18. SEVERABILITY. The invalidity or unenforceability of any
provision hereof shall in no way affect the validity or enforceability of any
other provision. In the event that any part of a covenant contained herein is
determined by a court of law to be invalid, a judicially enforceable provision
shall be substituted in its place. Any covenant so modified shall be binding
upon the parties and shall have the same force and effect as if originally set
forth in this Agreement.
SECTION 19. MODIFICATION. This Agreement may be amended only in writing,
signed by both parties hereto.
SECTION 20. HEADINGS. The headings in this Agreement are inserted for
convenience only and are not to be considered a construction of the provisions
thereof.
SECTION 21. ASSIGNMENT. The Executive acknowledges that the services to
be rendered by him are unique and personal. Accordingly, the Executive may not
assign any of his rights or delegate any of his duties or obligations under this
Agreement. However, the rights and obligations of the Company under this
Agreement shall inure to the benefit of and shall be binding upon the successors
and assigns of the Company including, but not limited to, any corporation which
may acquire all or substantially all of the Company's assets and business, or
which may be consolidated or merged with or into the Company.
SECTION 22. GOVERNING LAW. This Agreement shall be construed and enforced
in accordance with the laws of the State of Ohio.
SECTION 23. NOVATION. This Agreement terminates and supersedes the Prior
Employment Agreement.
SECTION 24. ENTIRE AGREEMENT. This Agreement constitutes the entire
understanding and agreement between the Company and the Executive with regard to
all matters herein. There are no other agreements, conditions or
representations, oral or written, express or implied, with regard thereto.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement the day
and year first above written.
THE GRADALL COMPANY
By: /s/ Sangwoo Ahn
Sangwoo Ahn
---------------
Chairman
/s/ Barry L. Phillips
---------------------
Barry L. Phillips
AMENDED AND RESTATED
EMPLOYMENT AGREEMENT
THIS AGREEMENT is made this ___ day of _________, 1998, by and between THE
GRADALL COMPANY, an Ohio corporation (the "Company"), and DAVID S. WILLIAMS
("Executive").
WITNESSETH THAT:
WHEREAS, the Executive has been employed by the Company as its Vice
President of Marketing and Sales pursuant to the terms of an employment
agreement by and between the Company and the Executive dated January 13, 1986,
as restated and amended by agreements dated July 17, 1989, February 5, 1993 and
October 13, 1995 (the "Prior Employment Agreement");
WHEREAS, the Company and the Executive desire to amend and restate the
Prior Employment Agreement to provide for the continued employment of the
Executive upon the terms and conditions hereinafter set forth; and
WHEREAS, the Executive's services are of great value to the Company and it
is recognized that substantial inducement must be offered to the Executive in
order that the Company may retain his services.
NOW, THEREFORE, in consideration of the mutual covenants hereinafter set
forth, the parties agree as follows:
SECTION 1. DUTIES. The Company hereby agrees to continue to employ the
Executive as Vice President of Marketing and Sales of the Company, and the
Executive hereby agrees to continue to serve the Company in that capacity in
accordance with the terms and conditions set forth herein:
(a) The Executive shall be vested with all powers and rights attendant
to the office of Vice President of Marketing and Sales, and shall have full
authority and responsibility, subject to the general direction, approval and
control of the Board of Directors of the Company, to formulate policies, carry
out his duties and administer the Company in all respects relative to the sales
and marketing of the Company's products.
(b) If elected or appointed by the Board of Directors, the Executive
shall serve as a director of the Company without additional compensation.
(c) During the term of this Agreement, the Executive shall devote all
of his business time, attention, energy and skill to the performance of the
duties and services described herein, and shall not engage directly or
indirectly in any other business activity, whether or not such business activity
is pursued for gain, profit or other pecuniary advantage, except with the
written consent of the Company's Board of Directors, provided, that the
provisions of this Section 1(c) shall not restrict the Executive's investment of
his personal assets or the Executive's participation in any professional,
academic or civic activity.
SECTION 2. TERM. Subject to prior termination as set forth in Section 10
hereof, the term of the Executive's employment under this Agreement shall be for
a period of one year, beginning on the date hereof, which term shall be
automatically renewed for successive one year periods until terminated as set
forth in Section 10 hereof; provided, however, that upon the occurrence of a
Change in Control, as hereinafter defined, the term of this Agreement and the
Executive's employment hereunder shall continue for a period of three (3) years
beginning on the date of such Change in Control.
SECTION 3. COMPENSATION. The Company shall pay to the Executive as
compensation for his services hereunder a base salary of One Hundred Forty-seven
Thousand Dollars ($147,000.00) per year, payable in equal semi-monthly
installments, subject to withholding and other applicable taxes. The salary
provided herein shall be subject to adjustment based on annual reviews conducted
by the Company (as so adjusted from time to time, "Base Salary").
SECTION 4. INCENTIVE COMPENSATION. The Executive shall be entitled to
participate in any incentive compensation plans established by the Company from
time to time.
SECTION 5. EXPENSES. The Executive is authorized to incur reasonable
expenses in connection with the business of the Company and the performance of
his duties hereunder, including expenses for entertainment, travel and similar
items. The Company will pay or reimburse the Executive for all expenses upon
the presentation by the Executive of an itemized account of such expenditures
and any other documentation or substantiation of expenses which may be required
for compliance with applicable state and federal tax laws.
SECTION 6. VACATIONS. The Executive shall be entitled to four (4) weeks
of vacation each year, during which time his compensation shall be paid in full.
SECTION 7. AUTOMOBILE ALLOWANCE. During the term of the Executive's
employment hereunder, the Company shall provide the Executive with a monthly car
allowance in accordance with the Company's policy in effect at the date hereof
for all expenses incurred in connection with the maintenance of an automobile
for the Executive's business use including, but not limited to, acquisition
costs, fuel, maintenance and insurance. The Company shall pay to the Executive
such additional amount as may be necessary to reimburse the Executive for any
federal, state or local income taxes the Executive is required to pay as a
result of the Company's payments pursuant to this Section 7, including such tax
reimbursement payments.
SECTION 8. EXECUTIVE BENEFITS. The Executive shall be entitled to all
benefits offered by the Company to any of its executive or salaried employees
including, but not limited to, major medical health insurance, hospitalization
insurance, life insurance, travel and accident insurance, and disability
insurance, including, but not limited to, those benefits the Executive currently
receives from the Company.
SECTION 9. DEFERRAL OF COMPENSATION. The Executive shall be entitled to
participate in the Company's Supplemental Executive Retirement Plan and any
other deferred compensation program maintained by the Company.
SECTION 10. TERMINATION. The Executive's employment hereunder may be
terminated in accordance with the following terms and conditions:
(a) The Company may terminate the Executive's employment hereunder at
any time prior to a Change in Control (as defined below), without cause, upon
ninety (90) days written notice to Executive. However, in such event, the
Company shall pay or provide to the Executive
(i) a severance allowance of at least twelve (12) months Base
Salary (less all amounts required to be withheld and deducted), payable on a
monthly basis, starting on the last day of the first full month following
termination;
(ii) all amounts the Executive would have received under the Short
and Long Term Management Incentive Plans (less all amounts required to be
withheld and deducted) during the twelve (12) month period following the
effective date of such termination; and
(iii) benefits equivalent to those previously received by the
Executive including, but not limited to, benefits provided under Sections 7 and
8 of this Agreement, for the twelve (12) month period following the effective
date of such termination.
(b) The Company may terminate the Executive's employment hereunder upon
ninety (90) days written notice to the Executive, in the event that the
Executive has been unable to perform his duties by reason of illness or
incapacity, which inability continues for a consecutive twelve month period,
provided, that the Executive is receiving the full benefit amount payable under
the group disability insurance maintained by the Company.
(c) Notwithstanding anything herein to the contrary, the Company shall
have the right to terminate the Executive's employment hereunder, effective upon
written notice of such termination, and shall not have an obligation to pay any
amounts provided under Section 10(a) or 10(e) hereof upon the happening of any
of the following events:
(i) the failure by the Executive to observe the restrictive
covenants set forth in Sections 11, if applicable, and 12 hereof, as determined
by a court of competent jurisdiction;
(ii) the commission by the Executive of a material theft or
embezzlement of Company property;
(iii) the conviction of the Executive for a crime resulting in
injury to the business or property of the Company; or
(iv) the commission of any act by the Executive in the performance
of his duties hereunder adjudged by a court of competent jurisdiction to amount
to gross, willful or wanton negligence.
(d) The Executive may terminate his employment with the Company upon
ninety (90) days written notice to the Company. Upon the effective date of such
termination, the Company shall have no further obligation to pay any amounts
provided for in this Agreement, except as set forth in Sections 10(e) and 10(h)
hereof.
(e) In the event the Executive's employment with the Company (or any
successor company) is terminated within three (3) years following a Change in
Control and such termination is due to the Executive's dismissal (other than
pursuant to Sections 10(b) or 10(c)), or the Executive's resignation for Good
Reason, as hereinafter defined, the Company (or such successor company) shall:
(i) continue to pay the Executive for a period equal to the
remaining term of this Agreement as set forth in Section 2 (the "Continuation
Period") (A) his Base Salary, including any portion thereof the receipt of which
the Executive may previously have elected to defer, plus (B) for each month in
the Continuation Period, 1/12 of his incentive compensation awarded with respect
to services rendered during the calendar year preceding such termination
(including any portion thereof which the Executive elected to defer), which
incentive compensation shall in no event be less than forty percent (40%) of his
Base Salary for such year,
(ii) continue for the duration of the Continuation Period the
Executive's participation in the major medical, health, hospitalization, life,
travel and accident and disability insurance plans or programs provided to the
Executive prior to the Change in Control, or provide equivalent benefits, at no
cost to him,
(iii) provide a monthly car allowance during the Continuation
Period in an amount not less than the amount of such allowance provided during
the calendar year preceding such termination,
(iv) treat the Executive as if he had retired at the expiration of
the Continuation Period at age 60 for the purpose of determining benefits due
and payable to him under the Company's Employees' Retirement Plan and The
Gradall Company Benefit Restoration Plan,
(v) provide the Executive with outplacement services by a firm
selected by the Executive, at the expense of the Company, in an amount up to
fifteen percent (15%) of the Executive's Base Salary, and
(vi) provide the Executive with the benefits set forth in Section
15.
(f) The term "Change in Control" shall mean the occurrence of any of
the following events: (i) the Company or Gradall Industries, Inc. sells or
transfers all or substantially all its assets to another corporation or entity,
(ii) the Company or Gradall Industries, Inc. is merged or consolidated with
another corporation and as a result thereof less than a majority of the
outstanding voting securities of the surviving or resulting corporation are
owned in the aggregate by the holders of shares of the Company or Gradall
Industries, Inc., as the case may be, immediately prior to such merger or
consolidation, (iii) twenty-five percent (25%) or more of the outstanding voting
securities of Gradall Industries, Inc. become owned (whether directly,
indirectly, beneficially or of record) by any person or group (within the
meaning of Section 13(d) or Section 14(d) of the Securities Exchange Act of
1934), other than MLGA Fund II, L.P. or a pension, retirement, profit sharing,
employee stock ownership or other employee benefit plan of the Company or
Gradall Industries, Inc., and the percentage of voting securities so owned by
such person or group exceeds the percentage of voting securities then owned by
MLGA Fund II, L.P. or (iv) the individuals who, at the beginning of any period
of two consecutive years, constituted the directors of Gradall Industries, Inc.
cease for any reason to constitute a majority thereof (provided, however, that
for purposes of this clause (iv), each new director whose nomination for
election was approved by the vote of at least two-thirds of the directors still
in office who were directors at the beginning of any such period will be deemed
to have been a director of Gradall Industries, Inc. at the beginning of such
period. The term "Good Reason" shall mean (i) a material breach of this
Agreement by the Company or its successor, (ii) a reduction in the Executive's
responsibilities, authority, compensation or employee benefits, or (iii) the
relocation of the Executive's principal work place without his consent to a
location outside the New Philadelphia, Ohio, metropolitan area.
(g) Any termination of the Executive's employment by the Company
following the commencement of any discussions with a third party that ultimately
results in a Change in Control shall be deemed to be a termination of the
Executive's employment after a Change in Control.
(h) In the event of termination pursuant to Sections 10(a), 10(b),
10(c), 10(d) or 10(e) hereof, the Executive shall receive the entire balance of
any sums earned by him prior to termination and such other benefits which may be
due him including, but not limited to, a prorata portion of amounts earned by
the Executive under any incentive compensation plans maintained by the Company.
on, and shall not have a
(i) Upon termination of his employment, for any reason, the Executive
shall promptly surrender to the Company all property provided him by the Company
for use in relation to his employment, and, in addition, the Executive shall
surrender to the Company any and all documents, files, records or other material
and information of or pertaining to the Company or its business operations.
(j) The Company (or any successor company) shall pay or reimburse the
Executive for all costs and expenses including, without limitation, court costs
and reasonable attorneys' fees, incurred by Executive in connection with any
claim, action or proceeding brought to enforce or interpret any provision of
this Section 10 or challenging the validity or enforceability of any provision
thereof.
SECTION 11. NON-COMPETITION. During the period of his employment with the
Company and for a period of six months after any termination of his employment,
other than a termination following a Change in Control, the Executive covenants
and agrees that he shall not do any of the following:
(a) Own, manage, operate, join, control, be employed by, participate
in, or be connected in any manner with the ownership, management, operation, or
control of any business that is competitive with the types of businesses
conducted by the Company at that time within any areas in which the Company
intends to conduct business, as known to Executive by reason of Executive's
affiliation with the Company. Nothing herein shall prohibit Executive from
owning stock or other securities of a competitor, provided that Executive's
equity interest shall not exceed five percent (5%) of the total outstanding
stock of such competitor, and provided Executive, in fact, does not have the
power to control or direct the management or policies of such competitor and
does not serve as a director or officer thereof, and is not otherwise associated
with any competitor, except as consented to by the Company.
(b) Induce or influence any employee, independent contractor, agent,
customer or supplier of the Company to terminate or curtail his, her or its
employment or business relationship with the Company.
(c) Solicit or sell any product or service which is competitive with
those offered by the Company to any customer which did business with the Company
at any time during the term of Executive's employment with the Company.
SECTION 12. CONFIDENTIALITY. During the period of his employment by the
Company and for a period of six (6) months following its termination, for any
reason, the Executive covenants and agrees that he shall not use, disseminate,
or disclose, for his own benefit, or for the benefit of any person, firm,
business, or other entity, any confidential information pertaining to the
Company unless such information is first made public by the Company; the Company
authorizes, in writing, the use, dissemination, or disclosure of such
information; or as otherwise required by law. For purposes of this
subparagraph, confidential information is information which is not generally
known to the Company's industry, and relates, by way of example and not by way
of limitation, to the Company's manufacturing process, cost and pricing data,
supply sources, contracts, and customer lists.
SECTION 13. MITIGATION. The Executive shall not be obligated to seek
other employment following termination of employment hereunder; however, any
amounts owing to Executive under Sections 10(a) or 10(e) (other than subsection
(ii) thereof) of this Agreement shall be offset against all amounts earned by
the Executive from other employment (including self employment) beginning one
year after termination of employment hereunder. The Executive's entitlements
under Section 10(e)(ii) shall terminate immediately upon the Executive's
becoming entitled to coverage of a similar nature under benefit plans of a
subsequent employer, subject to the Executive's rights to continuation coverage
under the Company's plans at his expense under COBRA.
SECTION 14. GOLDEN PARACHUTE EXCISE TAX. (a) If any of the payments or
benefits received or to be received by the Executive in connection with a Change
in Control or the Executive's termination of employment (whether pursuant to the
terms of this Agreement or any other plan, arrangement or agreement) (such
payments or benefits, excluding the Gross-Up Payment defined below, being
hereinafter referred to as the "Total Payments") will be subject to the excise
tax imposed under Section 4999 (the "Excise Tax"), then the provisions of either
subclause (i) or (ii) of this section shall apply: (i) if the Total Payments are
less than 115% of the maximum amount of such payments that could be made without
imposition of Excise Tax (the "Safe Harbor Amount"), then the Total Payments
will be reduced to the Safe Harbor Amount; or (ii) if the Total Payments equal
or exceed 115% of the Safe Harbor Amount, the Company shall pay to the Executive
an additional amount (the "Gross-Up Payment") such that the net amount retained
by the Executive, after deduction of any Excise Tax on the Total Payments and
any federal, state and local income and employment taxes and Excise Tax upon the
Gross-Up Payment, shall be equal to the Total Payments.
(b) The calculations necessary to give effect to this section shall be
performed by the accounting firm which was immediately prior to the Change in
Control, the Company's independent auditor (the "Auditor"). For purposes of
determining whether any of the Total Payments will exceed the Safe Harbor Amount
and the amount of the Excise Tax, if any, (i) all of the Total Payments shall be
treated as "parachute payments" (within the meaning of section 280G(b)(2) of the
Code) unless, in the opinion of tax counsel ("Tax Counsel") reasonably
acceptable to the Executive and selected by the Auditor, such payments or
benefits (in whole or in part) do not constitute parachute payments, including
by reason of section 280G(b)(4)(A) of the Code, (ii) all "excess parachute
payments" within the meaning of section 280G(b)(1) of the Code shall be treated
as subject to the Excise Tax unless, in the opinion of Tax Counsel, such excess
parachute payments (in whole or in part) represent reasonable compensation for
services actually rendered (within the meaning of section 280G(b)(4)(B) of the
Code) in excess of the Base Amount allocable to such reasonable compensation, or
are otherwise not subject to the Excise Tax, and (iii) the value of any noncash
benefits or any deferred payment or benefit shall be determined by the Auditor
in accordance with the principles of sections 280G(d)(3) and (4) of the Code.
For purposes of determining the amount of the Gross-Up Payment, the Executive
shall be deemed to pay federal income tax at the highest marginal rate of
federal income taxation in the calendar year in which the Gross-Up Payment is to
be made and state and local income taxes at the highest marginal rate of
taxation in the state and locality of the Executive's residence on the date of
termination of employment, net of the maximum reduction in federal income taxes
which could be obtained from deduction of such state and local taxes.
(c) In the event that subclause (i) of this Section 14(a) applies, the
Executive and the Company shall jointly agree on the allocation of any reduction
in the Total Payments.
(d) The provisions of this Section 14 shall be applied without giving
effect to any cap or limitation on benefits under the Company's Supplemental
Executive Retirement Plan that is intended to avoid Excise Tax, and the Company
hereby waives the application of any such provision to the Executive.
SECTION 15. SUPPLEMENTAL RETIREMENT BENEFITS. In the event that the
Executive's employment is terminated under circumstances entitling him to the
payments and benefits set forth in Section 10(e), the Executive shall be
entitled to the following additional benefits:
(a) Under the Company's Supplemental Executive Retirement Plan (i)
three years of additional service credit for vesting purposes; and (ii) three
additional years of Company contributions, each in an amount not less than the
Company contribution for the year prior to the year of termination of
employment.
(b) Under the Amended and Restated Deferred Compensation Agreement
between the Executive and the Company dated August 30, 1995, the Executive shall
be treated as if he had retired from the Company on or after age 60.
SECTION 16. NOTICES. Any notice required or desired to be given pursuant
to this Agreement shall be in writing and sent by certified mail to the parties
at the following addresses, or to such other addresses as either may designate
in writing to the other party:
To the Company: The Gradall Company
406 Mill Avenue S.W.
New Philadelphia, Ohio 44663
To Executive: David S. Williams
5601 Foxchase Avenue N.W.
Canton, Ohio 44718
SECTION 17. WAIVER. Failure to insist upon strict compliance with any of
the terms, covenants, or conditions hereof shall not be deemed a waiver of such
term, covenant, or condition, nor shall any waiver or relinquishment of any
right or power hereunder at any one or more times be deemed a waiver or
relinquishment of such right or power at any other time or times.
SECTION 18. SEVERABILITY. The invalidity or unenforceability of any
provision hereof shall in no way affect the validity or enforceability of any
other provision. In the event that any part of a covenant contained herein is
determined by a court of law to be invalid, a judicially enforceable provision
shall be substituted in its place. Any covenant so modified shall be binding
upon the parties and shall have the same force and effect as if originally set
forth in this Agreement.
SECTION 19. MODIFICATION. This Agreement may be amended only in writing,
signed by both parties hereto.
SECTION 20. HEADINGS. The headings in this Agreement are inserted for
convenience only and are not to be considered a construction of the provisions
thereof.
SECTION 21. ASSIGNMENT. The Executive acknowledges that the services to
be rendered by him are unique and personal. Accordingly, the Executive may not
assign any of his rights or delegate any of his duties or obligations under this
Agreement. However, the rights and obligations of the Company under this
Agreement shall inure to the benefit of and shall be binding upon the successors
and assigns of the Company including, but not limited to, any corporation which
may acquire all or substantially all of the Company's assets and business, or
which may be consolidated or merged with or into the Company.
SECTION 22. GOVERNING LAW. This Agreement shall be construed and enforced
in accordance with the laws of the State of Ohio.
SECTION 23. NOVATION. This Agreement terminates and supersedes the Prior
Employment Agreement.
SECTION 24. ENTIRE AGREEMENT. This Agreement constitutes the entire
understanding and agreement between the Company and the Executive with regard to
all matters herein. There are no other agreements, conditions or
representations, oral or written, express or implied, with regard thereto.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement the day
and year first above written.
THE GRADALL COMPANY
By: /s/ Sangwoo Ahn
Sangwoo Ahn
---------------
Chairman
/s/ David S. Williams
---------------------
David S. Williams
AMENDED AND RESTATED
EMPLOYMENT AGREEMENT
THIS AGREEMENT is made this ___ day of _________, 1998, by and between THE
GRADALL COMPANY, an Ohio corporation (the "Company"), and BRUCE A. JONKER
("Executive").
WITNESSETH THAT:
WHEREAS, the Executive has been employed by the Company as its Vice
President and Chief Financial Officer pursuant to the terms of an employment
agreement by and between the Company and the Executive dated November 1, 1995
(the "Prior Employment Agreement");
WHEREAS, the Company and the Executive desire to amend and restate the
Prior Employment Agreement to provide for the continued employment of the
Executive upon the terms and conditions hereinafter set forth; and
WHEREAS, the Executive's services are of great value to the Company and it
is recognized that substantial inducement must be offered to the Executive in
order that the Company may retain his services.
NOW, THEREFORE, in consideration of the mutual covenants hereinafter set
forth, the parties agree as follows:
SECTION 1. DUTIES. The Company hereby agrees to continue to employ the
Executive as Vice President and Chief Financial Officer of the Company, and the
Executive hereby agrees to continue to serve the Company in that capacity in
accordance with the terms and conditions set forth herein:
(a) The Executive shall be vested with all powers and rights attendant
to the office of Vice President and Chief Financial Officer, and shall have full
authority and responsibility, subject to the general direction, approval and
control of the Board of Directors and the President of the Company, to formulate
policies, carry out his duties and administer the Company in all respects
relative to the Company's accounting practices and financial reporting.
(b) If elected or appointed by the Board of Directors, the Executive
shall serve as a director of the Company without additional compensation.
(c) During the term of this Agreement, the Executive shall devote all
of his business time, attention, energy and skill to the performance of the
duties and services described herein, and shall not engage directly or
indirectly in any other business activity, whether or not such business activity
is pursued for gain, profit or other pecuniary advantage, except with the
written consent of the Company's Board of Directors, provided, that the
provisions of this Section 1(c) shall not restrict the Executive's investment of
his personal assets or the Executive's participation in any professional,
academic or civic activity.
SECTION 2. TERM. Subject to prior termination as set forth in Section 10
hereof, the term of the Executive's employment under this Agreement shall be for
a period of one year, beginning on the date hereof, which term shall be
automatically renewed for successive one year periods until terminated as set
forth in Section 10 hereof; provided, however, that upon the occurrence of a
Change in Control, as hereinafter defined, the term of this Agreement and the
Executive's employment hereunder shall continue for a period of three (3) years
beginning on the date of such Change in Control.
SECTION 3. COMPENSATION. The Company shall pay to the Executive as
compensation for his services hereunder a base salary of One Hundred Three
Thousand Dollars ($103,000.00) per year, payable in equal semi-monthly
installments, subject to withholding and other applicable taxes. The salary
provided herein shall be subject to adjustment based on annual reviews conducted
by the Company (as so adjusted from time to time, "Base Salary").
SECTION 4. INCENTIVE COMPENSATION. The Executive shall be entitled to
participate in any incentive compensation plans established by the Company from
time to time.
SECTION 5. EXPENSES. The Executive is authorized to incur reasonable
expenses in connection with the business of the Company and the performance of
his duties hereunder, including expenses for entertainment, travel and similar
items. The Company will pay or reimburse the Executive for all expenses upon
the presentation by the Executive of an itemized account of such expenditures
and any other documentation or substantiation of expenses which may be required
for compliance with applicable state and federal tax laws.
SECTION 6. VACATIONS. The Executive shall be entitled to five (5) weeks
of vacation each year, during which time his compensation shall be paid in full.
SECTION 7. AUTOMOBILE ALLOWANCE. During the term of the Executive's
employment hereunder, the Company shall provide the Executive with a monthly car
allowance in accordance with the Company's policy in effect at the date hereof
for all expenses incurred in connection with the maintenance of an automobile
for the Executive's business use including, but not limited to, acquisition
costs, fuel, maintenance and insurance. The Company shall pay to the Executive
such additional amount as may be necessary to reimburse the Executive for any
federal, state or local income taxes the Executive is required to pay as a
result of the Company's payments pursuant to this Section 7, including such tax
reimbursement payments.
SECTION 8. EXECUTIVE BENEFITS. The Executive shall be entitled to all
benefits offered by the Company to any of its executive or salaried employees
including, but not limited to, major medical health insurance, hospitalization
insurance, life insurance, travel and accident insurance, and disability
insurance, including, but not limited to, those benefits the Executive currently
receives from the Company.
SECTION 9. DEFERRAL OF COMPENSATION. The Executive shall be entitled to
participate in the Company's Supplemental Executive Retirement Plan and any
other deferred compensation program maintained by the Company.
SECTION 10. TERMINATION. The Executive's employment hereunder may be
terminated in accordance with the following terms and conditions:
(a) The Company may terminate the Executive's employment hereunder at
any time prior to a Change in Control (as defined below), without cause, upon
ninety (90) days written notice to Executive. However, in such event, the
Company shall pay or provide to the Executive
(i) a severance allowance of at least twelve (12) months Base
Salary (less all amounts required to be withheld and deducted), payable on a
monthly basis, starting on the last day of the first full month following
termination;
(ii) all amounts the Executive would have received under the Short
and Long Term Management Incentive Plans (less all amounts required to be
withheld and deducted) during the twelve (12) month period following the
effective date of such termination; and
(iii) benefits equivalent to those previously received by the
Executive including, but not limited to, benefits provided under Sections 7 and
8 of this Agreement, for the twelve (12) month period following the effective
date of such termination.
(b) The Company may terminate the Executive's employment hereunder upon
ninety (90) days written notice to the Executive, in the event that the
Executive has been unable to perform his duties by reason of illness or
incapacity, which inability continues for a consecutive twelve month period,
provided, that the Executive is receiving the full benefit amount payable under
the group disability insurance maintained by the Company.
(c) Notwithstanding anything herein to the contrary, the Company shall
have the right to terminate the Executive's employment hereunder, effective upon
written notice of such termination, and shall not have an obligation to pay any
amounts provided under Section 10(a) or 10(e) hereof upon the happening of any
of the following events:
(i) the failure by the Executive to observe the restrictive
covenants set forth in Sections 11, if applicable, and 12 hereof, as determined
by a court of competent jurisdiction;
(ii) the commission by the Executive of a material theft or
embezzlement of Company property;
(iii) the conviction of the Executive for a crime resulting in
injury to the business or property of the Company; or
(iv) the commission of any act by the Executive in the performance
of his duties hereunder adjudged by a court of competent jurisdiction to amount
to gross, willful or wanton negligence.
(d) The Executive may terminate his employment with the Company upon
ninety (90) days written notice to the Company. Upon the effective date of such
termination, the Company shall have no further obligation to pay any amounts
provided for in this Agreement, except as set forth in Sections 10(e) and 10(h)
hereof.
(e) In the event the Executive's employment with the Company (or any
successor company) is terminated within three (3) years following a Change in
Control and such termination is due to the Executive's dismissal (other than
pursuant to Sections 10(b) or 10(c)), or the Executive's resignation for Good
Reason, as hereinafter defined, the Company (or such successor company) shall:
(i) continue to pay the Executive for a period equal to the
remaining term of this Agreement as set forth in Section 2 (the "Continuation
Period") (A) his Base Salary, including any portion thereof the receipt of which
the Executive may previously have elected to defer, plus (B) for each month in
the Continuation Period, 1/12 of his incentive compensation awarded with respect
to services rendered during the calendar year preceding such termination
(including any portion thereof which the Executive elected to defer), which
incentive compensation shall in no event be less than forty percent (40%) of his
Base Salary for such year,
(ii) continue for the duration of the Continuation Period the
Executive's participation in the major medical, health, hospitalization, life,
travel and accident and disability insurance plans or programs provided to the
Executive prior to the Change in Control, or provide equivalent benefits, at no
cost to him,
(iii) provide a monthly car allowance during the Continuation
Period in an amount not less than the amount of such allowance provided during
the calendar year preceding such termination,
(iv) treat the Executive as if he retired at the expiration of the
Continuation Period at age 62 with thirty (30) years of service for the purpose
of determining benefits due and payable to him under the Company's Employees'
Retirement Plan and The Gradall Company Benefit Restoration Plan,
(v) provide the Executive with outplacement services by a firm
selected by the Executive, at the expense of the Company, in an amount up to
fifteen percent (15%) of the Executive's Base Salary, and
(vi) provide the Executive with the benefits set forth in Section
15.
(f) The term "Change in Control" shall mean the occurrence of any of
the following events: (i) the Company or Gradall Industries, Inc. sells or
transfers all or substantially all its assets to another corporation or entity,
(ii) the Company or Gradall Industries, Inc. is merged or consolidated with
another corporation and as a result thereof less than a majority of the
outstanding voting securities of the surviving or resulting corporation are
owned in the aggregate by the holders of shares of the Company or Gradall
Industries, Inc., as the case may be, immediately prior to such merger or
consolidation, (iii) twenty-five percent (25%) or more of the outstanding voting
securities of Gradall Industries, Inc. become owned (whether directly,
indirectly, beneficially or of record) by any person or group (within the
meaning of Section 13(d) or Section 14(d) of the Securities Exchange Act of
1934), other than MLGA Fund II, L.P. or a pension, retirement, profit sharing,
employee stock ownership or other employee benefit plan of the Company or
Gradall Industries, Inc., and the percentage of voting securities so owned by
such person or group exceeds the percentage of voting securities then owned by
MLGA Fund II, L.P. or (iv) the individuals who, at the beginning of any period
of two consecutive years, constituted the directors of Gradall Industries, Inc.
cease for any reason to constitute a majority thereof (provided, however, that
for purposes of this clause (iv), each new director whose nomination for
election was approved by the vote of at least two-thirds of the directors still
in office who were directors at the beginning of any such period will be deemed
to have been a director of Gradall Industries, Inc. at the beginning of such
period. The term "Good Reason" shall mean (i) a material breach of this
Agreement by the Company or its successor, (ii) a reduction in the Executive's
responsibilities, authority, compensation or employee benefits, or (iii) the
relocation of the Executive's principal work place without his consent to a
location outside the New Philadelphia, Ohio, metropolitan area.
(g) Any termination of the Executive's employment by the
Companyfollowing the commencement of any discussions with a third party that
ultimatelyresults in a Change in Control shall be deemed to be a termination of
theExecutive's employment after a Change in Control.
(h) In the event of termination pursuant to Sections 10(a), 10(b),
10(c), 10(d) or 10(e) hereof, the Executive shall receive the entire balance of
any sums earned by him prior to termination and such other benefits which may be
due him including, but not limited to, a prorata portion of amounts earned by
the Executive under any incentive compensation plans maintained by the Company.
(i) Upon termination of his employment, for any reason, the Executive
shall promptly surrender to the Company all property provided him by the Company
for use in relation to his employment, and, in addition, the Executive shall
surrender to the Company any and all documents, files, records or other material
and information of or pertaining to the Company or its business operations.
(j) The Company (or any successor company) shall pay or reimburse the
Executive for all costs and expenses including, without limitation, court costs
and reasonable attorneys' fees, incurred by Executive in connection with any
claim, action or proceeding brought to enforce or interpret any provision of
this Section 10 or challenging the validity or enforceability of any provision
thereof.
SECTION 11. NON-COMPETITION. During the period of his employment with the
Company and for a period of six months after any termination of his employment,
other than a termination following a Change in Control, the Executive covenants
and agrees that he shall not do any of the following:
(a) Own, manage, operate, join, control, be employed by, participate
in, or be connected in any manner with the ownership, management, operation, or
control of any business that is competitive with the types of businesses
conducted by the Company at that time within any areas in which the Company
intends to conduct business, as known to Executive by reason of Executive's
affiliation with the Company. Nothing herein shall prohibit Executive from
owning stock or other securities of a competitor, provided that Executive's
equity interest shall not exceed five percent (5%) of the total outstanding
stock of such competitor, and provided Executive, in fact, does not have the
power to control or direct the management or policies of such competitor and
does not serve as a director or officer thereof, and is not otherwise associated
with any competitor, except as consented to by the Company.
(b) Induce or influence any employee, independent contractor, agent,
customer or supplier of the Company to terminate or curtail his, her or its
employment or business relationship with the Company.
(c) Solicit or sell any product or service which is competitive with
those offered by the Company to any customer which did business with the Company
at any time during the term of Executive's employment with the Company.
SECTION 12. CONFIDENTIALITY. During the period of his employment by the
Company and for a period of six (6) months following its termination, for any
reason, the Executive covenants and agrees that he shall not use, disseminate,
or disclose, for his own benefit, or for the benefit of any person, firm,
business, or other entity, any confidential information pertaining to the
Company unless such information is first made public by the Company; the Company
authorizes, in writing, the use, dissemination, or disclosure of such
information; or as otherwise required by law. For purposes of this
subparagraph, confidential information is information which is not generally
known to the Company's industry, and relates, by way of example and not by way
of limitation, to the Company's manufacturing process, cost and pricing data,
supply sources, contracts, and customer lists.
SECTION 13. MITIGATION. The Executive shall not be obligated to seek
other employment following termination of employment hereunder; however, any
amounts owing to Executive under Sections 10(a) or 10(e) (other than subsection
(ii) thereof) of this Agreement shall be offset against all amounts earned by
the Executive from other employment (including self employment) beginning one
year after termination of employment hereunder. The Executive's entitlements
under Section 10(e)(ii) shall terminate immediately upon the Executive's
becoming entitled to coverage of a similar nature under benefit plans of a
subsequent employer, subject to the Executive's rights to continuation coverage
under the Company's plans at his expense under COBRA.
SECTION 14. GOLDEN PARACHUTE EXCISE TAX. (a) If any of the payments or
benefits received or to be received by the Executive in connection with a Change
in Control or the Executive's termination of employment (whether pursuant to the
terms of this Agreement or any other plan, arrangement or agreement) (such
payments or benefits, excluding the Gross-Up Payment defined below, being
hereinafter referred to as the "Total Payments") will be subject to the excise
tax imposed under Section 4999 (the "Excise Tax"), then the provisions of either
subclause (i) or (ii) of this section shall apply: (i) if the Total Payments are
less than 115% of the maximum amount of such payments that could be made without
imposition of Excise Tax (the "Safe Harbor Amount"), then the Total Payments
will be reduced to the Safe Harbor Amount; or (ii) if the Total Payments equal
or exceed 115% of the Safe Harbor Amount, the Company shall pay to the Executive
an additional amount (the "Gross-Up Payment") such that the net amount retained
by the Executive, after deduction of any Excise Tax on the Total Payments and
any federal, state and local income and employment taxes and Excise Tax upon the
Gross-Up Payment, shall be equal to the Total Payments.
(b) The calculations necessary to give effect to this section shall be
performed by the accounting firm which was immediately prior to the Change in
Control, the Company's independent auditor (the "Auditor"). For purposes of
determining whether any of the Total Payments will exceed the Safe Harbor Amount
and the amount of the Excise Tax, if any, (i) all of the Total Payments shall be
treated as "parachute payments" (within the meaning of section 280G(b)(2) of the
Code) unless, in the opinion of tax counsel ("Tax Counsel") reasonably
acceptable to the Executive and selected by the Auditor, such payments or
benefits (in whole or in part) do not constitute parachute payments, including
by reason of section 280G(b)(4)(A) of the Code, (ii) all "excess parachute
payments" within the meaning of section 280G(b)(1) of the Code shall be treated
as subject to the Excise Tax unless, in the opinion of Tax Counsel, such excess
parachute payments (in whole or in part) represent reasonable compensation for
services actually rendered (within the meaning of section 280G(b)(4)(B) of the
Code) in excess of the Base Amount allocable to such reasonable compensation, or
are otherwise not subject to the Excise Tax, and (iii) the value of any noncash
benefits or any deferred payment or benefit shall be determined by the Auditor
in accordance with the principles of sections 280G(d)(3) and (4) of the Code.
For purposes of determining the amount of the Gross-Up Payment, the Executive
shall be deemed to pay federal income tax at the highest marginal rate of
federal income taxation in the calendar year in which the Gross-Up Payment is to
be made and state and local income taxes at the highest marginal rate of
taxation in the state and locality of the Executive's residence on the date of
termination of employment, net of the maximum reduction in federal income taxes
which could be obtained from deduction of such state and local taxes.
(c) In the event that subclause (i) of this Section 14(a) applies, the
Executive and the Company shall jointly agree on the allocation of any reduction
in the Total Payments.
(d) The provisions of this Section 14 shall be applied without giving
effect to any cap or limitation on benefits under the Company's Supplemental
Executive Retirement Plan that is intended to avoid Excise Tax, and the Company
hereby waives the application of any such provision to the Executive.
SECTION 15. SUPPLEMENTAL RETIREMENT BENEFITS.
(a) In the event that the Executive's employment is terminated under
circumstances entitling him to the payments and benefits set forth in Section
10(e), the Executive shall be entitled under the Company's Supplemental
Executive Retirement Plan to (i) three years of additional service credit for
vesting purposes; and (ii) three additional years of Company contributions, each
in an amount not less than the Company contribution for the year prior to the
year of termination of employment.
(b) In the event that the Executive's employment is terminated after
the Continuation Period and before the Executive attains age 62 under
circumstances that would have entitled him to the payments and benefits set
forth in Section 10(e) had such termination occurred during the Continuation
Period, the Company (or any successor company) shall treat the Executive as if
he had retired at the time of such termination of employment at age 62 with
thirty (30) years of service and shall supplement the benefits due and payable
to him under the Company's Employees' Retirement Plan and The Gradall Company
Benefit Restoration Plan so that he shall receive total benefits equal to the
benefits he would have received under such plans had he retired at age 62 with
thirty (30) years of service.
SECTION 16. NOTICES. Any notice required or desired to be given pursuant
to this Agreement shall be in writing and sent by certified mail to the parties
at the following addresses, or to such other addresses as either may designate
in writing to the other party:
To the Company: The Gradall Company
406 Mill Avenue S.W.
New Philadelphia, Ohio 44663
To Executive: Bruce A. Jonker
2148 Kimberly Drive N.W.
Dover, Ohio 44622
SECTION 17. WAIVER. Failure to insist upon strict compliance with any of
the terms, covenants, or conditions hereof shall not be deemed a waiver of such
term, covenant, or condition, nor shall any waiver or relinquishment of any
right or power hereunder at any one or more times be deemed a waiver or
relinquishment of such right or power at any other time or times.
SECTION 18. SEVERABILITY. The invalidity or unenforceability of any
provision hereof shall in no way affect the validity or enforceability of any
other provision. In the event that any part of a covenant contained herein is
determined by a court of law to be invalid, a judicially enforceable provision
shall be substituted in its place. Any covenant so modified shall be binding
upon the parties and shall have the same force and effect as if originally set
forth in this Agreement.
SECTION 19. MODIFICATION. This Agreement may be amended only in writing,
signed by both parties hereto.
SECTION 20. HEADINGS. The headings in this Agreement are inserted for
convenience only and are not to be considered a construction of the provisions
thereof.
SECTION 21. ASSIGNMENT. The Executive acknowledges that the services to
be rendered by him are unique and personal. Accordingly, the Executive may not
assign any of his rights or delegate any of his duties or obligations under this
Agreement. However, the rights and obligations of the Company under this
Agreement shall inure to the benefit of and shall be binding upon the successors
and assigns of the Company including, but not limited to, any corporation which
may acquire all or substantially all of the Company's assets and business, or
which may be consolidated or merged with or into the Company.
SECTION 22. GOVERNING LAW. This Agreement shall be construed and enforced
in accordance with the laws of the State of Ohio.
SECTION 23. NOVATION. This Agreement terminates and supersedes the Prior
Employment Agreement.
SECTION 24. ENTIRE AGREEMENT. This Agreement constitutes the entire
understanding and agreement between the Company and the Executive with regard to
all matters herein. There are no other agreements, conditions or
representations, oral or written, express or implied, with regard thereto.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement the day
and year first above written.
THE GRADALL COMPANY
By: /s/ Sangwoo Ahn
Sangwoo Ahn
---------------
Chairman
/s/ Bruce A. Jonker
---------------------
Bruce A. Jonker
GRADALL INDUSTRIES, INC.
1998 STOCK OPTION PLAN
1. General. This Stock Option Plan (the "Plan") provides eligible
-------
employees of Gradall Industries, Inc., a Delaware corporation (the "Company"),
and its subsidiaries with the opportunity to acquire or expand their equity
interest in the Company by making available for purchase shares of Common Stock,
par value $.001 per share, of the Company ("Common Stock"), through the granting
of nontransferable options to purchase shares of Common Stock ("Stock Options").
Stock Options shall be referred to herein as "Grants", and an individual grant
of Stock Options shall be referred to herein as a "Grant".
It is intended that key employees may be granted, simultaneously or from
time to time, Stock Options that qualify as incentive stock options ("Incentive
Stock Options") under Section 422 of the Internal Revenue Code of 1986, as
amended (the "Code"), or Stock Options which do not qualify as Incentive Stock
Options ("Non-Qualified Stock Options"). With respect to Incentive Stock
Options granted under this Plan, the Plan and Option Agreements entered into
pursuant to this Plan shall be administered and construed in a manner consistent
with the requirements of Section 422 of the Code.
The Plan is intended to conform to the extent necessary with all provisions
of the Securities Act of 1933, as amended (the "Securities Act"), the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and any and all
regulations and rules promulgated by the Securities and Exchange Commission
thereunder, including, without limitation, Rule 16b-3. The Plan shall be
administered, and Stock Options shall be granted and may be exercised, only in
such a manner as to conform to such laws, rules and regulations, if applicable.
2. Purpose of the Plan. The purpose of the Plan is to provide
----------------------
continuing incentives to key employees of the Company and its subsidiaries, by
encouraging such key employees to acquire new or additional share ownership in
the Company, thereby increasing their proprietary interest in the Company's
business and enhancing their personal interest in the Company's success. For
purposes of the Plan, a "subsidiary" consists of any corporation fifty percent
(50%) of the stock of which is directly or indirectly owned or controlled by the
Company.
3. Effective Date of the Plan. The Plan shall become effective upon
--------------------------
its adoption by the Board of Directors of the Company (the "Board"), subject to
approval by holders of a majority of the outstanding shares of voting capital
stock of the Company. If the Plan is not so approved within twelve (12) months
after the date the Plan is adopted by the Board, the Plan and any Grants made
hereunder shall be null and void. However, if the Plan is so approved, no
further shareholder approval shall be required with respect to the making of
Grants pursuant to the Plan.
4. Administration of the Plan. The Plan shall be administered by the
--------------------------
Board. Subject to the terms and conditions of the Plan, the Board, shall be
authorized and empowered:
a. To select the key employees to whom Grants may be made;
b. To determine the number of shares of Common Stock to be covered
by any Grant;
c. To prescribe the terms and conditions of any Grants made under
the Plan, and the form(s) and agreement(s) used in connection with such Grants,
which shall include agreements governing the granting of Stock Options which may
provide that the stock which is the subject of any such Grant shall be subject
to the restrictions on transfer contained in any agreement in effect among the
Company and one or more of its stockholders;
d. To determine the time or times when Stock Options will be
granted and when they will terminate in whole or in part;
e. To determine the time or times when Stock Options that are
granted may be exercised; provided, however, that unless the Board specifically
determines otherwise in any individual instance, the standard vesting schedule
for Stock Options granted hereunder shall be three equal yearly installments;
f. To determine, at the time a Stock Option is granted under the
Plan, whether such Stock Option is an Incentive Stock Option entitled to the
benefits of Section 422 of the Code; and
g. To establish any other Stock Option agreement provisions not
inconsistent with the terms and conditions of the Plan or, where the Stock
Option is an Incentive Stock Option, with the terms and conditions of Section
422 of the Code; and
h. Make any other determination and take any other action that the
Board deems necessary or desirable for the administration of the Plan.
5. Employees Eligible for Grants. Grants may be made from time to time
-----------------------------
to those key employees of the Company or its subsidiaries who are designated by
the Board in its sole and exclusive discretion. Key employees may include, but
shall not necessarily be limited to, members of the Board of Directors
(excluding members of the Committee) and officers of the Company and any
subsidiary; however, Stock Options shall be granted to key employees only while
actually employed by the Company or a subsidiary. No Stock Option shall be
granted to any key employee during any period of time when such key employee is
on a leave of absence.
6. Stock Subject to the Plan. The shares to be issued pursuant to any
-------------------------
Grant made under the Plan shall be shares of Common Stock. Either shares of
Common Stock held as treasury stock or authorized and unissued shares of Common
Stock, or both, may be so issued, in such amount or amounts within the maximum
limits of the Plan as the Board shall from time to time determine.
Subject to the provisions of the next succeeding paragraph of this Section
6, the aggregate number of shares of Common Stock that can be actually issued
under the Plan shall be 300,000 shares.
If, at any time subsequent to the adoption of this Plan by the Board the
number of issued and outstanding shares of Common Stock increases or decreases,
or the Common Stock is changed into or exchanged for a different number or kind
of shares of stock or other securities of the Company as a result of a stock
split, stock dividend, combination of shares, reclassification, redesignation,
recapitalization or other similar capital change): (i) there shall automatically
be substituted for each share of Common Stock subject to the Plan and to an
unexercised Stock Option (in whole or in part) granted under the Plan, the
number and kind of shares of stock or other securities into which each share of
outstanding Common Stock shall be changed or for which each such share of Common
Stock shall be exchanged; and (ii) the option price per share of Common Stock or
unit of securities shall be increased or decreased proportionately so that the
aggregate purchase price for the securities subject to a Stock Option shall
remain the same as immediately prior to such event. In addition to the
foregoing, the Board shall be entitled in the event of any such increase,
decrease or exchange of shares of Common Stock to make other adjustments to the
securities subject to a Stock Option, the provisions of the Plan, and to any
related Stock Option agreements (including adjustments which may provide for the
elimination of fractional shares) where necessary (under Section 422(a)(2) of
the Code or otherwise) to preserve the terms and conditions of any Grants
hereunder.
7. Stock Option Provisions.
-------------------------
a. General. The Board may grant to key employees (also referred
-------
to as "optionees") nontransferable Stock Options that qualify as Incentive Stock
Options under Section 422 of the Code or Non-Qualified Stock Options . Stock
Options shall only be granted under this Plan within ten (10) years from the
earlier of (i) the date this Plan is adopted by the Board and (ii) the date this
Plan is approved by the stockholders of the Company.
b. Stock Option Price. The option price per share of Common Stock
------------------
which may be purchased under an Incentive Stock Option under the Plan shall be
determined by the Board at the time of Grant, but shall not be less than one
hundred percent (100%) of the fair market value of a share of Common Stock,
determined as of the date such Option is granted; however, if a key employee to
whom an Incentive Stock Option is granted is, at the time of the grant of such
Option, an "owner" as defined in Section 422(b)(6) of the Code (modified as
provided in Section 424(d) of the Code) of more than ten percent (10%) of the
total combined voting power of all classes of stock of the Company or any
subsidiary (a "Substantial Shareholder"), the price per share of Common Stock of
such Incentive Stock Option, as determined by the Board, shall not be less than
one hundred ten percent (110%) of the fair market value of a share of Common
Stock on the date such Incentive Stock Option is granted. The option price per
share of Common Stock under each Non-Qualified Stock Option granted pursuant to
the Plan shall be determined by the Board at the time of Grant. Except as
specifically provided above, the fair market value of a share of Common Stock
shall be the last reported sales price of the Common Stock as reported by The
Nasdaq National Market on the last business day prior to the date of the Grant.
If the Common Stock is not included in The Nasdaq National Market, the fair
market value of the Common Stock shall be determined in accordance with
procedures to be established by the Board. The day on which the Board approves
the granting of a Stock Option shall be considered the date on which such Option
is granted.
c. Period of Stock Option. The Board shall determine when each
----------------------
Stock Option is to expire. However, no Incentive Stock Option shall be
exercisable after the expiration of ten (10) years from the date upon which such
Option is granted, or five (5) years from the date upon which such Option is
granted, with respect to Incentive Stock Options granted to a Substantial
Shareholder.
d. Limitation on Exercise and Transfer of Stock Options. Only the
----------------------------------------------------
key employee to whom a Stock Option is granted may exercise such Option, except
where a guardian or other legal representative has been duly appointed for such
employee, and except as otherwise provided in the case of such employee's death.
No Stock Option granted hereunder shall be transferable by an optionee other
than by will or the laws of descent and distribution. No Stock Option granted
hereunder may be pledged or hypothecated, nor shall any such Option be subject
to execution, attachment or similar process.
e. Payment for Stock Option Price. A Stock Option shall be
--------------------------------
exercised by an optionee giving written notice to the Company of his intention
to exercise the same, accompanied by full payment of the purchase price in cash
or by check. The Board may, in its sole discretion, approve other methods of
exercise for a Stock Option or payment of the option price, provided that no
such method shall cause any Incentive Stock Option granted under the Plan to not
qualify under Section 422 of the Code, or cause any share of Common Stock issued
in connection with the exercise of an option not to be a fully paid and
non-assessable share of Common Stock.
f. Limitation on Exercisable Stock Option. No Incentive Stock
--------------------------------------
Option shall be granted to any optionee, to the extent that the aggregate fair
market value of the shares of Common Stock subject to such Option and all other
Incentive Stock Options granted to such optionee, which are first eligible for
exercise in any given calendar year, exceeds the sum of One Hundred Thousand
Dollars ($100,000.00). Such aggregate fair market value shall be determined as
of the date such Option is granted, taking into account, in the order in which
granted, any other Incentive Stock Options granted by the Company, or by a
parent or subsidiary thereof.
g. Withholding of Taxes. The Board may, in its sole discretion,
--------------------
require, as a condition to any Grant or to the delivery of certificates for
shares issued thereunder, that the optionee pay to the Company, in cash, any
federal, state or local taxes of any kind required by law to be withheld with
respect to any Grant or any delivery of shares of Common Stock upon exercise
thereof. The Company, to the extent permitted or required by law, shall have
the right to deduct from any payment of any kind (including salary, bonus,
severance of insurance proceeds) otherwise due to an optionee any federal, state
or local taxes of any kind required by law to be withheld with respect to any
Grant or to the delivery of shares of Common Stock under the Plan.
8. Termination of Employment. A Stock Option may be exercised only
-------------------------
while the optionee is an employee of the Company or a subsidiary or within three
(3) months after the termination of employment for any reason other than death,
retirement, "permanent and total disability" (as defined below) or termination
for "cause" (as defined below). Neither the optionee nor any other person shall
have any right after such date to exercise all or any part of his Stock Options
and they shall thereupon be forfeited, declared void and without value, or both.
If termination of employment is due to death or permanent and total
disability, then outstanding Stock Options may be exercised, to the extent they
were exercisable on the date of such termination of employment, within the one
(1) year period ending on the anniversary of such death or permanent and total
disability. If termination of employment is without cause or as a result of
retirement, such Stock Options may be exercised, to the extent they were
exercisable on the date of such termination of employment, within three (3)
months of the date of such termination. In the case of death, such outstanding
Stock Options may be exercised by such optionee's estate, or the person
designated by such optionee by Will, or as otherwise designated by the laws of
descent and distribution. Notwithstanding the foregoing, in no event shall any
Stock Option be exercisable after the expiration of the option period.
For purposes hereof, "permanent and total disability" means a permanent and
total disability as defined in Section 22(e)(3) of the Code. For purposes
hereof, termination for "cause" means termination of the employee's employment
by the Company as a result of (i) conviction of the employee for a felony or for
any crime or offense lesser than a felony involving the property of the Company
or a subsidiary; (ii) conduct by the employee that has caused demonstrable and
serious injury to the Company or a subsidiary, monetary or otherwise; or (iii)
substandard performance, or material misconduct or negligence in the
performance, of the employee's duties in the reasonable judgment of the Board.
9. Merger, Sale, etc. In the event of a merger, consolidation or other
-----------------
corporate reorganization of the Company with respect to which the outstanding
shares of Common Stock of the Company are to be converted into or exchanged for
cash, debt or equity securities or other property, the Company shall pay to each
holder of an outstanding Stock Option on or before the consummation thereof in
cash the amount by which the aggregate value of the consideration receivable in
the transaction by the holder of the number of shares of Common Stock equal to
the number of shares remaining subject to such Stock Option (whether or not then
exercisable) exceeds the aggregate option price of such Stock Option unless (i)
the surviving or acquiring corporation in such merger, consolidation or other
corporate reorganization has agreed to assume such Stock Option or to substitute
a new option therefor in conformity with the requirements of Section 422 and 424
of the Internal Revenue Code and (ii) such holder agrees to such assumption or
substitution.
In the event that (a) the Company sells or otherwise transfers all or
substantially all its assets or (b) all or substantially all the assets of The
Gradall Company are acquired by another corporation or entity (whether by
purchase, merger or otherwise) then, in either of such events, the Company shall
pay to each holder of an outstanding Stock Option on or before the consummation
thereof an amount in cash equal to the product obtained by multiplying (I) the
number of shares remaining subject to such Stock Option (whether or not then
exercisable) by (II) the quotient obtained by dividing (A) the value of the
consideration paid to the Company or The Gradall Company for such assets
(excluding the amount of debt assumed by the acquirer) by (B) the number of
shares of Common Stock of the Company which would then be outstanding (assuming
the exercise of all options, warrants and convertible securities) and
subtracting from the product so obtained the aggregate option price of such
Stock Option, unless (i) the acquiring corporation or entity has agreed to
assume such Stock Option or to substitute a new option therefor in conformity
with the requirements of Section 422 and 424 of the Internal Revenue Code and
(ii) such holder agrees to such assumption or substitution.
10. Change of Control. In the event that (i) the Company is the
-------------------
surviving corporation in a merger, combination or other corporate reorganization
as a result of which less than a majority of the outstanding voting securities
are owned by the persons who were shareholders of the Company immediately prior
to such merger or corporate reorganization, (ii) 25% or more of the outstanding
voting securities of the Company become owned (whether directly, indirectly,
beneficially or of record) by any person or group (within the meaning of Section
13(d) or Section 14(d) of the Securities Exchange Act of 1934), other than MLGA
Fund II, L.P. or a pension, retirement, profit sharing, employee stock ownership
or other employee benefit plan of the Company or an affiliate thereof, and the
percentage of voting securities so owned by such person or group exceeds the
percentage of the Company's outstanding voting securities owned by MLGA Fund II,
L. P. or (iii) during any period of two consecutive years, individuals who at
the beginning of any such period constituted the directors of Company cease for
any reason to constitute a majority thereof (provided, however, that for
purposes of this clause (iii) each new director whose nomination for election
was approved by a vote of at least two-thirds of the directors then still in
office who were directors at the beginning of any such period will be deemed to
have been a director of the Company at the beginning of such period), then in
any of such events each Stock Option which is then outstanding shall immediately
become and be exercisable in full for the remainder of its term, notwithstanding
the subsequent termination by the Company of the optionee's employment with the
Company.
11. Employment by Subsidiary. For purposes of this Plan, employment by
------------------------
a subsidiary of the Company shall be considered employment by the Company. The
term "subsidiary" as used herein shall have the meaning set forth in Section 424
of the Internal Revenue Code or subsequent comparable statute. All references
herein to the provisions of the Internal Revenue Code are references to the
Internal Revenue Code of 1986, as amended, as in effect from time to time.
12. Amendments to Plan. The Board is authorized to interpret this Plan
------------------
and from time to time adopt any rules and regulations for carrying out this Plan
that it may deem advisable. Subject to the approval of the Board, the Board may
at any time amend, modify, suspend or terminate this Plan. In no event,
however, without the approval of the stockholders, shall any action of the Board
or the Board result in:
a. Materially amending, modifying or altering the eligibility
requirements provided in Section 5 hereof;
b. Materially increasing, except as provided in Section 6 hereof,
the maximum number of shares of Common Stock that may be made subject to Grants;
or
c. Materially increasing the benefits accruing to participants
under this Plan;
except to conform this Plan and any agreements made hereunder to changes in the
Code or required by governing law.
13. Investment Representation, Approvals and Listing. The Board may,
------------------------------------------------
if it deems appropriate, condition its grant of any Stock Option hereunder upon
receipt of the following investment representation from the optionee:
"I agree that any shares of Common Stock of Gradall Industries, Inc. which
I may acquire by virtue of this Stock Option shall be acquired for investment
purposes only and not with a view to distribution or resale, and may not be
transferred, sold, assigned, pledged, hypothecated or otherwise disposed of
unless (i) a registration statement or post-effective amendment to a
registration statement under the Securities Act, with respect to said shares of
Common Stock has become effective so as to permit the sale or other disposition
of said shares by me; or (ii) there is presented to Gradall Industries, Inc. an
opinion of counsel satisfactory to Gradall Industries, Inc. to the effect that
the sale or other proposed disposition of said shares of Common Stock may
lawfully be made otherwise than pursuant to an effective registration statement
or post-effective amendment to a registration statement relating to the said
shares under the Securities Act of 1933, as amended."
The Company shall not be required to issue any certificate for shares of
Common Stock upon the exercise of any Stock Option granted under this Plan prior
to (i) the obtaining of any approval from any governmental agency with the Board
shall, in its sole discretion, determine to be necessary or advisable; (ii) the
admission of such shares to listing on any national securities exchange on which
the shares of Common Stock may be listed; (iii) the completion of any
registration or other qualification of the shares of Common Stock under any
state or federal law or ruling or regulations of any governmental body which the
Board shall, in its sole discretion, determine to be necessary or advisable or
the determination by the Board, in its sole discretion, that any registration or
other qualification of the shares of Common Stock is not necessary or advisable;
or (iv) the obtaining of an investment representation from the optionee in the
form stated above or in such other form as the Board, in its sole discretion,
shall determine to be adequate.
14. General Provisions. The form and substance of Stock Option
-------------------
Agreements made hereunder, whether granted at the same or different times, need
not be identical. Nothing in this Plan or in any Stock Option agreement shall
confer upon any employee any right to continue in the employ of the Company or
any of its subsidiaries or to interfere with or limit the right of the Company
or any subsidiary to terminate his employment at any time, with or without
cause. Nothing contained in this Plan or in any Stock Option Agreement shall be
construed as entitling any optionee to any rights of a stockholder as a result
of the grant of Stock Option, until such time as shares of Common Stock are
actually issued to such optionee pursuant to the exercise of such Option. This
Plan may be assumed by the successors and assigns of the Company. The liability
of the Company under this Plan and any sale made hereunder is limited to the
obligations set forth herein with respect to such sale and no term or provision
of this Plan shall be construed to impose any liability on the Company in favor
of any employee (or any other party acting on his behalf or in his stead) with
respect to any loss, cost or expense which such employee or party may incur in
connection with or arising out of any transaction in connection with this Plan.
The cash proceeds received by the Company from the issuance of shares of Common
Stock pursuant to this Plan will be used for general corporate purposes. The
expense of administering this Plan shall be borne by the Company. The captions
and section numbers appearing in this Plan are inserted only as a matter of
convenience. They do not define, limit, construe or describe the scope or
intent of the provisions of this Plan.
15. Provisions Applicable Solely to Insiders. The provisions of this
----------------------------------------
Section 15 shall apply only to persons who are subject to Section 16 of the
Exchange Act with respect to securities of the Company ("Insiders"), and shall
apply to Insiders notwithstanding any provision of the Plan to the contrary. No
Insider shall be permitted to transfer any security of the Company acquired by
him, except to the extent permitted by 17 C.F.R. 240.16a-2(d)(1), upon the
exercise of any Stock Option, until at least six (6) months and one (1) day
after the later of (i) the day on which such Stock Option is granted to the
Insider or (ii) the day on which the exercise or conversion price of such Stock
Option is fixed.
16. Termination of This Plan. This Plan shall terminate on March 24,
------------------------
2008, and thereafter no Stock Options shall be granted hereunder. All Stock
Options outstanding at the time of termination of this Plan shall continue in
full force and effect according to their terms and the terms and conditions of
this Plan.
Gradall Industries, Inc. 1997 Annual Report
GRADALL
a different kind of animal
<PAGE>
Since 1946, Gradall machines have been widely distinguished from all others by
their unique versatility and productivity. Currently marketed worldwide using
the theme "a different kind of animal" graphics created for the current
advertising campaign are featured in this annual report.
<PAGE>
Table of Contents
<TABLE>
<CAPTION>
<S> <C>
Consolidated Financial Highlights. . . . . . . . 4
Letter to Stockholders . . . . . . . . . . . . . 5
Gradall Excavators . . . . . . . . . . . . . . . 6
Gradall Material Handlers. . . . . . . . . . . . 8
Parts and Distribution . . . . . . . . . . . . . 10
Selected Consolidated Financial Data . . . . . . 12
Consolidated Balance Sheets. . . . . . . . . . . 14
Consolidated Statements of Income. . . . . . . . 15
Consolidated Statements of
Changes in Stockholders' Equity. . . . . . . . . 16
Consolidated Statements of Cash Flows. . . . . . 17
Notes to Consolidated Financial Statements . . . 18
Report of Independent Accountants. . . . . . . . 32
Report of Management . . . . . . . . . . . . . . 32
Management's Discussion and Analysis
of Financial Condition and Results of Operations 33
General Information. . . . . . . . . . . . . . . 41
Gradall Replicas . . . . . . . . . . . . . . . . 43
</TABLE>
Gradall Industries, Inc.
<PAGE>
Consolidated
Financial Highlights
(dollars in millions,
except share amounts)
<TABLE>
<CAPTION>
For the Years Ended
1997 1996 1995
------ ------ -------
<S> <C> <C> <C>
Net sales. . . . . . . . . . . . . . . . . . $158.7 $140.9 $118.4
Operating income . . . . . . . . . . . . . . 20.6 17.9 12.8
Income before extraordinary item . . . . . . 12.0 8.3 6.6
Extraordinary loss on
extinguishment of debt, net of tax benefit. - 1.0 -
Net income . . . . . . . . . . . . . . . . . 12.0 7.3 6.6
Earnings per share(1). . . . . . . . . . . . $ 1.33 $ 1.07 $ 0.77
Working capital. . . . . . . . . . . . . . . 26.5 14.9 10.7
Funded debt. . . . . . . . . . . . . . . . . 10.3 7.9 37.9
Shareholders' equity (deficit) . . . . . . . 21.2 9.1 (23.1)
<FN>
(1) Earnings per share data is presented on a diluted basis for 1997 and on a
pro forma basis for 1996 and 1995. See Note 12 to the Consolidated Financial
Statements included herein.
</TABLE>
Gradall Industries, Inc.
4
<PAGE>
TO OUR STOCKHOLDERS
In this, our second annual report to stockholders, Gradall (The "Company") is
extremely pleased to report continued record sales and earnings.
This outstanding performance is the direct result of a strategic plan
emphasizing the continuing introduction of new and uniquely productive machines;
each benefitting by being a "different kind of animal" in their respective
construction equipment markets; each setting new, high standards for quality.
While new product development is pivotal in the strategic plan, our
management blueprint further mandates a strong focus on strengthening
distribution, maximizing production efficiency and continually enhancing product
support programs.
The initial public offering of Gradall Industries, Inc., stock in August
1996, has allowed the Company to substantially reduce debt and interest expense
while negotiating a more favorable bank agreement.
[Picture of Barry L. Phillips, President]
The cumulative effect of all of these actions, combined with the hard work
of Gradall employees, has resulted in record net sales for 1997 totaling $158.7
million, up 12.6 percent over 1996. Record net income was $12 million, up 44.7
percent before an extraordinary item. Basic earnings per share reached $1.34, up
25.2 percent from $1.07, the unaudited pro forma net income per share computed
as though the initial stock offering was effective Jan. 1, 1996.
Impacting both domestic and international sales during 1997 was the wide
acceptance of our new, XL 2200 excavator and the introduction of our
remote-controlled XL 2210 steel mill machine. In 1998 more new excavator models
will be introduced, including a rough terrain wheeled undercarriage telescopic
excavator being unveiled at a major world trade show in Germany.
Our material handler group experienced record sales fueled by growth in
housing and non-residential construction as well as an expansion of the
equipment rental market.
In mid-1997, we introduced the 544D, the first of our new family of
advanced D Series material handlers. Seven more models, completing the D Series
family, were introduced in January 1998, replacing the popular C Series line.
The sale of service parts increased during the year as a result of our program
to aggressively strengthen our distributor support activities. An investment
of $5.3 million in capital equipment during 1997, plus plans to exceed that
level in 1998, are effectively improving operating margins through quality and
manufacturing efficiencies.
All of this puts Gradall in an excellent position for 1998. Now 52 years old,
Gradall continues to benefit from its historic leadership position as an
innovative producer of high quality, uniquely productive machines.
Gradall Industries, Inc. is dedicated to continued growth and the
commitment to increase stockholder value.
/s/ Barry L. Phillips, President
--------------------------------
Barry L. Phillips, President
5
<PAGE>
The Gradall Excavator. Capitalizing of the advantages of being different. A
different kind of animal.
[PICTURE OF XL 2210 EXCAVATOR]
Gradall's new XL 2210 excavator, introduced during
the second half of 1997, is operated with a remote control device.
6
<PAGE>
ESTABLISHING A NEW WORLD STANDARD
FOR EXCAVATOR PERFORMANCE AND VERSATILITY
Gradall continues to dominate the traditional niche market for versatile,
wheeled excavators, while creating new, higher productivity models to increase
sales into non-traditional markets and applications.
[Picture of XL 5100 wheeled excavator.]
Unique in their design, starting with the very first machine in 1946,
Gradall excavators have always distinguished themselves from other machines by
their rotating, telescoping booms.
[Picture of XL 2200 excavator.]
Today, thanks to new innovative high pressure hydraulics and designed-in
strength, XL excavators are now known for their exclusive ability to deliver
traditional Gradall versatility along with a high level of power and speed,
increasing their market potential. The XL Series are able to perform the precise
grading and sloping which launched the Gradall legend, and production work such
as mass excavation and pavement removal, cutting contractor costs by eliminating
the need for multiple machines.
[Picture of XL 2300 excavator.]
The true pioneer among truck mounted excavators, Gradall has always
dominated that niche market in North America. Now, innovations in Gradall
hydraulic power and an increased emphasis on models with rough terrain crawler
undercarriages have allowed the company to show impressive increases in machine
sales while competing with conventional excavator industry giants in the popular
19 to 21 ton and 24 to 28 ton classes.
Identifying the growing demand for specialized excavators, Gradall has
launched a new family of models which is further expanding sales potential
beyond the core market of contractors involved in road construction and repair
or other high productivity work.
The new XL 2200 is popular among contractors who buy or rent the excavator for
jobs requiring smaller, highly versatile machines.
Another new model, the XL 2210, is operated with a remote control device, making
it popular for steel and aluminum metal mill maintenance work as well as
hazardous waste cleanup and other potentially dangerous jobs.
In 1998, the new XL 2300 is being introduced in the U.S. and at a major world
trade show in Europe. Able to efficiently perform specialized digging and
finishing work, the XL 2300 has a rough terrain wheeled undercarriage allowing
it to be driven quickly around jobsites-a unique advantage for both contractors
and governmental agencies.
Additional excavator models will be introduced later this year and in 1999,
aimed at capitalizing on the growing domestic sales potential in core markets;
the need for specialized machines for mining and metal mill work; and
opportunities unfolding as a result of major Gradall initiatives in China,
Russia, South America and elsewhere.
7
<PAGE>
The Gradall D-Series Material Handlers. The Gradall D-Series Material Handlers.
Rugged agility has always set them apart. A different kind of animal.
[PICTURE OF 544D MATERIAL HANDLER]
The 544D, introduced in mid-1997, was the first of Gradall's new D-Series
family of material handlers.
8
<PAGE>
EXTENDING GRADALL'S MARKET SHARE ADVANTAGE
WITH AN ALL-NEW COLLECTION OF MODELS
Gradall has reinforced its strong position in the competitive rough terrain
material handler market by introducing an entirely new family of D Series
handlers. Replacing the highly successful C Series, the new D Series machines
have unique advantages that will provide additional customer benefits in growing
domestic and foreign markets.
[Picture of New D Series operator cab.]
Typically, Gradall material handlers are used to lift, transport and place
brick, lumber, structural steel and other materials on construction, industrial
storage and other work sites. Gradall material handlers can utilize many
attachments, enabling general and masonry contractors to directly profit from
Gradall versatility. Gradall machines can effectively perform many different
jobs and thereby eliminate the cost of buying or renting additional specialized
machines.
[Picture of 534D-9 material handler.]
One of the traditional, key advantages Gradall holds over competitive
models is a unique 90 rear wheel steering design, making them the industry's
most maneuverable machines. Pivoting into position for precise machine movement
and load placement, even on very tight jobsites, our material handlers can
measurably increase productivity through this designed-in maneuverability
advantage. Strength and reliability also are legendary, making Gradall a
preferred brand among national rental companies.
[Picture of Uniquely mobile steering design.]
The eight new D Series models also provide state-of-the-industry operator
protection, new instrumentation, wider seating and excellent visibility in all
directions. The machines are designed for easy operation, shortening the
operator training process and encouraging faster, more efficient work with
advantages like a hydrostatic transmission.
The first of the new D Series models was well received by the industry when it
was introduced in mid-1997. The 544D, literally a giant among material handlers,
has a tremendous 10,000-pound capacity and a maximum lift height of 55 feet.
In January 1998, the introduction of seven more models completed the impressive
new D Series family. Designed for a variety of jobs, they have lift capacities
from 6,000 to 10,000 pounds and maximum lift heights from 24 to 55 feet.
The 524D LoPro is under 7 feet tall and capitalizes on the need for a machine
that can work in limited clearance jobs or move through low doorways. In 1997,
the leading construction equipment publication selected this machine for its
list of the industry's greatest innovations.
Traditionally, Gradall material handlers have been sold primarily in North
America, where a favorable construction market has been forecast. The Company is
accelerating its entry into international markets with recent sales in Korea,
China, Brazil and Russia. Key to this initiative is the establishment of a
global distribution network.
9
<PAGE>
Gradall parts and distribution. A different kind of animal. The extra advantage
from Gradall.
[Picture of World]
10
<PAGE>
THE EXTRA ADVANTAGE FROM GRADALL
Vital to Gradall's continuing growth initiative is our commitment to high
quality distribution and product support programs.
[Picture of Parts]
Dedicated to product support.
To meet that commitment in the core North American market, Gradall has
established a separate network of independent distributors to sell and support
Gradall excavators or material handlers.
[Picture of Plant]
Gradall's 430,000 sq. ft. plant.
Distributor selection is based on various criteria including financial
strength; commitment to promoting and selling Gradall products; after-sale
service, location of branches; and reputation among key sales or rental
prospects in the distributor's territory.
[Picture of Parts]
Many parts available in kit form.
To work closely with those distributors, Gradall has expanded its staff of
regional product support managers. Through these managers as well as through
direct communications with the Gradall factory, distributors are able to receive
fast, efficient technical support for sales and service, maintaining a high
level of customer satisfaction.
Gradall also maintains a dedicated training center adjacent to the
manufacturing plant, providing distributor personnel and owner-operators with
up-to-date training on preventive maintenance and service as well as safe
efficient, operation techniques.
Typically, excavator distributors selected for each state or region are the
leading suppliers of equipment to state and local governments or contractors
involved in road construction and maintenance, excavation and other earth moving
projects.
Likewise, an important factor to consider in the selection of Gradall material
handler distributors is their regional importance in the sale, rental or
rent-to-sell of equipment to building contractors.
In accordance with Gradall's global growth initiative, we have also increased
our commitment to worldwide distribution. Comprehensive sales channels have been
established to facilitate marketing activities into Russia, South America, the
Middle East, the Pacific Rim and other promising world markets. At the same
time, cooperative selling relationships have been established with major
equipment agents in key regions throughout the world.
11
<PAGE>
Selected Consolidated
Financial Data
(dollars in thousands,
except share amounts)
The following table sets forth selected consolidated financial data for
the Company for the five years ended December 31, 1997 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."
<TABLE>
<CAPTION>
For the Years Ended December 31,
--------------------------------
1993(7) 1994(7) 1995 1996 1997
<S> <C> <C> <C> <C> <C>
Income Statement Data:
- - -------------------------------------------------------------------------------------------------
Net sales . . . . . . . . . . . . . $ 72,208 $ 88,820 $ 118,438 $ 140,909 $ 158,659
Cost of sales . . . . . . . . . . . 59,274 71,280 92,637 108,098 120,663
Gross profit. . . . . . . . . . . . 12,934 17,540 25,801 32,811 37,996
----------- ----------- ----------- --------- ----------
Research and development and
product engineering costs . . . 1,848 2,123 2,504 3,081 3,644
Selling, general and
administrative expenses . . . . . 9,307 9,346 10,503 11,815 13,712
----------- ----------- ----------- --------- ----------
Operating income. . . . . . . . . . 1,779 6,071 12,794 17,915 20,640
Amortization of FAS 106(1). . . . . (3,626)
Interest expense. . . . . . . . . . 1,055 1,146 1,642 3,108 696
Other, net. . . . . . . . . . . . . (549) 234 865 1,018 257
----------- ----------- ----------- --------- ----------
Income before provision for taxes,
extraordinary item and change
in accounting . . . . . . . . . . 1,273 8,317 10,287 13,789 19,687
Income tax provision. . . . . . . . 550 3,152 3,680 5,503 7,696
----------- ----------- ----------- --------- ----------
Income before extraordinary item
and change in accounting. . . . . 723 5,165 6,607 8,286 11,991
Extraordinary item(2) . . . . . . . 973
Change in accounting
loss(3) . . . . . . . . . . . . . 9,014
----------- ----------- ----------- --------- ----------
Net income (loss)(4). . . . . . . . $ (8,291) $ 5,165 $ 6,607 $ 7,313 $ 11,991
----------- ----------- ----------- --------- ----------
Earnings per share(5)
Basic:
Before extraordinary item . . . . $ 1.17 $ 1.19 $ 1.34
After extraordinary item. . . . . 1.17 1.05 1.34
Weighted average shares
outstanding . . . . . . . . . . 5,637,244 6,956,507 8,939,605
Diluted:
Before extraordinary item . . . . $ 1.17 $ 1.18 $ 1.33
After extraordinary item. . . . . 1.17 1.04 1.33
Weighted average shares
outstanding. . . . . . . . . . 5,637,244 7,003,200 9,013,760
Pro forma(6)
Net income per share. . . . . . . $ 0.77 $ 1.07
Weighted average shares
outstanding . . . . . . . . . . 8,939,294 8,939,294
Balance Sheet Data:
- - -------------------------------------------------------------------------------------------------
Working capital . . . . . . . . . . $ 150 $ 2,472 $ 10,735 $ 14,907 $ 26,509
Total assets. . . . . . . . . . . . 38,210 41,099 52,024 58,226 76,735
Total debt. . . . . . . . . . . . . 15,151 11,234 37,922 7,910 10,312
Stockholders' (deficit) equity. . . (7,572) (2,158) (23,119) 9,076 21,219
<FN>
Gradall Industries, Inc.
12
<PAGE>
Selected Consolidated
Financial Data
(continued)
(1) The FAS 106 gain 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 item of $1.0 million, net of taxes, related to early
extinguishment of senior and subordinated debt which 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 a $9.0 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 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 occurred effective January 1,
1995. Pro forma net income per share data does not include the extraordinary
item.
(7) Excludes former wholly owned subsidaries of the Company which were spun
off to certain shareholders in connection with a Recapitalization which occured
in October 1995. See Note 1 to the Consolidated Financial Statements included
herein.
</TABLE>
Gradall Industries, Inc.
13
<PAGE>
Consolidated
Balance
Sheets
(dollars in thousands
except share amounts)
<TABLE>
<CAPTION>
December 31,
--------------------
ASSETS 1997 1996
- - ------------------------------------------------- --------- ---------
<S> <C> <C>
Current assets:
Cash. . . . . . . . . . . . . . . . . . . . . . $ 1,605 $ 215
Accounts receivable - trade,
net of allowance for doubtful
accounts of $56 and $76 . . . . . . . . . . . 25,290 16,846
Inventories . . . . . . . . . . . . . . . . . . 25,564 21,326
Prepaid expenses and deferred charges . . . . . 1,645 495
Deferred income taxes . . . . . . . . . . . . . 742 1,151
--------- ---------
Total current assets . . . . . . . . . . . 54,846 40,033
Deferred income taxes . . . . . . . . . . . . . . 5,402 5,257
Property, plant and equipment, net. . . . . . . . 15,108 11,535
Other assets:
Deferred financing costs, net of
accumulated amortization of $404 and $242 . . 446 608
Other . . . . . . . . . . . . . . . . . . . . . 933 793
--------- ---------
Total other assets . . . . . . . . . . . . 1,379 1,401
--------- ---------
Total assets . . . . . . . . . . . . . . . $ 76,735 $ 58,226
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Capital lease obligation, current portion . . . $ 297 $ 174
Accounts payable - trade. . . . . . . . . . . . 17,113 13,405
Accrued other expenses:
Legal . . . . . . . . . . . . . . . . . . . . 452 1,800
Floor plan interest . . . . . . . . . . . . . 1,444 851
Warranty. . . . . . . . . . . . . . . . . . . 1,075 1,225
Income taxes. . . . . . . . . . . . . . . . . 1,115 1,333
Other . . . . . . . . . . . . . . . . . . . . 6,841 6,338
--------- ---------
Total current liabilities. . . . . . . . . 28,337 25,126
--------- ---------
Long term obligations:
Capital lease obligation,
net of current portion. . . . . . . . . . . . 412 445
Long-term debt. . . . . . . . . . . . . . . . . 9,603 7,291
Accrued post-retirement benefit cost. . . . . . 15,719 14,604
Other long term liabilities . . . . . . . . . . 1,445 1,684
--------- ---------
Total long term obligations. . . . . . . . 27,179 24,024
--------- ---------
Total liabilities. . . . . . . . . . . . . 55,516 49,150
--------- ---------
Stockholders' equity:
Common stock, $.001 par value;
18,000,000 shares authorized; 8,940,194
and 8,939,294 issued and outstanding in
1997 and 1996, respectively . . . . . . . . . 9 9
Serial preferred shares, par value $.001
per share 2,000,000 shares authorized,
none issued and outstanding
Additional paid-in capital. . . . . . . . . . . 38,894 38,907
Accumulated deficit . . . . . . . . . . . . . . (17,684) (29,840)
--------- ---------
Total stockholders' equity . . . . . . . . 21,219 9,076
--------- ---------
Total liabilities and stockholders' equity $ 76,735 $ 58,226
========= =========
<FN>
The accompanying notes are an integral part of these consolidated financial
statements.
</TABLE>
Gradall Industries, Inc.
14
<PAGE>
Consolidated
Statements
of
Income
(dollars in thousands
except share amounts)
<TABLE>
<CAPTION>
For the Years Ended December 31,
----------------------------------
1997 1996 1995
- - ------------------------------------------------ ---------- ----------
<S> <C> <C> <C>
Net sales. . . . . . . . . . . . . . $ 158,659 $ 140,909 $ 118,438
Cost of sales. . . . . . . . . . . . 120,663 108,098 92,637
---------- ---------- ----------
Gross profit . . . . . . . . 37,996 32,811 25,801
Research and development and product
engineering costs. . . . . . . . . 3,644 3,081 2,504
Selling general and
administrative expenses. . . . . . 13,712 11,815 10,503
---------- ---------- ----------
Operating income . . . . . . . . 20,640 17,915 12,794
Other expense:
Interest expense . . . . . . . . . 696 3,108 1,642
Other. . . . . . . . . . . . . . . 257 1,018 865
---------- ---------- ----------
Net other expense. . . . . . . . 953 4,126 2,507
---------- ---------- ----------
Income before income taxes
and extraordinary item . . . . 19,687 13,789 10,287
Income tax provision . . . . . . . . 7,696 5,503 3,680
---------- ---------- ----------
Income before extraordinary item . . 11,991 8,286 6,607
---------- ---------- ----------
Extraordinary item, loss from early
extinguishment of debt, net of
income tax benefit of $622 . . . . 973
---------- ---------- ----------
Net income . . . . . . . . . . . . . $ 11,991 $ 7,313 $ 6,607
========== ========== ==========
Basic:
Weighted average shares outstanding. 8,939,605 6,956,507 5,637,244
Earnings per share:
Before extraordinary item. . . . . $ 1.34 $ 1.19 $ 1.17
After extraordinary item . . . . . $ 1.34 $ 1.05 $ 1.17
Diluted:
Weighted average shares outstanding. 9,013,760 7,003,200 5,637,244
Earnings per share:
Before extraordinary item. . . . . $ 1.33 $ 1.18 $ 1.17
After extraordinary item . . . . . $ 1.33 $ 1.04 $ 1.17
<FN>
The accompanying notes are an integral part of these consolidated financial
statements.
</TABLE>
Distribution of 1997 Sales
Excavators. . . . 36%
Material Handlers 53%
Service Parts . . 11%
Gradall Industries, Inc.
15
<PAGE>
Consolidated
Statements
of
Changes
in
Stockholders'
Equity
(dollars in thousands)
<TABLE>
<CAPTION>
Additional
Additional Paid-In
Common Preferred Paid-In Capital- Accumulated
Stock Stock Capital Warrants Deficit Total
- - ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
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
Additional expense
resulting from the initial
public offering. . . . . . (19) (19)
Stock options
exercised. . . . . . . . . 6 6
Net income . . . . . . . . . 11,991 11,991
Change in unfunded
pension obligation . . . . 165 165
------------ ---------- --------- ---------- ------------- ---------
Balance December 31, 1997. . . $ 9 $ $ 38,894 $ $ (17,684) $ 21,219
============ ========== ========= ========== ============= =========
<FN>
The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
Gradall Industries, Inc.
16
<PAGE>
Consolidated
Statements
of
Cash Flows
(dollars in thousands)
<TABLE>
<CAPTION>
For the Years Ended December 31,
1997 1996 1995
-------- --------- ---------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income. . . . . . . . . . . . . . . . . . . . . . . . . . $11,991 $ 7,313 $ 6,607
Adjustments to reconcile net income
to net cash provided by operating activities:
Extraordinary item, before tax benefit. . . . . . . . . . . 1,595
Change in unfunded pension obligation . . . . . . . . . . . 165 (34)
Post-retirement benefit transition obligation . . . . . . . 1,115 780 779
Depreciation. . . . . . . . . . . . . . . . . . . . . . . . 1,721 1,391 1,081
Amortization. . . . . . . . . . . . . . . . . . . . . . . . 157 344 125
Deferred income taxes . . . . . . . . . . . . . . . . . . . 264 106 (1,161)
Equity loss on investment . . . . . . . . . . . . . . . . . 44 43
(Gain) loss on sale of property, plant and equipment. . . . (1) (111) 41
Increase in accounts receivable . . . . . . . . . . . . . . (8,444) (4,710) (492)
Increase in inventory . . . . . . . . . . . . . . . . . . . (4,238) (2,816) (3,618)
Increase in prepaid expenses. . . . . . . . . . . . . . . . (1,150) (51) (157)
(Increase) decrease in other assets . . . . . . . . . . . . (135) (152) 13
Increase in accounts payable and accrued expenses . . . . . 2,204 3,941 3,417
Increase (decrease) in accrued other long-term liabilities. (239) 28 203
-------- --------- ---------
Net cash provided by operating activities . . . . . 3,410 7,668 6,881
-------- --------- ---------
Cash flows from investing activities:
Proceeds from sale of property, plant and equipment . . . . . 12 104 30
Purchase of property, plant and equipment . . . . . . . . . . (5,305) (2,300) (4,189)
-------- --------- ---------
Net cash used in investing activities . . . . . . . . (5,293) (2,196) (4,159)
-------- --------- ---------
Cash flows from financing activities:
Net proceeds from initial public offering . . . . . . . . . . 26,916
Payment of term debt. . . . . . . . . . . . . . . . . . . . . (10,000)
Payment of subordinated debt. . . . . . . . . . . . . . . (10,000)
Issuance of 900 common shares . . . . . . . . . . . . . . . . 6
Issuance of 4,570,500 common shares . . . . . . . . . . . . . 10,500
Redemption of preferred stock . . . . . . . . . . . . . . . . (2,000)
Issuance of 554,000 common shares to employees. . . . . . . . 1,500
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)
Proceeds (repayments) on capital leases . . . . . . . . . . 90 (172) (102)
Net advances (repayments) on revolving line of credit . . . . 2,312 (10,808) (825)
Proceeds from (payments of) bank overdraft. . . . . . . . . . 884 (730) 689
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . (19)
-------- --------- ---------
Net cash provided by (used in) financing activities 3,273 (6,794) (1,345)
-------- --------- ---------
Net increase (decrease) in cash . . . . . . . . . . 1,390 (1,322) 1,377
-------- --------- ---------
Cash, beginning of year . . . . . . . . . . . . . . . . . . . . 215 1,537 160
-------- --------- ---------
Cash, end of year . . . . . . . . . . . . . . . . . . . . . . . $ 1,605 $ 215 $ 1,537
======== ========= =========
Supplemental disclosure:
Cash paid for:
Income taxes. . . . . . . . . . . . . . . . . . . . $ 7,650 $ 2,875 $ 4,460
======== ========= =========
Interest. . . . . . . . . . . . . . . . . . . . . . $ 604 $ 3,572 $ 1,029
======== ========= =========
Other:
Amounts financed through capital leases . . . . . . $ 287 $ 476
======== ========= =========
<FN>
The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
Gradall Industries, Inc.
17
<PAGE>
Notes
to
Consolidated
Financial
Statements
(dollars in thousands)
1. NATURE OF BUSINESS AND BASIS OF PRESENTATION:
Gradall Industries, Inc. (the "Company"), Incorporated in Deleware 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. The Gradall Investment Company was
dissolved in 1996.
The Gradall Company manufacturers and sells excavating and material handling
equipment to public and private sector customers throughout the world through
independent 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:
<TABLE>
<CAPTION>
<S> <C>
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
</TABLE>
Gradall Industries, Inc.
18
<PAGE>
Notes
to
Consolidated
Financial
Statements
(continued)
(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 for the year ended December 31, 1995 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:
<TABLE>
<CAPTION>
<S> <C>
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
=======
</TABLE>
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:
<TABLE>
<CAPTION>
<S> <C>
Repay outstanding term debt . . . $ 9,550
Repay subordinate debt. . . . . . 10,000
Redeem preferred stock. . . . . . 2,000
Reduce revolving credit liability 5,379
</TABLE>
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.
Gradall Industries, Inc.
19
<PAGE>
Notes
to
Consolidated
Financial
Statements
(continued)
(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.
SOURCE OF SUPPLY OF LABOR: Virtually all of the Company's hourly employees are
represented by the International Association of Machinists and Aerospace Workers
under a three-year contract which expires April 16, 2000.
REVENUE RECOGNITION: The Company's revenue recognition policy is to recognize
revenue when products are shipped.
PRODUCT FINANCING: The Company provides its distributors with product financing
through agreements with third party financing companies. Such financings include
a Wholesale Floor Plan for distributors and a Retail Finance Plan for end-users,
each with reduced interest rates subsidized by the Company, and a Rental Plan
for distributors.
PRODUCT WARRANTY COSTS: In general, the Company provides warranty on equipment
for a period of up to twelve months or for a specified period of use after sale
or rental by the distributor. Reserves for estimated warranty costs are
established at the time of sale.
INVENTORIES: Inventories are stated at cost not in excess of market value using
the last-in, first-out (LIFO) method of inventory costing. Inventory cost
includes materials, direct labor, manufacturing overhead, and outside service
costs. Market value is determined by comparison with recent purchases or
realizable value.
PROPERTY, PLANT AND EQUIPMENT: Expenditures for property, plant and equipment
and for renewals and betterments which extend the originally estimated economic
lives of assets are capitalized at cost. Expenditures for maintenance and
repairs are charged to expense. Items which are sold, retired, or otherwise
disposed of are removed from the asset and accumulated depreciation accounts and
any gains or losses are reflected in income. The Company's depreciation and
amortization methods are as follows:
<TABLE>
<CAPTION>
Description Useful Life Method
- - -------------------------- ----------- -------------
<S> <C> <C>
Machinery and equipment. . 3-10 years Straight-line
Buildings and improvements 10-24 years Straight-line
Furniture and fixtures . . 3-10 years Straight-line
</TABLE>
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.
Gradall Industries, Inc.
20
<PAGE>
Notes
to
Consolidated
Financial
Statements
(continued)
(dollars in thousands)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED:
INCOME TAXES: The Company follows the provisions of Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes". Deferred income
taxes arise from reporting certain items of income and expense for tax purposes
in a different period than for financial reporting purposes. 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.
RESEARCH AND DEVELOPMENT COSTS: Expenditures relating to the development of new
products and processes, including significant improvements to existing products,
are expensed as incurred. Research and development expenses were $1,722, $1,641
and $1,209 in 1997, 1996 and 1995, respectively. In addition, the Company
incurred other engineering expenses relating to new product development (that do
not meet the accounting definition of "Research and Development") in the amount
of $1,922, $1,440 and $1,295 in 1997, 1996 and 1995, respectively.
STOCK BASED COMPENSATION: The Company accounts for stock based compensation
awards pursuant to Accounting Principles Board Opinion No. 25, "Accounting for
Stock Issued to Employees," and its related interpretations which prescribe the
use of the intrinsic value based method. Accordingly, no compensation cost has
been recognized for its fixed stock option plans. However, the Company has
adopted the disclosure requirements of Statement of Financial Accounting
Standards No. 123, "Accounting for Stock Based Compensation," See Note 10 for
additional information.
PER SHARE DATA: The Company adopted Statement of Accounting Standards ("SFAS")
No. 128, "Earnings Per Share", in the fourth quarter of 1997. The impact of
implementing SFAS No. 128 is discussed in Note 14 to the Consolidated Financial
Statements.
RECLASSIFICATIONS: Certain 1996 and 1995 balances have been reclassified to
conform to the current year's presentation.
3. INVENTORIES:
Inventories are comprised of:
<TABLE>
<CAPTION>
1997 1996
- - -----------------------------------
<S> <C> <C>
Raw materials . . $ 921 $ 1,167
Work in process . 24,739 18,402
Finished goods. . 5,474 7,187
------- -------
31,134 26,756
Less LIFO reserve 5,570 5,430
------- -------
Total inventory . $25,564 $21,326
======= =======
</TABLE>
Gradall Industries, Inc.
21
<PAGE>
Notes
to
Consolidated
Financial
Statements
(continued)
(dollars in thousands)
4. PROPERTY, PLANT AND EQUIPMENT:
The major classes of property, plant and equipment are summarized as follows:
<TABLE>
<CAPTION>
1997 1996
- - ---------------------------------------------------
<S> <C> <C>
Land. . . . . . . . . . . . . . . $ 513 $ 513
Machinery and equipment . . . . . 16,910 14,836
Buildings and improvements. . . . 5,587 5,587
Furniture and fixtures. . . . . . 2,277 1,652
Construction in progress. . . . . 4,109 1,380
------- -------
29,396 23,968
Less accumulated depreciation . . 14,288 12,433
------- -------
Net property, plant and equipment $15,108 $11,535
======= =======
</TABLE>
5.LONG-TERM DEBT:
Long term debt includes:
<TABLE>
<CAPTION>
1997 1996
- - --------------------------------
<S> <C> <C>
Revolving credit $9,603 $7,291
</TABLE>
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, 1997, the prime rate was 8.5%, LIBOR was 5.97%, and
the average annual interest rate in effect for the revolving line of credit was
7.86%. At December 31, 1996, the prime rate was 8.25%, LIBOR was 5.66%, and the
average annual interest rate in effect for the revolving line of credit was
9.94%. The Company also pays an unused line fee of 0.25percent 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.
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.
Gradall Industries, Inc.
22
<PAGE>
Notes
to
Consolidated
Financial
Statements
(continued)
(dollars in thousands)
6. LEASE OBLIGATIONS, CONTINUED:
The following is a summary of property held under capital leases:
<TABLE>
<CAPTION>
1997 1996
- - ---------------------------------------------
<S> <C> <C>
Machinery and equipment . . . $1,020 $1,020
Information systems . . . . . 287
------ ------
Total capital leases. . . . . 1,307
Less accumulated depreciation 364 230
------ ------
$ 943 $ 790
====== ======
</TABLE>
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, 1997:
<TABLE>
<CAPTION>
Capital Operating
Leases Leases
-------- ----------
<S> <C> <C>
Year ending December 31,
1998 . . . . . . . . . . . . . . . . . $ 341 $ 117
1999 . . . . . . . . . . . . . . . . . 201 67
2000 . . . . . . . . . . . . . . . . . 247 31
2001 . . . . . . . . . . . . . . . . . 18
2002 . . . . . . . . . . . . . . . . . 14
-------- ----------
Total minimum lease payments . . . . . 789 $ 247
-------- ==========
Interest . . . . . . . . . . . . . . . 80
--------
Liability under capital lease payments 709
Current portion. . . . . . . . . . . . 297
--------
Long-term capitalized lease obligation $ 412
========
<FN>
Rental expense for operating leases amounted to $409, $397, and $319 for the
years ended December 31, 1997, 1996 and 1995, respectively.
</TABLE>
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. Prior to March 24, 1997 the Company sponsored two plans, one for
members of the collective bargaining unit and one for salaried and other
eligible employees.
Benefits paid under the collective bargaining unit plan are based on a benefit
multiplier times years of credited service, reduced by benefits under a prior
plan. Such prior plan benefits are guaranteed under the terms of group annuity
contracts. Benefits paid under the salary plan are based on the greater of a
benefit multiplier times years of credited service or a percentage of
pre-retirement earnings. Pension costs are funded as actuarially determined and
to the extent cash contributions are deductible for federal income tax purposes.
The collective bargaining unit plan uses the entry age normal actuarial cost
method to determine annual contributions to the plan. The salary plan uses the
unit credit actuarial cost method to determine contributions.
Effective March 24, 1997 the Company adopted the IAM National Pension Plan to
replace the existing collective bargaining unit plan for future service
benefits. The collective bargaining unit plan benefits were frozen and the
Company continues to fund the plan for past service benefits. The expense
related to funding the IAM National Pension Plan from March 24, 1997 to December
31, 1997 was $254.
Gradall Industries, Inc.
23
<PAGE>
Notes
to
Consolidated
Financial
Statements
(continued)
(dollars in thousands)
7. EMPLOYEE BENEFIT PLANS, CONTINUED:
The components of net periodic pension cost for the years ended December 31,
1997, 1996 and 1995 are as follows:
<TABLE>
<CAPTION>
1997 1996 1995
- - ------------------------------------------------------------
<S> <C> <C> <C>
Service cost. . . . . . . . . $ 505 $ 693 $ 566
Interest cost . . . . . . . . 819 738 644
Actual return of plan assets. (1,838) (1,118) (1,399)
Net amortization and deferral 1,117 532 943
Curtailment under FAS 88. . . 17
-------- -------- --------
Total pension cost. . . . . . $ 620 $ 845 $ 754
======== ======== ========
</TABLE>
The funded status of the plans as of December 31, 1997 and 1996 are as follows:
<TABLE>
<CAPTION>
1997 1996
- - --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Collective Collective
Bargaining Salaried Bargaining Salaried
Unit Plan Plan Unit Plan Plan
Accumulated benefit obligation:
Vested . . . . . . . . . . . . . . . . . . $ 6,193 $ 3,808 $ 5,612 $ 3,129
Nonvested. . . . . . . . . . . . . . . . . 733 372 699 276
------------ ----------- ---------- --------
6,926 4,180 6,311 3,405
============ =========== ========== ========
Projected benefit obligation. . . . . . . . . 6,926 5,711 6,311 4,679
Plan assets at fair value, primarily
stock and bond funds. . . . . . . . . . . . 6,360 4,837 5,213 3,867
------------ ----------- ---------- --------
Projected benefit obligation in
excess of plan assets . . . . . . . . . . . 566 874 1,098 812
Unrecognized net asset. . . . . . . . . . . . 1
Unrecognized net loss . . . . . . . . . . . . 980 247 1,154 218
Unrecognized prior service cost . . . . . . . 108 17 118
------------ ----------- ---------- --------
(Prepaid asset) pension liability
recognized in other current assets
and other current liabilities, respectively $ (414) $ 519 $ (73) $ 475
============ =========== ========== ========
</TABLE>
The actuarial assumptions used were as follows:
<TABLE>
<CAPTION>
1997 1996 1995
- - ----------------------------------------------------------------
<S> <C> <C> <C>
Discount rate . . . . . . . . . . . . . . . 7.0% 7.5% 7.5%
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%
</TABLE>
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 $980 and $1,171 at December 31,
1997 and 1996, respectively, has been included in other long-term liabilities
and an intangible pension asset of $17 at December 31, 1996 has been 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.
Gradall Industries, Inc.
24
<PAGE>
Notes
to
Consolidated
Financial
Statements
(continued)
(dollars in thousands)
7. EMPLOYEE BENEFIT PLANS, CONTINUED:
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 and a key
employee 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.
The components of periodic net post-retirement benefit cost for the years ended
December 31, 1997, 1996 and 1995 are as follows:
<TABLE>
<CAPTION>
1997 1996 1995
- - -----------------------------------------------------------------
<S> <C> <C> <C>
Service cost. . . . . . . . . . . . . . . $ 584 $ 539 $ 393
Interest cost . . . . . . . . . . . . . . 1,232 1,143 1,098
Amortization of loss. . . . . . . . . . . 34 17
------ ------ ------
Net periodic post retirement benefit cost $1,850 $1,699 $1,491
====== ====== ======
</TABLE>
The following table displays the plans' funded status at December 31, 1997 and
1996 based on the most recent actuarial analysis at December 31, 1997 and 1996:
<TABLE>
<CAPTION>
1997 1996
- - ----------------------------------------------------------------------
<S> <C> <C>
Accumulated post-retirement benefit obligations:
Retirees . . . . . . . . . . . . . . . . . . . . $ 8,586 $ 7,155
Fully-eligible active plan participants. . . . . 4,371 4,401
Other active plan participants . . . . . . . . . 5,917 4,959
-------- --------
Total. . . . . . . . . . . . . . . . . . . . . . . $18,874 $16,515
======== ========
Plan assets at fair value. . . . . . . . . . . . . $ - $ -
Accumulated post-retirement benefit obligation
in excess of assets. . . . . . . . . . . . . . . 18,874 16,515
Unrecognized net actuarial loss. . . . . . . . . . (3,155) (1,911)
-------- --------
Accrued post-retirement benefit cost . . . . . . . $15,719 $14,604
======== ========
</TABLE>
Gradall Industries, Inc.
25
<PAGE>
Notes
to
Consolidated
Financial
Statements
(continued)
(dollars in thousands)
7. EMPLOYEE BENEFIT PLANS, CONTINUED:
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 5.0% by 2011 and remain constant
thereafter. The weighted average discount rate used in determining the
Accumulated Post-retirement Benefit Obligation was 7.0% and 7.5% respectively at
December 31, 1997 and 1996.
If the health care cost trend rate were increased 1%, the Accumulated
Post-Retirement Obligation as of December 31, 1997 would have increased by
$2,627 and the effect of this change on the aggregate of service and interest
costs for 1997 would be an increase of $157 and $155, respectively.
8. INCOME TAXES:
The provision for income taxes for the years ended December 31, 1997, 1996 and
1995 consisted of the following:
<TABLE>
<CAPTION>
1997 1996 1995
- - ------------------------------------------------------
<S> <C> <C> <C>
Federal. . . . . . . . . . . $6,327 $3,433 $ 3,888
State. . . . . . . . . . . . 1,105 642 849
Deferred . . . . . . . . . . 264 806 (1,057)
------ ------ --------
7,696 4,881 3,680
Tax effect of extraordinary
item (shown separately). . 622
------ ------ --------
$7,696 $5,503 $ 3,680
====== ====== ========
</TABLE>
The Company's effective tax rate differed from the federal statutory rate as
follows:
<TABLE>
<CAPTION>
1997 1996 1995
- - -----------------------------------------------------
<S> <C> <C> <C>
Federal statutory rate. . . . . 35.0% 35.0% 34.0%
Effect of state and local taxes 3.7% 3.6% 4.8%
Change in tax liability . . . . - - (3.0)%
Other . . . . . . . . . . . . . 0.4% 1.4% -
----- ----- ------
39.1% 40.0% 35.8%
===== ===== ======
</TABLE>
The components of the net deferred tax benefits (liabilities) as of December 31,
1997 and 1996 were as follows:
<TABLE>
<CAPTION>
1997 1996
- - ---------------------------------------------------------
<S> <C> <C>
Current:
Inventories. . . . . . . . . . . . $ (705) $ (762)
Accrued expenses . . . . . . . . . 1,628 1,882
Other. . . . . . . . . . . . . . . (181) 31
-------- --------
$ 742 $ 1,151
======== ========
Long-term:
Basis of property and equipment. . $(1,618) $(1,393)
Post-retirement benefits liability 6,420 5,964
Accrued expenses . . . . . . . . . 600 686
-------- --------
$ 5,402 $ 5,257
======== ========
</TABLE>
Gradall Industries, Inc.
26
<PAGE>
Notes
to
Consolidated
Financial
Statements
(continued)
(dollars in thousands)
8. INCOME TAXES, CONTINUED:
The sources of timing differences and the related deferred tax effects were as
follows:
<TABLE>
<CAPTION>
1997 1996 1995
- - ------------------------------------------------------------
<S> <C> <C> <C>
Accrued expenses . . . . . . . . . $ 340 $ 970 $ (577)
Post-retirement benefits liability (456) (318) (308)
Depreciation . . . . . . . . . . . 225 212 84
Inventory. . . . . . . . . . . . . (57) (52) 20
Other. . . . . . . . . . . . . . . 212 (6) (276)
------ ------ --------
$ 264 $ 806 $(1,057)
====== ====== ========
<FN>
Valuation allowances are established when necessary to reduce deferred tax
assets to the amounts expected to be realized.
</TABLE>
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, 1997 and 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 a qualified incentive stock
option program under which 315,226 shares of the Company's common stock are
reserved for grants to key employees (The "1995 Stock Option Plan"). The option
price is to be determined by the Board, but may not be less than 100% of the
fair market value of the Company's common stock at the time of the grant and
options must be exercised within ten years from the date of grant. The options
vest and become excercisable in three annual installments commencing on the
first anniversary of the date of the grant. On June 3, 1997, the stockholders
approved an amendment to the 1995 Stock Option Plan increasing the number of
shares of the Company's common stock reserved for grants under the program to
515,226.
Gradall Industries, Inc.
27
<PAGE>
Notes
to
Consolidated
Financial
Statements
(continued)
(dollars in thousands)
10. STOCK OPTIONS, CONTINUED:
The following summarizes the changes in the number of Common Shares under
option:
<TABLE>
<CAPTION>
(Options in thousands) 1997 1996 1995
- - -----------------------------------------------------------------------------
<S> <C> <C> <C>
Options outstanding at beginning of year. 278 132 -
Options granted during the year . . . . . 237 151 132
Options exercised during the year . . . . (1) - -
Options canceled during the year. . . . . - (5) -
------------- ------------ -----
Options outstanding at end of year. . . . 514 278 132
============= ============ =====
Option price range per share. . . . . . . $2.71-$13.75 $2.71-$6.32 $2.71
<FN>
The Company's current option plans, which provide for a total of 514 options,
have no options remaining for future grants at December 31, 1997.
</TABLE>
The ranges of exercise prices and the remaining contractual life of options as
of December 31, 1997 were:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
- - ----------------------------------------- ----- ----- ---------
Range of exercise prices: . . . . . . . . $2.71 $6.32 $12-13.75
- - ----------------------------------------- ----- ----- ---------
Options outstanding in thousands:
Outstanding as of
December 31, 1997 . . . . . . . . . . 132 14.5 237
Weighted-average remaining contractual
life (in years) . . . . . . . . . . . 7.78 8.30 9.45
Weighted-average exercise price . . . . $2.71 $6.32 $ 13.47
Options exerciseable in thousands:
Outstanding as of December 31, 1997 . . 88 10 -
Weighted-average remaining
contractual life (in years) . . . . . 7.78 8.30 9.45
Weighted-average exercise price . . . . $2.71 $6.32 $ 13.47
</TABLE>
On August 15, 1996, an unqualified stock option for 10,000 shares of common
stock was granted to a director at the exercise price of $2.71.
In October 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 123, "Accounting for Stock-Based
Compensation." This statement defines a fair value based method of accounting
for an employee stock option or similar equity instrument. The statement does,
however, allow an entity to continue to measure compensation cost for those
plans using the intrinsic value based method of accounting prescribed by
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued To
Employees."
In 1996, the Company adopted provisions of SFAS No. 123 by providing disclosures
of the pro forma effect on net income and earnings per share that would result
if the fair value compensation element were to be recognized as expense. The
following table shows the pro forma earnings and earnings per share for 1997,
1996 and 1995 along with significant assumptions used in determining the fair
value of the compensation amounts.
Gradall Industries, Inc.
28
<PAGE>
Notes
to
Consolidated
Financial
Statements
(continued)
(dollars in thousands)
10. STOCK OPTIONS, CONTINUED:
<TABLE>
<CAPTION>
1997 1996 1995
- - ---------------------------------------------------------------
<S> <C> <C> <C>
Pro forma amounts:
Net income . . . . . . . . . $ 11,777 $ 7,242 $ 6,603
Earnings per share (basic) . $ 1.32 $ 1.04 $ 1.17
Earnings per share (diluted) $ 1.31 $ 1.03 $ 1.17
Assumptions:
Dividend yield . . . . . . . 0 0 0
Expected volatility. . . . . 36.75% 34.46% 35.01 %
Risk free interest rate. . . 6.20-6.73% 6.30% 5.70 %
Expected lives . . . . . . . 4 years 4 years 4 years
</TABLE>
During fiscal years 1997, 1996 and 1995 the weighted average grant-date fair
value of options granted was $5.08, $2.31 and $0.98 per share, respectively.
11. CONTINGENCIES:
The Company is involved in certain claims and litigation related to its
operations. Based upon the facts known at this time, management is of the
opinion that the ultimate outcome of all such claims and litigation will not
have a material adverse effect on the financial condition or results of
operations of the Company.
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.
<TABLE>
<CAPTION>
1996 1995
- - -----------------------------------------------------------------------------
<S> <C> <C>
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
</TABLE>
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.
Gradall Industries, Inc.
29
<PAGE>
Notes
to
Consolidated
Financial
Statements
(continued)
(dollars in thousands)
14. EARNINGS PER SHARE:
In the fourth quarter of 1997, the Company adopted Statement of Financial
Accounting Standards No. 128, "Earnings per Share", which modifies the
calculation of earnings per share. The Standard replaces the previous
presentation of primary and fully diluted earnings per share to basic and
diluted earnings per share.
Basic earnings per share excludes dilution and is computed by dividing income by
the weighted average number of common shares outstanding for the period. Diluted
earnings per share includes the dilution of common stock equivalents, and is
computed similary to fully diluted earnings per share pursuant to Accounting
Principals Board Opinion 15. All prior periods presented have been restated to
reflect this adoption.
<TABLE>
<CAPTION>
1997 1996 1995
- - ----------------------------------------------------------------------------------
<S> <C> <C> <C>
Basic earnings per share
Income before extraordinary item . . . . . . $ 11,991 $ 8,286 $ 6,607
Net income . . . . . . . . . . . . . . . . . $ 11,991 $ 7,313 $ 6,607
Weighted average shares outstanding and used
in calculation of basic earnings per share . 8,939,605 6,956,507 5,637,244
Earnings per share
Income before extraordinary item . . . . . . $ 1.34 $ 1.19 $ 1.17
========== ========== ==========
Earnings applicable to common shares . . . . $ 1.34 $ 1.05 $ 1.17
========== ========== ==========
Diluted earnings per share
Income before extraordinary item . . . . . . $ 11,991 $ 8,286 $ 6,607
Net income . . . . . . . . . . . . . . . . . $ 11,991 $ 7,313 $ 6,607
Weighted average shares outstanding and used
in calculation of diluted earnings per share 9,013,760 7,003,200 5,637,244
Earnings per share
Income before extraordinary item . . . . . . $ 1.33 $ 1.18 $ 1.17
========== ========== ==========
Earnings applicable to common shares . . . . $ 1.33 $ 1.04 $ 1.17
========== ========== ==========
Commom shares
Weighted average number of shares used
in calculating basic earnings per share. . 8,939,605 6,956,507 5,637,244
Shares issuable upon exercise of stock options
based on average market prices . . . . . . . 74,155 46,693 -
---------- ---------- ----------
Weighted average number of shares used in
calculation of diluted earnings per share. . 9,013,760 7,003,200 5,637,244
========== ========== ==========
</TABLE>
Gradall Industries, Inc.
30
<PAGE>
Notes
to
Consolidated
Financial
Statements
(continued)
(dollars in thousands)
15. SELECTED SUMMARY QUARTERLY DATA (UNAUDITED):
<TABLE>
<CAPTION>
QUARTERS ENDED(2)
1996 1997
----------------------------------------- -----------------------------------------
MAR. 31, JUN. 30, SEP. 30, DEC.31, MAR. 31, JUN. 30, SEP. 30, DEC. 31,
--------- --------- -------- --------- --------- --------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net Sales . . . . . . . $ 34,137 $ 35,499 $ 35,205 $ 36,068 $ 35,910 $ 38,356 $ 40,310 $ 44,083
Gross Profit. . . . . . 7,670 8,313 8,264 8,564 8,618 9,267 9,814 10,297
Operating Income. . . . 4,155 4,368 4,574 4,818 4,674 4,735 5,310 5,921
Income Before . . . . . 1,834 1,692 2,095 2,665 4,363 4,231 5,250 5,843
Extraordinary Item
Net Income. . . . . . . 1,834 1,692 1,122 2,665 2,657 2,577 3,199 3,558
Earnings Per
Share Before
Extraordinary Item(1)
Basic . . . . . . . . . $ .31 $ .28 $ .30 $ .30 $ .30 $ .29 $ .36 $ .40
Dilutive. . . . . . . . $ .31 $ .28 $ .30 $ .30 $ .30 $ .29 $ .35 $ .39
Earnings Per
Share After
Extraordinary Item(1)
Basic . . . . . . . . . $ .31 $ .28 $ .16 $ .30 $ .30 $ .29 $ .36 $ .40
Dilutive. . . . . . . . $ .31 $ .28 $ .16 $ .30 $ .30 $ .29 $ .35 $ .39
<FN>
(1): Based on average shares outstanding during the quarter.
(2): The sum of each years quarterly data may not equal the total year results due to rounding.
</TABLE>
Gradall Industries, Inc.
31
<PAGE>
Report of
Independent
Accountants
To the Board of Directors and Stockholders of Gradall Industries, Inc.
We have audited the accompanying consolidated balance sheets of Gradall
Industries, Inc. and Subsidiaries as of December 31, 1997 and 1996, and the
related consolidated statements of income, stockholders' equity and cash flows
for each of the three years in the period ended December 31, 1997. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, 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, 1997 and 1996, and
the consolidated results of their operations and their cash flows for each of
the three years in the period ended December 31, 1997, in conformity with
generally accepted accounting principles.
/S/ Coopers & Lybrand L.L.P.
----------------------------
Coopers & Lybrand L.L.P.
Cleveland, Ohio
February 23, 1998
Report of
Management
To the Board of Directors and Stockholders of Gradall Industries, Inc.
The Company maintains accounting and related internal control systems which
are intended to provide reasonable assurance that assets are safeguarded from
loss or unauthorized use and to produce records necessary for the preparation of
financial information. There are limits inherent in all systems of internal
control, and the cost of the systems should not exceed the expected benefits.
Through recommendations from its independent accountants the Company
periodically reviews these systems and controls and compliance therewith.
The Audit Committee of the Board of Directors, comprised entirely of
nonemployee directors, meets with management, and the independent accountants to
review the results of their work and to satisfy itself that their
responsibilities are being properly discharged. The independent accountants have
full and free access to the Audit Committee and may have discussions regarding
appropriate matters, with and without the presence of management.
The primary responsibility for integrity of financial information rests
with management. Certain valuations contained herein result, of necessity, from
estimates and judgments of management, actual results could differ from these
estimates. The accompanying consolidated financial statements, notes thereto and
other related information were prepared in conformity with generally accepted
accounting principles applied on a consistent basis.
/S/Barry L. Phillips /S/ Bruce A. Jonker
---------------------- ----------------------
Barry L. Phillips Bruce A. Jonker
President and Vice President,
Chief Executive Officer Chief Financial Officer and Treasurer
Gradall Industries, Inc.
32
<PAGE>
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
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 and
1997, 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 16%. Gradall's excavator business has grown with the
increased sales of the Company's XL Series of excavators and the introduction of
new products in new markets.
The Company's consolidated net sales grew from $118.4 million in 1995 to $158.7
million in 1997, an increase of $40.3 million or 15.8% 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 $40.3 million total
increase of net sales, $31.7 million or 78.7% reflects growth in the Company's
material handlers business (including related service parts), and $8.6 million
or 21.3% relates to the growth of its excavator business (including related
service parts).
From 1995 to 1997, sales of material handlers grew from $52.9 million to $84.0
million representing an increase of 26.0% 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 32% per
annum. This dynamic industry growth is due to new applications, increased rental
demand and displacement of straight-mast forklifts and small rough-terrain
cranes.
From 1995 to 1997, sales of excavators grew from $49.2 million to $57.4 million,
representing an increase of 8.0% per annum. This growth is due to the success of
the Company's XL Series excavators which strengthened Gradall's competitive
position in the market for conventional crawler excavators. Approximately 75%
of excavator units sold by the Company in 1997 were XL Series models. In May
1997, Gradall shipped its first production units of the new XL 2200 excavator in
the 12-14 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. Sales of service parts grew from $14.8 million in 1995 to
$17.3 million in 1997, representing an increase of 8.1% per annum. Approximately
72% of service parts sales are related to the excavator product line.
Gradall Industries, Inc.
33
<PAGE>
Management's Discussion
and Analysis
of Financial
Condition
and Results
of Operations
(continued)
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.
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):
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
1995 1996 1997
- - -------------------------------------------------------------
<S> <C> <C> <C>
Net Sales:
Excavators. . . . . . . . . . . . . 41.5% 39.1% 36.2%
Material handlers . . . . . . . . . 45.3 50.0 52.9
Service parts . . . . . . . . . . . 13.2 10.9 10.9
------ ------ ------
Total net sales . . . . . . . . . . . 100.0% 100.0% 100.0%
Cost of sales . . . . . . . . . . . . 78.2 76.7 76.1
------ ------ ------
Gross profit. . . . . . . . . . . . 21.8 23.3 23.9
Research and development and product
engineering costs . . . . . . . . . 2.1 2.2 2.3
Selling general and
administrative expenses. . . . . . 8.9 8.4 8.6
------ ------ ------
Operating income. . . . . . . . . . . 10.8 12.7 13.0
Other expense:
Interest expense. . . . . . . . . . 1.4 2.2 0.4
Other, net. . . . . . . . . . . . . 0.7 0.7 0.2
------ ------ ------
Income before
income taxes and extraordinary item 8.7 9.8 12.4
Income tax provision. . . . . . . . . 3.1 3.9 4.9
------ ------ ------
Income before
extraordinary item. . . . . . . . . 5.6% 5.9% 7.6%
====== ====== ======
<FN>
(1) The sum in any column may not equal the indicated total due to rounding.
</TABLE>
RESULTS OF OPERATIONS FISCAL 1997 COMPARED TO FISCAL 1996
Net sales. Net sales were $158.7 million for fiscal 1997, an increase of $17.8
million or 12.6% compared to $140.9 million for fiscal 1996. The increase in net
sales was attributed to a material increase in unit volume of material handlers
and excavators and a moderate increase in sales volume of service parts. The
introduction of the new excavator models XL 2200 and XL 2210 in 1997 assisted in
the excavator unit increase. Price increases affecting all three product lines
had a modest favorable impact. Net sales of excavators were $57.4 million for
fiscal 1997, an increase of $2.3 million or 4.1% compared to $55.1 million for
fiscal 1996. Net sales of material handlers were $84.0 million for fiscal 1997,
an increase of $13.6 million or 19.3% compared to $70.4 million for fiscal 1996,
Net sales of service parts was $17.3 million for fiscal 1997, an increase of
$1.9 million or 12.3% compared to $15.4 million for fiscal 1996. Although the
Company expects net sales to increase in the future, 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 1997.
Gradall Industries, Inc.
34
<PAGE>
Management's Discussion
and Analysis
of Financial
Condition
and Results
of Operations
(continued)
Gross Profit. Gross profit amounted to $38.0 million for fiscal 1997, an
increase of $5.2 million or 15.8% compared to $32.8 million for fiscal 1996.
Gross profit as a percentage of net sales increased to 24.0% for fiscal 1997
from 23.3% for fiscal 1996, primarily due to improved production efficiencies
and the economics of higher production volume.
Research and Development and Product Engineering Costs. Research and development
and product engineering cost was $3.6 million for fiscal 1997, an increase of
$0.6 million or 18.3% compared to $3.1 million for fiscal 1996. The increase is
due to the addition of engineering personnel to support new product development.
Selling, General and Administrative. SG & A expense was $13.7 million for fiscal
1997, an increase of $1.9 million or 16.1% compared to $11.8 million for fiscal
1996. This increase is attributed to the addition of marketing field sales and
service representatives to improve service to the distributor organization. In
addition the higher unit volume of shipments in fiscal 1997 increased the
interest expense for dealer floor plan and retail subsidy above the 1996 expense
level.
Interest Expense. Interest expense was $0.7 million for fiscal 1997, a decrease
of $2.4 million or 77.6% compared to $3.1 million for fiscal 1996. This
reduction is the result of the application of the net proceeds of the Company's
initial public offering to reduce outstanding indebtedness on September 3, 1996.
Other. Other expense was $0.3 million for fiscal 1997, a decrease of $0.8
million or 74.8% compared to $1.0 million in fiscal 1996. In 1996 other expense
included a charge of $0.8 million for settlement of a distributor litigation.
Income Tax Provision. Income tax expense was $7.7 million for fiscal 1997, an
increase of $2.2 million or 39.9% compared to $5.5 million for fiscal 1996, and
representing an effective tax rate of 39.1% in 1997 and 39.9% in 1996.
Extraordinary Item. 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 proceeds from the
Company's initial public offering on September 3, 1996.
Net Income. Net income was $12.0 million for fiscal 1997, an increase of $4.7
million or 64.0% compared to $7.3 million for fiscal 1996. This increase results
from the higher level of sales in fiscal 1997 generating increased operating
margins and reduced debt from the 1996 initial public offering lowering interest
expense.
Diluted Earnings Per Share After Extraordinary Item. Earnings per share after
extraordinary item were $1.33 for fiscal 1997, a increase of $0.29 or 27.9% from
$1.04 for fiscal year 1996, reflecting the $4.7 million increase in net income
described above.
Gradall Industries, Inc.
35
<PAGE>
Management's Discussion
and Analysis
of Financial
Condition
and Results
of Operations
(continued)
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 were $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 were $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 were $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 in service parts net sales was revenue associated with a one-time
military subcontract.
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.
Research and Development and Product Engineering Costs. Research and development
and product engineering cost was $3.1 million for fiscal 1996, an increase of
$0.6 million or 23.0% compared to $2.5 million for fiscal 1995. The increase is
due to the addition of engineering personnel to support new product development.
Selling, General and Administrative. SG & A expense was $11.8 million for fiscal
1996, an increase of $1.3 million or 12.5% compared to $10.5 million for fiscal
1995. The increase is due to expenses related to the 1996 Con Expo, a major
trade show held every three years, increased dealer floor plan interest and
retail subsidy tied to the increased sales volume, and higher legal expenses in
connection with the settlement of litigation.
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.
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% in 1997 and 35.8% in 1996.
Extraordinary Item. 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.
Gradall Industries, Inc.
36
<PAGE>
Management's Discussion
and Analysis
of Financial
Condition
and Results
of Operations
(continued)
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.
Diluted Earnings Per Share After Extraordinary Item. Earnings per share after
extraordinary item were $1.04 for fiscal 1996, a decrease of $0.13 or 11.1% 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.
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 $3.4
million in 1997 compared to $7.7 million for 1996. Net cash from operating
activities for 1997 resulted from $12.0 million of net income and $3.4 million
of non-cash charges to income, primarily depreciation and post retirement
benefit transition obligation, which were reduced by $12.0 million of net cash
used by changes in operating assets and liabilities, primarily a $8.4 million
increase in accounts receivable due to strong shipments in the fourth quarter.
Net cash from operating activities for 1996 resulted from $7.3 million of net
income, $4.2 million of non-cash charges to income primarily depreciation and
the write off of $1.6 million deferred financing and reduced by $3.8 million
from changes in operating assets and liabilities, primarily a $4.7 million
increase in accounts receivable.
Net cash used by investing activities, consisting of purchases of property and
equipment, was $5.3 million in 1997 and $2.2 million in 1996. 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 1997 under this program totaled
$5.3 million which were funded by cash from operations and borrowings from
available credit facilities. Management expects to invest approximately $6.5
million of additional capital in 1998 for improvements under the multi-year
program which will also be funded from internally generated cash flow.
Gradall Industries, Inc.
37
<PAGE>
Management's Discussion
and Analysis
of Financial
Condition
and Results
of Operations
(continued)
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, 1997, borrowings under the
revolver totaled $9.6 million and $15.4 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, 1997, the average annual interest rate under the facility was
7.86%. 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 collateralized 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 obsolescence 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 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.
IMPACT OF THE "YEAR 2000 ISSUE"
The "Year 2000 Issue" is the result of computer systems that were programmed in
prior years using a two-digit representation for the year. Consequently, in the
year 2000, date-sensitive computer programs may interpret the date "00" as 1900
rather than 2000. The Company's operating units have completed an initial
assessment of the systems affected by the Year 2000 Issue, and are formulating
action plans to correct or replace these programs by a target date of September
30, 1999.
The Company will be required to modify or replace several internally developed
software packages along with purchased software packages used internally. The
Company will use internal resources to modify programs, and will upgrade where
necessary packaged . Estimates of the total remaining cost of the year 2000
project have not yet been finalized, but are not expected to have a material
adverse effect on future operating results or cash flows.
INFLATION
The overall impact of the low rate of inflation in recent years has had no
significant impact on the Company.
Gradall Industries, Inc.
38
<PAGE>
Accounting
Pronouncements
ACCOUNTING PRONOUNCEMENTS
In March 1995, The Financial Accounting Standard Board ("FASB") issued Statement
of Financial Accounting Standards ("SFAS") No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of,"
for the year ended December 31, 1996. The adoption of SFAS No. 121 had no impact
on the Company's financial position or results of operations.
In October 1995, the FASB issued SFAS No. 123, "Accounting for Stock-Based
Compensation," effective for transactions entered into in fiscal years that
begin after December 15, 1995. The Company adopted this standard's disclosure
only provisions for the year ended December 31, 1996. The adoption of this
standard had no impact on the Company's financial position or results of
operation.
In March 1997, the FASB issued SFAS No. 128, "Earnings Per Share," effective for
the periods ending after December 15, 1997. The Company adopted Statement of
Accounting Standards ("SFAS") No. 128, "Earnings Per Share" in the fourth
quarter of 1997. The impact of implementing SFAS No. 128 is discussed in Note 14
to the Consolidated Financial Statements.
In March 1997, the FASB also issued SFAS No. 129, "Disclosure of Information
about Capital Structure," effective for fiscal years ending after December 15,
1997. The adoption of SFAS No. 129 had no impact on the Company's consolidated
financial statements.
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive Income,"
and SFAS No. 131, "Disclosures about Segments of an Enterprise and Related
Information," both effective for fiscal years beginning after December 15, 1997.
The Company is currently studying the provisions of these SFAS's and has not
adopted such provisions in its December 31, 1997 consolidated financial
statements.
CAUTIONARY STATEMENT
This report and the foregoing Management's Discussion and Analysis of Financial
Condition and Results of Operations contains various "forward looking
statements" within the meaning of Section 27A of the Secutities Act of 1933, as
amended, and Section 21E of the Securities Exchange Act of 1934, as amended. The
Company's Annual Report to Shareholders, any Report on Form 10-K, 10-Q or Form
8-K or any other written or oral statements made by or on behalf of the Company
may include forward looking statements. Forward looking statements represent the
Company's expectations or beliefs concerning future events. Any forward looking
statements made by or on behalf of the Company are subject to uncertainties and
other factors that could cause actual results to differ materially from such
statements.
Undo reliance should not be placed on any forward looking statements made by or
on behalf of the Company as such statements speak only as of the date made. The
Company undertakes no obligation to publicly update or revise any forward
looking statement, whether as a result of new information, the occurrence of
future events or otherwise.
Gradall Industries, Inc.
39
<PAGE>
The
Company's
Stock
MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's Common Stock is traded on the Nasdaq National Market under the
symbol "GRDL." The following table sets forth, for the periods indicated, the
high and low last trade price per share of the Common Stock as reported on the
Nasdaq National Market.
<TABLE>
<CAPTION>
Year Ended Year Ended(1)
December 31, 1997 December 31, 1996
----------------- -----------------
High Low High Low
<S> <C> <C> <C> <C>
First Quarter. $16 1/4 $ 12 - -
Second Quarter 16 1/4 12 - -
Third Quarter. 17 3/8 14 3/4 $11 7/8 $ 10
Fourth Quarter 16 7/8 15 13 5/8 10 3/4
<FN>
(1) Trading Commenced on August 28, 1996.
As of February 27, 1998, there were 129 record holders of the Common Stock.
</TABLE>
The Company has not paid any cash dividends to shareholders. The declaration of
any cash or stock dividends will be at the discretion of the Board of Directors,
and will depend upon earnings, capital requirements and the financial position
of the Company, general economic conditions and other pertinent factors. At this
time, the Company does not intend to pay any cash dividends in the foreseeable
future. Management intends to reinvest earnings, if any, in the development and
expansion of the Company's business for an indefinite period of time. The
Company's credit facility restricts the payment of dividends.
Gradall Industries, Inc.
40
<PAGE>
General
Information
<TABLE>
<CAPTION>
DIRECTORS
- - ---------------------------------------------------------------------------------------------
<S> <C>
SANGWOO AHN PERRY J. LEWIS
Chairman of the Board Founding Partner, Morgan Lewis Githens & Ahn
Founding Partner, Morgan Lewis Githens & Ahn
WILLIAM C. UGHETTA, JR.
BARRY L. PHILLIPS Managing Director, Long Point Capital
President and Chief Executive Officer,
Gradall Industries, Inc. JACK D. RUTHERFORD
Chairman of the Board, and Chief Executive
DAVID S. WILLIAMS Officer Emeritus, The Gradall Company
Vice President, Marketing and Sales,
Gradall Industries, Inc. ERNEST GREEN
FOUNDER, President and Chief Executive Officer,
JOHN A. MORGAN EGI, Inc.
Founding Partner, Morgan Lewis Githens & Ahn
COMMITTEES
- - ---------------------------------------------------------------------------------------------
Compensation Committee Audit Committee
Sangwoo Ahn - Chairman William C. Ughetta, Jr. - Chairman
Jack D. Rutherford Ernest Green
Barry L. Phillips Jack D. Rutherford
</TABLE>
Gradall Industries, Inc.
41
<PAGE>
General
Information
<TABLE>
<CAPTION>
OFFICERS AND SENIOR MANAGERS
- - --------------------------------------------------------------------------------------
<S> <C>
Barry L. Phillips Joseph H. Keller
President and Chief Executive Officer Vice President, Engineering and Secretary
David S. Williams James C. Cahill
Vice President, Marketing and Sales Vice President, Manufacturing
Bruce A. Jonker
Vice President, Chief Financial Officer and
Treasurer
STOCKHOLDER INFORMATION
- - --------------------------------------------------------------------------------------
Annual meeting Stock exchange
Sheraton Airport Hotel Gradall Industries, Inc. common stock
5300 Riverside Drive is traded under the symbol GRDL and
Cleveland, Ohio is listed on the NASDAQ National
Market.
May 20, 1998 at 10:00 am EDT
Form 10-K or Investor information
Transfer agent and registrar Bruce A. Jonker
Chase Mellon Shareholders Services Vice President, Chief Financial Officer
85 Challenger Road Gradall Industries, Inc.
Overpeck Centre 406 Mill Ave. SW
Ridgefield Park, NJ 07660 New Philadelphia, Ohio 44663
Phone 330-339-8374
Phone Toll-Free 1-800-756-3353 Fax 330-339-8317
</TABLE>
Gradall Industries, Inc.
42
<PAGE>
GRADALL
REPLICAS
COLLECTOR-QUALITY, SCALE MODELS
Scale model replicas of three famed Gradall construction machines, authorized
by Gradall Industries, Inc., are available at special pricing for stockholders.
Suitable for desktop or bookshelf display, these die cast masterpieces were
created using Gradall engineering drawings with unusual attention to detail
including authentic boom movements and steering
mechanisms. First introduced to collectors a year ago, the XL 5100 wheeled
excavator and 534C-9 material handler replicas were widely acclaimed. Now, the
collection has been expanded to include a replica of the XL 5200 crawler
excavator. Replicas have been produced in limited quantities and are numbered to
assure authenticity and to enhance their value.
[534C-9 Gradall Material Handler Scale 1:32 Length 8 inches Price $96]
[XL 5100 Gradall Hydraulic Excavator Scale 1:50 Length 7 1/2 inches Price $128]
[XL 5200 Gradall Excavator Crawler Scale 1:50 Length 7 inches Price $98]
To order, please contact
Hiram Construction Co.
18413 Rt. 700
Hiram, OH 44234
Phone 440-834-8817
Fax 440-834-0560
Toll-free 800-591-1171
43
<PAGE>
Gradall Industries, Inc.
406 Mill Avenue SW
New Philadelphia, Ohio 44663
Phone (330) 339-2211
Fax (330) 339-8317
www.gradall.com
44
<PAGE>
Gradall Industries, Inc. 1997 Annual Report A different kind of animal.
45
<PAGE>
EXHIBIT 23
CONSENT OF INDEPENDENT ACCOUNTANTS
----------------------------------
We consent to the incorporation by reference in the registration statement
of Gradall Industries, Inc., on Form S-8 (File No. 333-40523) of our reports
dated February 23, 1998, on our audits of the consolidated financial statements
and financial statement schedule of Gradall Industries, Inc., and Subsidiaries
as of December 31, 1997 and 1996, and for the years ended December 31, 1997,
1996 and 1995, which reports are included in this Annual Report on Form 10-K.
/s/ COOPERS & LYBRAND L.L.P.
----------------------------
COOPERS & LYBRAND L.L.P.
Cleveland, Ohio
March 25, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 1605
<SECURITIES> 0
<RECEIVABLES> 25290
<ALLOWANCES> 0
<INVENTORY> 25564
<CURRENT-ASSETS> 54846
<PP&E> 15108
<DEPRECIATION> 0
<TOTAL-ASSETS> 76735
<CURRENT-LIABILITIES> 28337
<BONDS> 0
<COMMON> 9
0
0
<OTHER-SE> 21219
<TOTAL-LIABILITY-AND-EQUITY> 76735
<SALES> 158659
<TOTAL-REVENUES> 158659
<CGS> 120663
<TOTAL-COSTS> 120663
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 696
<INCOME-PRETAX> 19687
<INCOME-TAX> 7696
<INCOME-CONTINUING> 11991
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 11991
<EPS-PRIMARY> 1.34
<EPS-DILUTED> 1.33
</TABLE>
