Item 1. Business.
General
W.R. Carpenter North America, Inc. ("the Company") was incorporated in 1975 under the laws of Delaware and serves as the holding company for its two operating subsidiaries, UpRight, Inc. ("UpRight') and Horizon High Reach, Inc. ("Horizon").
UpRight's stock was publicly traded from 1980 until 1988, when it was acquired by an affiliate of the Company. In 1988, through a corporate reorganization, UpRight became a wholly owned subsidiary of the Company. Prior to 1989, Horizon was an independent company in the business of renting and selling aerial work platform equipment in Southern California. In 1989, UpRight acquired the assets of Horizon which were merged into the retail division of UpRight's North American Operations. In 1994, Horizon became a wholly owned subsidiary of the Company. Although Horizon distributes UpRight products, the two companies have separate management teams and operate on an independent basis.
Recent Developments: Sale of Horizon
On September 29, 2000, the Company sold all of the assets and outstanding stock of Horizon for total consideration of $90 million (subjectto certain adjustments to be based on a post-closing audit.) At closing, the Company received consideration consisting of $50 million in cash and two senior unsecured 5 year promissory notes in the aggregate principal amount of $40 million.
UpRight
UpRight is a leading manufacturer of aerial work platforms, including scissor lifts, boom lifts, portable lifts, and aluminum scaffolding. UpRight has been manufacturing self-propelled scissor lifts since 1974 as an outgrowth of its leadership in the development and sale of aluminum scaffolding. UpRight sells its products through an extensive network of North American and international equipment dealers and rental companies. UpRight's customers rent, and to a lesser degree sell, its aerial work platforms to end users in construction, commercial, industrial and institutional markets.
Products
UpRight's aerial work platform product mix consists of four major categories of equipment: scissor lifts, boom lifts, portable lifts and aluminum scaffolding.
Scissor Lifts. Self-propelled scissor lifts feature work platforms mounted on top of scissor-type or other vertical lifting mechanisms, which, in turn, are mounted on mobile, four-wheel chassis. These machines are designed to permit workers to position themselves and their tools and materials safely, easily and quickly in elevated work areas. They can be maneuvered forward or backward and steered in any direction by the operator from the work platform, even while elevated. The uses and applications for scissor lifts are varied and include non-residential construction, warehousing, renovations and retooling and maintenance of manufacturing plants and institutional facilities. Equipment Manufacturers Institute (EMI) data indicates that industry shipments of self-propelled scissor lifts increased from approximately 11,300 units in 1990 to approximately 59,600 units in 1999, representing a compound annual growth rate of 20% during this period.
UpRight offers scissor lifts with maximum platform heights ranging from 12 feet to 50 feet; and platform sizes ranging from 2.4 by 3.4 feet, to 5.8 by 19.3 feet. Rated lift capacities range from 500 to 2,000 pounds. UpRight offers scissor lifts powered by electric motors; gasoline, diesel, or propane engines; or a combination of diesel and electric power (bi-energy). Several internal combustion engine powered models are available with four-wheel drive. Dealer net prices, for UpRight's standard models, range from approximately $7,500 to $50,000. Scissor lifts contributed 49%, 56%, and 74% of the Company's revenues for fiscal years 2000, 1999, and 1998 respectively.
Boom Lifts. Boom lifts are especially useful for reaching over machinery and equipment that is mounted on floors and for reaching other elevated positions not easily accessed by other vertical lifting devices. Self-propelled boom lifts may be maneuvered in a manner similar to scissor lifts. In addition, the boom may be rotated up to 360 degrees in either direction. Boom lifts have smaller platforms and less lifting capacities than larger scissor lift models. In addition to applications similar to scissor lifts, boom lifts are used for infrastructure construction, petroleum and chemical refineries, as well as ship construction, repair and maintenance. Equipment Manufacturers Institute (EMI) data indicates that industry shipments of self-propelled boom lifts increased from approximately 4,100 units in 1990 to approximately 26,200 units in 1999, representing a compound annual growth rate of 23% during that period.
In 1997 UpRight introduced its first line of self-propelled boom lifts. Since that time, UpRight has systematically deepened its boom offerings, targeting high demand product segments. Maximum platform heights range from 46 to 80 feet, with outreach of up to 72 feet. Boom lifts are offered with electric motors; gasoline, diesel, or propane engines; or a combination of diesel and electric power (bi-energy). Several internal combustion engine powered models are available with four-wheel drive. Dealer net prices, for UpRight's standard models, range from approximately $38,000 to $108,000. Boom lifts contributed 13%, 10% and 12% of the Company's revenues for fiscal years 2000, 1999 and 1998 respectively.
Portable Lifts. Portable lifts consist of a work platform attached to a telescopic mast that extends vertically, which in turn is mounted on a push-around base. These machines, while in their retracted position, can fit through standard door openings and can be loaded into a standard pickup truck for ease in transport. Applications for this class of equipment include institutional and commercial maintenance, distribution and retail centers, airports and public buildings, places of worship and entertainment facilities.
UpRight offers portable lifts with maximum platform heights ranging from 25 feet to 40 feet. These models are available in either battery or AC power configurations. In fiscal year 1999, UpRight introduced a portable lift model featuring a self-propelled base. This machine can be maneuvered forward or backward and steered in any direction by the operator from the work platform, even while elevated. Current dealer net prices, for UpRight's standard models, range from approximately $3,400 to $6,600. Revenue from portable lifts in fiscal year 2000 was $5.2 million, representing approximately 2 % of the Company's revenue.
Scaffolding. UpRight first introduced aluminum scaffolding in 1947 and today is considered to be the North American leader in this product segment. Scaffolding height can be adjusted by mounting individual sections on top of one another up to a maximum height of approximately 100 feet. Today, scaffolding is still a major rental and sales item for use on certain construction and maintenance projects. Revenue from scaffolding in fiscal year 2000 was $3.3 million, representing approximately 1% of the Company's revenue.
Product Development Strategy
UpRight's growth strategy includes developing new products to access fast growing complementary product segments. In keeping with this strategy, UpRight's core scissor lift line was broadened to include self-propelled boom lifts. Having initially targeted high volume boom segments, UpRight is developing additional models to fill out this line. UpRight also is in the process of developing a line of telescopic material handlers. UpRight introduced models in the two largest North American telescopic handler product segments in the second half of fiscal year 2000. These machines can lift up to 8,000 pounds as high as 42 feet.
Telescopic material handlers are rough terrain vehicles used to transport, lift and position materials between ground locations and vehicles, and overhead locations. North American residential and non-residential building contractors typically utilize this equipment to handle a wide range of building materials and components. In addition, the availability of multiple attachments increases the versatility and applications for these machines. Many of UpRight's aerial work platform customers also sell and rent telescopic material handlers. According to industry estimates, shipments of telescopic material handlers in North America grew from approximately 2,400 units in 1990 to approximately 13,700 units in 1999, representing a compound annual growth rate of 21% during such period.
UpRight invests significantly in product development and diversification, including improvement of existing products. Research and development expenses of UpRight have been $5.8 million, $8.7 million and $6.0 million for fiscal years 2000, 1999 and 1998, respectively. Product development activity decreased in fiscal year 2000 following the introduction of additional boom lift products in fiscal 1999. New and redesigned products introduced in the past two years accounted for approximately 17% of UpRight's sales in fiscal year 2000, down from 28% in fiscal year 1999, primarily due to slower than anticipated boom sales in fiscal year 2000.
Marketing and Distribution
UpRight sells its products through an extensive network of North American and international equipment dealers and rental companies, including Horizon. For fiscal year 2000, approximately 59% of UpRight's revenue was generated by sales to customers outside of North America, principally in Europe, which UpRight's management believes is among the highest percentages of revenue from international sales of any aerial work platform manufacturer.
With a high percentage of the Company's products manufactured in the United States and sold in international markets, the Company's earnings are affected by fluctuations in the value of the U.S. dollar, as compared to foreign currencies resulting from transactions in foreign markets. In addition to the direct effects of changes in exchange rates, which are a changed dollar value of the resulting sales, changes in exchange rates also affect the volume of sales or the foreign currency sales price as competitors' services become more or less attractive.
UpRight's customers rent, and to a lesser degree sell, its aerial work platforms to end users in construction, commercial, industrial and institutional markets. These distributors also provide service support for UpRight machines. UpRight supports the sales, service and rental programs of its distributors with field sales support, product advertising, cooperative promotional programs, major trade show participation and distributor personnel training in service, safety and sales of all products UpRight manufactures and distributes. In anticipation of increased sales from a broader product line and increased manufacturing capacity, UpRight expanded its customer support and service infrastructure in fiscal year 2000.
The primary customers for aerial work platforms are equipment rental companies. Over the past several years, the North American equipment rental industry has undergone significant consolidation. Large national rental companies have acquired a number of UpRight's customers. The increased bargaining power of the consolidators has resulted in concessions from manufacturers, including lower equipment prices, extended financing terms, and increased finished goods inventory to meet rapid delivery requirements of customers. Management believes that UpRight's international diversification make the Company less dependent on the business of the large national rental companies than many of its competitors.
During fiscal years 2000, 1999 and 1998, UpRight's ten largest customers, other than Horizon, together accounted for approximately 52%, 45% and 64% of UpRight's revenue, respectively. During fiscal year 2000, only one of UpRight's customers accounted for more than 10% of the Company's revenue. UpRight (U.K.) Limited (formerly Instant Zip-Up Limited) accounted for 19.3% of UpRight's revenue and 13.9% of the Company's revenue for fiscal year 2000. An affiliate of the Company owns a minority voting interest in UpRight (U.K.) Limited. During fiscal year 2000 one of UpRight's customers accounted for 14.7% of the Company's revenue, and in fiscal year 1999, two of UpRight's customers accounted for 15.6% and 12.8% of the Company's revenue.
Manufacturing
UpRight's primary manufacturing facility and headquarters are in Selma, CA. Scissor lifts, portable lifts, and aluminum scaffolding are manufactured at this 32-acre site. Early in fiscal year 2000 UpRight experienced capacity constraints at the Selma facility, resulting primarily from increased international customer demand for two-tone custom color paint schemes. To alleviate these constraints, the powder coat paint system was expanded and a new automated liquid paint system was added at Selma. Increased production levels during the second half of the fiscal year exposed further inefficiencies caused primarily by labor and parts shortages. Skilled labor shortages led to increased outsourcing during the period. Parts shortages were primarily the result of certain vendors' inability to supply quality parts on time, as well as inventory management problems at UpRight.
A new plant in Madera, CA, about 40 miles north of Selma, was opened in December 1998. This plant was built to produce UpRight's expanding line of self-propelled boom lifts and telescopic material handlers. In less than a year, this complex grew too more than 300,000 square feet of manufacturing and office space. The ramp-up of production at this facility has been challenging. While there is an abundance of unskilled labor in the Madera area, hiring a new workforce with the requisite skills proved more difficult than anticipated. UpRight addressed this issue in fiscal year 2000 by establishing training programs for its personnel, including welders and assemblers. Further inefficiencies were caused by delays in bringing the continuous-flow paint system at Madera on-line. This system did not become fully operational until late in the second quarter of fiscal 2000. Slower than anticipated boom sales resulted in low production volumes at Madera which also negatively impacted productivity.
Material and Supply Arrangements
UpRight obtains raw materials, principally steel and aluminum, and other component parts, most notably engines, electric motors, tires, bearings, electronics and hydraulic components, and supplies from third parties. Although alternative suppliers are available for all raw materials and components, UpRight could experience delays in obtaining components meeting the requisite specifications from alternative suppliers in the event a principal supplier was unable to supply a particular component. UpRight seeks to manage the risk of unavailability of key components and raw materials through supply chain management initiatives including supplier certification.
Competition
In selling its aerial work platform products, UpRight experiences two principal types of competition: from alternative equipment and from other manufacturers of aerial work platforms. UpRight competes with more traditional means of accomplishing the tasks performed by aerial work platforms, including truck- and trailer-mounted booms and, to a more limited extent, ladders, scaffolding and other devices. UpRight's management believes that in many applications its aerial work platforms are safer, more versatile and more efficient, taking into account labor costs, than those traditional methods. In particular, aerial work platforms enjoy competitive advantages when the job requires frequent movement from one location to another at the same site or when there is a need to return to the ground often for tools and materials.
UpRight competes in the aerial work platform industry primarily with several other manufacturers, including JLG Industries ("JLG"), Genie Industries ("Genie"), Grove Worldwide, Skyjack Inc. ("SkyJack"), OmniQuip Textron, Terex Corp. and Mayville Engineering Company. These companies compete on the basis of product quality, price, financing, delivery, and sales and service support. Management believes JLG and Genie each have over 30% share of the aerial work platform market, over twice the share of the nearest competitor.
Management believes that UpRight's scissor lift product line is as extensive as that of any other manufacturer in the industry, placing UpRight among the top four scissor lift manufacturers worldwide. Since the introduction of its first boom product line in 1997, UpRight has been systematically deepening its boom offerings, targeting high demand product segments. However, several of UpRight's competitors currently offer a more comprehensive boom lift product line.
Certain of UpRight's competitors are part of, or are affiliated with, companies that are larger and have greater financial resources than UpRight. For example, OmniQuip Textron is part of Textron Inc. Several of UpRight's competitors, including JLG, Genie, SkyJack, and Mayville Engineering company have significantly increased, or are in the process of significantly increasing, manufacturing capacity.
Employees
UpRight had 1,234 persons employed as of June 25, 2000. None of UpRight's employees is subject to collective bargaining agreements.
Horizon
Horizon (recently sold to United Rentalsk, Inc. as described earlier) is a leading industrial equipment rental, sales and service company specializing in aerial work platforms, including scissor lifts, boom lifts and portable lifts, telescopic material handlers and forklifts, scaffolding and general rental equipment, serving a diverse range of approximately 11,000 active customers from 17 domestic locations. Horizon offers a full service, integrated approach to serving its customers' needs by providing rentals of equipment, sales of new and used equipment, sales of spare parts and repair and maintenance services. For fiscal year 2000, approximately 48% of Horizon's revenue was generated by equipment rentals, approximately 44% of Horizon's revenue was generated by sales of new and used equipment, and the remainder was generated by training services, sales of spare parts and certain related customer services. Management believes that, among major industrial equipment rental companies, Horizon has one of the highest ratios of sales to rentals in the industry. Within the last five fiscal years, Horizon has strategically expanded its product offerings to include, in addition to UpRight products, certain additional product lines from other leading manufacturers. Horizon acts as a distributor for UpRight products in all of Horizon's designated market areas. Horizon and UpRight operate independently, and all transactions between them are conducted on an arm's-length basis.
Products and Services
Equipment rental represents Horizon's principal line of business. In fiscal year 2000, equipment rental revenue, together with rental-related revenue, such as repair services, delivery charges and damage waiver income, accounted for approximately 48% of Horizon's revenue. Horizon also acts as a distributor of new equipment on behalf of UpRight and certain other nationally known equipment manufacturers. In fiscal year 2000, approximately 44% of Horizon's revenue was derived from the sale of new and used equipment, of which approximately 42% was equipment manufactured by UpRight. Revenue from the sale of parts and merchandise accounted for approximately 8% of Horizon's revenue in fiscal year 2000.
Rental Equipment. Horizon rents over 480 different models of aerial work platforms and other industrial equipment as of June 25, 2000, consisting of scissor lifts, boom lifts (including one truck-mounted boom lift model), portable lifts and telescopic material handlers and forklifts, with a total exceeding 4,325 pieces of equipment (excluding scaffolding and general rental). The original equipment cost of Horizon's rental fleet was approximately $82.0 million as of such date. In addition, Horizon rents general rental equipment in one branch, with an original equipment cost of approximately $2.75 million as of such date. Horizon also maintains a comprehensive inventory of aluminum scaffolding with an original equipment cost of approximately $980,000 as of such date. The distribution of Horizon's total rental equipment fleet (based on original equipment cost) as of June 25, 2000 was: (i) scissor lifts (44%); (ii) boom lifts (26%); (iii) telescopic material handlers (19%); (iv) general rental equipment (3%); (v) forklifts (3%); (vi) scaffolding (1%); (vii) portable lifts (1%); and (viii) other equipment (3%). The mix of rental equipment at each of Horizon's 17 domestic locations is tailored to meet the demands of the local customer base.
Sales of New Equipment. In addition to equipment rental, Horizon is a distributor for various equipment manufacturers in certain of its designated market areas, including UpRight (scissor lifts, boom lifts, portable lifts, telescopic material handlers and aluminum scaffolding), Denka Lift (specialized boom lifts), OmniQuip (Sky-Trak telescopic material handlers), Carelift Equipment (telescopic material handlers) and Elliott (truck-mounted boom lifts). Horizon also sells equipment manufactured by Genie (boom lifts).
Sales of Used Equipment. Horizon routinely sells used equipment to adjust the size and composition of its rental fleet to changing market conditions and as part of its ongoing commitment to maintain a modern, high-quality rental fleet. Horizon believes it achieves favorable sales prices for its used equipment as a result of its preventive maintenance program and its practice of selling used equipment before it becomes irreparable or obsolete. Horizon's management attempts to optimize the timing of sales of used equipment by taking into account maintenance costs, rental demand patterns and resale prices. Horizon sells used equipment to its existing rental customers as well as to other used equipment buyers. In fiscal year 2000, Horizon increased its sales of used equipment in order to reduce the level of equipment that was five years old or older. The average age of Horizon's rental fleet increased from 25 months at June 1998 to 31 months at June 1999, as the level of new rental equipment going into the rental fleet slowed from the prior fiscal year.
Sales of Parts and Merchandise. Horizon also sells a wide range of repair and replacement parts, supplies and safety equipment, including harnesses, belts and lanyards, as a complement to its equipment rental and sales businesses.
Service. Horizon also generates revenue from maintenance and service by providing various options to its customers, including service on a contract or time-and-materials basis for customers who own their equipment and over the life of a lease for customers who lease their equipment. Horizon's trained personnel perform both the maintenance and service work on Horizon's rental fleet and to customers who own equipment. Horizon's safety department also provides safety training and operator training courses, including operator certification and "train-the-trainer" programs.
Operations
Horizon's sales and rental functions are managed at each of its locations. Each year, location managers budget expected new equipment sales and rental equipment expenditures and parts and service needs for their respective markets.
Horizon seeks to manage its rental fleet to optimize the return on its investment in rental equipment. Senior management regularly interacts with branch managers to monitor equipment utilization rates and indicated demand at each location in order to determine and react to trends and imbalances between supply and demand for equipment. Horizon operations are currently divided into two regions, which are overseen by regional managers. Through its information systems, employees at locations within a certain region are able to locate a specific item within that geographic region and determine whether that item is currently rented to a customer, undergoing maintenance or available for delivery. Depending on a number of objective factors, such as transportation costs between branches and length of rental, management will determine whether the equipment should be transferred to a different branch.
Horizon utilizes an integrated AS400 information system that allows both the corporate headquarters and the branch locations to have instantaneous access to all inventory and rental information. The system also provides immediate access to customer records and needs and management believes enables Horizon to move its assets among locations to optimize equipment utilization and maximize customer service.
Customers
Horizon serves a diverse range of approximately 11,000 active customers. No single customer of Horizon accounted for more than 2% of Horizon's revenue during fiscal years 2000, 1999 and 1998. Horizon classifies its customers as either construction or industrial end users. In fiscal year 2000, approximately 61% of Horizon's revenue was derived from construction end users, with the remaining 39% being derived from industrial end users. In fiscal year 1999, approximately 59% of Horizon's revenue was derived from construction end users, with the remaining 41% being derived from industrial end users. In fiscal year 1998, approximately 54% of Horizon's revenue was derived from construction end users, with the remaining 46% being derived from industrial end users. The increase in the percentage of revenue derived from construction related users in fiscal 1999 compared to fiscal 1998 is due to an increase in Horizon's sales and rental of telescopic material handlers during such period. Construction customers include users in specialized trades, such as electricians, painters, HVAC and mechanical contractors. Industrial customers include users engaged in the maintenance of warehouses, manufacturing plants and commercial and institutional facilities.
Competition
The equipment rental industry has undergone significant consolidation over the past several years. These large national rental companies have acquired numerous companies in all regions of the country. In a number of large metropolitan areas, notably New York and Los Angeles, management estimates that the large national rental companies have market shares greater than 70%. The largest national rental company, United Rentals, has reported annualized revenue of approximately $3 billion in over 700 locations, with Atlas-Copco, through its owned companies Prime and Rental Service Corporation, reporting approximately $1.5 billion in revenue in over 500 locations. Other large national rental companies include: Sunbelt, Hertz, NES and NationsRent. Horizon competes with some or all of these large national rental companies in each of its locations.
Suppliers
Each Horizon branch carries a comprehensive line of UpRight equipment in its rental fleet, including scissor lifts, boom lifts and portable lifts, as well as generally carrying aluminum scaffolding. Each location also carries a variety of equipment from other manufacturers, including boom lifts and forklifts. Horizon purchases all of its equipment directly from the original equipment manufacturer. UpRight accounted for approximately 58%, 60%, and 45% of Horizon's total capital purchases of equipment for fiscal years 2000, 1999 and 1998, respectively. Sales and Marketing
In the sales and rental of aerial work platforms, Horizon's strategy is to focus on small- to mid-sized end users. Horizon concentrates on providing a wide selection of equipment choices to a large, diversified customer base while providing comprehensive customer service and technical support.
There are currently 60 employees in Horizon's sales force, including specialists who focus on the construction industry, with a primary focus on equipment rentals, specialists who focus on the industrial market, with a primary focus on equipment sales, and special account managers who focus on specialized industries and end users. Horizon's sales force has been with Horizon an average of approximately three years. Sales personnel are compensated on a salary-plus-commission basis and report directly to branch managers or sales managers.
Horizon promotes its services through a combination of direct sales contacts, telemarketing, listings in telephone directories, subscriptions to industry data base lists and pursuing leads obtained from manufacturers. In addition, each Horizon field office annually participates in approximately five informational trade shows in their market area and, combined with the manufacturers' national shows, Horizon sales representatives annually attend approximately 60 trade shows on a company-wide basis.
Employees
As of June 25, 2000, Horizon had a total of 316 full-time employees, including 14 personnel in the Fresno headquarters who provide administrative and accounting services. Each branch location averages 14 to 23 people, typically structured as follows: one manager, three to four office persons, two to five sales persons, five to eight mechanics and three to five truck drivers. Horizon is unionized in four locations: Ridgefield Park and Lakewood, New Jersey; Highland, New York; and Chicago, Illinois. In New Jersey and New York, a total of 19 mechanics and drivers are members of the International Brotherhood of Operating Engineers, while the Chicago branch has a total of five mechanics and drivers represented by the Automobile Mechanics' Local #701.
Item 2.
Item 2. Properties.
The Company maintains its corporate and administrative offices at 7433 N. First Street, Fresno, California 93720, telephone (559) 353-3950.
UpRight maintains its headquarters and manufacturing operations at its owned facilities at 1775 Park Street, Selma, California 93662, telephone (559) 891-5200. UpRight has approximately 335,000 square feet of manufacturing space at its Selma, California facility, where it manufactures all of the scissor and portable lift products as well as scaffolding. To support its product line expansion strategy, UpRight added a 325,000 square foot facility in Madera, California, where it manufactures boom lifts and which is expected to be utilized to manufacture telescopic material handlers. The Madera building program was financed through a 15 year bank loan. UpRight also leases a sales office and training facility in Cincinnati, Ohio with a five-year term and a storage facility in Selma, California with a six-month term with optional six-month renewals. UpRight maintains a part depot in Fresno, California, with the lease running through November, 2001.
Horizon's corporate headquarters are located at 1540 East Shaw Avenue, Suite 123, Fresno, California 93710, telephone (559) 248-8180. Horizon currently has 17 branch facilities at the following locations: Atlanta, Georgia; Charlotte, Raleigh and Greenville, North Carolina; Beltsville, Maryland; Hayward, Napa, Sacramento and Brea, California; Elmhurst, Illinois; Houston (2), and Arlington (Dallas), Texas; Commerce City (Denver), Colorado; Ridgefield Park and Lakewood, New Jersey; and Highland, New York. Horizon's corporate headquarters are leased for a term expiring in September 2005. The branch facilities in Arlington and Houston, Texas, and Napa and Brea, California are owned by an affiliate of the Company. Horizon's branch facilities are typically leased for terms ranging from three to five years with options to extend or renew.
The Company's properties used in its operations are considered to be in good operating condition, well maintained and suitable for their present purposes.
Item 3.
Item 3. Legal Proceedings.
Use of products manufactured by UpRight and sold or rented by Horizon (recently sold by the Company to United Rentals, Inc., as described in Item 1) involves exposure to personal injury as well as property damage, particularly if operated carelessly or without proper maintenance, and liability exposure for the Company, UpRight and Horizon.
There are various claims and litigation pending against UpRight and Horizon for personal injury and property damage arising out of incidents involving the use of UpRight products and, in the case of Horizon, products of UpRight and other manufacturers. The Company believes that litigation of this type is common in the businesses of UpRight and Horizon and for other manufacturers and distributors in the aerial work platform industry. Although the outcome of such litigation cannot be predicted with certainty, it is the opinion of management, based on the advice of legal counsel and other considerations, that (except as described below) all claims, legal actions, complaints and proceedings which have been filed or are pending against UpRight and Horizon, as well as possible future claims, are adequately covered by the Company's comprehensive general liability insurance policies, subject to certain deductible amounts and maximum coverage limits.
The Company has accrued what management believes are adequate reserves with respect to pending and potential claims. Management believes that UpRight's and Horizon's potential exposure to product liability/general claims may be affected by the substantial growth in usage of aerial work platforms over the past several years, which has dramatically increased machine population and the number of users. There can be no assurance that existing or future claims will not exceed the level of UpRight's and Horizon's insurance, or that such insurance will continue to be available on economically reasonable terms, or at all. In addition, certain types of claims, such as claims for punitive damages or for damages arising from intentional misconduct, generally are not covered by insurance. Since the acquisitions of UpRight and Horizon by the Company, neither subsidiary has been required to pay any claim for punitive damages. Product liability costs incurred by the Company, including premiums and self-insurance retention payments for legal judgments and settlement costs, for fiscal years 2000, 1999 and 1998 approximated (0.3%), 0.2%, and 1.7% of revenue, respectively. Various legal actions (in areas other than product liability) may arise in the ordinary course of business from time to time against the Company, UpRight or Horizon. Other than with respect to product liability or as described below, there is no material litigation currently pending against the Company, UpRight or Horizon. None of the litigation pending against UpRight is expected to have a material adverse effect on the Company's financial condition, results of operations or liquidity. Horizon has been sued for damages arising out of a traffic accident involving a Horizon employee. The matter is in the investigation, pleading and discovery stages. No demand has been received. However, the initial "prayer" for damages in the complaint, which was filed in the United States District Court for the Eastern District of Virginia, Alexandria Division, in July 1999, by Roy Woodle, seeks to recover $25.0 million in general damages, which amount exceeds Horizon's $11,000,000 combined policy limits of primary and excess insurance for this type of loss. The complaint alleges a cause of action for negligence. Based upon investigation to date and consultation with the Company's insurance carrier and legal counsel, management does not believe that the ultimate resolution of this matter will have a materially adverse effect on the Company's financial condition, results of operations or liquidity.
Item 4.
Item 4. Submission of Matters to a Vote of Security Holders.
None.
PART II
Item 5.
Item 5. Market for Company's Common Equity and Related Stockholder Matters.
There is no public market for the common stock or equity securities of the Company. See "Item 12" and "Item 7 Management's Discussion and Analysis of Financial Condition and Results of Operations-Liquidity and Capital Resources."
Item 6.
Item 6. Selected Financial Data.
The following Selected Financial Data has been taken or derived from the audited consolidated financial statements of the Company and should be read in conjunction with and is qualified in its entirety by the full consolidated financial statements, related notes and other information included elsewhere herein.
(1) The following details UpRight's and Horizon's (recently sold by the Company to United Rentals, Inc., as described in Item 1)revenue, and the elimination of inter-company sales for fiscal years 2000, 1999, 1998, 1997 and 1996:
(2) EBITDA represents income before extraordinary item, net interest expense, financing costs, income taxes, depreciation and amortization and other expenses and income. The Company has included information concerning EBITDA in its annual report because it is used by certain investors as a measure of a company's ability to service its debt obligations. EBITDA should not be used as an alternative to, or be considered more meaningful than, operating income, net income or cash flow as an indicator of the Company's operating performance. In addition, in fiscal 1999, depreciation and amortization includes $408 of accelerated amortization, resulting from impairment of certain long lived assets.
Item 7.
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations.
Forward-Looking Statements:
Certain statements in this Annual Report on Form 10-K include forward-looking information within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, and are subject to the "safe harbor" created by those sections. These forward-looking statements involve certain risks and uncertainties that could cause actual results to differ materially from those in the forward-looking statement. Such risks and uncertainties include, but are not limited to, the following factors: substantial leverage of the Company; industrial cyclicality; dependence on the construction industry; consolidation of the customer base; dependence upon major customers; risks relating to growth; significance of new product development; the need for continual capital expenditures; competition; product liability; insurance; availability of product components; reliance on suppliers; foreign sales; government and environmental regulation; labor matters; holding company structure; restrictions under debt agreements; fraudulent conveyance; and control by the sole stockholder.
General
This discussion should be read in conjunction with the Company's consolidated financial statements and the notes thereto appearing in Item 8 of this Annual Report on Form 10-K.
The Company's strategy is to create shareholder value by providing capital, strategic and financial direction and management to its wholly owned operating subsidiaries, UpRight and (until it's recent sale to United Rentals, Inc.,) Horizon. Prior to fiscal year 1994, Horizon was a division of UpRight, operating as a captive equipment dealer and industrial equipment rental company in certain markets. In fiscal year 1994, the Company decided each business would be managed and operated separately. All transactions between UpRight and Horizon are conducted on an arm's-length basis. UpRight sells equipment to Horizon for the same price it would otherwise charge a comparable distributor. Horizon purchases equipment from UpRight, as well as from other major manufacturers, including certain models and product lines that may be produced by UpRight. The Company intends to maintain the distributor/supplier relationship between the two companies. Sales to Horizon accounted for approximately 9%, 20%, and 16% of UpRight's revenue for fiscal years 2000, 1999 and 1998, respectively. Purchases from UpRight accounted for 58%, 60% and 45% of Horizon's total capital purchases of equipment for fiscal years 2000, 1999 and 1998, respectively. UpRight and Horizon maintain stand-alone financial statements. Sales from UpRight to Horizon are reflected in UpRight's stand-alone financial statements at the actual arm's-length price charged. Purchases by Horizon from UpRight are reflected in Horizon's stand-alone financial statements at dealer cost. "Dealer cost" means the price paid by Horizon to purchase equipment from equipment manufacturers, including from UpRight on arm's-length terms. All significant inter-company balances and transactions are eliminated in consolidation.
Demand in the aerial work platform and industrial equipment rental industries has been historically related to the cyclical levels of construction and industrial activity in North America, and may at times change dramatically. The Company expects the aerial work platform industry will continue to be dependent upon North American construction and industrial activity, although international sales increasingly comprise a greater proportion of total industry revenues. The Company believes that UpRight has among the highest percentages of revenue from international sales of any aerial work platform manufacturer, and that this diversification may help mitigate the impact of cyclical downturns in North America.
The following table sets forth for the periods indicated certain historical revenue and percentages from customer geographical segments:
Results of Operations
The following table sets forth for the periods indicated certain historical income statement data derived from the Company's consolidated statements of operations expressed in dollars and as a percentage of net revenue.
Segment operations
The Company believes its results of operations for UpRight and Horizon are most meaningful when analyzed from the perspective of two arm's-length companies. The following table sets forth for the periods indicated certain historical consolidating income statement data derived from the Company's consolidated statements of operations expressed in dollars and as a percentage of revenue.
When equipment purchased from UpRight by Horizon is included in Horizon's rental fleet, or held as sales inventory at the end of a reporting period, the gross profit earned by UpRight on the sale of this equipment is eliminated from the Company's consolidated gross profit. As Horizon's purchases of equipment for rental fleet purposes vary by reporting period, and the level of UpRight equipment held in sales inventory by Horizon fluctuates by reporting period, the resulting elimination of gross profit on consolidation can cause consolidated income from operations to fluctuate between reporting periods.
Fiscal Year Ended June 25, 2000 Compared to Fiscal Year Ended June 27, 1999
Revenue increased by 32.6% to $265.4 million in fiscal year 2000 from $200.2 million in fiscal year 1999. The increase of $65.2 million was primarily attributable to increased revenue from sales of new equipment of $57.6 million (including sales of UpRight equipment by Horizon) and increased rental and service revenue for Horizon of $6.3 million. The primary reasons for the increase in new equipment sales were: (1) an increase of $51.9 million in sales by UpRight of new equipment to dealers other than Horizon (of which $43.9 million of the increase in sales of new equipment was to the European and Asian markets) and (2) an increase of $5.7 million in Horizon's sales of new equipment. The increase in Horizon's rental and service revenue was primarily attributable to significant rental fleet additions subsequent to the first and second quarters of fiscal 1999 and the inclusion of results from a business acquired subsequent to the third quarter in fiscal year 1999.
Gross profit for fiscal year 2000 was $42.2 million, a decrease of $11.2 million over gross profit of $53.4 million for fiscal year 1999. The decrease in gross profit is attributable to lower gross margins, which decreased to 15.9% for fiscal year 2000 compared to 26.7% for the previous fiscal year. The decline in gross profit is primarily a result of manufacturing inefficiencies at UpRight due to: (1) ramp-up of production at the Madera facility, particularly relating to the inexperienced work force and the need to increase the size of the work force in the first half of the fiscal year in anticipation of higher production levels in the second half of the fiscal year; (2) low volume of production at the Madera facility due to slower than anticipated boom sales; (3) delays in bringing on-line the continuous flow paint facility in Madera, which only became operational on all lines late in the second quarter; (4) parts shortages, primarily the result of certain vendors' inability to supply quality parts on time, as well as parts availability problems resulting from changes which were initiated while attempting to improve the inventory management process and performance; and (5) inefficiencies at the Selma facility in producing to the higher production levels in the six months ended June 25, 2000. In addition, UpRight experienced pricing pressures in the second, third and fourth quarters. In the second quarter, Horizon experienced negative margins on used equipment sales as it sold certain boom lifts and forklifts at a loss. The net loss on these certain boom lifts and forklifts was approximately $1.1 million. All of these certain boom lifts and forklifts that were identified to be sold have been sold or accounted for, and it is not anticipated to affect future quarters. In addition, Horizon had lower rental equipment utilization and rental rates, and higher wage and benefit costs and depreciation expense on rental equipment for fiscal year 2000 compared to fiscal year 1999.
Operating expenses, consisting of selling, general and administrative expenses, product liability and research and development expenses were $45.9 million for fiscal year 2000 compared to $40.7 million for the same period last year. SG & A expenses increased by $9.2 million to $40.8 million in fiscal year 2000 compared to fiscal year 1999. The increase in SG & A expenses is primarily due to increased costs from the addition of resources to support the higher activity level at Horizon, additional marketing and goodwill amortization costs related to a business acquired subsequent to the third quarter of fiscal 1999, a $0.7 million write-off of goodwill related to the closure of one of Horizon's general rental branches, a one-time charge at Horizon of $0.4 million related to recourse on a sale from a prior year, as well as increased marketing and administrative costs at UpRight, which are required to support the increased manufacturing capacity of UpRight following the ramp-up of production at the Madera facility. As a percentage of revenue, SG & A expenses were 15.4% for fiscal year 2000 compared to 15.8% for fiscal year 1999. Product liability expense decreased by $1.1 million in fiscal year 2000 compared to fiscal year 1999, due to a decrease in product liability reserves, determined through analytical review. Research and development expenses for fiscal year 2000 were $5.8 million, a decrease of $2.9 million compared to fiscal year 1999. The decrease in research and development expenses is primarily related to reduced new product development following the introduction of the additional boom lift products in fiscal 1999, as well as $0.3 million which had previously been expensed, but was subsequently recovered as a result of a favorable sales tax ruling.
Interest expense, net of interest income, increased to $17.7 million for fiscal year 2000 from $12.1 million for fiscal year 1999 due primarily to a decrease in interest income related to lower cash balances at the Company as well as increased borrowings at Horizon and UpRight.
Income taxes in fiscal year 2000 were a benefit of $9.0 million compared to an expense of $0.2 million in fiscal year 1999. The income tax benefit is primarily due to taxable losses in fiscal year 2000 compared to taxable income in fiscal year 1999.
Net loss for fiscal year 2000 was $13.3 million, representing a decrease of $13.5 million from net income of $0.2 million for the previous fiscal year, as a result of the factors described above.
Fiscal Year Ended June 27, 1999 Compared to Fiscal Year Ended June 28, 1998
Revenue increased by 17.2% to $200.2 million in fiscal year 1999 from $170.8 million in fiscal year 1998. The increase of $29.4 million was primarily attributable to increased revenue from sales of new equipment of $15.3 million (including sales of UpRight equipment by Horizon) and increased rental and service revenue for Horizon of $11.1 million. The primary reasons for the increase in new equipment sales were UpRight's sales of large scissor lifts and boom lifts and Horizon's sales of telescopic material handlers. The increase in Horizon's rental and service revenue was primarily attributable to significant rental fleet additions and the inclusion of results from businesses acquired subsequent to the third quarter in fiscal year 1998.
Gross profit for fiscal year 1999 was $53.4 million, an increase of $0.4 million over gross profit of $53.0 million for fiscal year 1998. The increase in gross profit is attributable to higher revenue; however, gross margins decreased to 26.7% for fiscal year 1999 compared to 31.0% for the previous fiscal year, due to a combination of factors at UpRight and Horizon. During fiscal 1999, UpRight faced increased competitive pricing pressure on its sales of new equipment and inefficiencies in its manufacturing process. UpRight's manufacturing inefficiencies were due to the ramp-up of production at the new Madera facility caused by the slower than expected development of a trained, productive workforce and delays in bringing on-line the continuous flow paint facility. In addition, UpRight experienced paint capacity constraints at its Selma facility. Gross profit was also negatively impacted due to increased sales of lower margin forklifts and telescopic material handlers at Horizon, together with lower sales prices on used equipment and increased depreciation expense, and higher elimination of gross profit attributable to UpRight's products held in Horizon's rental fleet and sales inventory as of June 27, 1999 compared to June 28, 1998.
Operating expenses, consisting of selling, general and administrative expenses, product liability and research and development expenses were $40.7 million for fiscal year 1999 compared to $32.7 million for the same period last year. SG & A expenses increased by $7.7 million to $31.6 million in fiscal year 1999 compared to fiscal year 1998, due to higher corporate expenses of $3.5 million at the Company, including a $1.0 million severance payment to the former President of the Company, and higher marketing and administrative expenses at Horizon of $3.5 million due to the increase in size of the business. Product liability expense was $0.4 million for fiscal year 1999 compared to $2.8 million in fiscal year 1998. The decrease in product liability expense is primarily due to the reduction in the accrued liability based on a low incident rate and cost per case experienced in fiscal year 1999. Research and development expense for fiscal year 1999 was $8.7 million compared to $6.0 million for fiscal year 1998. The increase in Research and development expenses is due to developing new boom lift products and telescopic material handlers.
Interest expense, net of interest income, increased to $12.1 million for fiscal year 1999 from $9.4 million for fiscal year 1998 due primarily to lower cash balances and higher borrowings used to fund Horizon's rental additions and UpRight's Madera facility construction.
Income taxes in fiscal year 1999 were $0.2 million compared to $3.2 million in fiscal year 1999. The decrease in provision for income taxes is primarily due to lower taxable income in fiscal year 1999.
Net income for fiscal year 2000 was $0.2 million, representing a decrease of $7.5 million from net income of $7.7 million for the previous fiscal year, as a result of the factors described above.
Liquidity and Capital Resources
The Company's cash flow requirements are for working capital, capital expenditures and debt service.
The Company meets its liquidity needs through internally generated funds and committed finance facilities available to its subsidiaries, UpRight and Horizon, and cash balances.
The Company's cash balance as of June 25, 2000 was $3.3 million. This cash is used in part to finance the capital expenditure program at UpRight and Horizon and, in addition, used for general corporate purposes. UpRight and Horizon have revolving lines of credit from major financial institutions of $20.0 million and $6.3 million, respectively. As of June 25, 2000, UpRight and Horizon had utilized $14.6 million and $1.0 million of their respective revolving lines of credit. In addition, UpRight has available a $10.0 million facility with a financial institution for the purchase of manufacturing equipment during fiscal 2000. This facility had an outstanding principal balance of $6.0 million at June 25, 2000, was interest only and was paid in full in July 2000. Further, UpRight has available a $5.0 million facility with a financial institution for the purchase of real estate during fiscal 2000. This facility had an outstanding principal balance of $4.0 million at June 25, 2000, is interest only and payment is due in full in October 2000. Horizon has available a $10.0 million facility with a financial institution for the purchase of rental equipment during fiscal 2000 and the first four months of fiscal 2001. This facility had an outstanding principal balance of $7.5 million at June 25, 2000, is interest only and will convert to a five year term loan in November, 2000.
The Company's working capital was $47.1 million and $54.7 million at June 25, 2000 and June 27, 1999, respectively. The decrease in working capital during the fiscal year is mainly due to an increase in the current portion of long term debt of $29.2, partially offset by an increase in inventory of $10.3 million and an increase in accounts receivable/due from factor of $8.9 million.
The Company's outstanding debt was $194.3 million and $150.6 million at June 25, 2000 and June 27, 1999, respectively. The increase in outstanding debt primarily resulted from increased use of cash by operating activities during the fiscal year ended June 25, 2000. Cash and cash equivalents were $3.3 million and $13.3 million at June 25, 2000 and June 27, 1999, respectively.
Net cash used by operating activities was $36.2 million and $7.5 million at June 25, 2000 and June 27, 1999, respectively. The increase in net cash used by operating activities of $28.7 million is primarily related to: the increase in accounts receivable/due from factor of $19.9 million and the net loss versus net income for fiscal year 2000 compared to fiscal year 1999 which accounted for $13.5 million, an increase in prepaid expenses and other assets of $7.3 million in fiscal year 2000 compared to fiscal year 1999, partially offset by an increase in accrued expenses of $10.8 million in fiscal year 2000 compared to fiscal year 1999. The increase in accounts receivable/due from factor is attributable to increased sales volumes and extended terms granted to major accounts in Europe. The increase in prepaid expenses and other assets is primarily due to notes receivable from an affiliated re-rental company in Europe, which is promoting the use of UpRight boom lifts to existing and new customers as part of UpRight's boom lift penetration strategy, as well as prepaid income taxes. The increase in accrued expenses in fiscal year 2000 was due to: (1) increase in affiliate payable, (2) accrued marketing suport costs, (3) warranty expense and (4) insurance expense.
Net cash used by investing activities was $18.4 million in fiscal year 2000 compared to $60.4 million in fiscal year 1999. The decrease in net cash used by investing activities resulted primarily from a decrease in cash used for the purchase of property, plant and equipment which totaled $26.7 million for fiscal year 2000 compared to $65.1 million for fiscal year 1999. Included in fiscal year 1999 were expenditures relating to the construction of UpRight's Madera facility and expenditures relating to the expansion of Horizon's rental fleet. Net cash used by investing activities in fiscal year 2000 was to acquire/build facilities for Horizon, buy new manufacturing equipment for UpRight's Selma and Madera, California facilities and upgrade Horizon's rental fleet.
Net cash provided by financing activities was $44.5 million and $17.5 million in fiscal year 2000 and fiscal year 1999 respectively. The change in net cash provided by financing activities is primarily the result of increased borrowings due to increased use of cash by operating activities during fiscal year 2000.
The Company believes that, in addition to its cash on hand, internally generated funds and amounts available to UpRight and Horizon under revolving credit facilities are and will continue to be sufficient to satisfy its operating cash requirements and planned capital expenditures. The Company may, however, require additional capital through borrowings and equity to fund the working capital requirements associated with higher sales levels that are capable of being generated from the increased manufacturing capacity at the Madera and Selma facilities of UpRight.
Seasonality
The Company's revenue and operating results historically have fluctuated from quarter to quarter, and the Company expects that they will continue to do so in the future. These fluctuations have been caused by a number of factors, including seasonal purchasing patterns of UpRight's customers and seasonal rental patterns of Horizon's customers (principally due to the effect of weather on construction activity). The operating results of any historical period are not necessarily indicative of results for any future period.
Item 7A.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
Not applicable.
W.R. CARPENTER NORTH AMERICA, INC. AND SUBSIDIARIES
Index to Consolidated Financial Statements
Page Number
Independent Auditors' Report on Consolidated Financial Statements... 22
Consolidated Balance Sheets - June 25, 2000 and June 27, 1999....... 23
Consolidated Statements of Operations - Years ended June 25, 2000, June 27, 1999 and June 28, 1998.........................................24
Consolidated Statements of Stockholder's Equity - Years Ended June 25, 2000, June 27, 1999 and June 28, 1998..........................25
Consolidated Statements of Cash Flows - Years Ended June 25, 2000, June 27, 1999 and June 28, 1998..........................26
Notes to Consolidated Financial Statements...............................27
Consolidated Financial Statements Schedules:
Schedule II - Valuation and Qualifying Accounts.....................43
Schedules other than those listed above are omitted because they are not required or are not applicable, or the required information is shown in the respective consolidated financial statements or notes thereto.
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholder of W.R. Carpenter North America, Inc. Fresno, California
We have audited the consolidated balance sheets of W.R. Carpenter North America, Inc. and subsidiaries as of June 25, 2000 and June 27, 1999 and the related consolidated statements of operations, stockholder's equity and cash flows for each of the three years in the period ended June 25, 2000 and the related financial statement schedule listed in the accompanying index at item 8.
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.
None.
PART III
Item 10.
Item 10. Directors and Executive Officers of the Company.
The following table sets forth certain information concerning the directors and executive officers of the Company, UpRight and Horizon:
Robert F. Stowe has served as Chairman of the Board of Directors of the Company since 1985. He is the founder of various trusts, the beneficiaries of which are the family, relations and other descendants of Mr. Stowe (the "Stowe Family Trusts"). Since 1974, Mr. Stowe has served as Chairman of various companies which are owned by the Stowe Family Trusts and which are affiliates of the Company. Mr. Stowe is a Fellow of the Institute of Chartered Accountants in Australia.
David K. Sargent served as Chief Executive Officer of the Company, UpRight and Horizon from 1989 until December 31, 1997 and as President of the Company, UpRight and Horizon from 1989 to June 28, 1998 and has served as President of the Company from March 4, 1999 to the present. He has served as a Director of the Company since 1994. Mr. Sargent resumed the position of President of the Company in March 1999. Prior to 1989, Mr. Sargent was President of Instant Zip-Up Limited, a distributor of UpRight products in the United Kingdom. Mr. Sargent is currently a director of UpRight (U.K.) Limited (formerly Instant Zip-Up Limited).
Graham D. Croot has served as Chief Financial Officer of the Company since 1990. He served as the Company's Treasurer from 1981 to 1989. In addition to his responsibilities with the Company, Mr. Croot serves as chief financial officer of various companies owned by the Stowe Family Trusts. Mr. Croot is a member of The Australian Society of Certified Practicing Accountants.
Noel Corcoran has served as Secretary of the Company since April 1997. In addition to his responsibilities with the Company, since 1994, Mr. Corcoran has served as secretary and in other capacities of various companies owned by the Stowe Family Trusts. From 1990 to 1994, Mr. Corcoran served as the Financial Controller of European Operations of UpRight. Mr. Corcoran is a Fellow of the Association of Chartered Certified Accountants.
Peter B. Sawdy has served as a Director of the Company since April 1997. Mr. Sawdy is currently the Chairman of Peter Sawdy Associates, a business consultancy. From 1990 to 1993, Mr. Sawdy was Chairman of Costain Group. Mr. Sawdy has served in various director and advisory capacities with the Stowe Family Trusts since 1985.
Ian Menzies has served President of UpRight since March 23, 2000. Mr. Menzies was President of Long-Airdox, a mining equipment company from 1996 until March, 2000, as well as Managing Director of European operations from 1995 to 1996.
Shaun Flanagan has served as Vice President and General Manager of Horizon since March 23, 2000 and prior to that from 1994 until December 31, 1998. Mr. Flanagan was the founder and President of Horizon from 1982 until 1989 when Horizon was acquired by UpRight. Mr. Flanagan served as Vice President and General Manager of the Horizon Division of UpRight from 1989 until 1994 when Horizon became a wholly owned subsidiary of the Company.
Item 11.
Item 11. Executive Compensation.
The following table sets forth for the last three fiscal years certain compensation information about the Company's chief executive officer and the other persons who served as executive officers of the Company, UpRight or Horizon during fiscal year 2000 and earned in excess of $100,000 during such year.
Summary Compensation Table
(1) Mr. Sargent served as Chief Executive Officer of the Company, UpRight and Horizon until December 31, 1997 and as President of the Company, UpRight and Horizon until June 28, 1998. He resumed the position of President of the Company in March 1999 due to the departure of Mr. Dillon. Mr. Sargent is acting as President of the Company pursuant to the corporate services agreement with Griffin Group International Management Limited, an affiliate of the Company. See "Item 13 Certain Relationships and Related Transactions."
(2) Until the start of fiscal year 1999, Mr. Croot's salary was paid by Devereaux Holdings, a company owned by the Stowe Family Trusts. However, prior to fiscal year 1999, Mr. Croot had been providing consulting services to the Company pursuant to a corporate services agreement with Griffin Group International Management Limited, an affiliate of the Company. See "Item 13 -Certain Relationships and Related Transactions."
(3) Mr. Menzies served as President of UpRight beginning March 23, 2000.
(4) Mr. Evulich served as Vice President and General Manager of UpRight beginning January 1, 1998 until March 23, 2000.
(5) Mr. Penkert served as Vice President and General Manager of Horizon beginning January 1, 1999 until March 23, 2000.
(6) Mr. Flanagan served as Vice President and General Manager of Horizon until December 31, 1998. He resumed the position of Vice President and General Manager of Horizon on March 23, 2000. Mr. Flanagan is a director of Horizon.
(7) Mr. Dillon served as Chief Executive Officer of the Company, UpRight and Horizon beginning January 1, 1998 and as President of the Company, UpRight and Horizon beginning June 29, 1998. Mr. Dillon resigned from the Company effective March 4, 1999.
(8) Consists of severance payments, paid or accrued to Mr. Dillon during fiscal year 1999.
Directors
Directors of the Company are elected annually and hold office until the next annual meeting of stockholders or until their successors are duly elected and qualified.
Directors of the Company do not receive any fees for services on the Board of Directors. Directors are reimbursed for their expenses for each meeting attended.
Employee Benefit Plans
Employees of UpRight participate in a Taxsaver's Investment Plan (the "UpRight 401(k) Plan"). The UpRight 401(k) Plan was originally adopted effective as of January 1, 1984 as an addition to the Company's Employee Stock Ownership Plan, originally adopted in January 1, 1975. The Company's Employee Stock Ownership Plan was terminated in 1987. UpRight makes fixed contributions to the UpRight 401(k) Plan for each year in an amount equal to 4% of the compensation of all eligible participants, plus up to an additional 2% matching of participants' contributions. The UpRight 401(k) Plan also contains features that allow employees to save money before paying Federal income tax on the amount saved. The UpRight 401(k) Plan covers all employees who have at least one year of service, and is administrated by a Plan Committee, whose members are appointed by UpRight's Board of Directors. The UpRight 401(k) Plan is intended to conform to the provisions of the Employee Retirement Income Security Act of 1974. Contributions to the UpRight 401(k) Plan are fully vested as of December 31 in the year in which such contributions were made.
Employees of Horizon participate in the Horizon High Reach 401(k) Plan (the "Horizon 401(k) Plan"). Participation in this defined contribution plan is available to all full-time employees who have completed at least one year of service and attained the age of 21. Horizon makes fixed contributions to the Horizon 401(k) Plan for each year in an amount up to 4% of the compensation of all eligible participants. In addition to the fixed annual contribution, Horizon is required to make a matching contribution equal to the participant's elective contribution up to 2% of the participant's compensation for the calendar year. Employee contributions to the Horizon 401(k) Plan are fully vested. Employer contributions are vested in 20% annual increments beginning after the second year of participation in the Horizon 401(k) Plan, with full vesting occurring after the sixth year of participation. Employees are fully vested upon their 65th birthday. Employees of Horizon who had been employed by UpRight or Horizon for one year as of December 31, 1993 are fully vested in the Horizon 401(k) Plan.
Incentive Compensation
The Company has in effect various arrangements pursuant to which certain officers may receive incentive cash bonuses based upon the achievement of financial performance objectives. The Company's Board of Directors determines the amounts of incentive bonuses, and performance criteria for such bonuses.
Directors' and Officers' Insurance
Group International Securities Limited, the parent of UpRight International Limited, has purchased liability insurance for the directors and officers of its subsidiaries, including the Company, UpRight and Horizon, effective October 1, 1999, for an aggregate 24 months' premium of $208,700. Directors and executive officers of the Company will pay no part of this premium. The aggregate insurance coverage under the policy is limited to $15.0 million per policy period, and a $75,000 deductible for each claim, other than claims arising from the Securities and Exchange Commission for which the deductible is $150,000, is payable under the policy by Group International Securities Limited in respect of any claim made against a director or officer for which Group International Securities Limited has indemnified such director or officer. The Company is currently in negotiations to obtain an extension of this insurance policy or a new policy of liability insurance on similar terms.
Item 12.
Item 12. Security Ownership of Certain Beneficial Owners and Management
The following table sets forth, as of the date hereof, information with respect to the beneficial ownership of shares of the Company's Common Stock by each stockholder known by the Company to be the beneficial owner of more than 5% of such shares. No executive officers or directors of the Company own any shares of the Company's Common Stock.
(1) All of the capital stock of WRC Holdings, Inc. is owned beneficially by UpRight International Limited. All of the capital stock of UpRight International Limited is owned beneficially by the Stowe Family Trusts. Mr. Stowe, who is not a beneficiary thereunder, appoints the trustees of the trusts.
Item 13.
Item 13. Certain Relationships and Related Transactions
On May 12, 1997, the Company entered into a corporate services agreement with Griffin Group International Management Limited ("Griffin"), an affiliate of the Company (the "Company Corporate Services Agreement") pursuant to which Griffin, for a term of one fiscal year commencing June 30, 1997, provides consulting services to the Company, UpRight and Horizon in various areas including operations, finance and accounting, asset management, strategic planning and policy, management organization, marketing, technology, communications, public relations and SEC compliance and reporting. The term of the Company Corporate Services Agreement is automatically extended for additional one-year periods, unless either party gives notice of termination 180 days prior to the end of such fiscal year. During fiscal year 2000, the Company paid $2.0 million to Griffin for such services.
UpRight International Manufacturing Ltd. ("UpRight Ireland"), an affiliate of the Company located in Ireland, Vectur GmbH ("Instant Deutschland"), an affiliate of the Company located in Germany, UpRight BV, an affiliate of the Company located in the Netherlands, and Instant Access Australia Pty. Ltd. ("Instant Australia"), an affiliate of the Company located in Australia, each purchase and distribute products for UpRight in their respective market areas. UpRight management believes that each of the foregoing arrangements is conducted on an arm's-length basis and on terms at least as favorable to UpRight as those generally available from unaffiliated third parties. During fiscal year 2000, the Company's revenue from UpRight Ireland, Instant Deutschland, UpRight BV and Instant Australia were $0.7 million, $18.6 million, $8.9 million and $0.9 million, respectively. During fiscal year 1999, the Company's revenue from UpRight Ireland, Instant Deutschland and Instant Australia were $1.2 million, $4.6 million and $2.0 million, respectively. During fiscal year 1998, the Company's revenue from UpRight Ireland, Instant Deutschland and Instant Australia were $4.3 million, $3.1 million and $3.0 million, respectively. In addition, UpRight and Horizon purchase and distribute in the United States certain products manufactured by UpRight Ireland. During fiscal years 2000, 1999 and 1998, the Company's purchases from UpRight Ireland totaled approximately $4.4 million, $2.8 million and $3.0 million, respectively. During fiscal years 2000, 1999 and 1998, UpRight paid UpRight Ireland $1.1 million, $1.5 million and $1.2 million, respectively, for participation in UpRight Ireland's cooperative marketing programs. Also, during fiscal 2000, UpRight recorded sales totaling $6,883 to an affiliated company of equipment recently rented or leased to unaffiliated customers with either mandatory purchase requirements or purchase options at the end of rental terms ranging from four to twelve months. Outstanding receivables from the affiliated are included in accounts receivable.
During fiscal years 2000, 1999 and 1998, the Company had revenue from UpRight (U.K.) Limited (formerly Instant Zip-Up Limited) of approximately $37.0 million, $31.2 million and $26.7 million, respectively. An affiliate of the Company owns a minority voting interest in UpRight (U.K.) Limited.
At the end of fiscal year 1997, the Company was indebted to UpRight International Limited for an aggregate principal amount of approximately $13.5 million. In fiscal year 1998, the Company repaid this indebtedness in full, and at the end of fiscal years 2000, 1999, and 1998, the Company was not indebted to UpRight International Limited.
In May 1998, an executive officer of the Company executed two promissory notes payable to the Company in the aggregate amount of $452,000. These notes are secured by a deed of trust and assignment of rents and real estate owned by the officer. The notes bear interest of 7.0% and the principal thereof and all accrued and unpaid interest thereon is due in full on or before May 27, 2001.
PART IV
Item 14.
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.
(a) Financial Statements, Financial Statement Schedules and Exhibits
1. Financial Statements See Index included on page 21
2. Financial Statement Schedules See Index included on page 21
Financial Statement schedules other than those listed above are omitted because they are not required or are not applicable, or the required information is shown in the respective consolidated financial statements or notes thereto.
3. Exhibits
The following Exhibits are filed herewith and made a part hereof:
Exhibit Number Description of Document
3.1(i) (a) Certificate of Incorporation of the Registrant, as amended. 3.1(ii) (a) Bylaws of the Registrant, as amended. 4.1 (a) Indenture, dated as of June 10, 1997, by and among the Registrant, the Guarantors named therein and U.S. Trust Company of California, N.A. 4.4 (a) Form of Exchange Global Note. 10.3 (a) Industrial Lease, dated February 7 1997, between A.L.L., a general partnership, and UpRight, Inc. 10.4 (a) Lease, entered into as of November 1995, by and between Townview Partners, a Ohio partnership and UpRight, Inc. 10.5 (a) Recourse Agreement, dated February 11, 1997, by and between Horizon High Reach, Inc., and American Equipment Leasing. 10.6 (a) Management Services Agreement, dated May 12, 1997, by and between the Registrant and Griffin Group International Management Ltd. 10.8 (a) Lease, dated January 1997, by and between Morris Ragona and Joan Ragona, and Horizon High Reach, Inc. 10.9 (a) Agreement of Lease, dated January 26, 1995, by and between Richard V. Gunner and George Andros, and Horizon High Reach, Inc. 10.10(i) (a) Lease Agreement, executed November 10, 1989, by and between Trussel Electric, Inc., and Up-Right, Inc., including Lease Extension Agreement dated February 28, 1994, Lease Modification Agreement dated January 26, 1994, and Notice of Option to Renew dated May 7, 1992. 10.10(ii) (b) Lease Extension and Modification Agreement dated September 3, 1998. 10.10(iii) (c) Lease Extension and Modification Agreement dated October 28, 1997. 10.11 (a) Lease Agreement (undated) by and between T.T. Templin and Horizon High Reach & Equipment Company. 10.12 (a) Agreement of Lease, dated October 15, 1992, by and between Robert I. Selsky and Up-Right Aerial Platforms, Assignment of Lease, dated June 1994, by and between Up-Right, Inc., and Horizon High Reach, Inc., and Consent to Assignment dated July 15, 1994. 10.13 (a) Lease Agreement, dated April 27, 1990, by and between D.L. Phillips Investment Builders, Inc., and Up-Right, Inc., together with Supplemental Agreement to Lease, dated September 30, 1994, Assignment of Lease, dated June 18, 1990, by and between D.L. Phillips Investment Builders, Inc., and JMA, Ltd., Assignment of Lease dated June 1994, by and between Up-Right, Inc., and Horizon High Reach, Inc., and Consent to Assignment dated July 15, 1994. 10.14 (a) Lease Renewal Agreement, dated October 19, 1992, between Ronald W. Werner and UpRight, Inc. 10.15 (a) Lease, dated March 7, 1995, by and between BMB Investment Group and Horizon High Reach, Inc. 10.18(i) (b) Equipment Financing Agreement, dated April 23, 1998, between UpRight, Inc., and KeyCorp Leasing LTD. 10.18(ii) (e) Promissory Note of UpRight, Inc., and Security Agreement, dated April 1, 1999, between UpRight, Inc., and KeyCorp Leasing. 10.18(iii) (e) Promissory Note of UpRight, Inc., and Security Agreement, dated May 4, 1999, between UpRight, Inc., and KeyCorp Leasing. Exhibit Number Description of Document
10.19(i) (d) Equipment Financing Agreement, dated February 26, 1999, between UpRight, Inc., and Associates Commercial Corp. 10.19(ii) (e) Security Agreement, dated May 13, 1999, between UpRight, Inc., and Associates Commercial Corporation. 10.19(iii) (e) Security Agreement, dated June 2, 1999, between UpRight, Inc., and Associates Commercial Corporation. 10.19(iv) (f) Security Agreement, dated June 24, 1999, between UpRight, Inc., and Associates Commercial Corporation. 10.20 (e) Lease Agreement, dated April 1, 1999, between FMCSR Holding Corp., and Horizon High Reach, Inc. 10.21 (e) Lease, dated May 24, 1999, between Industrial Boxboard Company and Horizon High Reach, Inc. 10.22(i) (f) Credit Agreement, dated August 26, 1999, between Wells Fargo Bank, NA and Horizon High Reach, Inc. 10.22(ii) (f) Revolving Line of Credit Note of Horizon High Reach, Inc., dated August 26, 1999. 10.22(iii) (f) Term Note of Horizon High Reach, Inc., dated August 26, 1999. 10.22(iv) (f) Term Commitment Note of Horizon High Reach, Inc., dated August 26, 1999. 10.22(v) (f) Foreign Exchange Agreement, dated August 26, 1999, between Wells Fargo Bank, NA and Horizon High Reach, Inc. 10.22(vi) (f) Security Agreement - Equipment, dated August 26, 1999, between Wells Fargo Bank, NA and Horizon High Reach, Inc. 10.22(vii) (f) Continuing Security Agreement, dated August 26, 1999, between Wells Fargo Bank, NA and Horizon High Reach, Inc. 10.22(viii) (f) Subordination Agreement, dated August 26, 1999, between Wells Fargo Bank, NA and Horizon High Reach, Inc. 10.23(i) (f) Second Amended and Restated Business Loan Agreement between Union Bank of California, NA and UpRight, Inc 10.23(ii) (f) Security Agreement, dated August 30, 1999, between Union Bank of California, NA and UpRight, Inc. 10.23(iii) (f) Promissory Notes of UpRight, Inc., dated August 30, 1999. 10.23 (iv) (f) Subordination Agreement, dated August 30, 1999, between Union Bank of California, NA and UpRight, Inc. 10.24 (g) Lease Agreement, dated September 1, 1999, between Aircold Supply and UpRight, Inc. 10.24(i) (g) Lease Agreement, dated January 25, 1999, between Clay Development & Construction and Horizon High Reach, Inc. 10.25 (h) Lease Agreement, dated May 4, 2000, between Advantage Properties, Inc. and Horizon HIgh Reach, Inc. 10.22(i) (f) Credit Agreement, dated August 26, 1999, between Wells Fargo Bank, NA and Horizon High Reach, Inc. 10.22(ii) (f) Revolving Line of Credit Note of Horizon High Reach, Inc., dated August 26, 1999. 10.22(iii) (f) Term Note of Horizon High Reach, Inc., dated August 26, 1999. 10.22(iv) (f) Term Commitment Note of Horizon High Reach, Inc., dated August 26, 1999. 10.22(v) (f) Foreign Exchange Agreement, dated August 26, 1999, between Wells Fargo Bank, NA and Horizon High Reach, Inc. 10.22(vi) (f) Security Agreement - Equipment, dated August 26, 1999, between Wells Fargo Bank, NA and Horizon High Reach, Inc. 10.22(vii) (f) Continuing Security Agreement, dated August 26, 1999, between Wells Fargo Bank, NA and Horizon High Reach, Inc. 10.22(viii) (f) Subordination Agreement, dated August 26, 1999, between Wells Fargo Bank, NA and Horizon High Reach, Inc. 10.23(i) (f) Second Amended and Restated Business Loan Agreement between Union Bank of California, NA and UpRight, Inc 10.23(ii) (f) Security Agreement, dated August 30, 1999, between Union Bank of California, NA and UpRight, Inc. 10.23(iii) (f) Promissory Notes of UpRight, Inc., dated August 30, 1999. 10.23 (iv) (f) Subordination Agreement, dated August 30, 1999, between Union Bank of California, NA and UpRight, Inc. 10.24 (g) Lease Agreement, dated September 1, 1999, between Aircold Supply and UpRight, Inc. 10.24(i) (g) Lease Agreement, dated January 25, 1999, between Clay Development & Construction and Horizon High Reach, Inc. 10.25 (h) Lease Agreement, dated May 4, 2000, between Advantage Properties, Inc. and Horizon HIgh Reach, Inc. 10.26 (j) Stock Purchase Agreement, dated September 29, 2000, between a wholly owned subsidiary of United Rentals, Inc. and the Company 10.27 (j) Promissory Note, dates September 29, 2000, issued in favor of the Company, by a wholly owned subsidiary of United Rentals, Inc. 10.28 (j) Promissory Note, dates September 29, 2000, issued in favor of the Company, by a wholly owned subsidiary of United Rentals, Inc. '21.1 Subsidiaries of the Company 24.1 Power of Attorney (see page 53) 27.1 Financial Data Schedule
(a) Incorporated herein by reference to the Company&s Registration Statement on Form S-4 (Reg. No. 333-31187), filed with the Securities and Exchange Commission on July 11, 1997. (b) Incorporated herein by reference to the Company&s Annual Report on Form 10-K for the fiscal year ended June 28, 1998, filed with the Securities and Exchange Commission on September 28, 1998. (c) Incorporated herein by reference to the Company&s Quarterly Report on Form 10-Q for the quarterly period ended September 27, 1998 filed with the Securities and Exchange Commission on November 12, 1998. (d) Incorporated herein by reference to the Company&s Quarterly Report on Form 10-Q for the quarterly period ended March 28, 1999, filed with the Securities and Exchange Commission on May 12, 1999. (e) Incorporated herein by reference to the Company&s Annual Report on Form 10-K for the fiscal year ended June 27, 1999, filed with the Securities and Exchange Commission on September 27, 1999. (f) Incorporated herein by reference to the Company&s Quarterly Report on Form 10-Q for the quarterly period ended September 26, 1999, filed with the Securities and Exchange Commission on November 10, 1999. (g) Incorporated herein by reference to the Company&s Quarterly Report on Form 10-Q for the quarterly period ended December 26, 1999, filed with the Securities and Exchange Commission on February 1, 2000. (h) Incorporated herein by reference to the Company&s Quarterly Report on Form 10-Q for the quarterly period ended March 26, 2000, filed with the Securities and Exchange Commission on May 10, 2000. (j) Incorporated herein by reference to the Company&s Annual Report on Form 10-K for the fiscal year ended June 25, 2000, filed with the Securities and Exchange Commission on October 10, 2000.
(b) Reports on Form 8-K.
The Company filed a report on Form 8-K with the Securities and Exchange Commission on September 29, 2000 announcing the signing and simultaneous closing of a definitive agreement with a wholly owned subsidiary of United Rentals, Inc. ("NYSE:URI") providing for the sale of all of the assets and outstanding capital stock of Horizon High Reach, Inc., formerly a wholly owned subsidiary of the Company for $90 million (subject to certain adjustments to be based on a post-closing audit). The following Exhibits are filed herewith and made a part hereof:
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Company has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
W.R. CARPENTER NORTH AMERICA, INC.
Date: October 10, 2000
By: /s/ David K. Sargent By: /s/Graham D. Croot David K. Sargent Graham D. Croot President Chief Financial Officer
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Graham D. Croot and David K. Sargent, and each of them, his attorney-in-fact, with full power of substitution, for him in any and all capacities, to sign any amendments to the Report, and to file the same, with exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, hereby ratifying and confirming all that said attorney-in-fact, or his substitute or substitutes, may do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Company and in the capacities and on the dates indicated.
Signature Title Date
/s/ David K. Sargent President and Director October 10, 2000 David K. Sargent (Principal Executive Officer)
/s/ Graham D. Croot Chief Financial Officer October 10, 2000 Graham D. Croot (Principal Financial Officer and Principal Accounting Officer)
/s/ Peter B. Sawdy Director October 10, 2000 Peter B. Sawdy
/s/ Robert F. Stowe Chairman of the Board of Directors October 10, 2000 Robert F. Stowe
Supplemental Information to be Furnished With Reports Filed Pursuant to Section 15(d) of the Act by Registrants Which Have Not Registered Securities Pursuant to Section 12 of the Act
No such annual report or proxy material has been sent to security holders.
(a) Incorporated herein by reference to the Company&s Registration Statement on Form S-4 (Reg. No. 333-31187), filed with the Securities and Exchange Commission on July 11, 1997. (b) Incorporated herein by reference to the Company&s Annual Report on Form 10-K for the fiscal year ended June 28, 1998, filed with the Securities and Exchange Commission on September 28, 1998. (c) Incorporated herein by reference to the Company&s Quarterly Report on Form 10-Q for the quarterly period ended September 27, 1998 filed with the Securities and Exchange Commission on November 12, 1998. (d) Incorporated herein by reference to the Company&s Quarterly Report on Form 10-Q for the quarterly period ended March 28, 1999, filed with the Securities and Exchange Commission on May 12, 1999. (e) Incorporated herein by reference to the Company&s Annual Report on Form 10-K for the fiscal year ended June 27, 1999, filed with the Securities and Exchange Commission on September 27, 1999. (f) Incorporated herein by reference to the Company&s Quarterly Report on Form 10-Q for the quarterly period ended September 26, 1999, filed with the Securities and Exchange Commission on November 10, 1999. (g) Incorporated herein by reference to the Company&s Quarterly Report on Form 10-Q for the quarterly period ended December 26, 1999, filed with the Securities and Exchange Commission on February 1, 2000. (h) Incorporated herein by reference to the Company&s Quarterly Report on Form 10-Q for the quarterly period ended March 26, 2000, filed with the Securities and Exchange Commission on May 10, 2000. (j) Incorporated herein by reference to the Company&s Annual Report on Form 10-K for the fiscal year ended June 25, 2000, filed with the Securities and Exchange Commission on October 10, 2000.