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, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ______ TO _________
Commission File No. 001-12049
GRADALL INDUSTRIES, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 36-3381606
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
406 MILL AVENUE S.W., NEW PHILADELPHIA, OHIO 44663
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (330) 339-2211
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK, $.001 PAR VALUE
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
--
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. X
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The aggregate market value of the voting stock held by non-affiliates of
the registrant as of February 26, 1999 was $90,684,360.
The number of shares outstanding of registrant's common stock, par value
.001 per share, as of February 26, 1999 was 9,515,460.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant's Annual Report to Shareholders for the fiscal
year ended December 31, 1998, 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 1999 Annual Meeting of Shareholders are
incorporated by reference into Part III of this Form 10-K.
The Exhibit index appears on sequential page 28.
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PART I
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Item 1. BUSINESS
THE COMPANY
Gradall Industries, Inc. (the "Company") was incorporated in Delaware
in 1985. 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 subsidiaries, The Gradall Company
and The Gradall Orrville Company.
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 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 1998, total sales were $182.6 million, comprised of $54.6
million in sales of excavators, $110.2 million in sales of material handlers and
$17.9 million in sales of service parts. Excavator shipments were down $2.8
million or 4.9% in 1998 compared to 1997. The abundance of low price crawler
excavators entering the U.S. from Asia contributed to reduced crawler excavator
sales. Material handler sales were up $26.2 million or 31.2% in 1998 compared
to 1997. The introduction of the new D-series family of material handlers plus
strong market demand were key factors for higher material handler sales.
Service parts sales in 1998 were up $0.6 million from 1997. Since January 1994,
the Company has introduced 12 new products which accounted for in excess of 85%
of Gradall's unit sales in 1998.
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 46 independent distributors at approximately 168 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 begin to compete 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
40 independent distributors at approximately 169 locations throughout North
America. In addition, Gradall material handlers are available at national
rental companies at over 490 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.
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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 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, $5.3 million in 1997, and $13.3 million in 1998. During
1999 the Company plans to invest approximately $10.5 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.
In addition, during 1998 the Board of Directors approved in principle a
multi-year capacity expansion program (the "Capacity Expansion Program") which
is intended to increase manufacturing capacity in excess of 50% over the next
three to five years. The Capacity Expansion Program will require a $30 to $50
million investment over this time frame. As part of the Capacity Expansion
Program, in October 1998 the Company purchased a 330,000 sq. ft. facility at
Orrville, Ohio to manufacture material handlers and relieve overcrowding at the
New Philadelphia plant. The Company expects operations to begin at the Orrville
facility in April 1999. The acquisition of the Orrville facility and the
purchase of robot welders, machining centers and lasers which total
approximately $8.3 million are the investments in this program through December
31, 1998. The Company may alter or revise the Capacity Expansion Program based
upon changes in market demand and/or economic conditions. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations -
Liquidity and Capital Resources".
THE INDUSTRY
Gradall competes principally in the construction equipment industry. In
1997, the latest year for which U.S. industry figures have been published, new
orders for construction, mining and material handling equipment exceeded $47
billion. The Company estimates that industry orders for hydraulic excavators
and material handlers exceeded $3 billion, in 1997. 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.
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<PAGE>
Since the beginning of 1994, 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 14,500 units in 1994 to over 23,500 units in 1998. 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 97% and 3% 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 1998 accounted for approximately 8%, 18% and 8% of the total excavator
market, respectively, for a total of approximately 34%. The remainder of the
crawler excavator market is represented by size classes not 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 during 1998 its market share
of wheeled excavators exceeded 40% 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 3,500 units in 1994 to more than 11,000 units in 1998. 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.
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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 in which it competes is approximately 16%.
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 1994, the Company has introduced 12 new products, and its sales increased
from $88.8 million in 1994 to $182.6 million in 1998 and operating income
increased from $6.1 million in 1994 to $24.0 million in 1998. 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
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. Gradall entered the
non-highway speed wheeled excavator market with the introduction of the XL2300
at the BAUMA trade show in Munich, Germany in April 1998. Gradall introduced in
July 1997 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 working to continue 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 3% 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 began to compete in several size classes of the conventional
crawler excavator market which in the aggregate currently represent
approximately 34% of the excavator 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.
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<PAGE>
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, $5.3 million in 1997, and $13.3 million in 1998.
During 1999 the Company plans to invest approximately $10.5 million for
additional capital improvements under this program. Thus far, capital
improvements have included robotic welding systems, laser cutting machines,
paint systems 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. Management
believes that these strategies have enabled the Company to increase
substantially its profitability in recent years.
In addition, during 1998 the Board of Directors approved in principle a
multi-year capacity expansion program (the "Capacity Expansion Program") which
is intended to increase manufacturing capacity in excess of 50% over the next
three to five years. The Capacity Expansion Program will require a $30 to $50
million investment over this time frame As part of the Capacity Expansion
Program, in October 1998 the Company purchased a 330,000 sq. ft. facility at
Orrville, Ohio to manufacture material handlers and relieve overcrowding at the
New Philadelphia plant. The Company expects operations to begin at the Orrville
facility in April 1999. The acquisition of the Orrville facility and the
purchase of robot welders, machining centers and lasers which total
approximately $8.3 million are the investments in this program through December
31, 1998. The Company may alter or revise the Capacity Expansion Program based
upon changes in market demand and/or economic conditions. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations -
Liquidity and Capital Resources".
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 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
2.2% of sales in 1994 to 1.2% in 1998. The Company has implemented statistical
process controls, a monitored product quality review program and a formal
supplier quality assurance program.
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Increase distributor support. The Company believes that its distribution
network is among the strongest in the industry and a core strength for its
future growth. The Company plans to further enhance its distribution network by
continuing to produce unique new products, provide marketing and sales support
through its regional sales managers, and provide technical and service support
through its district service managers.
Expand service parts business. Management has focused on expanding the
Company's service parts business to increase revenues and profits by taking
advantage of the growth in the working population of Gradall excavators and
material handlers. As a part of this focus, the Company offers 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 1998 the Company invested
significant resources toward the development of a digital database on CD-ROM for
all technical publications including operator, service, parts and maintenance
manuals. The system named Gradall Plus will be introduced to the distribution
network during the first quarter of 1999. Service parts sales and marketing
activities are supported by eight district product support managers who are
dispersed geographically throughout the U.S.
Pursue joint venture, international business opportunities and strategic
alliances. 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 emerging markets in Russia, Latin America, Turkey,
China and the Pacific Rim. The Company obtained its ISO 9001 certification in
January 1999, which will assist the international marketing of its products.
The Company believes there is opportunity to participate in the current trend of
consolidation in the construction equipment industry.
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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 1994, the Company has
introduced 12 new products which accounted for more than 85% of total unit sales
in 1998.
<TABLE>
<CAPTION>
REVENUE BY PRODUCT CATEGORY
YEAR ENDED DECEMBER 31,
1994(1) 1995(1) 1996 1997 1998(2)
-------- -------- ------ ------ --------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C>
Excavators. . . . . . $ 45.2 $ 49.2 $ 55.1 $ 57.4 $ 54.6
Material handlers . . 30.7 53.6 70.4 84.0 110.2
Service parts . . . . 12.9 15.6 15.4 17.3 17.9
-------- -------- ------ ------ --------
Total . . . . . . . . $ 88.8 $ 118.4 $140.9 $158.7 $ 182.6
======== ======== ====== ====== ========
<FN>
_______________
(1) Material handlers and service parts include revenues from a product line
which was discontinued in 1995.
(2) The sum in this column may not equal the indicated total due to rounding.
</TABLE>
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 34%
of the total 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.
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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 8%
of the total 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
introduced a rough-terrain wheeled version of the XL2000 series.
XL4000 Series. This model competes in the 19-21 ton class which represents
approximately 18% of the total 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 8% of the total 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.
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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 end of the boom 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 47% 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 two
maximum lift heights, a standard 36' or an optional 42'. This model has been
very well accepted by mason and roofing contractors and by 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 33% 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 12% 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.
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.
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The primary features of Gradall material handlers are:
90 degree 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 offers 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 1998 the Company invested significant resources toward the
development of a digital database on CD-ROM for all technical publications
including operator, service, parts and maintenance manuals. The system named
Gradall Plus will be introduced to the distribution network during the first
quarter of 1999.
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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. Approximately 35% of all Gradall excavators are
modified from standard models to meet customer requirements with add-on and/or
special attachments. Gradall is able to design and produce specialized machines
while meeting the delivery schedule of its customers. Some of the specialized
machines developed by the Company are now being marketed as standard models; for
example, special excavators created for mine scaling, steel mills and other
special industrial applications have become Gradall standard models.
MARKETING & DISTRIBUTION
The Company primarily markets and distributes its products through a
network of independent distributors and rental companies who, in turn, sell or
rent the products to end-users. The Company also sells directly through its own
marketing staff to certain major accounts as well as to customers located
outside the United States.
The Company has agreements with its distributors under which the
distributors purchase products from the Company at agreed-upon prices for resale
within the distributor's territory. 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 46 independent
distributors at approximately 168 locations in North America. The Company's
material handler distribution network is composed of approximately 40
independent distributors at approxi-mately 169 locations. In addition, Gradall
material handlers are available at national rental companies at over 490
locations. Hertz Equipment Rental Corporation, a national rental company,
purchased material handlers which accounted for more than 10% of the Company's
total sales in 1998. No other distributor or rental company accounted for more
that 10% of the Company's total sales in 1998.
The Company believes that its ongoing distributor support and training
programs help enhance the competitiveness and increase the strength of its
distribution network. The Company supports the sales, service and rental
activities of its distributors with product advertising, sales literature,
product training and major trade show participation. The independent
distribution network is serviced by the Company's five regional sales managers
for excavators and six regional sales managers and three national account
managers for material handlers. Each regional sales manager is also responsible
for developing new distributors within his region.
-12-
<PAGE>
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 provides parts and service support for its products through the
field product support organization consisting of eight product support district
managers located throughout the United States. The primary responsibility of
the district managers is to provide service training and technical support to
the distribution network. Additionally, they are responsible for after-market
parts sales and act as liaisons among customers, distributors, and the Company
on all product support related matters. This group is supported by an internal
product support team that provides service training, technical publications, and
parts marketing initiatives.
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 improving quality.
The Company invested $4.2 million in 1995, $2.2 million in 1996, $5.3 million in
1997, and $13.3 million in 1998. During 1999 the Company plans to invest
approximately $10.5 million for additional capital improvements under this
program. Thus far, capital improvements have included robotic welding systems,
laser cutting machines, paint systems 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. Management believes that these strategies have enabled the Company to
increase substantially its profitability in recent years.
In addition, during 1998 the Board of Directors approved in principle the
Capacity Expansion Program which is intended to increase manufacturing capacity
in excess of 50% over the next three to five years. The Capacity Expansion
Program will require a $30 to $50 million investment over this time frame. As
part of the Capacity Expansion Program, in October 1998 the Company purchased a
330,000 sq. ft. facility at Orrville, Ohio to manufacture material handlers and
relieve overcrowding at the New Philadelphia plant. The Company expects
operations to begin at the Orrville facility in April 1999. The acquisition of
the Orrville facility and the purchase of robot welders, machining centers and
lasers which total approximately $8.3 million are the investments in this
program through December 31, 1998. The Company may alter or revise the Capacity
Expansion Program based upon changes in market demand and/or economic
conditions. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations - Liquidity and Capital Resources". 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.
-13-
<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 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 1994 to 1998, the Company increased its unit production by 157% with only a
31% increase in its workforce. The Company's total cost of quality (defined as
warranty, rework and scrap expenses) declined from 2.2% in 1994 to 1.2% of sales
in 1998.
-14-
<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 1998, approximately 35% of Gradall excavators
were modified from standard models to meet customer requirements with add-on
and/or special attachments.
The Company's manufacturing engineers are involved in both product design
and implementation of capital improvements in order to maximize manufacturing
processes and efficiencies. In addition, the implementation of "concurrent
engineering," in which personnel from engineering, manufacturing, materials
procurement and marketing are simultaneously engaged in new product development
programs, has led to faster new product development time, reduced costs and
improved quality.
Gradall has made significant investments in its engineering systems, which
currently includes a computer-aided design (CAD) system with finite element
analysis (FEA) and three-dimensional solids design capabilities. This system
has greatly expanded Gradall's design capabilities and has significantly reduced
the time required for engineering and design functions.
COMPETITION
The markets in which the Company operates are highly competitive. The
Company faces competition in each of its product lines from a number of
different manufacturers, some of which have greater financial and other
resources than the Company. The principal competitive factors affecting the
markets for the Company's products include performance, functionality, price,
brand recognition, customer service and support, and product availability.
The excavator market may be divided into two product categories -
track-mounted "crawler" excavators (which is further divided into several size
classes) and wheel-mounted "wheeled" excavators. In recent years, crawler
excavators have constituted approximately 97% of the total market for excavators
and wheeled excavators have accounted for 3%. 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 1998 accounted for approximately 8%, 18% and 8% of the
total excavator market, respectively, for a total of approximately 34% of the
total excavator market. 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 not 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%.
-15-
<PAGE>
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 40% 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 in which it competes is approximately 16%. Other than Gradall, the
principal producers of variable reach material handlers are Caterpillar, Inc.,
Gehl, JCB International Co., Ltd., and Omniquip International
BACKLOG
As of December 31, 1998, the Company's backlog of orders aggregated
approximately $13.6 million compared to approximately $11.3 million at December
31, 1997 and approximately $14.8 million at December 31, 1996. The increase in
backlog of orders at December 31, 1998 was due primarily to orders for the new
excavator model XL2300 which were not in the prior year backlog. Substantially
all backlog orders at December 31, 1998 are expected to be shipped by April 30,
1999.
EMPLOYEES
As of December 31, 1998, Gradall employed 711 people, 469 hourly and 242
salaried. The Company's 469 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 a material
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.
-16-
<PAGE>
Item 2. PROPERTIES
The Company currently operates from a single facility, which it owns. The
facility is located in New Philadelphia, Ohio and contains 429,320 square feet
on a 66 acre site and accommodates the Company's corporate offices,
manufacturing operations and warehouse. In October 1998 the Company acquired a
second facility located in Orrville, Ohio which contains 330,000 square feet on
a 59 acre site. This facility will accommodate offices, manufacturing operations
and warehouse. The Company expects operations to begin at the Orrville facility
in April 1999.
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 $175,000 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, or multiple successful
claims against the Company within the self insurance retention amount, could
have a material adverse effect on the financial results of the Company.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
EXECUTIVE OFFICERS OF THE REGISTRANT
Executive officers of the Company as of February 26, 1999 were as follows:
<TABLE>
<CAPTION>
Name Age Position
- - ------------------ --- -----------------------------------------------------
<S> <C> <C>
Barry L. Phillips 57 President - CEO
David S. Williams 58 Vice President , Marketing and Sales
Joseph H. Keller 52 Vice President, Engineering and Secretary
James C. Cahill 46 Vice President, Manufacturing
Bruce A. Jonker 56 Vice President, Chief Financial Officer and Treasurer
</TABLE>
-17-
<PAGE>
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.
-18-
<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".
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
-----------------
High Low
------- --------
<S> <C> <C>
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 18 3/8 15 3/8
Second Quarter 17 7/8 13 1/16
Third Quarter 16 7/8 12 5/8
Fourth Quarter 16 13 3/32
1999
- - ---------------------
First Quarter through
February 26, 1999 15 12 1/4
</TABLE>
RECORD HOLDERS
The approximate number of record holders of the Company's equity securities
at February 26, 1999 was as follows:
Title of Class Number of Record Holders
---------------- ------------------------
Common Stock 135
-19-
<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.
Item 6. SELECTED CONSOLIDATED FINANCIAL DATA
The information required by this item is incorporated by reference to the
"Selected Consolidated Financial Data" on pages 16 and 17 of the 1998 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 36 through 45 of the 1998 Annual Report to Shareholders.
This report including the Management's Discussion and Analysis of Financial
Condition and Results of Operations, incorporated by reference herein, contains
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.
-20-
<PAGE>
Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company does not have any market risk sensitive instruments at December
31, 1998.
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information required by this item is incorporated by reference to pages
18 through 35 of the 1998 Annual Report to Shareholders.
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
Not applicable.
-21-
<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
1999 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 1999 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 1999 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 1999 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 1998 Annual Report to Shareholders on pages 18 through 35 are incorporated
by reference in Part II, Item 8.
Report of Independent Accountants
Consolidated Balance Sheets - December 31, 1998 and December 31,
1997
Consolidated Statements of Income for the three years ended
December 31, 1998
Consolidated Statements of Changes in Shareholders' Equity for
the three years
ended December 31, 1998
Consolidated Statements of Cash Flows for the three years ended
December 31, 1998
Notes to Consolidated Financial Statements (including unaudited
quarterly financial information)
-22-
<PAGE>
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 1998 Annual Report to Shareholders.
Schedule Page No.
-------- --------
Independent Auditors Report 26
Schedule II - Valuation and Qualifying Accounts 27
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.
-23-
<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 26, 1999 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 26, 1999
--------------
/s/ Bruce A. Jonker Vice President, Chief Financial Officer
- - ---------------------------
Bruce A. Jonker and Treasurer (Principal Financial
Officer and Principal Accounting
Officer) March 26, 1999
--------------
/s/ Sangwoo Ahn Chairman of the Board and Director
- - ---------------------------
Sangwoo Ahn March 26, 1999
--------------
/s/ Ernest Green Director
- - ---------------------------
Ernest Green March 26, 1999
--------------
/s/ Perry J. Lewis Director
- - ---------------------------
Perry J. Lewis March 26, 1999
--------------
-24-
<PAGE>
/s/ John A. Morgan Director
- - ---------------------------
John A. Morgan March 26, 1999
--------------
/s/ William C. Ughetta, Jr. Director
- - ---------------------------
William C. Ughetta, Jr. March 26, 1999
--------------
/s/ David S. Williams Director
- - ---------------------------
David S. Williams March 26, 1999
--------------
/s/ Jack Rutherford Director
- - ---------------------------
Jack Rutherford March 26, 1999
--------------
</TABLE>
-25-
<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 35 of the 1998 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 23 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/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
Cleveland, Ohio
February 23, 1999
-26-
<PAGE>
<TABLE>
<CAPTION>
GRADALL INDUSTRIES, INC. AND SUBSIDIARIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
(DOLLARS IN THOUSANDS)
Additions
----------------------
Balance at Charged to Charged Balance at
Beginning Costs and to Other End of
Description of Period Expenses Accounts Deductions Period
- - ------------------------------------- ----------- ----------- --------- ----------- -----------
<S> <C> <C> <C> <C> <C>
LIFO inventory reserve:
Year ended December 31, 1996 . . . . $ 5,161 $ 269 $ 5,430
Year ended December 31, 1997 . . . . 5,430 140 5,570
Year ended December 31, 1998 . . . . 5,570 518 6,088
Allowance for doubtful accounts:
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
Year ended December 31, 1998 . . . . 56 91 42 (a) 96 (b)
24 (c) 69
Allowance for inventory obsolescence:
Year ended December 31, 1996 . . . . 856 751 735 (d) 872
Year ended December 31, 1997 . . . . 872 347 407 (d) 812
Year ended December 31, 1998 . . . . 812 154 279 (d) 687
<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>
-27-
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT INDEX
Exhibit
No. Description
------- ----------------------------------------------------------------------
<C> <C> <S>
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)
4.01 Rights Agreement dated as of May 29, 1998 between the Company
and Chase Mellon Shareholder Services, LLC, as Rights Agent -
incorporated by reference to Exhibit 1 of the Company's
Registration Statement on Form 8-A dated June 4, 1998
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 -
incorporated by reference to Exhibit 10.04 of the Company's
Annual Report on Form 10-K for the fiscal year ended
December 31, 1997
-28-
<PAGE>
** 10.05 Amended and Restated Employment Agreement dated
January 1, 1998 between The Gradall Company and David S. Williams -
incorporated by reference to Exhibit 10.05 of the Company's
Annual Report on Form 10-K for the fiscal year ended
December 31, 1997
** 10.06 Deferred Compensation Agreement dated July 19, 1989 between
The Gradall Company and Barry L. Phillips - incorporated by
reference to Exhibit 10.06 to the Company's Registration Statement
on Form S-1 (No. 333-06777)
** 10.07 Amended and Restated Deferred Compensation Agreement dated
August 30, 1995 between The Gradall Company and David S.
Williams - incorporated by reference to Exhibit 10.07 to the
Company's Registration Statement on Form S-1 (No. 333-06777)
** 10.08 Split-Dollar Life Insurance Agreement dated as of August 30, 1995
between The Gradall Company and Barry L. Phillips - incorpo
rated by reference to Exhibit 10.08 to the Company's Registration
Statement on Form S-1 (No. 333-06777)
** 10.09 Gradall Industries, Inc. 1995 Stock Option Plan - incorporated by
reference to Exhibit 10.09 to the Company's Registration Statement
on Form S-1 (No. 333-06777)
** 10.10 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)
-29-
<PAGE>
** 10.14 The Gradall Company Benefit Restoration Plan - incorporated by
reference to Exhibit 10.14 to the Company's Registration Statement
on Form S-1 (No. 333-06777)
10.15 Amended and Restated Loan and Security Agreement dated as of
December 20, 1996, among The Gradall Company, Gradall
Industries, Inc. and Heller Financial, Inc., as agent and lender, The
CIT Group/Business Credit, Inc. and Bank One Columbus, N.A.,
as lenders (excluding exhibits and schedules) - 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 incorporated by
reference to Exhibit 10.17 of the Company's Annual Report on
Form 10-K filed for the year ended December 31, 1997
* 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 PricewaterhouseCoopers LLP regarding S-8
registrations
* 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>
-30-
<PAGE>
1998 Annual Report / Gradall Industries, Inc.
-1-
<PAGE>
attitude
For over 50 years, Gradall's continual growth can be traced to a unique
attitude. A quest to be different and better, leading to the first Gradall
machine, created in 1946 to build roads during the post-war labor shortage. The
attitude is apparent in the dedication and work ethic of our 700-plus employees,
committed to a new high standard in machine design, manufacture and support. Our
allied businesses - independent distributors and suppliers - also share our
progressive attitude, aligning themselves and their own businesses' futures
with Gradall's goal orientation. Plus, it's an attitude shared by our customers
- - - contractors and government officials - people who recognize the Gradall
difference and actually invest in our unique blend of designed-in productivity,
versatility and reliability.
Throughout this annual report, you will see evidence of the Gradall attitude, a
unique posture which sets an appropriate stage for our impressive corporate
performance.
-2-
<PAGE>
Consolidated
Financial
Highlights
(dollars in millions, except share amounts)
Gradall Industries, Inc.
<TABLE>
<CAPTION>
For the Years Ended
----------------------
1998 1997 1996
------ ------ ------
<S> <C> <C> <C>
Net sales . . . . . . . . . . . . . . . . . . $182.6 $158.7 $140.9
Operating income. . . . . . . . . . . . . . . 24.0 20.6 17.9
Income before extraordinary item. . . . . . . 14.4 12.0 8.3
Extraordinary loss on
extinguishment of debt, net of tax benefit. - - 1.0
Net income. . . . . . . . . . . . . . . . . . 14.4 12.0 7.3
Earnings per share(1) . . . . . . . . . . . . $ 1.54 $ 1.33 $ 1.07
Working capital . . . . . . . . . . . . . . . 27.8 26.5 14.9
Funded debt . . . . . . . . . . . . . . . . . 7.6 10.37 .9
Shareholders' equity. . . . . . . . . . . . . 42.4 21.29 .1
<FN>
(1) Earnings per share data is presented on a diluted basis for 1998 and 1997
and on a pro forma basis for 1996. See Note 12 to the Consolidated Financial
Statements included herein.
</TABLE>
[Net Sales, Operating Income and Income before extraordinary item graphs]
<TABLE>
<CAPTION>
Table of Contents
- - --------------------------------------------------------------------------------
<S> <C>
Consolidated Financial Highlights . . . . . . . 3
Letter to Stockholders. . . . . . . . . . . . . 4
Gradall Material Handlers . . . . . . . . . . . 8
Gradall Excavators. . . . . . . . . . . . . . . 10
Parts and Distribution. . . . . . . . . . . . . 12
Suppliers . . . . . . . . . . . . . . . . . . . 14
Selected Consolidated Financial Data. . . . . . 16
Consolidated Balance Sheets . . . . . . . . . . 18
Consolidated Statements of Income . . . . . . . 19
Consolidated Statements of Changes
in Stockholders' Equity . . . . . . . . . . . 20
Consolidated Statements of Cash Flows . . . . . 21
Notes to Consolidated Financial Statements. . . 22
Report of Independent Accountants . . . . . . . 35
Report of Management. . . . . . . . . . . . . . 35
Management's Discussion and Analysis of
Financial Condition and Results of Operations 36
Accounting Pronouncements . . . . . . . . . . . 43
Cautionary Statement. . . . . . . . . . . . . . 44
The Company's Stock . . . . . . . . . . . . . . 45
General Information . . . . . . . . . . . . . . 46
Gradall Replicas. . . . . . . . . . . . . . . . 47
</TABLE>
-3-
<PAGE>
-4-
<PAGE>
to our stockholders
Gradall Industries, Inc. continued its strong growth trend in 1998, achieving a
fifth consecutive record year in sales and profitability.
Punctuating our sales and profitability achievements, I am pleased to announce
that Gradall has received ISO 9001 certification. We see this as recognition of
the long-time reputation of our company and our employees for excellent quality,
and a signal to both our government and private contractor markets that our
reputation will continue.
Additional recognition has come in the form of 1998 Ernst & Young Entrepreneur
of the Year awards, presented to Gradall and myself in recognition of
industrial leadership, citizenship and overall growth performance.
I am proud to say these achievements reflect an attitude that permeates our
company and positions us for success. We are prepared to take advantage of the
market demand for versatile, productive, high-value construction machines. We
are focused on profiting from our ongoing commitment to continually introduce
new, more productive products. We are clearly motivated to continue to make
strategic capital investments to build volume and efficiency into our
manufacturing capacity.
As a direct result, it is my pleasure to report that Gradall Industries, Inc.
posted a record $182.6 million in net sales in 1998, an increase of 15.1 percent
over 1997. Net income for 1998 was $14.4 million, up 19.7 percent. Diluted
earnings per share reached $1.54, up 15.8 percent.
Benefitting from favorable interest rates, supportive construction market
conditions in the U.S. and an excellent share of the booming rental market, our
material handler sales hit a record $110.2 million, up 31.2 percent over 1997.
to our stockholders
continued on pages 6-7
-5-
<PAGE>
to our stockholders continued
Fueling material handler sales was the introduction of our new D Series models,
replacing all of our C Series machines. Featuring a new, protective operator
cab, the D Series machines enhance the market preference for Gradall's trademark
advantages such as unique maneuverability, ease of operation and their
reputation for superior strength and reliability.
Hydraulic excavator sales reached $54.6 million, continuing to benefit from the
overall market demand for smaller versatile machines that can do many different
kinds of work. In this market, acceptance of our two new models in the
27,000-pound class effectively paved the way for our newest model, the XL 2300
non-highway speed wheeled excavator, which topped the best new product list
published by Construction Equipment, the leading industry trade magazine.
Unit and net sales of larger XL Series excavators continue to benefit from the
Transportation Equity Act (TEA-21), funding highway and bridge work starting in
late 1998. Distinguished by their telescoping boom design and powered by
high-pressure hydraulics, Gradall excavators are gaining acceptance in high
productivity work formerly dominated by conventional excavators. At the same
time, our excavators enjoy a clear preference in the market for machines that
can perform delicate finishing and grading functions.
Sales of service parts reached $17.9 million in 1998, up 3.5 percent from 1997.
This growth can be attributed to our strong distribution network and the
promotion of new product support programs, including Gradall Plus CD-ROM
reference materials and the Gradall On-Line Distributor (GOLD) order entry
systems.
-6-
<PAGE>
Overall sales were also sparked by an ongoing commitment to worldwide sales. The
addition of a sales office and greater distribution in Central and South
America accompanied an expanded global marketing initiative reaching into
Europe, the Middle East, Russia and the Pacific Rim.
Prompted by continuing increases in unit sales, Gradall executed a $13 million
capital investment plan in 1998 which included the purchase of a second
manufacturing facility. Without any long-term debt, and assisted by the
proceeds from an additional public offering in June 1998, Gradall purchased a
modern 330,000-square-foot manufacturing facility in Orrville, Ohio.
$7 million of the $13 million total was invested in new equipment for the
450,000-square-foot New Philadelphia plant, which continues to serve as
corporate headquarters. New equipment in the plant includes lasers, robots,
machining centers, seam welders and paint systems, designed to control costs and
improve production efficiency.
At the end of 1998, both product lines continued to be produced at the New
Philadelphia plant. However, local tax abatements and overwhelming encouragement
from the Orrville community support Gradall's initial efforts to equip and
operate the Orrville facility as an entity dedicated primarily to the
manufacture of Gradall material handlers.
Such a move greatly expands our overall capacity, supporting our active program
to explore options in product acquisition and contract manufacturing.
Barry L. Phillips, President
-7-
<PAGE>
In his 22 years as a masonry contractor, Dennis Knowlton says the Gradall
material handler's unique steering system, allowing the big machine to literally
turn on a dime, has actually increased his profitability. "With our Gradalls,
we save a ton of time moving scaffolding or squaring up to unload tubs of mud,"
said Knowlton, owner of Knowlton Construction Equipment in Clifford, Pa. "The
steering capabilities are tremendous." Knowlton and other contractors who own or
rent Gradall material handlers also know the wide variety of jobs they have to
do can match up nicely with the designed-in versatility of Gradall machines.
Equipped with a range of attachments, Gradalls can be found moving brick, block
and mortar; placing trusses and bundles of lumber; even backfilling and cleaning
up at the end of the project. The unique design of the machines also makes them
"operator friendly," said Knowlton. A hydrostatic drivetrain provides
convenient, no-shift operation, and the new operator cabs are protective without
obstructing the view of the jobsite. "We own four Gradalls right now, and we
often rent more," said Knowlton. "We rely heavily on these machines, and we've
always gotten excellent support from the company and our distributor."
-8-
<PAGE>
material handlers
Material handlers have always been popular rental machines. Tremendous growth in
the rental industry, combined with highly favorable market conditions, increases
sales potential for the material handler line.
Gradall Material Handlers are typically used to move a variety of construction
materials around jobsites and industrial facilities. Masonry, framing and
general contractors prefer Gradalls for their collection of unique advantages,
including 90 rear-pivot steering. This allows operators to place lumber, brick,
block and other materials faster, easier and with greater precision. Gradall's
telescopic booms are among the strongest in the industry, providing greater lift
capacity and longer reach. 1998 sales benefitted dramatically from favorable
market conditions, including low interest rates and a strong economy. The
highly successful introduction of a new D Series family of machines also helped
to increase 1998 material handler sales. Gradall's primary focus for its
material handler sales continues to be in the North American market. In addition
to its traditional distributor network, Gradall is a preferred product of
national rental companies, which are a growing source of new machines for many
of the nation's contractors.
-9-
<PAGE>
"My new XL 2200 excavator has definitely made a major contribution to my bottom
line," says Howard Beezer, owner of Delta Equipment Rentals, Inc. in Washington,
D.C. "Its low operating profile makes it perfect for interior demolition jobs
and work on other tight jobsites." The XL 2000 series machines mark Gradall's
entrance into the 27,000-pound excavator class, offering Gradall users
traditional Gradall versatility and productivity in a machine suited for smaller
jobs. "Delta owns ten Gradall excavators. We use them for cleaning sediment
ponds, demolition work, trenching, ditching, finishing and just about anything
else you can think of. It's their productivity, versatility and the ability to
handle finesse work that's always been a strong point for Gradall." His
operators also like the fact that the new XL series hydraulics offer twice as
much power and use half as much fuel as the old Gradalls used to. "We've owned
Gradalls forever, and I don't see that changing anytime soon. In fact, I can't
wait to see their next class of machines hit the street."
-10-
<PAGE>
excavators
Gradall excavator sales began to benefit from the release of new government
money -TEA-21- earmarked for road and bridge repair and construction. Along with
a series of new product innovations, this transportation bill sets the stage for
steadily increasing excavator sales.
Gradall hydraulic excavators are distinguished by their telescoping, rotating
booms. The boom's arm-like motion increases the machine's versatility,
maximizing the potential of the machine to use a wide range of attachments. As
it has for many years, Gradall continues to dominate the niche market for
highway-speed, wheeled excavators. More recently, the introduction of the XL
Series high-pressure hydraulics, combined with a durable crawler undercarriage,
has allowed Gradall to successfully compete in the conventional excavator market
segment. The most recent addition to the XL excavator line, the XL 2300, was
introduced in Munich, Germany, at the 1998 Bauma exhibit, the world's largest
construction trade show. Gradall's XL 2300, the first excavator of its kind,
combines the versatility of the famous Gradall boom with a wheeled
undercarriage for greater maneuverability around jobsites, opening new market
opportunities. The XL 2300 is the third model in Gradall's line of 27,000-pound
excavators, designed to satisfy industry demand to buy or rent mid-size
machines. Current product development includes a line of 34,000-pound
excavators for municipalities and contractors. Increased demand is expected for
specialized machines used in mining and metal mill work. Growth is anticipated
in international markets, including Russia, Latin America, Turkey, China and the
Pacific Rim.
-11-
<PAGE>
"Some of our Gradalls are more than 10 years old," says Brent Kearns, fleet
manager for Vegas General Construction, "and they're still going strong."
Product support, which is provided by Bat Rentals in Las Vegas, helps keep Vegas
General's material handlers running by minimizing downtime and extending the
life of each machine. Vegas General has owned more than 20 Gradall machines.
"The Gradall is the only machine that can maneuver in the tight spaces we work
in. Authorized Gradall Parts are the only parts we trust to keep our Gradall
material handlers performing at their best" says Kearns. "Over the years, we've
built almost 8,000 homes, and thanks to the reliability of Gradall Parts, our
Gradalls have never let us down."
-12-
<PAGE>
parts & distribution
Gradall excavators and material handlers have a strong, reputable name. Our
highly respected global distribution network for sales, parts and service
demonstrates the dedication we have to serving our customers.
Gradall maintains a strong distribution network that provides effective and
efficient parts and service support. This network is made up of leading
equipment distributors located throughout North America and worldwide. Gradall's
distributors are chosen for their financial strength and their commitment to
promoting and selling Gradall products, as well as their ability to provide
critical after-sale service and parts. They are supported by Gradall's qualified
staff of sales and product support regional managers. These managers work
hand-in-hand with distributors, ensuring fast, efficient support and helping to
maintain a high level of customer satisfaction. Now, as a result of continuing
development of new markets, Gradall has distributors in Russia, South America,
China, the Middle East and the Pacific Rim. Gradall's On-Line Distributor (GOLD)
System allows distributors to access parts availability information and order
parts with their computers. In 1998, the GOLD System was expanded to offer
broader availability of aftermarket products. In 1999, Gradall will introduce
the new Gradall Plus system, an electronic database containing over 50 years of
Gradall equipment product support detail by model. This includes parts,
service, operation and safety information. The database will be available on
CD-ROM and will make valuable Gradall product support information easier than
ever to access.
-13-
<PAGE>
"Gradall is the kind of company I want to be aligned with," says Chuck
Stockwell, account manager for Parker Hannifin, Fluid Connectors Group. "Their
strong emphasis on continuous improvement and product development is part of
what makes them successful. They have the attitude we look for in a strategic
partner. They see and appreciate the added value we can bring to the table." The
four-year-old strategic partnership between Gradall and Parker Hannifin allows
Parker representatives to work closely with Gradall during various stages of
product design and manufacturing. This helps ensure that Gradall utilizes the
potential of Parker's hoses and fittings in the most effective manner, enabling
Gradall to promise their customers that there will be no leaks in the hydraulic
system. It's all part of the Parker Hannifin Certified Leak-Free program. "It's
a mutually beneficial situation," says Stockwell. "By eliminating what sometimes
becomes an adversarial relationship between customer and supplier, both Gradall
and Parker Hannifin contribute to each other's growth."
-14-
<PAGE>
suppliers
Gradall has formed strategic partnerships with many suppliers. Companies like
Rexroth Mobile Hydraulics, Bethlehem Steel and Meritor Axles work closely with
Gradall to ensure that the components going into our machines are the highest
possible quality.
Gradall's suppliers often do more than simply provide products for use by
Gradall. They get involved in the design stage, helping to optimize
manufacturing processes, and they provide post-sale support for their products.
They offer the highest quality components available for use in our products and
enable us to reduce total costs through techniques such as just-in-time
shipping. Part of the Gradall attitude is the concept that working hand-in-hand
with business partners creates an environment where both companies will
benefit. Gradall's strategic relationships with companies like Parker Fluid
Connectors, Meritor Axles, Bethlehem Steel and Rexroth Mobile Hydraulics help
ensure that Gradall products are continually improving and that the best
manufacturing processes are in use. That's why we've made a commitment to work
closely with our core suppliers, growing and improving with them and ensuring
the future success of Gradall as well as our suppliers.
-15-
<PAGE>
Selected Consolidated
Financial Data
(dollars in thousands, except share amounts)
Gradall Industries, Inc.
The following table sets forth selected consolidated financial data for the
Company for the five years ended December 31, 1998 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,
---------------------------------------------------------
1994 1995 1996 1997 1998
-------- ----------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Income Statement Data:
- - -------------------------------------------------------------------------------------------------
Net sales . . . . . . . . . . . . . . $88,820 $ 118,438 $ 140,909 $ 158,659 $ 182,607
Cost of sales . . . . . . . . . . . . 71,280 92,637 108,098 120,663 140,456
-------- ----------- ---------- ---------- ----------
Gross profit. . . . . . . . . . . . . 17,540 25,801 32,811 37,996 42,151
Research and development and
product engineering costs. . . . 2,123 2,504 3,081 3,644 4,039
Selling, general and administrative
expenses . . . . . . . . . . . . 9,346 10,503 11,815 13,712 14,149
-------- ----------- ---------- ---------- ----------
Operating income. . . . . . . . . . . 6,071 12,794 17,915 20,640 23,963
Amortization of FAS 106 (1). . . . . . (3,626)
Interest expense . . . . . . . . . . . 1,146 1,642 3,108 696 380
Other, net. . . . . . . . . . . . . . 234 865 1,018 257 31
-------- ----------- ---------- ---------- ----------
Income before provision for taxes and
extraordinary item . . . . . . . 8,317 10,287 13,789 19,687 23,552
Income tax provision . . . . . . . . . 3,152 3,680 5,503 7,696 9,198
-------- ----------- ---------- ---------- ----------
Income before extraordinary item . . . 5,165 6,607 8,286 11,991 14,354
Extraordinary item (2) . . . . . . . . 973
-------- ----------- ---------- ---------- ----------
Net income (3). . . . . . . . . . . . $ 5,165 $ 6,607 $ 7,313 $ 11,991 $ 14,354
======== =========== ========== ========== ==========
Earnings per share (4)
Basic:
Before extraordinary item. . . . $ 1.17 $ 1.19 $ 1.34 $ 1.56
After extraordinary item . . . . 1.17 1.05 1.34 1.56
Weighted average shares outstanding. . 5,637,244 6,956,507 8,939,605 9,230,768
Diluted:
Before extraordinary item. . . . $ 1.17 $ 1.18 $ 1.33 $ 1.54
After extraordinary item . . . . 1.17 1.04 1.33 1.54
Weighted average shares
outstanding. . . . . . . . . . . 5,637,244 7,003,200 9,013,760 9,316,466
Pro forma (5)
Net income per share . . . . . . $ 0.77 $ 1.07
Weighted average shares
outstanding. . . . . . . . . . . 8,939,294 8,939,294
Balance Sheet Data:
- - -------------------------------------------------------------------------------------------------
Working capital. . . . . . . . . . . . $ 2,472 $ 10,735 $ 14,907 $ 26,509 $ 27,842
Total assets . . . . . . . . . . . . . 41,099 52,024 58,226 76,735 98,987
Total debt . . . . . . . . . . . . . . 11,234 37,922 7,910 10,312 7,631
Stockholders' (deficit) equity . . . . (2,158) (23,119) 9,076 21,219 42,375
-16-
<PAGE>
Selected Consolidated
Financial Data
(continued)
Gradall Industries, Inc.
<FN>
(1) -The FAS 106 gain resulted from the reduction in the postretirement
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) -Net income (loss) per share data have been omitted for year 1994 as
such amount is not comparable due to a recapitalization which occurred in
October, 1995 (the "1995 Recapitalization").
(4) -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.
(5) -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.
(6) -Excludes former wholly owned subsidiaries of the Company which were
spun off to certain shareholders in connection with the 1995 Recapitalization.
</TABLE>
-17-
<PAGE>
Consolidated
Balance
Sheets
(dollars in thousands, except share amounts)
Gradall Industries, Inc.
<TABLE>
<CAPTION>
December 31,
Assets 1998 1997
- - -------------------------------------------------------------------------
<S> <C> <C>
Current assets:
Cash . . . . . . . . . . . . . . . . . . . . . . . $ 2,457 $ 1,605
Accounts receivable trade, net of allowance for
doubtful accounts of $69 and $56 . . . . . . . . 26,983 25,290
Inventories. . . . . . . . . . . . . . . . . . . . 32,872 25,564
Prepaid expenses and deferred charges. . . . . . . 2,510 1,645
Deferred income taxes. . . . . . . . . . . . . . . 985 742
-------- ---------
Total current assets. . . . . . . . . . . . . 65,807 54,846
Deferred income taxes. . . . . . . . . . . . . . . . 5,985 5,402
Property, plant and equipment, net . . . . . . . . . 25,838 15,108
Other assets:
Deferred financing costs, net of
accumulated amortization of $698 and $404. . . . 152 446
Other. . . . . . . . . . . . . . . . . . . . . . . 1,205 933
-------- ---------
Total other assets. . . . . . . . . . . . . . 1,357 1,379
-------- ---------
Total assets. . . . . . . . . . . . . . . . . $98,987 $ 76,735
======== =========
Liabilities and Stockholders' Equity
Current liabilities:
Current portion of capital lease obligation. . . . $ 307 $ 297
Current portion of long-term debt. . . . . . . . . 6,919
Accounts payable - trade . . . . . . . . . . . . . 16,288 17,113
Accrued other expenses:
Profit sharing . . . . . . . . . . . . . . . . . 1,404 1,327
Floor plan interest. . . . . . . . . . . . . . . 1,341 1,444
Warranty . . . . . . . . . . . . . . . . . . . . 1,853 1,075
Deferred revenue . . . . . . . . . . . . . . . . 2,286
Income taxes . . . . . . . . . . . . . . . . . . 2,208 1,115
Other. . . . . . . . . . . . . . . . . . . . . . 5,359 5,966
-------- ---------
Total current liabilities . . . . . . . . . . 37,965 28,337
-------- ---------
Long-term obligations:
Capital lease obligation . . . . . . . . . . . . . 405 412
Long-term debt . . . . . . . . . . . . . . . . . . 9,603
Accrued post-retirement benefit cost . . . . . . . 16,554 15,719
Other long-term liabilities. . . . . . . . . . . . 1,688 1,445
-------- ---------
Total long-term obligations . . . . . . . . . 18,647 27,179
-------- ---------
Total liabilities . . . . . . . . . . . . . . 56,612 55,516
-------- ---------
Stockholders' equity:
Serial preferred shares, par value $.001 per share
2,000,000 shares authorized,
none issued and outstanding
Common stock, $.001 par value; 18,000,000 shares
authorized; 9,508,231 and 8,940,194 issued and
outstanding in 1998 and 1997, respectively . . . 10 9
Additional paid-in capital . . . . . . . . . . . . 45,805 38,894
Accumulated deficit. . . . . . . . . . . . . . . . (2,733) (17,087)
Accumulated other comprehensive loss . . . . . . . (707) (597)
-------- ---------
Total stockholders' equity. . . . . . . . . . 42,375 21,219
-------- ---------
Total liabilities and stockholders' equity. . $98,987 $ 76,735
======== =========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
-18-
<PAGE>
Consolidated
Statements
of Income
(dollars in thousands, except share amounts)
Gradall Industries, Inc.
<TABLE>
<CAPTION>
For the Years Ended December 31,
----------------------------------
1998 1997 1996
---------- ---------- ----------
<S> <C> <C> <C>
Net sales. . . . . . . . . . . . . . . . . . . . . $ 182,607 $ 158,659 $ 140,909
Cost of sales. . . . . . . . . . . . . . . . . . . 140,456 120,663 108,098
---------- ---------- ----------
Gross profit. . . . . . . . . . . 42,151 37,996 32,811
Research and development and product
engineering costs . . . . . . . . . . . . . . 4,039 3,644 3,081
Selling general and administrative expenses. . . . 14,149 13,712 11,815
---------- ---------- ----------
Operating income. . . . . . . . . 23,963 20,640 17,915
Other expense:
Interest expense. . . . . . . . . . . . . . 380 696 3,108
Other. . . . . . . . . . . . . . . . . . . . 31 257 1,018
---------- ---------- ----------
Net other expense . . . . . . . . 411 953 4,126
---------- ---------- ----------
Income before income taxes
and extraordinary item. . . 23,552 19,687 13,789
Income tax provision . . . . . . . . . . . . . . . 9,198 7,696 5,503
---------- ---------- ----------
Income before extraordinary item . . . . . . . . . 14,354 11,991 8,286
---------- ---------- ----------
Extraordinary item, loss from early extinguishment
of debt, net of tax benefit of $622. . . . . 973
---------- ---------- ----------
Net income . . . . . . . . . . . . . . . . . . . . $ 14,354 $ 11,991 $ 7,313
========== ========== ==========
Basic:
Weighted average shares outstanding. . . . . . . . 9,230,768 8,939,605 6,956,507
Earnings per share:
Before extraordinary item . . . . . . . . . . $ 1.56 $ 1.34 $ 1.19
After extraordinary item. . . . . . . . . . . $ 1.56 $ 1.34 $ 1.05
Diluted:
Weighted average shares outstanding. . . . . . . . 9,316,466 9,013,760 7,003,200
Earnings per share:
Before extraordinary item . . . . . . . . . . $ 1.54 $ 1.33 $ 1.18
After extraordinary item. . . . . . . . . . . $ 1.54 $ 1.33 $ 1.04
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
-19-
<PAGE>
Consolidated
Statements of Changes in
Stockholders'
Equity
(dollars in thousands)
Gradall Industries, Inc.
<TABLE>
<CAPTION>
Accumulated
Additional Other Com-
Additional Paid-In prehensive
Preferred Common Paid-In Capital- Accumulated Income
Stock Stock Capital Warrants Deficit (Loss)(1) Total
----------- ------- ------------ ------------ ------------- ------------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance December 31, 1995. . . $ 2,000 $ 6 $ 11,994 $ 1,000 $ (37 ,391) $ (728) $(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
Minimum pension liability
adjustment . . . . . . . . (34) (34)
---------
Total comprehensive income 7,279
----------- ------- ------------ ------------ ------------- ------------- ---------
Balance December 31, 1996 9 38,907 (29,078) (762) 9,076
Additional expense
resulting from the initial
public offering (19) (19)
Stock options exercised 6 6
Net income 11, 991 11,991
Minimum pension liability
adjustment 165 165
---------
Total comprehensive income 12,156
----------- ------- ------------ ------------ ------------- ------------- ---------
Balance December 31, 1997 9 38,894 (17,087) (597) 21, 219
Issuance of 562,500 shares
of common stock 1 6,876 6,877
Stock options exercised 35 35
Net income 14,354 14,354
Minimum pension liability
adjustment (110) (110)
---------
Total comprehensive income 14,244
----------- ------- ------------ ------------ ------------- ------------- ---------
Balance December 31, 1998. . . $ - $ 10 $ 45,805 $ - $ (2,733) $ (707) $ 42,375
----------- ------- ------------ ------------ ------------- ------------- ---------
<FN>
(1) All items included in accumulated other comprehensive income (loss) are shown net of income taxes. The tax effect for
the minimum pension liability adjustment was $70, $(93) and $17 for 1998, 1997, and 1996 respectively.
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
-20-
<PAGE>
Consolidated
Statements
of
Cash Flows
(dollars in thousands)
Gradall Industries, Inc.
<TABLE>
<CAPTION>
For the Years Ended December 31,
-------------------------------
1998 1997 1996
--------- -------- ---------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 14,354 $11,991 $ 7,313
Adjustments to reconcile net income
to net cash provided by operating activities:
Extraordinary item, before tax benefit . . . . . . . . . . 1,595
Change in pension liability adjustment . . . . . . . . . . (110) 165 (34)
Post-retirement benefit transition obligation. . . . . . . 835 1, 115 780
Depreciation . . . . . . . . . . . . . . . . . . . . . . . 2,420 1,721 1,391
Amortization . . . . . . . . . . . . . . . . . . . . . . . 294 157 344
Deferred income taxes. . . . . . . . . . . . . . . . . . . (826) 264 106
Equity loss on investment. . . . . . . . . . . . . . . . . 44
Gain on sale of property, plant and equipment. . . . . . . (98) (1) (111)
Increase in accounts receivable. . . . . . . . . . . . . . (1,693) (8,444) (4,710)
Increase in inventories. . . . . . . . . . . . . . . . . . (7,308) (4,238) (2,816)
Increase in prepaid expenses . . . . . . . . . . . . . . . (865) (1,150) (51)
Increase in other assets . . . . . . . . . . . . . . . . . (272) (135) (152)
Increase in accounts payable and accrued expenses. . . . . 4,147 2,204 3,941
Increase (decrease) in accrued other long-term liabilities 243 (239) 28
--------- -------- ---------
Net cash provided by operating activities . . . . . . . 11,121 3,410 7,668
--------- -------- ---------
Cash flows from investing activities:
Proceeds from sale of property, plant and equipment. . . . . . . . . 223 12 104
Purchase of property, plant and equipment. . . . . . . . . . . . . . (13,275) (5,305) (2,300)
--------- -------- ---------
Net cash used in investing activities . . . . . . . . . (13,052) (5,293) (2,196)
--------- -------- ---------
Cash flows from financing activities:
Net proceeds from initial public offering. . . . . . . . . . . . . . 26,916
Payment of term debt . . . . . . . . . . . . . . . . . . . . . . . . (10,000)
Payment of subordinated debt . . . . . . . . . . . . . . . . . . . . (10,000)
Issuance of 900 common shares. . . . . . . . . . . . . . . . . . . . 6
Issuance of 5,540 common shares. . . . . . . . . . . . . . . . . . . 35
Redemption of preferred stock. . . . . . . . . . . . . . . . . . . . (2,000)
Net proceeds from follow on public offering. . . . . . . . . . . . . 6,877
Proceeds (repayments) on capital leases. . . . . . . . . . . . . . . 3 90 (172)
Net advances (repayments) on revolving line of credit. . . . . . . . (2,684) 2,312 (10,808)
Proceeds from (payments of) bank overdraft . . . . . . . . . . . . . (1,448) 884 (730)
Other. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (19)
--------- -------- ---------
Net cash provided by (used in) financing activities . . 2,783 3,273 (6,794)
--------- -------- ---------
Net increase (decrease) in cash . . . . . . . . . . . . 852 1,390 (1,322)
Cash, beginning of year. . . . . . . . . . . . . . . . . . . . . . . . 1,605 215 1,537
--------- -------- ---------
Cash, end of year. . . . . . . . . . . . . . . . . . . . . . . . . . . $ 2,457 $ 1,605 $ 215
========= ======== =========
Supplemental disclosure:
Cash paid for:
Income taxes . . . . . . . . . . . . . . . . . . . . . . . $ 8,931 $ 7,650 $ 2,875
========= ======== =========
Interest . . . . . . . . . . . . . . . . . . . . . . . . . $ 409 $ 604 $ 3,572
========= ======== =========
Other:
Amounts financed through capital leases. . . . . . . . . . $ 290 $ 287
========= ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
-21-
<PAGE>
Notes to
Consolidated
Financial
Statements
(dollars in thousands)
Gradall Industries, Inc.
1. Nature of Business and Basis of Presentation:
Gradall Industries, Inc. (the "Company"), Incorporated in Delaware, formerly ICM
Industries Inc. (ICM), is a holding company. The consolidated financial
statements include the Company and its wholly owned subsidiaries, The Gradall
Company, The Gradall Orrville Company and Gradall Investment Company. The
Gradall Investment Company was dissolved in 1996.
The Gradall Company manufactures and sells excavating and material handling
equipment and related parts to public and private sector customers throughout
the world through independent distribution organization.
On September 3, 1996, the Company completed an initial public offering in which
2,950,000 shares of common stock were issued for a total sum of $29.5 million.
Expenses incurred in connection with the issue approximated $2.6 million. The
net proceeds of the offering were used as follows:
<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.
On June 29, 1998, the Company completed a public offering in which 562,500
shares of common stock were issued by the Company for a total sum of $7.3
million. Expenses incurred in connection with the issue approximated $0.5
million including $0.1 million related to selling shareholders. The net proceeds
of the offering were used to repay the revolving credit facility.
On October 13, 1998, a new company, The Gradall Orrville Company, was formed as
a wholly owned subsidiary of Gradall Industries, Inc., to purchase a new
production plant at Orrville, Ohio. The new facility, formerly the Volvo Truck
Assembly plant, contains 330,000 square feet and will provide additional
production space for the material handler product.
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.
-22-
<PAGE>
Notes to
Consolidated
Financial
Statements
(continued)
(dollars in thousands)
Gradall Industries, Inc.
2. Summary of Significant Accounting Policies, Continued:
Revenue Recognition: The Company's revenue recognition policy is to recognize
revenue when products are shipped. In 1998, the Company entered into a
twelve-month lease agreement for certain inventories which includes a guarantee
by the Company at the end of the lease agreement. Revenues equal to the amount
of the guarantee are deferred.
Product Financing: The Company provides its distributors with product financing
through agreements with third party financing companies. Such financings include
a Wholesale Floor Plan for distributors and a Retail Finance Plan for end-users,
each with reduced interest rates subsidized by the Company, and a Rental Plan
for distributors.
Product Warranty Costs: In general, the Company provides warranty on equipment
for a period of up to twelve months or for a specified period of use after sale
or rental by the distributor. Reserves for estimated warranty costs are
established at the time of sale.
Inventories: Inventories are stated at cost not in excess of market value using
the last-in, first-out (LIFO) method of inventory costing. Inventory cost
includes materials, direct labor, manufacturing overhead, and outside service
costs. Market value is determined by comparison with recent purchases or
realizable value.
Property, Plant and Equipment: Expenditures for property, plant and equipment
and for renewals and betterments which extend the originally estimated economic
lives of assets are capitalized at cost. Expenditures for maintenance and
repairs are charged to expense. Items which are sold, retired, or otherwise
disposed of are removed from the asset and accumulated depreciation accounts and
any gains or losses are reflected in income. The Company's depreciation and
amortization methods are as follows:
Description Useful Life Method
- - --------------------------------------------------------------------------------
Machinery and equipment 3-10 years Straight-line
Buildings and improvements 10-24 years Straight-line
Furniture and fixtures 3-10 years Straight-line
Patents: The cost of patents is being amortized on a straight-line basis over
the remaining legal life of the patents.
Deferred Financing Costs: Costs incurred to obtain financing have been
capitalized and are being amortized over the life of the respective financing
arrangements.
Income Taxes: The Company follows the provisions of Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes." Deferred income
taxes arise from reporting certain items of income and expense for tax purposes
in a different period than for financial reporting purposes.
Fair Value of Financial Instruments: The Company's financial instruments consist
principally of cash, accounts receivable, accounts payable and accrued
liabilities in which the fair value of these financial instruments approximates
the carrying value. The Company's revolving line of credit provides for
periodic changes in interest rates which approximate current rates and
therefore, the fair value of the debt approximates carrying value.
-23-
<PAGE>
Notes to
Consolidated
Financial
Statements
(continued)
(dollars in thousands)
Gradall Industries, Inc.
2. Summary of Significant Accounting Policies, Continued:
Research and Development Costs: Expenditures relating to the development of new
products and processes, including significant improvements to existing products,
are expensed as incurred. Research and development expenses were $2,552, $1,722
and $1,641 in 1998, 1997 and 1996, respectively. In addition, the Company
incurred other engineering expenses relating to new product development (that do
not meet the accounting definition of "Research and Development") in the amount
of $1,487, $1,922 and $1,440 in 1998, 1997 and 1996, respectively.
Stock Based Compensation: The Company accounts for stock based compensation
awards pursuant to Accounting Principles Board Opinion No. 25, "Accounting for
Stock Issued to Employees," and its related interpretations which prescribe the
use of the intrinsic value based method. No compensation cost has been
recognized for its fixed stock option plans. However, the Company has adopted
the disclosure requirements of Statement of Financial Accounting Standards No.
123, "Accounting for Stock Based Compensation," See Note 10 for additional
information.
Earnings Per Common Share: In the fourth quarter of 1997, the Company adopted
the provisions of Statement of Financial Accounting Standards No. 128 ("SFAS
128"), "Earnings per Share," which specifies the computation, presentation, and
disclosure requirements of earnings per common share. Basic earnings per share
are based on the weighted average number of common shares outstanding during the
period. Diluted earnings per common share are based on the weighted average
number of common shares outstanding during the period plus, if dilutive, the
incremental number of common shares issuable on a pro forma basis upon the
exercise of employee stock options, assuming the proceeds are used to repurchase
outstanding shares at the average market price during the year. All prior
periods have been restated to conform to the provisions of this statement. A
reconciliation of the Basic and Diluted per share computations are provided
below:
<TABLE>
<CAPTION>
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
Common Shares
Weighted average common shares outstanding
Basic . . . . . . . . . . . . . . . . . . 9,230,768 8,939,605 6,956,507
Additional common shares
issuable for stock options. . . . . . 85,698 74,155 46,693
--------- --------- ---------
Common shares - Diluted. . . . . . . . . . 9,316,466 9,013,760 7,003,200
========= ========= =========
</TABLE>
Comprehensive Income: Statement of Financial Accounting Standards No. 130,
"Reporting Comprehensive Income." was adopted during the first quarter of 1998.
The standard established guidelines for the reporting and display of
comprehensive income (loss) and its components in financial statements.
Comprehensive income includes net income and adjustments to the minimum pension
liability. The Company has changed the format of its Consolidated Statement of
Changes in Stockholders' Equity to present comprehensive income and its
components.
Segment Information: Statement of Financial Accounting Standards No. 131,
"Disclosures about Segments of an Enterprise and Related Information," was
adopted in the fourth quarter of 1998 and supersedes Statement of Financial
Accounting Standards No. 14, "Financial Reporting for Segments of a Business
Enterprise." The new standard established guidelines for reporting information
on operating segments in interim and annual financial statements. The adoption
of the standard did not affect the Company's financial position, results of
operations or cash flows (see Note 14).
-24-
<PAGE>
Notes to
Consolidated
Financial
Statements
(continued)
(dollars in thousands)
Gradall Industries, Inc.
2. Summary of Significant Accounting Policies, Continued:
Future Accounting Requirements: In June 1998, the Financial Accounting Standards
Board issued Statement of Financial Accounting Standards No. 133, "Accounting
for Derivative Instruments and Hedging Activities." This Statement requires that
all derivative instruments be recorded on the balance sheet at their fair value.
Changes in the fair value of derivatives will be recorded each period in current
earnings or other comprehensive income. The new rules will be effective the
first quarter of 2000. The Company is in the process of determining the impact
of this new standard and, based on current market conditions, anticipates that
it will not have a material impact on the Company's financial statements when
effective.
Reclassifications: Certain prior years' balances have been reclassified to
conform to the current year's presentation.
3. Inventories:
<TABLE>
<CAPTION>
Inventories are comprised of:
1998 1997
-------- -------
<S> <C> <C>
Raw materials . . . . . . . . $ 1,401 $ 921
Work in process . . . . . . . 24,501 24,739
Finished goods. . . . . . . . 13,058 5,474
-------- -------
38,960 31,134
Less LIFO reserve . . . . . . 6,088 5,570
-------- -------
Total inventory . . . . . . . $ 32,872 $25,564
======== =======
</TABLE>
4. Property, Plant and Equipment:
The major classes of property, plant and equipment are summarized as follows:
<TABLE>
<CAPTION>
1998 1997
------- -------
<S> <C> <C>
Land. . . . . . . . . . . . . . . $ 963 $ 513
Machinery and equipment . . . . . 23,998 16,910
Buildings and improvements. . . . 11,087 5,587
Furniture and fixtures. . . . . . 3,212 2,277
Construction in progress. . . . . 2,584 4,109
------- -------
41,844 29,396
Less accumulated depreciation . . 16,006 14,288
------- -------
Net property, plant and equipment $25,838 $15,108
======= =======
</TABLE>
5. Financing:
<TABLE>
<CAPTION>
Long-term debt includes: 1998 1997
------- ------
<S> <C> <C>
Revolving credit . . . . $6,919 $9,603
Less current maturities. 6,919 0
------- ------
$ 0 $9,603
</TABLE>
At December 31, 1998, the Company maintained a loan and security agreement with
Heller Financial, Inc. which provided for up to $25 million in revolving loan
commitments. Amounts borrowed under the borrowing base, as defined, could be
repaid and reborrowed at any time prior to August 31, 1999, the termination
date. Amounts outstanding under this agreement were reclassified to current
portion of long-term debt at December 31, 1998.
-25-
<PAGE>
Notes to
Consolidated
Financial
Statements
(continued)
(dollars in thousands)
Gradall Industries, Inc.
5. Financing, Continued:
The revolving line of credit bears interest at either LIBOR plus 1% or prime
minus .50%. At December 31, 1998, the prime rate was 7.75%. There were no
borrowings under the LIBOR option at year end. The average annual interest rate
in effect for the revolving line of credit was 7.25%. At December 31, 1997, the
prime rate was 8.5%, LIBOR was 5.97%, and the average annual interest rate in
effect for the revolving line of credit was 7.86%. The Company also pays an
unused line fee of 0.25 percent per annum.
The terms of the financing agreement contain, among other provisions,
restrictions on the level of capital expenditures and various financial ratios,
as defined. The financing agreements are collateralized by substantially all the
assets of the Company.
On January 27, 1999 the Company's Loan and Security Agreement with Heller
Financial, Inc. was paid in full and terminated. A new revolving line of credit
for $17 million was established with KeyBank National Association (the "Lender")
with an unsecured demand promissory note. The note bears interest at either
LIBOR plus .80% or prime minus 1.40%. The note renews annually and terminates at
the earlier of the Lender's demand or the Company's decision to terminate by
written or oral communication to the Lender.
6. Lease Obligations
The Company leases certain machinery and equipment under capital leases expiring
between 1999 and 2001. The assets and liabilities under capital leases are
recorded at the original purchase cost. The assets are depreciated over their
estimated productive lives. Depreciation of assets under capital leases is
included in depreciation expense.
In addition, the Company leases certain equipment under operating leases. A
number of these leases have renewal options.
The following is a summary of property held under capital leases:
<TABLE>
<CAPTION>
1998 1997
------ ------
<S> <C> <C>
Machinery and equipment . . . $1,020 $1,020
Information systems . . . . . 571 287
------ ------
Total capital leases. . . . . 1,591 1,307
Less accumulated depreciation 572 364
------ ------
$1,019 $ 943
====== ======
</TABLE>
-26-
<PAGE>
Notes to
Consolidated
Financial
Statements
(continued)
(dollars in thousands)
Gradall Industries, Inc.
6. Lease Obligations, Continued:
The following is a summary of future minimum payments under capitalized and
operating leases that have remaining noncancelable lease terms in excess of one
year at December 31, 1998:
<TABLE>
<CAPTION>
Operating Capital Operating
Year ending December 31, Leases Leases
-------- ----------
<S> <C> <C>
1999 . . . . . . . . . . . . . . . . . $ 356 $ 160
2000 . . . . . . . . . . . . . . . . . 370 86
2001 . . . . . . . . . . . . . . . . . 60 32
-------- ----------
Total minimum lease payments . . . . . 786 $ 278
==========
Interest . . . . . . . . . . . . . . . 74
--------
Liability under capital lease payments 712
Current portion. . . . . . . . . . . . 307
--------
Long-term capitalized lease obligation $ 405
========
</TABLE>
Rental expense for operating leases amounted to $394, $409 and $397 for the
years ended December 31, 1998, 1997, and 1996 respectively.
7. Employee Benefit Plans:
Pension and Postretirement Benefit Plans: Substantially all employees are
covered by pension plans which provide for monthly pension payments to eligible
former employees who have retired. Prior to March 24, 1997 the Company sponsored
two plans, one for members of the collective bargaining unit and one for
salaried and other eligible employees.
Benefits paid under the collective bargaining unit plan are based on a benefit
multiplier times years of credited service, reduced by benefits under a prior
plan. Such prior plan benefits are guaranteed under the terms of group annuity
contracts. Benefits paid under the salary plan are based on the greater of a
benefit multiplier times years of credited service or a percentage of
pre-retirement earnings. Pension costs are funded as actuarially determined and
to the extent cash contributions are deductible for federal income tax purposes.
The collective bargaining unit plan uses the entry age normal actuarial cost
method to determine annual contributions to the plan. The salary plan uses the
unit credit actuarial cost method to determine contributions.
Effective March 24, 1997 the Company adopted the IAM National Pension Plan to
replace the existing collective bargaining unit plan for future service
benefits. The collective bargaining unit plan benefits were frozen and the
Company continues to fund the plan for past service benefits. The expense
related to funding the IAM National Pension Plan for years ending December 31,
1998 and 1997 was $371 and $254 respectively.
Postretirement Benefits: The Company provides eligible retired employees with
health care and life insurance benefits. These benefits are provided on a
non-contributory basis for life insurance and contributory basis for medical
coverage. Currently, the Company does not pre-fund these benefits.
Statement of Financial Accounting Standards No. 87, "Employers' Accounting for
Pension," contains a provision which requires the recognition of a liability
(including unfunded accrued pension costs) that is at least equal to the
unfunded accumulated benefit obligation (the excess of the accumulated benefit
obligation over the fair value of plan assets). Recognition of an additional
minimum liability is required if an unfunded accumulated benefit exists and the
liability already recognized as unfunded accrued pension cost is less than the
unfunded accumulated benefit obligation. The additional minimum liability of
$1,160 and $980 at December 31, 1998 and 1997, respectively, has been included
in other long-term liabilities and has been reported net of income tax effect
within stockholders' equity.
-27-
<PAGE>
Notes to
Consolidated
Financial
Statements
(continued)
(dollars in thousands)
Gradall Industries, Inc.
7. Employee Benefit Plans, Continued:
The following table sets forth the both plan's funded status and amounts
recognized in the Company's consolidated financial statements.
<TABLE>
<CAPTION>
Pension Benefits Postretirement Benefits
-------------------- --------------------
1998 1997 1998 1997
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Change in Benefit Obligation
Projected benefit obligation
(PBO)/Accumulated
postretirement benefit obligation
(APBO), beginning of year . . . . $ 12,637 $ 10,990 $ 18,874 $ 16,515
Service cost. . . . . . . . . . 487 505 678 583
Interest cost . . . . . . . . . 889 819 1,166 1,232
Plan amendments . . . . . . . . (509)
Plan curtailments . . . . . . . 17
Actuarial (gain) loss . . . . . 375 946 (1,355) 1,279
Benefits paid . . . . . . . . . (649) (640) (1,056) (735)
--------- --------- --------- ---------
PBO/APBO, end of year . . . . . . $ 13,739 $ 12,637 $ 17,798 $ 18,874
========= ========= ========= =========
Change in plan assets
Fair value of plan assets,
beginning of year . . . . . . . $ 11,197 $ 9,081
Actuarial return on plan assets 837 1,838
Employer contributions. . . . . 930 918 $ 1,056 $ 735
Benefits paid . . . . . . . . . (649) (640) (1,056) (735)
--------- --------- --------- ---------
Fair value of plan assets,
end of year . . . . . . . . . . 12,315 11,197
========= ========= ========= =========
Funded status . . . . . . . . . . (1,424) (1,440) (17,798) (18,874)
Prior service costs . . . . . . . 98 108 (509)
Cumulative net (gain) or loss . . 1,691 1,227 1,753 3,155
--------- --------- --------- ---------
(Accrued) prepaid pension/
postretirement cost . . . . . . $ 365 $ (105) $(16,554) $(15,719)
========= ========= ========= =========
Amounts recognized in the
statement of financial position
consist of:
Prepaid benefit cost. . . . . . $ 365 $ (105)
Accrued benefit liability . . . $(16,554) $(15,719)
Intangible asset
Accumulated other
comprehensive income. . . . . (1,160) (980)
--------- --------- --------- ---------
Net amount recognized . . . . . . $ (795) $ (1,085) $(16,554) $(15,719)
========= ========= ========= =========
</TABLE>
<TABLE>
<CAPTION>
Pension Benefits Postretirement Benefits
------------------------------- -------------------------------
1998 1997 1996 1998 1997 1996
--------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Weighted average assumptions
as of December 31
Discount rate . . . . . . . . . . 7.0% 7.0% 7.5% 7.0% 7.0% 7.5%
Long-term rate of
return on assets. . . . . . . . 8.5% 8.5% 8.5% N/A N/A N/A
Rate of compensation increase . . 4.5% 4.5% 4.5%
Medical trend rates . . . . . . . 5% to 8% 5% to 8% 5% to 8%
</TABLE>
-28-
<PAGE>
Notes to
Consolidated
Financial
Statements
(continued)
(dollars in thousands)
Gradall Industries, Inc.
7. Employee Benefit Plans, Continued:
For measurement purposes, an 8 percent annual rate increase in the per capita
cost of covered health care benefits was assumed for 1998. The rate was assumed
to decrease gradually to 5 percent by 2011 and remain at that level hereafter.
Assumed health care cost trend rates have a significant effect on the amounts
reported for the health care plan. A one-percent point change in assumed health
care cost trend rates would have the following effects:
<TABLE>
<CAPTION>
<S> <C> <C>
Effect on total of service and interest cost components $ 346 $ (270)
Effect on postretirement benefit obligation . . . . . . $2,876 $(2,060)
</TABLE>
<TABLE>
<CAPTION>
Pension Benefits Postretirement Benefits
---------------------- -----------------------
1998 1997 1996 1998 1997 1996
------ ------ ------ ------- ------ ------
<S> <C> <C> <C> <C> <C> <C>
Components of net periodic
pension/postretirement cost
Service cost. . . . . . . . . $ 487 $ 505 $ 693 $ 679 $ 584 $ 539
Interest cost . . . . . . . . 889 819 739 1,166 1,232 1,143
Expected return on assets . . (954) (775) (658)
Amortization of unrecognized
Prior service costs . . . . 10 10 13 (18) 34 17
(Gain) / Loss . . . . . . . 28 44 59
Cumulative net (gain) loss. . 17
------ ------ ------ ------- ------ ------
Net periodic
pension/postretirement cost $ 460 $ 620 $ 846 $1,827 $1,850 $1,699
====== ====== ====== ======= ====== ======
</TABLE>
Savings and Investment Plan: Substantially all employees are eligible to
participate in a savings and investment plan. The Company sponsors two plans,
one for members of the collective bargaining unit and one for salaried and other
eligible employees. The plans provide for contributions by employees, through
salary reductions, and for a matching contribution by the Company based on a
rate determined for each plan year by the Board of Directors of the Company.
The plans also provide for a discretionary contribution by the Company. No
Company contributions were made to the plan in 1998, 1997 or 1996.
Deferred Compensation Program: The Company has a deferred compensation program
under which certain employees may elect to postpone receipt of a portion of
their earnings. The amounts so deferred are deposited in a trust account, but
remain assets of the Company. The trustees of the program are officers and a
key employee of the Company.
Profit Sharing Plan: The Company maintains a profit sharing plan covering union
and salaried employees. The amount of the profit sharing bonus is determined by
the Company's return on sales and is calculated based upon the wages of eligible
employees. Company contributions for 1998, 1997 and 1996 were $1,404, $1,327 and
$794 respectively.
-29-
<PAGE>
Notes to
Consolidated
Financial
Statements
(continued)
(dollars in thousands)
Gradall Industries, Inc.
8. Income Taxes:
The provision for income taxes for the years ended December 31, 1998, 1997 and
1996 consisted of the following:
<TABLE>
<CAPTION>
1998 1997 1996
------- ------ ------
<S> <C> <C> <C>
Federal. . . . . . . . . . . $8,576 $6,327 $3,433
State. . . . . . . . . . . . 1,448 1,105 642
Deferred . . . . . . . . . . (826) 264 806
------- ------ ------
9,198 7,696 4,881
------- ------ ------
Tax effect of extraordinary
item (shown separately). . 622
------- ------ ------
$9,198 $7,696 $5,503
======= ====== ======
</TABLE>
The Company's effective tax rate differed from the federal statutory rate as
follows:
<TABLE>
<CAPTION>
1998 1997 1996
----- ----- -----
<S> <C> <C> <C>
Federal statutory rate. . . . . 35.0% 35.0% 35.0%
Effect of state and local taxes 4.0% 3.7% 3.6%
Change in tax liability . . . . - - -
Other . . . . . . . . . . . . . 0.1% 0.4% 1.4%
----- ----- -----
39.1% 39.1% 40.0%
===== ===== =====
</TABLE>
The components of the net deferred tax benefits (liabilities) as of December 31,
1998 and 1997 were as follows:
<TABLE>
<CAPTION>
1998 1997
-------- --------
<S> <C> <C>
Current:
Inventories . . . . . . . . . . . $ (659) $ (705)
Accrued expenses. . . . . . . . . 1,644 1,628
Other . . . . . . . . . . . . . . (181)
$ 985 $ 742
Long-term:
Basis of property and equipment . $(1,862) $(1,618)
Postretirement benefits liability 6,761 6,420
Accrued expenses. . . . . . . . . 1,086 600
-------- --------
$ 5,985 $ 5,402
======== ========
</TABLE>
The sources of timing differences and the related deferred tax effects were as
follows:
<TABLE>
<CAPTION>
1998 1997 1996
-------- ------ ------
<S> <C> <C> <C>
Accrued expenses. . . . . . . . . $(647)6 $ 340 $ 970
Postretirement benefits liability (341) (456) (318)
Depreciation. . . . . . . . . . . 244 225 212
Inventories . . . . . . . . . . . (46) (57) (52)
Other . . . . . . . . . . . . . . (26) 212 (6)
-------- ------ ------
$ (816) $ 264 $ 806
======== ====== ======
</TABLE>
Valuation allowances are established when necessary to reduce deferred tax
assets to the amounts expected to be realized.
-30-
<PAGE>
Notes to
Consolidated
Financial
Statements
(continued)
(dollars in thousands)
Gradall Industries, Inc.
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, 1998 and
1997 no Series A preferred stock was outstanding.
The Board of Directors is authorized, subject to any limitations prescribed by
law, to issue preferred stock in one or more classes or series and to fix the
designations, voting powers, preferences, rights, qualifications, limitations or
restrictions of any such class or series, including dividend rights, dividend
rates, redemption prices and terms, conversion rights and liquidation
preferences of each class or series of preferred stock, without any further vote
or action by the stockholders of the Company.
10. Stock Options:
On October 13, 1995, the stockholders approved a qualified incentive stock
option program under which 315,226 shares of the Company's common stock are
reserved for grants to key employees (The "1995 Stock Option Plan"). The option
price is to be determined by the Board, but may not be less than 100% of the
fair market value of the Company's common stock at the time of the grant and
options must be exercised within ten years from the date of grant. The options
vest and become exercisable in three annual installments commencing on the first
anniversary of the date of the grant. On June 3, 1997, the stockholders approved
an amendment to the 1995 Stock Option Plan increasing the number of shares of
the Company's common stock reserved for grants under the program to 515,226.
On May 20, 1998, the stockholders approved a qualified incentive stock option
plan under which 300,000 shares of the Company's common stock are reserved for
grants to key employees. The plan includes provisions for pricing and vesting
which are the same as the above plan. The stockholders also approved an employee
stock purchase plan under which 300,000 shares of the Company's common stock may
be sold at a 15% market price reduction. Common shares sold through the plan are
being purchased in the open market.
The following summarizes the changes in the number of Common Shares under
option:
<TABLE>
<CAPTION>
(Options in thousands) 1998 1997 1996
------------- ------------- ------------
<S> <C> <C> <C>
Options outstanding at beginning of year. 514 278 132
Options granted during the year . . . . . 237 151
Options exercised during the year . . . . (5) (1)
Options canceled during the year. . . . . (5)
Options outstanding at end of year. . . . 509 514 278
------------- ------------- ------------
Option price range per share. . . . . . . $2.71-$13.75 $2.71-$13.75 $2.71-$6.32
============= ============= ============
</TABLE>
The Company's current option plans, which provide for a total of 815 options (6
of which have been exercised), have 300 options remaining for future grants at
December 31, 1998.
-31-
<PAGE>
Notes to
Consolidated
Financial
Statements
(continued)
(dollars in thousands)
Gradall Industries, Inc.
10. Stock Options, Continued:
The ranges of exercise prices and the remaining contractual life of options as
of December 31, 1998 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, 1998. . . . . . . . . . . . . . . . . . 132 140 237
Weighted-average remaining contractual life (in years) 6.78 7.30 8.45
Weighted-average exercise price. . . . . . . . . . . . $2.71 $6.32 $ 13.47
Options exerciseable in thousands:
Outstanding as of December 31, 1998. . . . . . . . . . 132 53 79
Weighted-average remaining
contractual life (in years) . . . . . . . . . . . . 6.78 7.30 8.45
Weighted-average exercise price. . . . . . . . . . . . $2.71 $6.32 $ 13.47
</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 1998,
1997 and 1996 along with significant assumptions used in determining the fair
value of the compensation amounts.
<TABLE>
<CAPTION>
1998 1997 1996
----------- ----------- ---------
<S> <C> <C> <C>
Pro forma amounts:
Net income . . . . . . . . . $ 14,019 $ 11,777 $ 7,242
Earnings per share (basic) . $ 1.52 $ 1.32 $ 1.04
Earnings per share (diluted) $ 1.51 $ 1.31 $ 1.03
Assumptions:
Dividend yield . . . . . . . 0 0 0
Expected volatility. . . . . 36.75% 36.75% 34.46%
Risk free interest rate. . . 6.20-6.73% 6.20-6.73% 6.30%
Expected lives . . . . . . . 4 years 4 years 4 years
</TABLE>
During fiscal years 1997 and 1996 the weighted average grant-date fair value of
options granted was $5.08 and $2.31 per share, respectively. No options were
granted in 1998.
11. Contingencies:
The Company is involved in certain claims and litigation related to its
operations. Based upon the facts known at this time, management is of the
opinion that the ultimate outcome of all such claims and litigation will not
have a material adverse effect on the financial condition, results of operations
or cash flows of the Company.
-32-
<PAGE>
Notes to
Consolidated
Financial
Statements
(continued)
(dollars in thousands)
Gradall Industries, Inc.
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
-----------
<S> <C>
Net income as reported . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 7,313
Extraordinary charge . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 973
Reduction in interest expense using an average interest rate of 8.2% including the
elimination of amortization of deferred financing costs. . . . . . . . . . . . . 2,013
Increase in income taxes related to the pro forma adjustments. . . . . . . . . . . (763)
-----------
Pro forma net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9,536
===========
Average shares outstanding as if the initial public
offering had occurred on January 1, 1995 . . . . . . . . . . . . . . . . . . . . 8,939,294
Pro forma net income per share . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1.07
</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
$12,194 for the year ended December 31, 1996.
14. Segment Reporting:
During the fourth quarter of 1998, the Company adopted Statement of Financial
Accounting Standard No. 131, "Disclosure about Segments of an Enterprise and
Related Information." Management has determined that the Company operates in a
single industry segment, construction equipment. The Company's operations
involve manufacturing specialized construction equipment and parts. While the
Company's chief operating decision maker monitors the revenue streams of the
different products, operations are managed and financial performance is measured
in the construction equipment segment.
Products and Services: The Company groups its products and services into the
following categories:
1. Material Handlers-Machines typically used to move a variety of construction
materials around jobsites and industrial facilities. 2. Excavators-Machines
used for ditching, sloping, finish grading, general maintenance and
infrastructure projects. 3. Parts & Distribution-Parts and service support for
Gradall machines.
-33-
<PAGE>
Notes to
Consolidated
Financial
Statements
(continued)
(dollars in thousands)
Gradall Industries, Inc.
14. Segment Reporting, Continued:
The revenues generated by these products and services at December 31 were:
<TABLE>
<CAPTION>
($in thousands) 1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Material Handlers . . $110,161 $ 84,004 $ 70,409
Excavators. . . . . . 54,580 57,361 55,096
Parts & Distribution. 17,866 17,294 15,404
-------- -------- --------
$182,607 $158,659 $140,909
======== ======== ========
</TABLE>
Foreign and Domestic Sales: The Company sells equipment and parts to countries
outside of the United States. There were no foreign countries with sales greater
than 10% of total revenue. The domestic and foreign revenues generated at
December 31 by domestic and foreign were:
<TABLE>
<CAPTION>
($in thousands) 1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
United States. . . . $176,796 $153,444 $138,330
All other countries. 5,811 5,215 2,579
-------- -------- --------
$182,607 $158,659 $140,909
======== ======== ========
</TABLE>
Major Customers: For the years ended December 31, 1998 and 1996, one customer
accounted for 10% or more of the Company's total revenue. No customers have
accounted for 10% or more of the Company's total revenue for the year ended
December 31, 1997. At December 31, 1998, the customer accounted for 13%, and at
December 31, 1996, the customer accounted for 11% of the Company's total
revenue.
15. Selected Summary Quarterly Data (Unaudited):
<TABLE>
<CAPTION>
QUARTERS ENDED(2)
1997 1998
------------------------------------------ ------------------------------------------
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. . . . . . . $ 35,910 $ 38,356 $ 40,310 $ 44,083 $ 41,541 $ 49,789 $ 44,138 $ 47,139
Gross Profit . . . . . 8,618 9,267 9,814 10,297 9,551 11,143 9,980 11,477
Operating Income . . . 4,674 4,735 5,310 5,921 5,234 6,018 5,779 6,932
Income Before
Income Taxes . . . . 4,363 4,231 5,250 5,843 5,011 5,878 5,926 6,737
Net Income . . . . . . 2,657 2,577 3,199 3,558 3,054 3,582 3,612 4,106
Earnings Per Share (1)
Basic. . . . . . . . . $ .30 $ .29 $ .36 $ .40 $ .34 $ .40 $ .38 .43
Dilutive . . . . . . . $ .30 $ .29 $ .35 $ .39 $ .34 $ .40 $ .38 .43
<FN>
(1) Based on average shares outstanding during the quarter.
(2) The sum of each year's quarterly data may not equal the total year results due to rounding.
</TABLE>
-34-
<PAGE>
Report of
Independent
Accountants
Report of
Management
Gradall Industries, Inc.
To the Board of Directors and Stockholders of Gradall Industries, Inc.
In our opinion, the accompanying consolidated balance sheets and related
consolidated statements of income, changes in stockholders' equity and cash
flows present fairly, in all material respects, the financial position of
Gradall Industries, Inc. and its subsidiaries (the "Company") at December 31,
1998 and 1997, and the results of their operations and their cash flows for each
of the three years in the period ended December 31, 1998, in conformity with
generally accepted accounting principles. These financial statements are the
responsibility of the Company's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these statements in accordance with generally accepted auditing
standards which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
/s/ PricewaterhouseCoopers
Cleveland, Ohio
February 23, 1999
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 Chief Vice President, Chief Financial
Executive Officer Officer and Treasurer
-35-
<PAGE>
Management's Discussion
and Analysis
of Financial
Condition
and Results
of Operations
Gradall Industries, Inc.
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 Consolidated Financial Data
and other financial data appearing elsewhere herein.
General
Gradall Industries operates in two markets of the construction equipment
segment. The majority of the Company's revenues, 63.4%, are generated by
material handler machines and related parts that are sold in the rough-terrain
variable-reach material handler market which has grown in excess of 30% per year
for the last five years. New applications, increased rental demands and
displacement of straight-mast forklifts and small rough-terrain cranes along
with strong construction and a supportive economy are the major contributors to
the rapid market growth. The Company has in excess of 16% market share in North
America for the three size classes that it competes in. Ninety percent of
Gradall material handlers are first used in rental fleets. The product is sold
to national rental companies and independent distributors for rent and sale to
end-users. Sales for material handler machines were $110.2 million in 1998, a
31.2% increase over 1997 sales and a four-year compound annual growth of 39.9%.
A new D series family of machines was introduced in early 1998 to provide
improved ergonomics, safety and serviceability.
The remaining 36.6% of the Company's sales are generated from excavator machines
and related parts. Excavators are produced with wheeled and crawler
undercarriages which compete in separate markets. Gradall is the market leader
in North America in the wheeled excavator market with a market share of over
40%. In the highway-speed niche market, Gradall has a market share in North
America of over 90%. Since 1994 the wheeled excavator market has a modest
compound annual growth of 4.3% and the crawler market has grown at a 13.1%
compound annual growth. The passage of the Federal highway bill (TEA-21) is
expected to increase construction equipment demand and contribute to increased
market growth over the next three or four years. International sales and the
rental market are areas of focus for sales growth in 1999. Excavator machine
sales were $54.6 million in 1998, down 4.8% from 1997 volume. The four-year
compound annual growth for excavator sales is 4.8%.
The significant sales growth of material handlers in recent years has created a
need to increase production capacity. The board of directors has approved a
capacity expansion program, which will require a $30 to $50 million investment
over the next three to five years. An important step in this plan was the
purchase of an additional 330,000-sq. ft. facility in October 1998. Formerly the
Volvo Truck Assembly plant, the facility is located in Orrville, Ohio, and will
be used to produce material handler products. Start-up of this plant is
scheduled for the second quarter 1999 upon the receipt of newly purchased
machinery and equipment.
-36-
<PAGE>
Management's Discussion
and Analysis
of Financial
Condition
and Results
of Operations
(continued)
Gradall Industries, Inc.
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,
----------------------
1996 1997 1998
------ ------ ------
<S> <C> <C> <C>
Net Sales:
Excavators. . . . . . . . . . . . . 39.1% 36.2% 29.9%
Material handlers . . . . . . . . . 50.0 52.9 60.3
Service parts . . . . . . . . . . . 10.9 10.9 9.8
------ ------ ------
Total net sales . . . . . . . . . . . 100.0% 100.0% 100.0%
Cost of sales . . . . . . . . . . . . 76.7 76.1 76.9
------ ------ ------
Gross profit. . . . . . . . . . . . 23.3 23.9 23.1
Research and development and product
engineering costs . . . . . . . . . 2.2 2.3 2.2
Selling general and
administrative expenses. . . . . . 8.4 8.6 7.7
------ ------ ------
Operating income. . . . . . . . . . . 12.7 13.0 13.1
Other expense:
Interest expense. . . . . . . . . . 2.2 0.4 0.2
Other, net. . . . . . . . . . . . . 0.7 0.2
------ ------ ------
Income before
income taxes and extraordinary item 9.8 12.4 12.9
Income tax provision. . . . . . . . . 3.9 4.9 5.0
------ ------ ------
Income before
extraordinary item. . . . . . . . . 5.9% 7.6% 7.9%
====== ====== ======
<FN>
(1) The sum in any column may not equal the indicated total due to rounding.
</TABLE>
Results of Operations Fiscal 1998 Compared to Fiscal 1997
Net Sales. Net sales were $182.6 million for fiscal 1998, an increase of $23.9
million or 15.1% compared to $158.7 million for fiscal 1997. The increase in net
sales was attributable to a material increase in the unit volume of material
handlers. Excavator unit sales were slightly lower and service parts showed a
small increase in fiscal 1998 over fiscal 1997. The introduction of the new D
series family of material handlers plus strong market demand were the key
factors for higher material handler sales. The abundance of low price crawler
excavators entering the U.S. from Asia contributed to reduced crawler excavator
sales. Service parts sales increased for material handler parts as a result of
the increased population of field units. Net sales of material handlers were
$110.2 million for fiscal 1998, an increase of $26.2 million or 31.2% compared
to $84.0 million in 1997. Net sales of excavators were $54.6 million for fiscal
1998, a decrease of $2.8 million or 4.9% compared to $57.4 million for fiscal
1997. Net sales of service parts were $17.9 million for fiscal 1998, an increase
of $0.6 million or 3.5% compared to $17.3 million in fiscal 1997. 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 1998.
-37-
<PAGE>
Management's Discussion
and Analysis
of Financial
Condition
and Results
of Operations
(continued)
Gradall Industries, Inc.
Gross Profit. Gross profit was $42.2 million for fiscal 1998, an increase of
$4.2 million or 10.9% compared to $38.0 million for fiscal 1997. Gross profit as
a percentage of net sales decreases to 23.1% for fiscal 1998 from 24.0% for
fiscal 1997, primarily due to increased volume production inefficiencies related
to schedule changes, parts shortages, high overtime and outsourcing. The newly
acquired Orrville facility should reduce overtime and outsourcing requirements
following start up in mid-1999.
Research and Development and Product Engineering Costs. Research and development
and product engineering cost was $4.0 million for fiscal 1998, an increase of
$0.4 million or 10.8% compared to $3.6 million for fiscal 1997. The increase is
due to the addition of engineering personnel to support new product development.
Selling, General and Administrative. Selling, general and administrative expense
was $14.1 million for fiscal 1998, an increase of $0.4 million or 3.2% compared
to $13.7 million for 1997. This increase is attributable to the addition of
marketing field sales and service representatives, greater overseas and domestic
travel and increased advertising spending for international trade publications.
Interest Expense. Interest expense was $0.4 million for fiscal 1998, a decrease
of $0.3 million or 45.4%
compared to $0.7 million for fiscal 1997. This reduction is the result of the
application of the net proceeds of the Company's public offering of common stock
on June 29, 1998, to reduce indebtedness.
Income Tax Provisions. Income tax expense was $9.2 million for fiscal 1998, an
increase of $1.5 million or 19.5% compared to $7.7 million for fiscal 1997, and
representing an effective tax rate of 39.1% in 1998 and 1997.
Net Income. Net income was $14.4 million for fiscal 1998, an increase of $2.4
million or 19.7% compared to $12.0 million for fiscal 1997. This increase
results from the higher level of sales in fiscal 1998 generating increased
operating margins and reduced debt from the 1998 public offering lowering
interest expense.
Diluted Earnings Per Share After Extraordinary Item. Earnings per share after
extraordinary item were $1.54 for fiscal 1998, an increase of $0.21 or 15.8%
from $1.33 for fiscal 1997, resulting from increased net sales and net income.
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 were $17.3 million for fiscal 1997, an increase of
$1.9 million or 12.3% compared to $15.4 million for fiscal 1996.
-38-
<PAGE>
Management's Discussion
and Analysis
of Financial
Condition
and Results
of Operations
(continued)
Gradall Industries, Inc.
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 1997from
23.3% for fiscal 1996, primarily due to improved production efficiencies and the
economics of higherproduction 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.
Liquidity and Capital Resources
In June 1998, the Company completed a public offering of 562,500 newly issued
shares of common stock at $13.00 per share. As part of the offering, existing
shareholders sold 1,250,000 shares of common stock. The $6.9 million of net
proceeds to the Company was used to repay the revolving credit facility.
-39-
<PAGE>
Management's Discussion
and Analysis
of Financial
Condition
and Results
of Operations
(continued)
Gradall Industries, Inc.
The Company has funded its operations primarily with cash generated from
operations. The Company generated net cash from operating activities of $11.1
million in 1998 compared to $3.4 million for 1997. Net cash from operating
activities for 1998 resulted from $14.4 million of net income and $2.5 million
of non-cash charges to income, primarily depreciation and postretirement benefit
transition obligation, which were reduced by $5.7 million of net cash used by
changes in operating assets and liabilities, primarily a $7.3 million increase
in inventory due to more finished machines in stock. Net cash from operating
activities for 1997 resulted from $12.0 million of net income, $3.4 million of
non-cash charges to income, primarily depreciation and postretirement benefit
transition obligation and reduced by $12.0 million from changes in operating
assets and liabilities, primarily an $8.4 million increase in accounts
receivable.
Net cash used by investing activities, consisting of purchases of property and
equipment, was $13.3 million in 1998 and $5.3 million in 1997. Capital
expenditures for 1998 include $5.6 million for the purchase of a
330,000-square-foot facility in Orrville, Ohio to be used for the manufacture of
material handlers. The Company continues the multi-year program to increase
production efficiencies, labor productivity and the output of the Company's
manufacturing facility through investments in new capital equipment. Management
expects to invest approximately $10.5 million of additional capital in 1999 for
start-up machinery at the Orrville facility and production improvements under
the multi-year program which will be funded from internally generated cash flow.
At December 31, 1998, borrowings under Gradall's revolving credit facility
totaled $6.9 million and $18.1 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,
1998, the average annual interest rate under the facility was 7.25%. The
Company was not required to make any principal repayments of the amount
outstanding under the facility until August 31, 1999.
In January 1999 the Company's Loan and Security Agreement with Heller Financial,
Inc. was paid in full and terminated. A new revolving line of credit for $17
million was established with KeyBank National Association (the "Lender") with an
unsecured demand promissory note. At February 28, 1999, borrowing under the new
revolving credit facility totaled $9.3 million, and $5.7 million was available
under the facility. The note bears interest at either LIBOR plus .80% or prime
minus 1.40%. The note renews annually and terminates at the earlier of the
Lender's demand or the Company's decision to terminate by written or oral
communication to the Lender.
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.
-40-
<PAGE>
Management's Discussion
and Analysis
of Financial
Condition
and Results
of Operations
(continued)
Gradall Industries, Inc.
The Board of Directors has approved in principle the Capacity Expansion Program
which is intended to raise capacity in excess of 50% over the next three to five
years. The Capacity Expansion Program will require a $30 to $50 million
investment over this time frame. The acquisition of the Orrville facility and
the purchase of robot welders, machining centers and lasers which total
approximately $8.3 million are the investments in this program through December
31, 1998. The Company may alter or revise the Capacity Expansion Program based
upon changes in market demand and/or economic conditions.
The Company believes that cash flow from operations together with funds
available under its new 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 programs having been written using
two digits rather than four to define the applicable year. Any of the Company's
computers, computer programs, manufacturing and administration equipment or
products that have date-sensitive software may recognize a date using "00" as
the year 1900 rather than the year 2000. If any of the Company's systems or
equipment that have date-sensitive software use only two digits, system failures
or miscalculations may result causing disruptions of operations, including among
other things, a temporary inability to process normal business activities.
Significant uncertainty exists concerning the scope and magnitude of problems
associated with the year 2000 change.
The Company recognizes the need to ensure its operations will not be adversely
impacted by year 2000 software failures and has established a project team to
address year 2000 risks. The project team has coordinated the identification of
and will coordinate the implementation of changes to computer hardware and
software applications that will attempt to ensure availability and integrity of
the Company's information systems and the reliability of its operational systems
and manufacturing process.
The Company believes that it has identified substantially all of the major
computer, software applications and related equipment used in connection with
its internal operations that must be modified, upgraded or replaced to minimize
the possibility of a material disruption to its business. The Company has
commenced the process of modifying, upgrading and replacing major systems that
have been identified as adversely affected and expects to complete this process
by the end of September 1999. In addition to computers, photocopiers, telephone
switches, security systems, elevators and other common devices may be affected
by the year 2000 problem. The Company is currently assessing the potential
effect of and costs of remediating the year 2000 problem on its office and
facilities equipment.
The Company also faces risk to the extent that suppliers of products, services
and systems purchased by the Company and others with whom the Company transacts
business on a worldwide basis do not comply with year 2000 requirements. The
Company has initiated formal communications with significant suppliers and
customers to determine the extent to which the Company is vulnerable to the
failure of such third parties to remediate their own year 2000 issues. In the
event any such third parties cannot provide the Company with products, services
or systems that meet the year 2000 requirements on a timely basis or in the
event year 2000 issues prevent such third parties from timely delivery of
products or services required by the Company, the Company's results of
operations could be materially adversely affected. To the extent year 2000
issues cause significant delays in supplier shipments, the sourcing of
alternative suppliers or increasing inventory levels, the Company's business,
results of operations and financial position could be materially adversely
affected.
-41-
<PAGE>
Management's Discussion
and Analysis
of Financial
Condition
and Results
of Operations
(continued)
Gradall Industries, Inc.
The Company's research and supplier response indicate that all of the Company's
products manufactured to date and all future designs are year 2000 compliant.
External and internal costs specifically associated with modifying internal use
software for year 2000 compliance are expensed as incurred. To date the Company
has spent $0.22 million on this project. Cost to be incurred in 1999 to fix year
2000 problems are estimated at approximately $0.5 million. Such costs do not
include normal system upgrades and replacements. The Company does not expect the
costs relating to year 2000 remediation to have a material adverse effect on its
results of operations, cash flows or financial condition.
As part of Gradall's contingency planning, the Company is developing business
continuity plans for those areas that are critical to Gradall's business. These
business continuity plans will be designed to mitigate serious disruptions to
the business flow beyond the end of 1999. The major drive for contingency
planning will be in the first half of 1999 with the expectation that the
Company will have plans in place by the end of the second quarter of 1999.
The failure to correct a material year 2000 problem could result in an
interruption in or a failure of certain normal business activities or
operations. Such failures could materially and adversely affect the Company's
results of operations, liquidity and financial condition. Due to the general
uncertainty inherent in the year 2000 readiness of critical suppliers and
customers, the Company is unable to determine at this time whether the
consequences of year 2000 failures will have a material impact on the Company's
results of operations, liquidity or financial condition. The year 2000 project
is expected to significantly reduce the Company's level of uncertainty about the
year 2000 problem and in particular about the year 2000 compliance and readiness
of its critical suppliers and customers. The Company believes that, with the
implementation of new business systems and completion of the projects scheduled,
the possibility of significant interruptions of normal operations should be
reduced.
The estimates and conclusions herein contain forward-looking statements and are
based on management's best estimates of future events. Risks to completing the
plan include the ability to retain human resources, our ability to discover and
correct the potential year 2000 sensitive problems which could have a serious
impact on operations, and the ability of suppliers and customers to bring their
systems into year 2000 compliance.
Inflation
The overall impact of the low rate of inflation in recent years has had no
significant impact on the Company.
-42-
<PAGE>
Accounting Pronouncements
Gradall Industries, Inc.
Accounting Pronouncements
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 130, "Reporting Comprehensive
Income," effective for fiscal years ending after December 31, 1997.
Thedifference between net income and comprehensive income for the Company is due
to change in its minimum pension liability adjustment. Comprehensive income is
being shown in the statement of changes in stockholders' equity.
In June 1997, the Financial Accounting Standards Board also issued Statement of
Financial Accounting Standards ("SFAS") No. 131, "Disclosure about Segments of
an Enterprise and Related Information," effective for fiscal years ending after
December 15, 1997. The Company adopted SFAS No. 131 in the fourth quarter of
1998. SFAS No. 131 requires disclosure only and had no impact on the Company's
consolidated financial statements. The Company's one segment of construction
equipment is discussed in Note 14 to the consolidated financial statements.
In February 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 132, "Employers' Disclosures about
Pensions and Other Postretirement Benefits," effective for fiscal years
beginning after December 15, 1997. The Company adopted SFAS No. 132 in the
fourth quarter of 1998. SFAS No. 132 revises employers disclosures about pension
and other postretirement benefits plans. It does not change the measurement or
recognition of those plans and therefore, had no impact on the Company's
consolidated financial statements. The Company's Pension and Postretirement
Benefit Plans are discussed in Note 7 to the consolidated financial statements.
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities." This Statement requires that all derivative instruments
be recorded on the balance sheet at their fair value. Changes in the fair value
of derivatives will be recorded each period in current earnings or other
comprehensive income. The new rules will be effective the first quarter of 2000.
The Company is in the process of determining the impact of this new standard
and, based on current market conditions, anticipates that it will not have a
material impact on the Company's financial statements when effective.
In March 1998, the Accounting Standards Executive Committee ("AcSEC") of the
American Institute of Certified Public Accountants issued Statement of Position
98-1, "Accounting for the Costs of Computer Software Developed or Obtained for
Internal Use" ("SOP 98-1"). SOP 98-1 requires expenses incurred during the
application development stage of a software implementation project to be
capitalized and amortized over the useful life of the project. The Company
adopted SOP 98-1 in the first quarter of 1999. SOP 98-1 is not expected to have
a material impact on the Company's consolidated financial position, results of
operations or cash flows.
In April 1998, the AcSEC issued Statement of Position 98-5, "Reporting on the
Costs of Start-Up Activities" ("SOP 98-5"). SOP 98-5 provides guidance on the
financial reporting of start-up and organization costs; requiring such costs be
expensed as incurred. SOP 98-5 is effective for fiscal years beginning after
December 15, 1998. The Company's current policy is to expense such costs as
incurred consistent with SOP 98-5.
-43-
<PAGE>
Cautionary Statements
Gradall Industries, Inc.
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 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, 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.
-44-
<PAGE>
The Company's Stock
Gradall Industries, Inc.
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
December 31, 1998 December 31, 1997
----------------- -----------------
High Low High Low
<S> <C> <C> <C> <C>
First Quarter. $18 3/8 $ 15 3/8 $16 1/4 $ 12
Second Quarter 17 7/8 13 1/16 16 1/4 12
Third Quarter. 16 7/8 12 5/8 17 3/8 14 3/4
Fourth Quarter 16 13 3/32 16 7/8 15
</TABLE>
As of February 26, 1999, there were 135 record holders of the Common Stock.
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.
-45-
<PAGE>
General Information
Gradall Industries, Inc.
<TABLE>
<CAPTION>
Stockholder Information
- - -----------------------------------------------------------------------------------------------------
<S> <C>
Annual meeting Stock exchange
Sheraton Airport Hotel, 5300 Riverside Drive Gradall Industries, Inc. common
Cleveland, Ohio stock is traded under the symbol GRDL and is
May 19, 1999 at 10:00 am EDT listed on the NASDAQ National Market.
Transfer agent and registrar Form 10-K or investor information
Chase Mellon Shareholders Services Bruce A. Jonker
85 Challenger Road, Overpeck Centre Vice President, Chief Financial Officer
Ridgefield Park, NJ 07660 Gradall Industries, Inc.
Phone Toll-Free 1-800-756-3353 406 Mill Ave. SW, New Philadelphia, Ohio 44663
Phone 330-339-8374, Fax 330-339-8317
Directors
- - -----------------------------------------------------------------------------------------------------
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, Jack D. Rutherford
Gradall Industries, Inc. Chairman of the Board, and Chief Executive
David S. Williams Officer Emeritus, The Gradall Company
Vice President, Marketing and Sales, Ernest Green
Gradall Industries, Inc. 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
Officers and Senior Managers
- - -----------------------------------------------------------------------------------------------------
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
</TABLE>
Equal Opportunity Employer
- - --------------------------------------------------------------------------------
Gradall is an equal opportunity employer and seeks to attract and retain the
best-qualified people regardless of race, sex, age, religion, national origin or
veteran status.
-46-
<PAGE>
www.gradall.com/store
Authorized Gradall apparel and replicas are available to investors and
contractors alike via our easy-to-navigate website. Just point your browser to
www.gradall.com/store for product and pricing information.
Gradall has authorized the production of a collection of scale model machine
replicas. These collector-quality replicas are manufactured in exacting detail
using actual Gradall engineering drawings. The 534C-9 Material Handler and the
XL 5100 Wheeled Hydraulic Excavator replicas have been available for two years,
while the XL 5200 Crawler Excavator was just released last year. Each replica
includes such authentic details as the telescoping boom, steering mechanisms,
paint and decals. Gradall also offers a full line of apparel, including shirts,
hats, jackets and other items. Gradall merchandise can be purchased online at
www.gradall.com/store.
-47-
<PAGE>
EXHIBIT 23.01
CONSENT OF INDEPENDENT ACCOUNTANTS
----------------------------------
We consent to the incorporation by reference in the Registration Statements
of Gradall Industries, Inc. on Form S-8 (File Nos. 333-40523 and 333-58129) of
our reports dated February 23, 1999, on our audits of the consolidated financial
statements and financial statement schedule of Gradall Industries, Inc. and
Subsidiaries as of December 31, 1998 and 1997, and for the years ended December
31, 1998, 1997 and 1996, which reports are included in this Annual Report on
Form 10-K.
PricewaterhouseCoopers LLP
Cleveland, Ohio
March 26, 1999
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1998
<CASH> 2457
<SECURITIES> 0
<RECEIVABLES> 26983
<ALLOWANCES> 0
<INVENTORY> 32872
<CURRENT-ASSETS> 65807
<PP&E> 25838
<DEPRECIATION> 0
<TOTAL-ASSETS> 98987
<CURRENT-LIABILITIES> 37965
<BONDS> 0
<COMMON> 10
0
0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 98987
<SALES> 182607
<TOTAL-REVENUES> 182607
<CGS> 140456
<TOTAL-COSTS> 140456
<OTHER-EXPENSES> 18219
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 380
<INCOME-PRETAX> 23552
<INCOME-TAX> 9198
<INCOME-CONTINUING> 14354
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 14354
<EPS-PRIMARY> 1.56
<EPS-DILUTED> 1.54
</TABLE>
