Item 1. Business
(a) The Company (as used herein the term "Raymond" refers to The Raymond Corporation alone, and the term "Company" refers to The Raymond Corporation and its subsidiaries, both consolidated and unconsolidated, and direct and indirect) operates predominately in one business segment, that being the design, manufacture, distribution and service of materials handling equipment. Revenues are realized primarily from distribution of the RAYMOND(R) and DOCKSTOCKER(R) product lines through the Company's Dealer Network which is principally located in North America. In addition, the Company has expanded in both the domestic and international markets through distribution and Original Equipment Manufacturer ("O.E.M.") supply agreements.
Raymond was organized in 1840 as Lyon Iron Works, in Greene, New York, and in 1922 George G. Raymond, Sr. purchased it. Raymond produced its first materials handling product in 1930 under the Lyon Iron Works name. In 1941, Raymond was renamed Lyon-Raymond Corporation, and in 1951, was renamed The Raymond Corporation. Shares were first offered to the public in 1956.
The major components of the Company's international operations are Raymond Industrial Equipment, Limited, a wholly-owned Canadian manufacturing subsidiary, and G.N. Johnston Equipment Co. Ltd., the exclusive Canadian distributor that is 74% owned by R.H.E. Ltd., a wholly-owned Canadian subsidiary of Raymond. Foreign exchange exposure on international operations is limited primarily to the Canadian dollar and is minimized through the purchase of foreign currency exchange contracts and options.
In 1991, Raymond and Mitsubishi Caterpillar Forklift America Inc. ("MCFA") signed an agreement to create a joint venture company. The joint venture company, known as Material Handling Associates, Inc. ("M.H.A."), is a separate enterprise which designs, develops, and sells products to be manufactured exclusively by the Company and distributed exclusively through M.H.A. dealers using Caterpillar trademarks. This venture is intended to expand distribution of products manufactured by the Company and to provide additional opportunities for the sale of replacement parts and accessories. Certain officers of the Company are also officers of M.H.A.
In 1994, MCFA signed an agreement with Raymond to purchase for resale battery powered, electric low lift pallet trucks known as walkies, similar to those currently manufactured by the Company for M.H.A. MCFA markets the walkies, using Mitsubishi trademarks throughout the United States, Canada, Mexico, Central and South America. Also in 1994, Raymond and MCFA signed an agreement whereby the Company manufactures a sit-down counterbalanced electric forklift truck exclusively for sale to MCFA.
In 1994, Raymond entered into an agreement with Jungheinrich A.G. ("Jungheinrich") of Hamburg, Germany, a large manufacturer of lift trucks in Europe. Under the agreement, the Company manufactures a European version of the EASi Orderpicker truck for distribution by Jungheinrich. In addition, the agreement grants Jungheinrich the non-exclusive right to distribute this product in other markets in which the Company currently does not participate.
During 1994, Raymond formed Dockstocker Corporation, a New York corporation, owned by Raymond Sales Corporation, a 100% owned subsidiary of Raymond. Dockstocker Corporation markets and sells stand-up end control counterbalanced forklift trucks featuring flexible dockstance operator configuration designed to maximize loading productivity in the dock environment, as well as its own line of walkie products.
In 1995, Raymond and MCFA entered into another agreement whereby the Company manufactures and MCFA purchases for resale to end users certain battery powered, electric orderpickers, straddle and reach trucks under the Mitsubishi trademark for distribution in the United States, Canada, Mexico, Central and South America.
Also in 1995, Raymond and Toyota Industrial Equipment ("T.I.E."), a division of Toyota Motor Sales, U.S.A., Inc., entered into an agreement whereby the Company manufactures electric low lift walkie pallet trucks and service parts for distribution through T.I.E.'s dealer network in the continental United States. In 1996, the agreement was amended to provide T.I.E. with the right to distribute such products and services through its authorized dealers in Mexico, New Zealand and Australia. Raymond and T.I.E. entered into another agreement in 1996 whereby the Company manufactures electric orderpickers, straddle and reach trucks for distribution under the Toyota trademark.
Raymond initiated a plant modernization plan in 1995 which included a major upgrading of production equipment and processes in its Greene, New York facility. The modernization plan, which cost approximately $12 million of capital expenditures, is in its final stages of completion. The factory modernization project has significantly upgraded the technology of the plant and has also increased its efficiency.
The Company has equity investments in certain members of its Dealer Network. In 1996, it increased equity investments in Dealerships with principal offices in Illinois, Pennsylvania and Canada. In addition to North America, the Company has Dealers in Central and South America, Australia, New Zealand and Singapore.
In October 1996, Ross K. Colquhoun, Chairman of the Board and Chief Executive Officer of Raymond sold his shares of common stock of G. N. Johnston Equipment Co. Ltd. ("Johnston") and Associated Material Handling Industries, Inc. ("Associated"), both distributors of the Company's products. The shares were valued in accordance with the terms and conditions set forth in shareholder buy/sell agreements dated July 1, 1968 and August 15, 1980, respectively. The Johnston shares, which represent approximately 28% of the total outstanding shares, were acquired by R.H.E. Ltd. ("R.H.E."), a wholly-owned Canadian subsidiary of Raymond. The Associated shares, which represent approximately 26% of the total outstanding shares, were acquired by Raymond.
According to the provisions of an Indenture dated December 15, 1993, the Company issued 6 1/2% Convertible Subordinated Debentures due December 15, 2003. In December 1996, the Company announced the redemption of all of its outstanding 6 1/2% Convertible Subordinated Debentures.
(b) Financial Information about Industry Segments
See "Note N - Business Segment Information" of the consolidated financial statements included in Item 8 of this Form 10-K Annual Report.
(c) Narrative Description of Business
(i) Principal Products and Services
The Company's products are marketed principally under the RAYMOND(R) and DOCKSTOCKER(R) trademarks, and fall into the category of unit load and case pick load handling.
The Company's unit load and case pick load products are operator-controlled machines used to move a load from point A to point B. The unit load and case pick load product line includes orderpickers, walkies, sideloaders, straddle, SWING-REACH(R) trucks, and REACH-FORK(R) trucks for narrow aisle and very narrow aisle operation, and counter- balanced PACER(TM) and DOCKSTOCKER trucks.
In 1990, a new line of orderpickers with advanced microprocessor control was introduced by the Company. The orderpickers significantly reduce the high costs and time involved to pick orders. Total programmability, through the intellidrive(R) control system, allows truck performance to be tailored to each user's needs to optimize productivity. The intellidrive system utilizes microchip technology developed by the Company and is designed to replace control systems based predominately on hydraulic and mechanical technologies. The intellidrive system enhances the trucks' performance characteristics and productivity and has allowed the Company to reduce manufacturing costs through reduced material and labor expense.
In 1991, the Company introduced a series of products known as EASi products - Ergonomically Advanced Systems with intellidrive. This new line of trucks is designed for greater operator comfort and enhanced productivity. The trucks included in this series are the operator-up SWING-REACH truck, the orderpicker and the narrow aisle REACH-FORK truck. The new EASi REACH-FORK truck has unequaled capacity at elevated heights and provides greater space utilization and increased productivity.
In 1992, the Company introduced a new base model version of the orderpicker and REACH-FORK truck.
In 1993, a new generation of the EASi REACH-FORK truck and EASi Orderpicker were introduced, designed for greater operator comfort and productivity.
Also in 1993, the Company introduced an option on the EASi REACH-FORK truck and EASi Orderpicker with the SMARTi(TM) information system. The SMARTi information system enables the customer to easily obtain reports on the truck's activities by shift, day or week to help evaluate productivity.
In addition, two new walkies were introduced in 1993. The 8,000 pound capacity walkie and the transistor-controlled 4,000 pound capacity walkie are designed to increase productivity.
In 1994, the Company introduced a new walkie handle design to provide greater operator comfort, convenience and productivity. The design difference can make repeated movements more comfortable.
Also in 1994, two new products were introduced to the EASi REACH-FORK(R) line featuring upgradeability from 24 volt operation, and an optional dockstance operator compartment. In addition, the EASi REACH-FORK family was expanded to include a four directional truck for use in handling both standard pallets and long loads, and additional mast selections for very tall single and double deep reach applications.
In 1995, the dual-drive PACER(TM) stand-up, electric counterbalanced lift truck was redesigned for improved operator ergonomics. The steering wheel and travel control were repositioned to make them easier to reach during forks first and tractor first facing stances.
Also in 1995, the Company introduced the first reach truck design which incorporates a Radio Frequency ("RF") terminal, providing an ergonomic integration of this important productivity tool with the lift truck. RF communication systems are used in high throughput distribution operations.
In addition, in 1995 the DOCKSTOCKER(R) stand-up, end-control electric counter-balanced trucks and DOCKSTOCKER walkie product line were introduced. These products feature enhanced technology and ergonomics.
In 1996, Dockstocker Corporation introduced a Walkie-Reach truck which enables a pedestrian controlled vehicle to lift palletized loads up to 237 inches, as well as an enhanced counterbalanced truck designed to handle attachments.
Also in 1996, the Company marketed an enhanced EASi REACH-FORK truck with increased lift speed, productivity enhancers and other customized features. The EASi Orderpicker product line was expanded in 1996 to include products for applications up to 366 inches.
All of these vehicles, controls and systems are sold through a network of Dealerships, which have multiple full service facilities across their trading area and are supported by a repair and replacement parts service. The Company's replacement parts and accessories business supports the base of the Company's lift trucks in service and provides new parts and service to customers who have service needs for non-Company equipment. In addition, the Company rebuilds and sells electric motors and other components for replacement use, offering its customers a cost-effective alternative to purchasing a new component for both Company and non-Company equipment.
Raymond Leasing Corporation, a wholly-owned subsidiary of Raymond, offers lease financing, short-term rentals and sales of used equipment and serves as a marketing vehicle for the Company's products by providing the Company's Dealer Network with flexible leasing programs.
The Company presently manufactures lift truck masts for two additional O.E.M. customers.
The product and service categories of the Company's business segment are shown with percentage of revenues contributed in "Note N - Business Segment Information" of the consolidated financial statements in Item 8 of this Form 10-K Annual Report.
(ii) Status of New Products That Have Been Publicly Announced And Require a Material Investment
There are no new products or industry segments that have been publicly announced by the Company that will require a material investment of assets or that are otherwise material. However, as in prior years, the Company expects to introduce new and enhanced models through its normal research and development activities.
(iii) Sources and Availability of Raw Materials
The Company procures components from the best available sources of supply, which include a broad range of internal manufacturing capabilities. Certain components of its products are fabricated from bar, strip, rod, sheet and plate steel. Individual decisions to make or buy are based upon numerous factors, the more significant being quality, cost, lead time and technological sensitivity.
The Company has no significant long-term commitments with any supplier and believes its supply arrangements are adequate for current and presently foreseeable needs. Certain electric motors, forks, castings, hydraulic and electronic components are made to Company specifications and are purchased from single sources. Many single sources are backed up by agreements to allow manufacture by alternate sources or by the availability of similar standard components from alternate sources. Continued effort is made by the Company's Engineering and Purchasing Departments to establish and improve the strong working relationships between the Company and its suppliers.
The Company's products vary in capacity, function and load capability and consequently, specifications for a particular order require that many of the components are only made to orders booked. Commonly used parts are manufactured or purchased and stocked to minimize production time. Finished products are normally assembled only to orders booked. Every effort is made to keep inventories low, while meeting competitive delivery commitments.
(iv) Importance to the Industry and the Duration of Patents, Trademarks, Licenses and Concessions
The Company has numerous registered patents in the United States, Canada and several European countries with respect to various inventions, including the intellidrive(R) control system. Although the Company considers that, taken as a whole, the rights under these patents, which expire from time to time, are a valuable asset, it does not regard its business as being materially dependent upon any single patent or any group of patents.
The Company also has a number of registered and common law trademarks and service marks for its products. The trade and service marks, taken as a whole, are considered by the Company to be important to its business.
(v) Seasonality of Business
The Company does not recognize its business segment or any of its products or services as seasonal.
(vi) Working Capital Practices
The Company pursues and the industry demands no special business practices with respect to working capital items.
(vii) Customers
The Company distributes its products principally through its Dealer Network. These Dealers sell the Company's products to the end users, which represent a broad cross-section of industry. They include public and private businesses engaged in the manufacture, storage and/or distribution, both wholesale and retail, of a wide variety of products. These industries include the grocery, automotive, health care and consumer product industries.
In 1992, the Company established its National Accounts Program, which offers to certain large customers a single purchasing and financing source for their materials handling equipment and service needs. Delivery, installation and after-sale service are provided by the Company's Dealer Network. The Program focuses on fleet users of lift trucks with facilities in several areas of the country. In 1996, the National Accounts Program consisted of seven customers nationwide.
In 1996, the Company established the Regional Accounts Program in conjunction with the National Accounts Program. The Program targets existing dealership customers and promotes factory directed assistance for approximately forty high volume regional accounts.
No single customer (end user) of the Company accounts for 10% or more of the Company's total consolidated revenues. However, at December 31, 1996, lease receivables from one customer represented approximately 16% of the total investment in leases.
(viii) Backlog
As of December 31, 1996, the backlog of orders aggregated approximately $76,386,000 compared with a backlog of approximately $65,640,000 on December 31, 1995. No assurance can be given that the backlog will continue at any particular level. The Company reasonably expects to fill the backlog of orders within the current fiscal year, unless a longer delivery lead time has been requested by the customer. The Company believes that its current backlog can generally be considered firm; no significant cancellations are expected.
(ix) Contracts Subject to Termination or Renegotiation
There is no material portion of the business that is subject to renegotiation of profits or termination of contracts or subcontracts at the election of the Government.
(x) Competition
While competitive conditions vary from product to product, all of the Company's products are marketed in the highly competitive manufacturing and warehousing materials handling systems markets. Historically, Raymond's strength has been in providing technology, superior application - specific product performance, service and reliability.
The Company is a major competitor in all market segments in which it participates, generally competing with other major national and international manufacturers. In addition to these direct competitors, a number of other products compete indirectly for the industrial consumer's materials handling dollars. The Company believes it is the only North American narrow aisle manufacturer which designs and manufactures a highly integrated vehicle control system. This allows the Company to be a leader in developing and applying new control technologies, responding more quickly to user demands and trends, and differentiating its products with respect to key competitive factors such as productivity and ergonomics.
The Company believes it is the only company offering its comprehensive array of materials handling systems, products and services to the markets it serves.
Because of the Company's broad product mix, it has no one single competitor but rather various competitors across the unit load and case pick load handling category. In recent years, the Company has introduced a new enhanced line of orderpickers, reach trucks, SWING-REACH(R) trucks, stand-up, end-control electric counterbalanced trucks and walkies which have solidified the Company's position in the unit load and case pick load handling category. Over time, several manufacturers have emerged as key competitors in this category, including U.S.-based Crown Equipment Corporation, Clark Material Handling Company and the Yale Industrial and Hyster subsidiaries of North American Coal Company.
The Company no longer considers itself a competitor in the automated storage and retrieval market since its business activity is now limited to the manufacture of horizontal carousels for a single O.E.M. customer.
(xi) Research and Development
The cost of the Company's research and development program amounted to $3,269,000 in 1996 compared to $3,601,000 in 1995 and $3,958,000 in 1994. The Company works closely with customers in the development of product application to fulfill a particular materials handling requirement.
(xii) Compliance with Environmental Laws and Regulations
The Company's production facilities and operations are subject to a variety of federal, state and local environmental and job safety laws and regulations, including various federal, state and local laws, ordinances and regulations pursuant to which an owner of real property may become liable for the costs of removal or remediation of certain hazardous or toxic substances located on or in such property. Environmental laws often impose liability without regard to whether the owner knew of, or was responsible for, the presence of such hazardous or toxic substances. The presence of such substances, or the failure to remediate the presence of such substances properly, may adversely affect the owner's ability to sell such real estate or to borrow using such real estate as collateral. In particular, the federal Comprehensive Environmental Response, Compensation and Liability Act ("CERCLA") imposes joint and several liability for clean-up and enforcement costs, without regard to fault or to the legality of the original conduct, on current or predecessor owners or operators of a site. Under CERCLA, an owner or operator of the site may be liable for all or part of the costs to clean up sites at which waste has been released by the owners, the owner's lessees, or by predecessor or successor owners. In addition, liability extends to persons/companies which generated the hazardous substances located on the property, or arranged for disposal of such substances. The Company believes that it is in compliance in all material respects with all relevant federal, state and local rules and regulations and regulations regarding hazardous or toxic substances. No assurances, however, can be given that the Company is aware of all potential environmental liabilities, or that there are not material environmental liabilities of which the Company is not aware.
(xiii) Employees
The Company had 1,700 employees on December 31, 1996.
(d) Financial Information about Foreign and Domestic Operations and Export Sales
See "Note N - Business Segment Information" of the consolidated financial statements included in Item 8 of this Form 10-K Annual Report.
(2) The Company has no extraordinary risks attendant to its foreign operations.
Item 2.
Item 2. Properties
The Company's corporate headquarters and main manufacturing facility, made of steel and masonry construction, are located in an approximately 70,000 square foot office building and approximately 325,000 square foot adjacent plant in Greene, New York, both of which are owned by the Company. In 1996, the Greene manufacturing facility underwent a $12 million modernization plan which addressed both the manufacturing processes and the information system processes.
Expansion was completed in 1994 on a modern 138,000 square foot steel and masonry manufacturing and office building the Company owns in Brantford, Ontario, Canada.
The Company owns a modern one-story facility located in East Syracuse, New York which houses the Company's Parts Distribution Center. The facility, made of steel and masonry construction, contains approximately 61,000 square feet of warehouse and office space.
The Company currently leases approximately 14,000 square feet of space in Greene, New York for use as a manufacturing and assembly facility.
The Company also leases approximately 10,301 square feet of space in Greene, New York for use as a training center. The lease, for a five year period, expires December 2000.
Raymond Leasing Corporation, a 100% owned subsidiary of Raymond, leases approximately 35,600 square feet of space in Dewitt, New York for use as office space, warehousing of rental fleet and repair and maintenance shop.
All of the Company's properties and machinery are believed to be well maintained and in good condition. With the completion of the modernization plan at the Greene facility, the Company estimates that its production capacity will be adequate for the business anticipated during the next three or four years.
Item 3.
Item 3. Legal Proceedings
The Company is currently defending approximately 65 products liability and similar lawsuits involving industrial accidents. Management believes that none of these will individually have a material adverse effect on the Company. Taken as a whole, the damages claimed would have a material adverse effect on the Company but actual costs of judgments, settlements and costs of defense have not had such an effect to date. The Company views these actions, and related expenses of administration, litigation and insurance, as part of the ordinary course of its business. The Company uses a combination of self-insured retention and insurance, paid for in part by its Dealers, to manage these risks and believes that the insurance coverage and reserves established for self-insured risks are adequate. The Company's Dealers contribute to the funding of the Company's products liability program and, in turn, the Company indemnifies the Dealers against products liability expense and manages products liability claims. The Company has a policy of aggressively defending these lawsuits which generally take several years to ultimately resolve.
The Company is also one of seventeen remaining defendants in a private environmental lawsuit. The five plaintiffs in the case are Cooper Industries, Inc., Keystone Consolidated Industries, Inc., The Monarch Machine Tool Co., Niagara Mohawk Power Corporation and Overhead Door Corporation. Plaintiffs have been ordered by the United States Environmental Protection Agency ("EPA") to perform a Remedial Investigation/Feasibility Study ("RI/FS") with respect to a 20 acre site located in Cortland, New York and remediate the site. Plaintiffs are seeking contribution from each of the defendants. The RI/FS has been completed by the plaintiffs and submitted to the EPA for approval. The plaintiffs expect the EPA to issue a Record of Decision by the second quarter of 1997. The EPA decision will define the scope of the remediation required and is expected to narrow the issues in the private party litigation. Pretrial factual discovery on the plaintiffs' claims against each defendant has been completed. Expert discovery is expected to continue through 1997. The site involved in the litigation was a manufacturing site for many years prior to 1971. From 1971 to 1985, a scrap metal processing operation was conducted at the site. From 1975 to 1982, the owners of the scrap metal processing operation purchased scrap metal from the Company. The plaintiffs have alleged that the scrap metal purchased from the Company was hazardous and/or was coated with certain solvents and/or cutting oils. Plaintiffs have successfully moved for partial summary judgment, on liability only, against two co-defendants who contributed scrap metal to the site. Similar motions as to the Company and two other co-defendants are pending. Plaintiffs have the burden of proving the nature and extent of the Company's contribution to the site as well as the burden of proving what portion of the material delivered to the site was "hazardous" as that term is defined in the environmental statutes. The Company is aggressively defending the claim and does not believe it is likely to have a material adverse effect on the Company.
In addition to the matters discussed above, the Company is subject to various other legal proceedings, claims and liabilities which have arisen in the ordinary course of its business. In the opinion of management, the amount of ultimate liability, if any, with respect to these actions will not materially affect the financial results of operations or financial position of the Company.
Item 4.
Item 4. Submission of Matters to a Vote of Security Holders
During the fourth quarter of 1996, no matter was submitted to a vote of security holders.
ADDITIONAL INFORMATION REQUIRED IN PART I:
Executive Officers of the Registrant
The names, ages and positions of all the Executive Officers of Raymond, as of March 14, 1997, are listed below together with their business experience during the past five years. Officers are elected annually by the Board of Directors. There are no family relationships among these officers or any Director or Executive Officer of Raymond, nor any arrangement or understanding between any officer and any other person pursuant to which the officer was elected. Certain Executive Officers of Raymond are also officers of Raymond's principal subsidiaries.
PART II
Item 5.
Item 5. Market for the Company's Common Stock and Related Security Holder Matters
See "Note P - Quarterly Information (Unaudited)" of the consolidated financial statements included in Item 8 and the discussion on Liquidity and Sources of Capital included in Item 7 of this Form 10-K Annual Report.
The number of shareholders of record on March 14, 1997 was 2,259.
In March 1997, the Company announced that it had retained an investment banking firm to assist in evaluating strategic alternatives available to increase shareholder value. In conjunction with this, the Company's Board of Directors adopted a Shareholders Right Plan. The Rights provide protection against coercive or unfair takeover tactics. The Rights Plan is similar to plans adopted by many public companies and should provide a sound and reasonable means of safeguarding the interests of all shareholders should an effort be made to acquire the Company at a price not reflective of its fair value.
Item 6.
Item 6. Selected Financial Data
Financial Summary: Current and Ten Year The Raymond Corporation and Subsidiaries
(Dollars in thousands, except per share data)
Note: As indicated in Note H to the financial statments, beginning in the fourth quarter of 1996 the operating results of G.N. Johnston Equipment Co. Ltd. (Johnston) and Associated Material Handling Industries, Inc. (Associated) have been consolidated with those of the Company. Prior to the fourth quarter of 1996, the Company accounted for its investments in Johnston and Associated using the equity method.
*Restated for the 1996 5% stock dividend.
ITEM 7.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The Raymond Corporation and Subsidiaries
Overview
The Raymond Corporation ("Raymond" or the "Company") is based in Greene, New York and operates predominantly in one business segment, that being the design, manufacture, distribution and service of materials handling equipment. Revenues are realized primarily from distribution of the Raymond(R) and Dockstocker(R) product lines through the Company's Dealer Network which is principally located in North America. The Dockstocker product line of electric, stand-up counterbalanced lift trucks was launched in 1995 and is designed for work in loading and shipping dock areas. The Dealer Network is complemented by the Company's National Accounts Program, which offers certain large customers single source coordination of their materials handling needs, and a similar program managed at the regional level. Raymond also has Dealers in Central and South America, Australia, New Zealand and Singapore.
In addition, the Company has expanded in both the domestic and international markets with minimal capital investment through joint venture and Original Equipment Manufacturer (O.E.M.) supply agreements. O.E.M. agreements are in place with Mitsubishi Caterpillar Forklift America Inc. and Toyota Industrial Equipment for distribution in North America and Jungheinrich A.G. for distribution in Europe. Material Handling Associates, Inc. (M.H.A.), which distributes equipment manufactured by Raymond through the Caterpillar distribution network, is the Company's 50% owned joint venture company with Mitsubishi Caterpillar Forklift America Inc.
The assets and liabilities of Raymond Leasing Corporation, a wholly-owned subsidiary which finances Company products and related accessories only in the United States, are classified under the caption "Financial Services" in the consolidated balance sheets. Raymond Leasing Corporation also provides the Dealer Network with short-term rental units and used equipment.
As discussed in Note H - Acquisitions to the consolidated financial statements, the Company acquired controlling interest in G.N. Johnston Equipment Co. Ltd. (Johnston) and Associated Material Handling Industries, Inc. (Associated), both distributors of the Company's products that were previously accounted for as equity investees. Johnston is the exclusive Canadian distributor for the Company with sales and service outlets in the principal business regions of the Dominion of Canada. Associated is a U.S. distributor based in Elmhurst, Illinois that serves portions of the Midwest and Pacific Northwest. The combined purchase price for the acquired shares of Johnston and Associated was approximately $4.5 million. The operating results of Johnston and Associated, net of minority interests, were consolidated with those of the Company starting in the fourth quarter of 1996.
The major components of the Company's international operations are Raymond Industrial Equipment, Ltd., a wholly-owned Canadian manufacturing subsidiary, and Johnston. Foreign exchange exposure on international operations is limited primarily to the Canadian dollar and is minimized through the purchase of foreign currency exchange contracts and foreign exchange options. The impact on the financial statements of the settlement of foreign currency exchange contracts has not been material for the three years ending December 31, 1996. Based on current rates and the relative historical stability of the Canadian dollar, it is also expected that there will be no material adverse impact on operating results from the settlement of those contracts that are outstanding at December 31, 1996. Detailed information pertaining to foreign currency exchange contracts and foreign exchange options is contained in Notes A and F to the consolidated financial statements.
Products produced at the U.S. and Canadian manufacturing facilities are determined by manufacturing process; the U.S. facility produces a wide variety of products, including some custom-made materials handling equipment, while the Canadian facility specializes in high volume models that require minimal customization. The Company distributes its repair and replacement parts from its Distribution Center in Syracuse, New York.
The major revenue categories are shown below:
Percentage of Total Revenues 1996 1995 1994 - ---------------------------- ---- ---- ---- Narrow and very narrow aisle applications 56% 60% 57%
All other applications 20% 18% 20%
Repair and replacement parts 16% 16% 17%
Leasing and rentals 5% 5% 5%
Service 2% - -
Other 1% 1% 1%
Net Sales
In 1996, record net sales were reported for the fourth consecutive year. Net sales of $289.6 million represented an increase of approximately $18.2 million or 6.7% from the previous record set in 1995. Net sales in 1995 were $271.4 million, up approximately $53.6 million or 24.6% from the 1994 level of $217.8 million.
In 1996, the growth in net sales was attributable to the approximate $17.8 million of incremental sales and service revenue recognized as a result of the consolidation of Johnston and Associated in the fourth quarter. The Company was also successful in increasing its market share as well as O.E.M., Dockstocker and National Accounts Program sales in a North American market that remained strong in 1996 but that was down from the record levels attained in 1994 and 1995.
The substantial growth in net sales in 1995 reflected a continuation of trends noted throughout 1994, including the Company's success in expanding its distribution to serve new and different markets. The Company's shipments to its Dealer Network increased as a result of the record backlog (unfilled new equipment orders) at the start of 1995 and the continued success of its new products with the intellidrive(R) controls technology and increased sales efforts at the Dealership level. The successful launch of the new Dockstocker product line, which addressed a market segment not specifically targeted by the Company previously, contributed to the sales growth. Other significant increases were attained through sales to M.H.A. and the increased volume of repair and replacement parts sales.
Rental Revenues
Rental revenues were $3.7, $1.8 and $1.9 million in 1996, 1995 and 1994, respectively. The current year increase is attributable to the rental revenues recognized by Johnston and Associated.
Lease Finance Revenues
Lease finance revenues recognized by Raymond Leasing Corporation and Johnston in 1996 increased approximately $2.8 million or 30.3% to $12.2 million. In 1995, lease finance revenues increased by $2.4 million or 32.9% to $9.4 million as compared to the $7.0 million recognized in 1994. The increased revenues in the current year primarily reflect the record level of leases booked in 1996 which corresponds to the record sales level attained by The Raymond Corporation. In 1996, approximately 31% of the units delivered under the Raymond brand name in the United States were financed through Raymond Leasing Corporation. Johnston's fourth quarter lease finance revenues contributed approximately $0.4 million of the 1996 increase. The growth in 1995 revenues also corresponded to record sales levels attained by the Company.
The net lease portfolio of Raymond Leasing Corporation increased approximately $24.8 million in 1996 to a record level of $131.2 million. At December 31, 1996 lease receivables from one customer represented approximately 16% of the total investment in leases.
Other Income
Other income was $3.3 million in 1996 and $2.8 million in both 1995 and 1994. The primary components of other income during these years were interest income, foreign currency exchange gains, cash discounts taken and license and royalty fees. The increase in 1996 relates to the gain recognized on the sale of an idle facility and increased interest income.
Cost of Sales
Cost of sales as a percentage of net sales was 78.1%, 77.9% and 77.6% in 1996, 1995 and 1994, respectively.
The Company was able to maintain a relatively stable cost of sales percentage in both 1996 and 1995 despite additional costs and short-term inefficiencies incurred in connection with the disposal and relocation of existing manufacturing equipment and the installation of new manufacturing equipment at the Greene, New York facility. This factory modernization project was essentially completed in the fourth quarter of 1996. The Company intends to continue its efforts to reduce manufacturing costs through improved manufacturing processes and research and development activities.
The cost of sales percentage is also impacted by the volume produced for O.E.M. customers. Offsetting the percentage impact on cost of goods sold is the benefit received from attaining these additional sales without incurring additional marketing and distribution expenses.
Cost of Rentals
Cost of rentals, which consist primarily of depreciation and maintenance, was $2.7, $1.7 and $1.8 million in 1996, 1995 and 1994, respectively. The increase in the cost of rentals is directly related to the increased rental revenues. The improved margins in 1996 pertain to the rental operations with end users conducted by Johnston and Associated.
Selling, General and Administrative Expenses
Selling, general and administrative expenses of $41.3, $34.7 and $28.5 million were 13.4%, 12.2% and 12.4% of total revenues in 1996, 1995 and 1994, respectively. The current year increase is primarily attributable to the inclusion of costs associated with the distribution expenses of the Dealers acquired late in 1996. The Company's percentage of selling, general and administrative expenses, excluding Johnston and Associated , is consistent with the 1995 percentage even though additional costs were incurred in connection with the Greene factory modernization project including those associated with the implementation of a new business system.
The dollar level increase in 1995 reflects expenses incurred to support the growth in sales volume including costs to launch the Dockstocker(R) product line and costs for the Company's biannual International Sales Meeting. There were increases in engineering expenditures and compensation and benefit expenses including costs associated with stock appreciation rights. Also, increased costs were incurred in connection with an upgrade of the Company's computer systems. The Company's efforts to contain costs and appropriately focus its resources enabled it to reduce selling, general and administrative costs as a percentage of total revenues in 1995.
Interest Expense
Interest expense related to lease financing is reported net of charges on intercompany borrowings. Lease finance interest expense of $4.7, $3.0 and $2.2 million represented 38.6%, 31.5% and 31.1% of lease finance revenues in 1996, 1995 and 1994, respectively. The increases in interest expense in both 1996 and 1995 reflect the additional external borrowings incurred to finance the growth of the lease portfolio. The percentage increase in 1996 reflects the greater percentage of external borrowings incurred by Raymond Leasing Corporation. It is expected that lease financing interest expense will continue to fluctuate with the volume of outstanding leases.
Other interest expense incurred by the manufacturing and distribution divisions was $3.1, $3.7 and $4.0 million in 1996, 1995 and 1994, respectively. The current year decrease reflects the impact for a full year of the subordinated debentures converted in the third quarter of 1995, the 1996 conversion of $13.2 million of debentures, which occurred primarily in the fourth quarter, and the $0.5 million interest subsidy grant received from New York State in connection with the Greene factory modernization project. The decrease in 1995 was the result of the conversion of $6.2 million of debentures in the third quarter.
Other Expenses
Other expenses were $4.8, $6.2 and $5.2 million, or 1.6%, 2.2% and 2.3% of total revenues in 1996, 1995 and 1994, respectively. The principal components of other expenses are cash discounts paid to Dealers for the timely payment of invoices and the provision for losses on accounts receivable and investment in leases. Decreases in the provision for losses on accounts and leases receivable and certain costs incurred in connection with foreign currency transactions were the main components of both the dollar and percentage decreases in 1996.
The formulas for computing the profit sharing provisions are consistent for all periods presented.
Income Tax Expense
The provision for federal, state and foreign income taxes represented a combined effective tax rate of 37.0%, 38.9% and 40.3% in 1996, 1995 and 1994, respectively. The tax rates on foreign subsidiaries and state income taxes accounted for the majority of the difference in the effective tax rate from the expected U.S. federal statutory rate. Note M to the consolidated financial statements contains further information concerning the provision for income taxes as well as the detail components of the effective tax rate.
Valuation allowances have not been required for reported deferred tax assets and the Company is not aware of any circumstances that would require cash payments to significantly exceed income tax expense during the next three years.
Unconsolidated Investees
Prior to its inclusion in the consolidated financial statements in the fourth quarter of 1996, Johnston was the Company's primary unconsolidated investee. Other unconsolidated investees include several Dealerships located throughout the United States, as well as M.H.A.
The Company's net equity in earnings of unconsolidated investees was $1.1 million in 1996 as compared to $0.3 and $0.2 million in 1995 and 1994, respectively. The increase in 1996 was primarily attributable to the improved financial performance of several U.S. Dealerships, some of whom had experienced losses in prior years. As the presentation of the operating results of Johnston and Associated will change with their inclusion in the consolidated results of the Company for all of 1997 as opposed to just the fourth quarter in 1996, it is expected that the earnings reported for unconsolidated investees will decrease in 1997.
The Company considers its Dealer Network to be critical to the successful distribution of its products and has therefore continued to provide investments in, and financing to, certain Dealerships to accommodate ownership transitions and enable them to invest in the salespeople, training and other resources necessary to increase their market share and profitability. Net additional advances to and investments in unconsolidated investees have averaged approximately $3.3 million for the three years ended December 31, 1996. In 1996, the Company continued its strategy of increasing minority equity investments in Dealerships serving key geographic areas.
Liquidity and Sources of Capital
The Company used $12.2 million for operating activities in 1996 as compared to $10.3 million in 1995. The cash generated from earnings was used primarily to fund the continued growth in the lease portfolio, capital expenditures and the increase in other working capital requirements. Cash used in investing activities decreased approximately $1.6 million in 1996 versus 1995 as a result of proceeds received from the sale of an idle facility in the third quarter of 1996. Cash flows from financing activities primarily reflect the external borrowings and related debt repayments made by Raymond Leasing Corporation to fund a portion of the continued growth of the lease portfolio.
In 1995, the Company used $10.3 million to fund operating activities, an increase of approximately $3.0 million from 1994. As in the current year, cash was primarily used to fund the growth of the lease portfolio and the increase in other working capital components necessary to support the higher sales volume. Net cash used for investing activities increased approximately $3.3 million in 1995 compared to 1994 as additional capital expenditures were incurred in connection with the accelerated capital expenditure program at the Greene, New York facility. The 1995 cash flows from financing activities reflect the proceeds of long-term debt obtained by Raymond Leasing Corporation to fund a portion of the continued growth of the lease portfolio and repay intercompany borrowings.
The Company's manufacturing and distribution working capital was $74.2 million at December 31, 1996 and its ratio of manufacturing current assets to manufacturing current liabilities was 2.4 to 1.0. Financial Services total external debt was 59.5% of the related net investment in leases at December 31, 1996.
At December 31, 1996, the Company and its subsidiaries had unused lines of credit of $26.3 million of which approximately $10.9 million may be converted into long-term debt at the option of the Company and/or Raymond Leasing Corporation. In addition, payments made under the Company's revolving credit and term loan facilities increase the funds available for borrowing. These credit facilities, along with internally generated resources, will enable the Company to continue to fund its growth strategy and enable Raymond Leasing Corporation to obtain the external funds necessary to fund the growth of the lease portfolio and to repay intercompany borrowings with The Raymond Corporation as the manufacturing divisions require additional funds. The factory modernization project at the Greene facility is essentially complete and there are no material commitments for new capital expenditures although the Company intends to continue its policy of upgrading its manufacturing equipment and facilities as appropriate.
In March 1996, the Board of Directors declared a 5% stock dividend on the Company's common stock payable to shareholders of record as of March 29, 1996. All appropriate per share data and the weighted average shares outstanding have been restated to reflect this dividend. On April 8, 1996, the Board of Directors reinstated a regular quarterly cash dividend of 2 1/2 cents on the Company's outstanding shares of common stock, effective for the second quarter of 1996. The Company announced in March 1997 that the regular quarterly cash dividend was increased to 6 1/4 cents per share, effective for the first quarter of 1997. The Company expects to continue the quarterly cash dividends at this level but its ability to do so will depend on a variety of factors including the Company's earnings, cash flows and financial resources.
Maintaining a sound and flexible financial structure through conservative financial strategies continues to be a high priority for The Raymond Corporation. The Company's overall strong financial condition continued to improve throughout 1996. On December 20, 1996, the Company issued a Call for Redemption of its outstanding 6 1/2% convertible subordinated debentures due December 15, 2003. Prior to issuing the Call for Redemption, an additional $9.5 million of the debentures were converted into shares of common stock, primarily in the fourth quarter. The redemption was completed on January 21, 1997 and substantially all of the outstanding debentures were converted into common stock at the originally stated conversion rates adjusted for stock dividends. Approximately 3.2 million shares of common stock was issued in 1996 and January 1997 in connection with the conversion of the debentures. The Company's reported primary earnings per share of $2.00 for 1996 would have been $1.62 had these conversions taken place as of January 1, 1996. As a result of the successful conversion of the debentures completed in January 1997, the Company's outstanding shares of common stock increased to approximately 10.6 million and the net worth increased to $165.9 million. The convertible debentures were the main component of the difference in the computation of primary and fully diluted earnings per share as the dilution that could result from the assumed exercise of stock options is not material.
As discussed in Note G to the consolidated financial statements, Raymond Leasing Corporation is subject to certain debt agreements that limit cash dividends and loans to the Company. These restrictions are not expected to impact the parent company. Management foresees no changes in circumstances which would result in any material decrease or deficiency in the Company's liquidity or sources of capital. The improved capital structure resulting from continued profitability and the conversion of the debentures will aid the Company's growth strategy which includes pursuing additional opportunities in North America and Europe.
Changing Price Levels
Although inflation has slowed in recent years, it is still a factor in our economy and the Company continues to seek ways to minimize its impact. To the extent permitted by competition in general, the Company attempts to recover increased costs by increasing selling prices over time. However, the Company has not realized any substantial growth in revenues from increased unit selling prices during the past three years except for the approximate 3 1/2% aggregate unit price increase that was announced in December 1994. In addition, selling price increases are implemented to recover cost increases with respect to repair and replacement parts when appropriate and lease finance rates are adjusted to reflect changes in market conditions and the Company's cost of funds. Cost containment, technological improvements and improved manufacturing methods continue to be emphasized as a means to improve product margins.
The Company uses the FIFO (first-in, first-out) method of accounting for its inventories. Although management believes that the FIFO method is the method that most appropriately matches revenues and expenses, the costs of products sold reported in the financial statements under this method are historical costs which are subject to inflationary distortion during times of rapidly increasing prices.
The charges to operations for depreciation represent the allocation of historical costs incurred over past years and are less than if they were based on the current costs of productive capacity being consumed. Over 40% of the Company's property, plant and equipment has been acquired over the past five years. Assets acquired in prior years will, of course, be replaced at higher costs. This will take place over many years. These new assets will result in higher depreciation charges, but in many cases, due to technological improvements, there will be operating cost savings as well. The Company considers these matters in determining its pricing policies.
Contingencies
The Company is currently defending approximately 65 products liability and similar lawsuits involving industrial accidents. The number of outstanding lawsuits has remained relatively constant over the past several years.
The Company views these actions as part of the ordinary course of its business. Management believes that none of these lawsuits will individually have a material adverse effect on the Company. Taken as a whole, the damages claimed would, if awarded and upheld, have a material adverse effect on the Company but actual costs of judgments, settlements and costs of defense have not had such an effect to date. The actual costs of these actions, as well as the related expenses of administration, litigation and insurance, have averaged less than 2% of total revenues over the last three years. The effect of these lawsuits on future results of operations cannot be predicted because any such effect depends on the operating results of future periods and the amount and timing of the resolution of these proceedings. The Company has a policy of aggressively defending products liability lawsuits, which generally take several years to ultimately resolve. A combination of self-insured retention and insurance is used to manage these risks and management believes that the insurance coverage and reserves established for self-insured risks are adequate. The Company's Dealers contribute to the funding of the Company's products liability program and, in turn, the Company indemnifies the Dealers against products liability expense and manages products liability claims.
The Company is also one of seventeen remaining defendants in a private environmental lawsuit pertaining to a site remediation. The plaintiffs have alleged that scrap metal purchased from the Company was hazardous and/or was coated with certain solvents and/or cutting oils. Plaintiffs have the burden of proving the nature and extent of the Company's contribution to the site, as well as the burden of proving what portion of the material delivered to the site was "hazardous" as that term is defined in the environmental statutes. Plaintiffs have successfully moved for partial summary judgment, on liability only, against two co-defendants who contributed scrap metal to the site. Similar motions as to the Company and two other co-defendants are pending. The Company is aggressively defending the claim and does not believe it is likely to have a material adverse effect on the Company.
In addition to the matters discussed above, the Company is subject to various other legal proceedings, claims and liabilities which have arisen in the ordinary course of business. In the opinion of management, the amount of ultimate liability, if any, with respect to these actions will not materially affect the financial results of operations or financial position of the Company.
Outlook
Orders received in 1996 were a record $300.4 million, an increase of approximately $41.5 million or 16.0% from the orders received in 1995. In 1995, the previous record for orders received was established at $258.9 million, an increase of approximately $15.2 million or 6.3% from the orders received in the previous year.
At December 31, 1996, the Company's order backlog of unfilled new equipment orders was $76.4 million and approximately $8.9 million relates to the incremental backlog of Johnston and Associated. The current year backlog is up $10.8 million or 16.4% and provides a solid foundation for the upcoming year. In 1995, the backlog was $65.6 million, down approximately $12.5 million or 16.0% from the record backlog level of $78.1 million established at December 31, 1994.
The Company believes that the overall market will improve in 1997, although it is not expected to return to the record levels of 1994. The Company attempts to outperform the lift truck market through various growth strategies. These strategies include continued product development such as the additions to the Dockstocker(R) product line, enhanced distribution through the Dealer Network, increased participation in domestic and international markets through strategic alliances or acquisitions and continued improvements in the manufacturing processes.
It is expected that the Company's revenues will increase in 1997 as a result of the consolidation of Johnston and Associated. See Note H - Acquisitions to the consolidated financial statements for the unaudited pro forma information presented as if the acquisitions had occurred as of January 1, 1995. Net income for these Dealers has historically been a smaller percentage of total revenues than that attained by the Company in the last few years.
In March 1997, the Company announced that it had retained an investment banking firm to assist in evaluating strategic alternatives available to the Company to increase shareholder value. In conjunction with this, the Company's Board of Directors adopted a Shareholders Rights Plan. The Rights provide protection against coercive or unfair takeover tactics. The Rights Plan is similar to plans adopted by many public companies and should provide a sound and reasonable means of safeguarding the interests of all shareholders should an effort be made to acquire the Company at a price not reflective of its fair value.
Statements included in this Management's Discussion and Analysis of Financial Condition and Results of Operations which are not historical in nature, are intended to be, and are hereby identified as, forward looking statements for purposes of the safe harbor provided by Section 21E of the Securities and Exchange Act of 1934, as amended by Public Law 104-67. The Company cautions readers that forward looking statements, including without limitation, those relating to the Company's future business prospects, revenues, risks of foreign operations, working capital and liquidity and new equipment orders, are subject to certain risks and uncertainties that could cause actual results to differ materially from those indicated in the forward looking statements. These risks and uncertainties include general economic and market conditions, including demand for the Company's products and services, competition and price levels; the possibility of catastrophic events that could impact the Company's manufacturing, distribution and computer facilities; and changes in interest rates and foreign currency fluctuations, among others. Additional risks and factors are identified from time to time in the Company's reports filed with the SEC.
Item 8.
Item 8. Financial Statements and Supplementary Data
The response to this Item is submitted in a separate section of this Report.
Item 9.
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Not applicable. PART III
Item 10.
Item 10. Directors and Executive Officers of the Registrant
Information regarding Directors required by Items 401 and 405 of Regulation S-K is disclosed under the captions "Nominees for Election as Directors" and "Directors Continuing in Office" in the Proxy Statement for the Annual Meeting of Shareholders to be held June 2, 1997 and is incorporated herein by reference. Information regarding Executive Officers is included in Part I of this Form 10-K and incorporated herein by reference thereto.
Item 11.
Item 11. Executive Compensation
Information regarding compensation of Directors and Executive Officers is disclosed under the captions "Directors Remuneration"; "Attendance" and "Executive Compensation" of the Proxy Statement for the Annual Meeting of Shareholders to be held June 2, 1997, and is incorporated herein by reference thereto.
Item 12.
Item 12. Security Ownership of Certain Beneficial Owners and Management
This information is disclosed under the captions "Security Ownership of Certain Beneficial Owners" and "Security Ownership of Management" in the Proxy Statement for the Annual Meeting of Shareholders to be held on June 2, 1997, and is incorporated herein by reference thereto.
Item 13.
Item 13. Certain Relationships and Related Transactions
This information is disclosed in the 1997 Proxy Statement for the Annual Meeting of Shareholders in the section captioned "Certain Relationships and Related Transactions" and is incorporated herein by reference thereto.
PART IV
Item 14.
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a) Documents filed as part of this report:
1. The following consolidated financial statements of The Raymond Corporation, and Subsidiaries, are included in Item 8:
10-K Report Page -----------
Report of Independent Auditors 35
Consolidated Balance Sheets - December 31, 1996, 1995 and 1994 36 - 37
Consolidated Statements of Income - Years ended December 31, 1996, 1995 and 1994 38
Consolidated Statements of Shareholders' Equity - Years ended December 31, 1996, 1995 and 1994 39
Consolidated Statements of Cash Flows - Years ended December 31, 1996, 1995 and 1994 40 - 41
Notes to Consolidated Financial Statements - 42 - 61 December 31, 1996
2. The following Consolidated Financial Statement Schedules of The Raymond Corporation and Subsidiaries are required by Item 14(d):
10-K Report Page ----------- Schedule I - Condensed Financial Information of Registrant - The Raymond Corporation Years ended December 31, 1996, 1995 and 1994 62 - 67
Schedule II - Valuation and Qualifying Accounts Years ended December 31, 1996, 1995 and 1994 68 - 70
All other schedules for which provision is made in Regulation S-X of the Securities and Exchange Commission have been omitted because they are not applicable or not required under the related instructions or because the information has been furnished elsewhere in the financial statements.
3. See Exhibit Index at pages 30-32 of this Form 10-K.
(b) No report on Form 8-K was filed by the registrant during the fourth quarter of its fiscal year ending December 31, 1996.
(c) Exhibits:
Exhibit # Description - ------- ----------- 3.1 Restated and Amended Certificate of Incorporation of The Raymond Corporation. Filed as Exhibit 3.1 to the 1995 Form 10-K Annual Report of the Company on page 32 and incorporated herein by reference.
3.2 Bylaws of the Company, as amended, dated March 24, 1997. Filed as Exhibit 3.2 to this Form 10-K Annual Report of the Company on page 73.
4.1 Form 8-A12G/A dated March 13, 1997 and filed March 14, 1997 with the Securities and Exchange Commission, File Number 001-12801 and incorporated herein by reference.
4.2 Shareholder Rights Plan filed as Exhibit 1 to the Form 8-12G/A dated March 13, 1997 and filed March 14, 1997 with the Securities and Exchange Commission, File Number 001-12801 and incorporated herein by reference.
10.1 Joint Venture Agreement dated August 1, 1991 between Caterpillar Industrial Inc., and The Raymond Corporation. Filed as Exhibit 10.1 to this Form 10-K Annual Report of the Company on page 89.
10.2 First Amendment to Joint Venture Agreement dated August 1, 1991 between Caterpillar Industrial Inc. and The Raymond Corporation dated October 22, 1992. Filed as Exhibit 10.18 to the 1992 Form 10-K Annual Report of the Company on page 63 and incorporated herein by reference.
10.3 Second Amendment to Joint Venture Agreement dated August 1, 1991 between Caterpillar Industrial Inc. and The Raymond Corporation. Filed as Exhibit 10.3 to the 1994 Form 10-K Annual Report of the Company on page 32 and incorporated herein by reference.
10.4 Third Amendment to Joint Venture Agreement dated August 1, 1991 between Caterpillar Industrial Inc. and The Raymond Corporation. Filed as Exhibit 10.4 to the 1994 Form 10-K Annual Report of the Company on page 37 and incorporated herein by reference.
11. Statement Re: Computation of Per Share Earnings. Filed as Exhibit 11 to this Form 10-K Annual Report of the Company at page 187.
20.1 Form 8-K Report dated January 7, 1997 and filed January 7, 1997 with the Securities and Exchange Commission, File Number 000-02129 and incorporated herein by reference.
20.2 Form 8-K Report dated February 5,1997 and filed February 5, 1997 with the Securities and Exchange Commission, File Number 000-02129 and incorporated herein by reference.
Exhibit # Description - ------- ----------- 20.3 Form 8-K/A Report dated March 17, 1997 and filed March 17, 1997 with the Securities and Exchange Commission, File Number 001-12801 and incorporated herein by reference.
21. Subsidiaries (Direct and Indirect) of The Raymond Corporation for the year ending December 31, 1996 filed as Exhibit 21 to this Form 10-K Annual Report of the Company on page 189.
23. Consent of Independent Auditors dated April 10, 1997 filed as Exhibit 23 to this Form 10-K Annual Report of the Company on page 191.
24. Power of Attorney of Directors dated March 1, 1997 filed as Exhibit 24 of this Form 10-K Annual Report of the Company on page 193.
27. Financial Data Schedule filed as Exhibit 27 to this Form 10-K Annual Report of the Company on page 195.
EXECUTIVE COMPENSATION PLANS AND ARRANGEMENTS
10.6 Employment Agreement dated as of November 3, 1987 amended as of June 14, 1994 and as of November 1, 1995 and amended and restated as of March 24, 1997 between Ross K. Colquhoun and The Raymond Corporation. Filed as Exhibit 10.6 to this Form 10-K Report of the Company at page 113.
10.7 Sample form of Executive Agreement (Tier II) between The Raymond Corporation and Company Executives. Filed as Exhibit 10.7 to this Form 10-K Report of the Company at page 127.
10.8 Sample form of Executive Agreement (Tier III) between The Raymond Corporation and Company Executives. Filed as Exhibit 10.8 to this Form 10-K Report of The Company at page 140.
10.9 The Raymond Corporation Retirement Benefits Equalization Plan. Filed as Exhibit 10.17 to the 1995 Form 10-K Annual Report of the Company at page 250 and incorporated herein by reference.
10.10 The Raymond Corporation 1996 Deferred Stock Unit Plan for Non-Employee Directors. Filed as Exhibit 10.10 to this Form 10-K Report of the Company at page 151.
10.11 The Raymond Corporation Stock Option Plan (1991) amended as of March 24, 1997. Filed as Exhibit 10.11 to this Form 10-K Report of the Company at page 156.
Exhibit # Description - ------- ----------- 10.12 The Raymond Corporation Stock Option Plan (1995) as amended as of March 24, 1997. Filed as Exhibit 10.12 to this Form 10-K Report of the Company at page 168.
10.13 The Raymond Corporation Deferred Compensation Plan for Exempt Employees restated as of September 1, 1994, amended as of March 24, 1997. Filed as Exhibit 10.13 to this Form 10-K Annual Report of the Company at page 180.
10.14 The Raymond Corporation Officer Performance Bonus Plan Formula. Filed as Exhibit 10.15 to the 1992 Form 10-K Annual Report of the Company at page 357 and incorporated herein by reference.
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.
Date: April 14, 1997 THE RAYMOND CORPORATION ----------------------- (Registrant)
By: /s/ Ross K. Colquhoun ---------------------- Ross K. Colquhoun Chairman of the Board and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following persons on behalf of the Registrant and in the capacities and on the date indicated.
ANNUAL REPORT ON FORM 10-K
ITEM 8, ITEM 14(a)(1) and (2), (c), and (d)
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
CERTAIN EXHIBITS
FINANCIAL STATEMENT SCHEDULES
YEAR ENDED DECEMBER 31, 1996
THE RAYMOND CORPORATION GREENE, NEW YORK
Report of Independent Auditors
We have audited the accompanying consolidated balance sheets of The Raymond Corporation and subsidiaries as of December 31, 1996, 1995 and 1994, and the related consolidated statements of income, shareholders' equity, and cash flows for each of the three years in the period ended December 31, 1996. Our audits also included the financial statement schedules listed in the Index at Item 14(a). These financial statements and schedules are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and schedules based on our audits.
We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of The Raymond Corporation and subsidiaries at December 31, 1996, 1995 and 1994, and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 1996, in conformity with generally accepted accounting principles. Also, in our opinion, the related financial statement schedules, when considered in relation to the basic financial statements taken as a whole, present fairly in all material respects the information set forth therein.
/s/ Ernst & Young LLP
Syracuse, New York February 7, 1997
Consolidated Balance Sheets The Raymond Corporation and Subsidiaries
*Includes Manufacturing and Distribution and Financial Services
The accompanying notes are a part of the financial statements.
*Includes Manufacturing and Distribution and Financial Services
The accompanying notes are a part of the financial statements.
Consolidated Statements of Income The Raymond Corporation and Subsidiaries
The accompanying notes are a part of the financial statements.
Consolidated Statements of Shareholders' Equity The Raymond Corporation and Subsidiaries Years ended December 31, 1996, 1995 and 1994
The accompanying notes are a part of the financial statements.
Consolidated Statements of Cash Flows The Raymond Corporation and Subsidiaries
The accompanying notes are a part of the financial statements.
The accompanying notes are a part of the financial statements.
Notes to Financial Statements The Raymond Corporation and Subsidiaries Years ended December 31, 1996, 1995 and 1994
A. Significant Accounting Policies
(1) Organization: The Raymond Corporation and subsidiaries (the Company) designs, manufactures, distributes and services materials handling equipment. Manufacturing, distribution, and service facilities are located in the U.S. and Canada and revenues are realized primarily from distribution of the Raymond(R) and Dockstocker(R) product lines through the Company's Dealer Network which is predominantly located in North America. In addition, the Company produces materials handling equipment under Original Equipment Manufacturer (O. E. M.) agreements for distribution by other companies in both North America and Europe.
(2) Principles of Consolidation: The consolidated financial statements include the accounts of the Company and its domestic and foreign subsidiaries after elimination of all significant intercompany accounts and transactions. Unconsolidated investees are stated at cost plus equity in unremitted earnings since acquisition. The Company's share of earnings of unconsolidated investees is included in consolidated net income using the equity method.
The accounts of foreign operations have been translated to U.S. dollars in conformity with Statement of Financial Accounting Standards No. 52, "Foreign Currency Translation." Exchange gains and losses arising from transactions are included in current income. Net exchange gains (losses) were not significant in 1996, ($0.1) million in 1995 and $0.6 million in 1994.
Earnings of consolidated foreign companies, net of minority interests, were $8.8, $9.0 and $7.1 million in 1996, 1995 and 1994, respectively.
(3) Use of Estimates: The preparation of the 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 accompanying notes. Actual results could differ from those estimates.
(4) Cash Equivalents: The Company considers all highly liquid investments with a maturity of three months or less when purchased to be cash equivalents. These amounts were $5.1, $4.5 and $3.8 million at December 31, 1996, 1995 and 1994, respectively.
(5) Foreign Currency Exchange Contracts: In the normal course of business, the Company's Canadian subsidiaries, enter into foreign currency exchange contracts to provide economic hedges against foreign currency fluctuations on future inventory purchases. Gains and losses resulting from foreign currency exchange contracts are deferred and recognized when the offsetting gains and losses are recognized in the related hedged item. At December 31, 1996, outstanding forward contracts were $24.4 million which mature in increments ranging from approximately $1.0 to $2.5 million on a monthly basis through December 1997.
(6) Foreign Exchange Options: R.H.E. Ltd., a wholly-owned Canadian subsidiary, also purchases foreign exchange options which permit but do not require R.H.E. Ltd. to exchange foreign currencies at a future date with another party at a contracted exchange rate. These option contracts typically expire within one year. At December 31, 1996, R.H.E. Ltd. had purchased foreign exchange options of $15.9 million related to Canadian dollars.
(7) Inventories: Inventories are stated principally at the lower of cost (FIFO - first-in, first-out method) or market.
(8) Property and Depreciation: Rental equipment and property, plant and equipment are stated at cost. Depreciation is computed primarily on the straight line and declining balance methods for financial reporting and accelerated methods for income tax purposes. The estimated useful lives range primarily from ten to twenty years for buildings and improvements and from three to ten years for all other assets.
(9) Income Taxes: The Company uses the liability method of accounting for income taxes in accordance with Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes." The Company considers the undistributed earnings of its foreign subsidiaries at December 31, 1996 to be indefinitely reinvested.
(10) Revenue Recognition and Related Costs: Revenues from product sales are recognized based upon shipment to customers. Lease finance revenues are recognized on fixed rate, long-term leases on a declining basis over the life of the lease (interest method). Revenues on variable rate leases are recognized based upon the principal amounts outstanding. Financial Services interest expense is reported net of charges on intercompany borrowings. Short-term rentals are recognized as revenues over the term of the contract. Related costs consist primarily of depreciation and maintenance. Cash receipts from comprehensive fixed price maintenance contracts, which range in length from one to seven years, are initially recorded as deferred revenue and recognized as revenue when repair services are performed.
Net sales include sales to unconsolidated investees of $111.3, $131.1 and $89.8 million in 1996, 1995 and 1994, respectively.
(11) Concentration of Credit Risk: The Company's sales are primarily made to its Dealers in North America who subsequently sell the equipment to customers in diversified industries in many geographic areas. It is the Company's policy to have a formal agreement in effect for each Dealer which requires a purchase money security agreement. The Company performs ongoing credit evaluations of its Dealers' financial condition.
The investment in leases primarily represents receivables from customers (end users) of the Company's products. These leases are collateralized by the equipment. Credit evaluations are performed prior to the approval of a lease contract. Subsequently, the financial condition of the customer and the value of the collateral are monitored on an ongoing basis. At December 31, 1996, lease receivables from one customer represented approximately 16% of the total investment in leases.
Reserves for potential credit losses on accounts and lease receivables are maintained and such losses have been within management's expectations.
(12) Product Warranties: Estimated product warranty costs are accrued at the time of revenue recognition.
(13) Insurance Accruals: The Company uses a combination of self-insured retention and insurance coverage for products liability, workers' compensation and certain health insurance plans in the U.S.
(14) Stock Based Compensation: The Company accounts for stock option grants in accordance with Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees." Accordingly, no compensation expense is recognized for stock option grants other than the amounts accrued in connection with the stock appreciation rights associated with these grants.
(15) Research and Development Costs: Research and development costs are charged to expense as incurred and amounted to $3.3 million in 1996; $3.6 million in 1995 and $4.0 million in 1994.
(16) Stock Dividend: On March 2, 1996, the Board of Directors declared a 5% stock dividend on the Company's outstanding common stock payable to shareholders of record as of March 29, 1996. All appropriate per share data and weighted average shares outstanding have been restated to reflect this dividend.
(17) Per Share Amounts: Primary net income per share is computed by dividing net income by the weighted average number of shares outstanding (1996 - 7,524,097; 1995 - 7,176,862 and 1994 - 6,984,319). Dilution that could result from the assumed exercise of stock options is not material. Fully diluted net income per share is computed by dividing net income plus after tax interest incurred on the convertible debentures by the weighted average number of common shares outstanding after giving effect to dilutive stock options and shares assumed to be issued on conversion of the convertible debentures (1996 - 10,675,633; 1995 - 10,675,929 and 1994 - 10,640,237).
- ------------------------------------------------------------------------------ B. Inventories
The composition of inventories at December 31 was:
(in Thousands) 1996 1995 1994 - ------------------------------------------------------------------- Materials $ 26,239 $ 18,095 $ 15,804 Work-in-process 12,548 14,804 13,407 Finished goods 8,417 1,746 1,700 -------------------------------------- $ 47,204 $ 34,645 $ 30,911 ====================================== C. Unconsolidated Investees
Unconsolidated investees consist of certain North American Dealers of the Company's products. Investments in and advances to unconsolidated investees at equity are summarized as follows at December 31:
(in Thousands) 1996 1995 1994 - --------------------------------------------------------------------- Unconsolidated investees at various percentages of ownership:
Investments* $ 7,587 $ 10,951 $ 8,572 Advances 1,875 8,214 8,095 -------------------------------------- $ 9,462 $ 19,165 $ 16,667 ======================================
*Investments are stated at cost, plus equity in subsequent earnings, net of dividends.
At December 31,1996, consolidated retained earnings included $1.9 million of undistributed earnings of the Company's unconsolidated investees.
As discussed in Note H - Acquisitions, in October 1996, the Company acquired an additional 28% and 26% of the total outstanding shares of G.N. Johnston Equipment Co. Ltd. (Johnston) and Associated Material Handling Industries, Inc. (Associated), respectively. As a result of the acquisitions, the Company's ownership increased to 74% and 70% of the total outstanding shares of Johnston and Associated, respectively. Therefore, in the fourth quarter of 1996, the operating results of Johnston and Associated have been consolidated with those of the Company with appropriate adjustments made to reflect minority interests. Investments in and advances to Johnston and Associated totaled $9.0 and $8.5 million at December 31, 1995 and 1994, respectively.
Twenty-six percent and 30% of the common shares of Johnston and Associated, respectively, and various percentages of the unconsolidated investees are controlled by their management. Upon death or termination of employment, the Company has agreed to cause the purchase of management's shares based upon a predetermined valuation method. These agreements further provide, under specified conditions, that any of the shares held by the Company may be purchased by management at a price which will return to the Company its investment.
The unconsolidated investees also include Material Handling Associates, Inc. (M.H.A.), a 50% owned joint venture company that was formed in 1991 with Caterpillar Industrial Inc., predecessor of Mitsubishi Caterpillar Forklift America Inc. The Company's minimal financial investment in this joint venture has no carrying value as a result of the initial costs incurred by M.H.A. to develop and market its products. Certain officers of the Company are also officers of M.H.A.
The following is summarized financial information for the unconsolidated investees:
(in Thousands) 1996 1995 1994 - ----------------------------------------------------------------- Revenues $ 279,197 $ 302,852 $ 225,175 Gross margin 68,998 75,667 41,901 Net income 3,243 2,834 1,634 Current assets 43,057 80,188 55,215 Noncurrent assets 11,621 30,308 24,304 Current liabilities 31,153 60,983 39,373 Noncurrent liabilities 11,708 25,849 22,897
The following presents summarized information of Raymond Leasing Corporation that is contained in the Company's consolidated financial statements to conform with the provisions of Statement of Financial Accounting Standards No. 94, "Consolidation of All Majority-Owned Subsidiaries":
(in Thousands) 1996 1995 1994 - ----------------------------------------------------------------- Revenues $ 15,559 $ 12,718 $ 10,583 Gross margin 6,255 5,562 4,602 Net income 2,919 2,397 1,956 Total assets 135,772 109,243 87,510 Total liabilities 102,327 78,717 59,380
The assets and liabilities of Raymond Leasing Corporation, which finances Company products and related accessories only in the United States, are classified under the caption Financial Services in the consolidated balance sheets.
D. Property, Plant and Equipment
The composition of property, plant and equipment for Manufacturing and Distribution and Financial Services at December 31 was:
(in Thousands) 1996 1995 1994 - ------------------------------------------------------------------- Land $ 502 $ 609 $ 323 Buildings and improvements 18,878 17,839 15,982 Machinery, equipment and tools 36,819 28,580 23,332 Furniture and fixtures 13,536 7,537 7,494 -------------------------------------- $69,735 $54,565 $47,131 ======================================= E. Net Investment in Leases
The Raymond Leasing Corporation leases Raymond(R) and Dockstocker(R) equipment to customers and its Dealers, including equity investees, under arrangements covering three to seven years. Additionally, Johnston leases Raymond(R) and Dockstocker(R) equipment to its customers, under arrangements covering two to five years. The net investment in direct financing leases represents the present value of future minimum lease payments and the residual value of the equipment of $37.2, $25.5 and $19.4 million at December 31, 1996, 1995 and 1994, respectively. Unearned lease income on fixed rate leases totaled $23.9, $18.2 and $14.2 million at December 31, 1996, 1995 and 1994, respectively.
At December 31, 1996 future minimum lease payments to be received for Manufacturing and Distribution and Financial Services are as follows:
(in Thousands) - ----------------------------------------------------------------- 1997 $ 50,482 1998 35,767 1999 24,418 2000 14,180 2001 4,866 Thereafter 412 ---------- Total future minimum lease payments 130,125 Residual values 37,247 ---------- 167,372 Less unearned income 23,923 ---------- $ 143,449 ==========
F. Fair Value of Financial Instruments
The carrying amount and fair value of significant financial instruments at December 31 were as follows:
(in Thousands) - ------------------------------------------------------------------ 1996 Carrying Amount Fair Value - ---- --------------- ---------- Investment in leases $ 143,449 $ 141,308 Manufacturing and Distribution debt (49,535) (52,621) Financial Services debt (78,063) (78,213) Foreign currency exchange contracts -- (857)
- ---- Investment in leases $ 106,410 $ 104,706 Manufacturing and Distribution debt (51,260) (70,995) Financial Services debt (52,396) (53,967)
- ---- Investment in leases $ 84,725 $ 82,737 Manufacturing and Distribution debt (57,500) (64,400) Financial Services debt (24,153) (24,276)
The carrying value of cash and cash equivalents approximates fair value because of the short-term maturities of these instruments.
The carrying value of advances to unconsolidated investees approximates fair value.
The fair value of the investment in leases is estimated by discounting future cash flows, using current interest rates at which similar leases would be entered into with borrowers with similar credit ratings and maturities.
The fair value of the Company's Subordinated Convertible Debentures is estimated based on the quoted market price.
The fair value of Financial Services and Manufacturing and Distribution debt is estimated using discounted cash flow analyses, based on current rates offered to the Company for similar types of borrowing arrangements.
The fair value of foreign currency exchange contracts is estimated based upon quoted market prices for similar instruments with similar maturities. At December 31, 1995 and 1994, the fair value of foreign currency exchange contracts was not significant due to the contracts' short-term nature and the fact that they were purchased near year-end.
Annual repayments of debt obligations are as follows:
Manufacturing and Financial (in Thousands) Distribution Debt Services Debt - ------------------------------------------------------------------------- 1997 $ 7,573 $ 25,889 1998 3,100 16,949 1999 802 16,950 2000 -- 12,500 2001 -- 5,775 Thereafter 38,060 -- ---------------------------- Total $49,535 $ 78,063 ============================
On December 20, 1996, the Company issued a Call for Redemption of its 6.50% convertible subordinated debentures due December 15, 2003. Prior to the January 21, 1997 redemption date, debenture holders could convert their outstanding debentures into common stock of the Company at a conversion price of approximately $16.07 per share or receive 103.50% of their principal amount, plus accrued interest, upon redemption. Subsequent to the call date and prior to December 31, 1996, debenture holders converted $3.7 million of debentures into 229,034 shares of common stock. Prior to issuing the Call for Redemption, an additional $9.5 million of the debentures were converted into 592,503 shares of common stock primarily in the fourth quarter of 1996.
Through January 21, 1997, substantially all of the debentures outstanding at December 31, 1996 were converted and an additional 2,368,395 shares of common stock were issued. The 1996 and 1997 conversions were at the originally stated conversion rates adjusted for stock dividends.
Had the 1996 and 1997 conversions of the Company's debentures occurred on January 1, 1996, the reported primary net income per share of $2.00 would have been $1.62.
Terms of subsidiary notes provide for certain debt covenants. Among other things, Raymond Leasing Corporation must maintain a minimum working capital and a specified working capital ratio, and is subject to certain debt agreements that limit cash dividends and loans to the Company. At December 31, 1996, the restricted retained earnings of Raymond Leasing Corporation were approximately $26.7 million.
The Company had unused lines of credit totaling approximately $26.3 million at December 31, 1996 of which approximately $10.9 million may be converted into long-term debt. No significant commitment fees are paid for these lines.
Rent expense under operating leases amounted to approximately $2.3, $2.1 and $1.6 million in 1996, 1995 and 1994, respectively. At December 31, 1996, the Company was obligated for future minimum lease payments under noncancelable operating leases for certain equipment as follows:
(in Thousands) - ------------------------------------------------------- 1997 $ 2,349 1998 2,297 1999 1,509 2000 1,151 2001 837 Thereafter 569 -------- $ 8,712 ========
H. Acquisitions
On October 10, 1996, an executive officer of the Company, sold his shares of common stock of G.N. Johnston Equipment Co. Ltd. (Johnston) and Associated Material Handling Industries, Inc. (Associated), both distributors of the Company's products. The shares were valued in accordance with the terms and conditions set forth in shareholder buy/sell agreements dated July 1, 1968 and August 15, 1980, respectively.
The Johnston shares, which represent approximately 28% of the total outstanding shares, were acquired by R.H.E. Ltd., a wholly-owned Canadian subsidiary of the Company. R.H.E. Ltd. had previously owned approximately 47% of the outstanding shares of Johnston. Johnston is the exclusive Canadian distributor for the Company with sales and service outlets in the principal business regions of Canada.
The Associated shares, which represent approximately 26% of the total outstanding shares, were acquired by the Company. The Company had previously owned approximately 44% of the outstanding shares of Associated. Associated is a U.S. distributor based in Elmhurst, Illinois that serves portions of the Midwest and Pacific Northwest.
The combined purchase price for the shares of Johnston and Associated was approximately $4.5 million. The acquisitions have been accounted for as a purchase and the operating results of Johnston and Associated have been consolidated with those of the Company starting in the fourth quarter of 1996.
The following unaudited pro forma information presents a summary of consolidated results of operations of the Company, Johnston and Associated as if the acquisitions had occurred on January 1, 1995. The information reflects consolidation of all revenues, net of intercompany transactions, and the incremental net income above amounts previously recognized using the equity method. The pro forma financial information is not necessarily indicative of the results of operations that would have occurred had the purchase been made at the beginning of the periods presented or of the future results of the combined operations.
(in Thousands, except per share data) 1996 1995 - ------------------------------------------------------------------------- Total revenues $ 370,349 $ 365,973 Net income $ 15,843 $ 13,678 Primary net income per share $ 2.11 $ 1.91
I. Stock Options
The Company has elected to follow Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" (APB 25) and related Interpretations in accounting for its stock options because, as discussed below, the alternative fair value accounting provided for under FASB Statement No. 123, "Accounting for Stock-Based Compensation," requires use of option valuation models that were not developed for use in valuing employee stock options. Under APB 25, because the exercise price of the Company's stock options equals the market price of the underlying stock on the date of grant, no compensation expense is recognized.
The shareholders of the Company have approved stock option plans for officers, directors and key employees. At December 31, 1996, there are 236,710 unoptioned shares available under these plans. The exercise price of options granted is equal to the fair market value of the common stock on the date of grant, except for greater than 5% shareholder officers whose exercise price is 110% of the fair market value on the date of grant, and options expire ten years from the date of the grant.
Pro forma information regarding net income and earnings per share is required by Statement 123, which also requires that the information be determined as if the company had accounted for its stock options granted subsequent to December 31, 1994 under the fair value method of that Statement. The fair value for these options was estimated at the date of grant using a Black-Scholes option pricing model with the following weighted-average assumptions for 1996 and 1995, respectively: risk-free interest rate of 6.0% and 7.0%; dividend yield of 0.55% and 0.60%; volatility factor of the expected market price of the Company's common stock of .30 and .31; and a weighted-average expected life of the options of 6 years.
The Black-Scholes option valuation model was developed for use in estimating the fair value of traded options which have no vesting restrictions and are fully transferable. In addition, option valuation models require the input of highly subjective assumptions including the expected stock price volatility. Because the Company's stock options have characteristics significantly different from those of traded options, and because changes in the subjective input assumptions can materially affect the fair value estimate, in management's opinion, the existing models do not necessarily provide a reliable single measure of the fair value of its stock options.
For purposes of pro forma disclosures, the estimated fair value of the options is amortized to expense over the options' vesting period (one year for officers and key employees and immediate vesting for directors). The weighted-average fair value of options granted in 1996 and 1995 were $7.09 and $7.00 per share, respectively. The Company's pro forma information for 1996 and 1995 follows:
(in Thousands, except per share data) 1996 1995 - ------------------------------------------------------------------------- Pro forma net income $ 14,724 $ 12,862 Pro forma earnings per share: Primary $ 1.96 $ 1.79 Fully Diluted $ 1.58 $ 1.42
The pro forma disclosures above for 1995 amounts reflect only the vesting of options granted in 1995.
A summary of the Company's stock option activity and related information for 1996 follows:
Weighted-Average Options Exercise Price - ------------------------------------------------------------------------------ Outstanding-beginning of year 338,474 $ 13.33 Granted 94,834 18.22 Exercised (13,763) 15.73 Forfeited -- -- ------- ------- Outstanding-end of year 419,545 $ 14.83 ======= ======= Exercisable at end of year 322,726 --
Exercise prices for options issued in 1996 ranged from $18.21 to $18.38 per share. The weighted-average remaining contractual life of those options is 9.2 years.
The following data for 1995 and 1994 has been restated to reflect the effects of the 1996 5% stock dividend:
Outstanding Options Options Price Range Exercisable - --------------------------------------------------------------------- 1995 338,474 $7.29 - $18.35 258,340 1994 436,011 7.29 - 18.35 352,834
Options Exercised Price Range - --------------------------------------------------------------------- 1995 177,441 $7.29 - $17.60 1994 20,595 7.29 - 14.90
Stock options issued to officers and key employees are subject to stock appreciation rights covering up to one-half the number of optioned shares. Options outstanding subject to stock appreciation rights at December 31 were: 1996 - 372,154, 1995 - 291,290 and 1994 - 377,873. The exercise of stock appreciation rights by an optionee is in lieu of exercising the option to purchase and will result in a reduction of an equivalent number of optioned shares.
Stock appreciation rights provide for cash payment equal to the appreciation in value of the shares under option from the date the option was granted. In 1996, approximately $0.6 million in pre-tax income was recognized in connection with stock appreciation rights as a result of the stock price volatility.
J. Retirement and Benefit Plans
The Company has noncontributory group trusteed retirement plans covering substantially all of its employees. The benefits are based on years of service and/or compensation. The Company's funding policy is to contribute annually the maximum amount that can be deducted for federal income tax purposes. Contributions are intended to provide not only for benefits attributed to service to date, but also for those expected to be earned in the future. The following table sets forth the plans' funded status and amounts recognized in the Company's consolidated balance sheets at December 31:
Net periodic pension cost for the plans included the following components:
The assumptions used to develop the projected benefit obligation as of December 31 were as follows:
1996 1995 1994 - ----------------------------------------------------------------------------- Weighted average discount rate 7.50% 7.00% 8.50% Rate of increase in compensation 5.50% 5.50% 5.50% Expected return on plan assets 8.50% 8.50% 8.50%
The actuarial present value of the projected benefit obligation for the U.S. plan decreased by approximately $1.9 million at December 31, 1996 and increased by approximately $4.9 million at December 31, 1995 as a result of the changes in the weighted average discount rate.
The Company has profit sharing plans covering substantially all of its employees. The aggregate expense of these plans, as determined by the Board of Directors, was $3.5 million in 1996, $3.8 million in 1995, and $2.9 million in 1994. In addition, salary-reduction 401(k) Plans are offered to the Company's U.S. employees.
The Company has an unfunded supplemental benefits equalization plan designed to maintain benefit levels for all employees at the plans' formula levels in instances where individual benefits are limited by the Employee Retirement Income Security Act of 1974 and the Internal Revenue Code.
A deferred compensation plan is provided for employees and directors whereby the individual has the right to defer a portion of his or her current salary. The liability for amounts so deferred has been accrued.
The Company has formal bonus plans for key executives. The plans provide, among other things, that annual bonuses be computed on pre-tax income after consideration for a return on consolidated shareholders' equity. Charges to operations under these plans were $2.4 million in 1996, $1.9 million in 1995 and $1.4 million in 1994.
K. Postretirement Benefits
In addition to the Company's defined benefit pension plans, the Company sponsors a defined benefit health care plan that provides postretirement medical benefits. The plan is available to certain existing U.S. retirees at March 31, 1993. In addition, U.S. full-time employees who had attained age 55 with at least 15 years continuous service as of March 31, 1993 are eligible to receive medical benefits under the plan subject to a premium limitation of $200 per month. No other current or future employees will be covered by this plan. The plan contains other cost sharing features such as deductibles and coinsurance. The Company's policy is to fund the cost of these medical benefits as premiums are paid and claims are submitted.
The following table presents the plan's funded status reconciled with amounts recognized in the Company's consolidated balance sheets at December 31:
(in Thousands) 1996 1995 1994 - -------------------------------------------------------------------------- Accumulated postretirement benefit obligation: Retirees $ (3,466) $ (2,779) $ (2,777) Fully eligible active plan participants (657) (892) (835) Other active plan participants (54) (57) (38) ----- ----- ----- (4,177) (3,728) (3,650) Plan assets at fair value -- -- -- ----- ------ ----- Accumulated postretirement benefit obligation in exess of plan assets (4,177) (3,728) (3,650) Unrecognized net loss (gain) 153 (329) (467) Unrecognized transition obligation 3,316 3,524 3,731 ------ ------ ------ Accrued postretirement benefit cost $ (708) $ (533) $ (386) ====== ====== ======
The assumptions used to develop the net periodic postretirement benefit costs and the accumulated postretirement benefit obligations were as follows:
1996 1995 1994 - --------------------------------------------------------------------------- Weighted average discount rate 7.50% 7.00% 8.50% Health care cost trend rate: Retirees under age 65 9.50% 10.00% 10.50% Retirees age 65 and older 7.50% 7.75% 8.00%
Net periodic postretirement benefit cost includes the following components:
(in Thousands) 1996 1995 1994 - --------------------------------------------------------------------------- Service cost $ 5 $ 4 $ 5 Interest cost 293 259 314 Amortization of transition obligation over 20 years 207 207 207 Net amortization and deferral -- 15 7 Net periodic postretirement ------------------------------ benefit cost $ 505 $ 485 $ 533 ============================== The health care cost trend rate for retirees under age 65 is assumed to decline by 1/2% per year until an ultimate rate of 5.50% is reached in 2005 and later years. For retirees age 65 and older, the health care cost trend rate is assumed to decline by 1/4% per year until an ultimate rate of 5.50% is reached in 2005 and later years.
The accumulated postretirement benefit obligation decreased by approximately $0.2 million in 1996 and increased by approximately $0.4 million in 1995 as a result of the changes in the weighted average discount rate.
The effect of increasing the assumed health care cost trend rates by one percentage point in each year would increase the accumulated postretirement benefit obligation by approximately $0.3 million at December 31, 1996 and would not be significant to reported net periodic postretirement benefit cost.
L. Accrued Liabilities
Accrued liabilities for Manufacturing and Distribution and Financial Services are summarized as follows:
(in Thousands) 1996 1995 1994 - ------------------------------------------------------------------- Insurance $ 7,871 $ 7,724 $ 6,113 Compensation 6,203 3,467 3,703 Service agreements 2,955 3,878 2,619 Deferred revenue 2,515 -- -- Profit sharing 1,444 1,538 1,410 Dealer commissions 1,073 795 981 Stock appreciation rights 490 1,120 888 Interest 293 876 510 Other 4,920 3,018 1,596 -------------------------------------- $ 27,764 $ 22,416 $ 17,820 ======================================
M. Income Taxes
The components of income before income taxes consisted of the following:
(in Thousands) 1996 1995 1994 - ------------------------------------------------------------------- Domestic $ 9,427 $ 8,269 $ 5,645 Foreign 12,982 12,546 10,308 -------------------------------------------- $ 22,409 $ 20,815 $ 15,953 ============================================
Federal, foreign and state income tax expense (benefit) consisted of the following:
(in Thousands) 1996 1995 1994 - --------------------------------------------------------------- Currently payable: Federal $ 2,580 $ 4,692 $ 1,637 Foreign 5,051 4,675 4,199 State 328 673 353 --------------------------------- 7,959 10,040 6,189 --------------------------------- Deferred: Federal 439 (1,757) 401 Foreign (184) 24 (250) State 68 (219) 88 --------------------------------- 323 (1,952) 239 --------------------------------- Total income tax expense $ 8,282 $ 8,088 $ 6,428 =================================
Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and amounts used for income tax purposes. Significant components of the Company's deferred tax liabilities and assets as of December 31 are as follows:
(in Thousands) 1996 1995 1994 - --------------------------------------------------------------- Deferred tax liabilities: Lease finance revenues $ 7,203 $ 4,696 $ 4,207 Excess tax over book depreciation 1,705 1,281 1,262 Pension assets - 497 707 LIFO inventory accounting change 236 471 621 Other 717 668 670 --------------------------------- Total deferred tax liabilities 9,861 7,613 7,467 --------------------------------- Deferred tax assets: Insurance reserves 2,676 2,626 2,058 Compensation 2,242 2,268 1,846 Accounts receivable 1,169 1,579 1,088 Service agreements 1,159 821 641 Inventory 743 762 640 Tax credit carryforward 700 - - Other 988 1,009 774 --------------------------------- Total deferred tax assets 9,677 9,065 7,047 - --------------------------------------------------------------- Net deferred tax liability (asset) $ 184 $(1,452) $ 420 ===============================================================
The differences between the income tax provisions and the amounts computed by applying the U.S. Federal statutory rate (35%) are explained as follows:
(in Thousands) 1996 1995 1994 - --------------------------------------------------------------- Statutory provision $ 7,843 $ 7,285 $ 5,584 State income taxes, net of federal tax benefit 257 295 287 Foreign subsidiaries 323 308 341 Other - net (141) 200 216 --------------------------------- Provision $ 8,282 $ 8,088 $ 6,428 =================================
For federal income tax purposes, the Company has approximately $0.7 million of alternative minimum tax payments available to offset future domestic regular income taxes payable to the extent such regular taxes exceed alternative minimum taxes payable.
The Raymond Corporation files a consolidated federal tax return which includes Raymond Leasing Corporation and all required domestic subsidiaries.
Deferred income taxes and income taxes payable reported in the consolidated balance sheets include the aggregate amounts for Manufacturing and Distribution and Financial Services.
Undistributed earnings of the Company's foreign subsidiaries amounted to approximately $52.6 million at December 31, 1996. Those earnings are considered to be indefinitely reinvested and, accordingly, no provision for U.S. federal and state income taxes has been provided thereon. Upon distribution of those earnings in the form of dividends or otherwise, the Company would be subject to both U.S. income taxes (subject to an adjustment for foreign tax credits) and foreign withholding taxes. Determination of the amount of unrecognized deferred U.S. income tax liability is not practicable because of the complexities associated with its hypothetical calculation; however, unrecognized foreign tax credit carryforwards would be available to reduce some portion of the U.S. liability. Withholding taxes of approximately $2.6 million would be payable upon remittance of all previously unremitted earnings at December 31, 1996.
N. Business Segment Information
The Company operates predominantly in one business segment, that being the design, manufacture, distribution and service of materials handling equipment. Revenues from unaffiliated customers are realized primarily through its Dealer Network which is predominantly located in North America.
For purposes of segment information, operating income is total revenue less applicable operating expenses. In computing results from foreign operations, exchange transaction gains and losses have been added or deducted. Domestic transfers are at cost while foreign transfers are at prices to allow for reasonable profit margins. Identifiable assets include investments in and advances to unconsolidated investees which are discussed in Note C.
A summary of information about the Company's operation within the one business segment follows:
(in Thousands) - ----------------------------------------------------------------- Product Mix 1996 1995 1994 - ----------------------------------------------------------------- Total Revenues $308,807 $285,383 $229,547 Narrow and very narrow aisle applications 56% 60% 57% All other applications 20% 18% 20% Repair and replacement parts 16% 16% 17% Leasing and rentals 5% 5% 5% Service 2% - - Other 1% 1% 1%
- ----------------------------------------------------------------- Geographic Areas 1996 1995 1994 - ----------------------------------------------------------------- United States: Unaffiliated customers $194,761 $163,737 $129,460 Interarea sales and transfers* 19,622 23,015 20,136 ----------------------------------- 214,383 186,752 149,596 Canada: Unaffiliated customers 28,083 12,553 10,880 Interarea sales and transfers 101,202 101,134 81,891 ----------------------------------- 129,285 113,687 92,771 Eliminations (34,861) (15,056) (12,820) ----------------------------------- Total Revenues $308,807 $285,383 $229,547 ===================================
1996 1995 1994 - ----------------------------------------------------------------------------- Operating Income: United States $ 12,476 $ 12,028 $ 9,573 Canada 12,987 12,508 10,331 ----------------------------------- $ 25,463 $24,536 $ 19,904 ===================================
Identifiable Assets: United States $247,004 $210,510 $180,196 Canada 75,934 39,417 24,180 ----------------------------------- $322,938 $249,927 $204,376 ===================================
*Includes sales of $7,283, $12,477, and $11,082 in 1996, 1995 and 1994, respectively, to Canadian company at arms-length pricing which previously was unconsolidated but which was consolidated effective in the fourth quarter of 1996.
O. Commitments and Contingencies
The Company is currently defending a number of products liability and similar lawsuits involving industrial accidents. The Company views these actions, and related expenses of administration, litigation and insurance, as part of the ordinary course of its business. The Company has a policy of aggressively defending products liability lawsuits, which generally take several years to ultimately resolve. A combination of self-insured retention and insurance is used to manage these risks and management believes that the insurance coverage and reserves established for self-insured risks are adequate. The effect of these lawsuits on future results of operations cannot be predicted because any such effect depends on the operating results of future periods and the amount and timing of the resolution of these proceedings. The Company's Dealers contribute to the funding of the Company's products liability program and, in turn, the Company indemnifies the Dealers against products liability expense and manages products liability claims.
The Company is also one of seventeen remaining defendants in a private environmental lawsuit pertaining to a site remediation. The plaintiffs have alleged that scrap metal purchased from the Company was hazardous and/or was coated with certain solvents and/or cutting oils. Plaintiffs have the burden of proving the nature and extent of the Company's contribution to the site, as well as the burden of proving what portion of the material delivered to the site was "hazardous" as that term is defined in the environmental statutes. Plaintiffs have successfully moved for partial summary judgment, on liability only, against two co-defendants who contributed scrap metal to the site. Similar motions as to the Company and two other co-defendants are pending. The Company is aggressively defending the claim and does not believe it is likely to have a material adverse effect on the Company.
In addition to the matters discussed above, the Company is subject to various other legal proceedings, claims and liabilities which have arisen in the ordinary course of its business. In the opinion of management, the amount of ultimate liability, if any, with respect to these actions will not materially affect the financial results of operations or financial position of the Company.
The Company has agreements with certain officers which provide, in the event of a change in control of the Company, for continuing the employment of the officer for a period of three years at salary and benefit levels not less than that which existed immediately prior to the change in control. In the event of termination of employment without cause during this three year period, the officer's non cash benefits continue for the remainder of the three year period together with a single advance payment of any cash compensation due for the remainder of the three year period.
*Includes net sales, lease finance revenues and rental revenues less applicable expenses.
(1) Primary earnings per share would have been $0.37, $0.36, $0.41, and $0.47 in the first, second, third, and fourth quarters of 1996, respectively, if the $51.3 million conversion of debentures, which occurred primarily in the fourth quarter of 1996 through January 21, 1997, occurred as of January 1, 1996.
(2) Primary earnings per share would have been $0.43 and $0.48 in the first and second quarters of 1995, respectively, if the $6.2 million conversion of debentures, which occurred in the third quarter of 1995, had occurred as of January 1, 1995.
The Raymond Corporation is traded on the NASDAQ National Market System (ticker symbol RAYM). The common stock market prices indicated in the tables above represent inter-dealer prices as reported by NASDAQ without retail markups, markdowns or commissions and do not necessarily represent actual transactions.
THE RAYMOND CORPORATION AND SUBSIDIARIES
SCHEDULE I - Condensed Financial Information of Registrant - The Raymond Corporation
Years ended December 31, 1996, 1995 and 1994
Condensed Balance Sheets
The accompanying notes are a part of the financial statements.
THE RAYMOND CORPORATION AND SUBSIDIARIES
SCHEDULE I - Condensed Financial Information of Registrant - The Raymond Corporation
Years ended December 31, 1996, 1995 and 1994
Condensed Balance Sheets
The accompanying notes are a part of the financial statements.
THE RAYMOND CORPORATION AND SUBSIDIARIES
SCHEDULE I - Condensed Financial Information of Registrant - The Raymond Corporation
Years ended December 31, 1996, 1995 and 1994
Condensed Statements of Income
The accompanying notes are a part of the financial statements.
THE RAYMOND CORPORATION AND SUBSIDIARIES
SCHEDULE I - Condensed Financial Information of Registrant - The Raymond Corporation
Years ended December 31, 1996, 1995 and 1994
Condensed Statements of Cash Flow
The accompanying notes are part of the financial statements.
THE RAYMOND CORPORATION AND SUBSIDIARIES
SCHEDULE I - Condensed Financial Information of Registrant - The Raymond Corporation
Years ended December 31, 1996, 1995 and 1994
Notes to Condensed Financial Statements
NOTE A - Basis of Presentation
In the parent company-only financial statements, the Company's investment in subsidiaries and unconsolidated investees is stated at cost plus equity in undistributed earnings of the subsidiaries and unconsolidated investees since the date of acquisition. Parent company-only financial statements should be read in conjunction with the Company's consolidated financial statements.
NOTE B - Long-Term Debt
On December 20, 1996, the Company issued a Call for Redemption of its 6.5% convertible subordinated debentures due December 15, 2003. Prior to the January 21, 1997 redemption date, debenture holders could convert their outstanding debentures into common stock of the Company at a conversion price of approximately $16.07 per share or receive 103.5% of their principal amount, plus accrued interest, upon redemption. Subsequent to the call date and prior to December 31, 1996, debenture holders converted $3.7 million of debentures into 229,034 shares of common stock. Prior to issuing the Call for Redemption, an additional $9.5 million of the debentures were converted into 592,503 shares of common stock primarily in the fourth quarter of 1996.
Through January 21, 1997, substantially all of the debentures outstanding at December 31, 1996 were converted and an additional 2,368,395 shares of common stock were issued. The 1996 and 1997 conversions were at the originally stated conversion rates adjusted for stock dividends.
THE RAYMOND CORPORATION AND SUBSIDIARIES
SCHEDULE I - Condensed Financial Information of Registrant - The Raymond Corporation
Years ended December 31, 1996, 1995 and 1994
Notes to Condensed Financial Statements (cont'd)
NOTE C - Guarantee
Raymond Leasing Corporation, a wholly-owned subsidiary of the Company, has a $4,000,000 long-term debt obligation outstanding at December 31, 1996. Under terms of the debt agreement, the Company has guaranteed the payment of all principal and interest.
NOTE D - Dividends from Subsidiaries and Investees
Cash dividends paid to The Raymond Corporation from unconsolidated investees accounted for under the equity method were $251,504 in 1996, $335,393 in 1995, and $107,969 in 1994. No cash dividends were paid to The Raymond Corporation by subsidiaries in 1996, 1995, or 1994.
THE RAYMOND CORPORATION AND SUBSIDIARIES
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
Year Ending December 31, 1996
A - Warranty & maintenance costs charged against reserve.
B - Bad debt write-offs charged against reserve.
C - Insurance costs charged against reserve.
D - Relates to companies acquired in 1996.
THE RAYMOND CORPORATION AND SUBSIDIARIES
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
Year Ending December 31, 1995
A - Warranty & maintenance costs charged against reserve.
B - Bad debt write-offs charged against reserve.
C - Insurance costs charged against reserve.
THE RAYMOND CORPORATION AND SUBSIDIARIES
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
Year Ending December 31, 1994
A - Warranty & maintenance costs charged against reserve.
B - Bad debt write-offs charged against reserve.
C - Insurance costs charged against reserve.