FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[ X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1997
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[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from To
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Commission file number 001-12049
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Gradall Industries, Inc.
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(Exact name of registrant as specified in its charter)
Delaware 36-3381606
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
406 Mill Avenue S. W., New Philadelphia, OH 44663
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(Address of principal executive offices)
(330) 339-2211
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(Registrant's telephone number, including area code)
Not applicable
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(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes X No
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Number of shares outstanding at September 30, 1997
Common Stock, $.001 par value: 8,940,194
<PAGE>
GRADALL INDUSTRIES, INC.
FORM 10-Q
QUARTER ENDED SEPTEMBER 30, 1997
Index
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Page
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PART I FINANCIAL INFORMATION
Item 1 -- Consolidated Financial Statements 1
Item 2 -- Management's Discussion and Analysis of
Financial Conditionand Results of Operations 5
PART II OTHER INFORMATION
Item 6 -- Exhibits and Reports on Form 8-K 10
Signatures 10
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
GRADALL INDUSTRIES, INC., AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
(Dollars in Thousands, Except Per Share Data)
Three Months Ended Nine Months Ended
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September 30, September 30, September 30, September 30,
1997 1996 1997 1996
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<S> <C> <C> <C> <C>
Net sales $ 40,310 $ 35,205 $ 114,576 $ 104,841
Cost of sales 30,496 26,941 86,877 80,594
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Gross profit 9,814 8,264 27,699 24,247
Operating expenses:
Engineering 904 727 2,769 2,286
Selling and marketing 1,965 1,494 5,480 4,853
Administrative 1,635 1,469 4,731 4,011
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Operating income 5,310 4,574 14,719 13,097
Interest expense 132 755 546 2,805
Other, net (72) 373 329 1,048
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Income before provision
for taxes 5,250 3,446 13,844 9,244
Income tax provision 2,051 1,351 5,411 3,623
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Income before
extraordinary charge 3,199 2,095 8,433 5,621
Extraordinary charge 973 973
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Net income $ 3,199 $ 1,122 $ 8,433 $ 4,648
============= ============= ============== =============
Weighted average
shares outstanding 8,939,627 6,887,120 8,939,406 6,290,754
Net income per share:
Before extraordinary
charge $ 0.36 $ 0.30 $ 0.94 $ 0.89
After extraordinary
charge 0.36 0.16 0.94 0.74
Pro Forma(1)
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Weighted average shares
outstanding 8,939,294 8,939,294
Net income per share: $ 0.27 $ 0.77
<FN>
(1) Presented as if the issuance of shares of common stock pursuant to the initial
public offering and the application of the net proceeds thereof had occurred on
January 1, 1996.
The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
GRADALL INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands)
Sep. 30, 1997 Dec. 31, 1996
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ASSETS (unaudited)
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<S> <C> <C>
Current assets:
Cash $ 1,252 $ 215
Accounts receivable - trade, net of
allowance for doubtful accounts 22,114 16,846
Inventories 22,281 21,326
Prepaid expenses and deferred charges 722 495
Deferred income taxes 1,151 1,151
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Total current assets 47,520 40,033
Deferred income taxes 5,524 5,257
Property, plant and equipment, net 12,358 11,535
Other assets 1,276 1,401
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Total assets $ 66,678 $ 58,226
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LIABILITIES & STOCKHOLDERS' EQUITY
-----------------------------------
Current liabilities:
Current portion long term debt $ 187 $ 174
Accounts payable - trade 14,891 13,405
Accrued other expenses 11,304 11,547
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Total current liabilities 26,382 25,126
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Long term obligations:
Long-term debt, net of current portion 5,725 7,736
Accrued post-retirement benefit cost 15,391 14,604
Other long term liabilities 1,684 1,684
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Total long term obligations 22,800 24,024
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Total liabilities 49,182 49,150
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Stockholders' equity:
Common shares, $.001 par value; 18,000,000
shares authorized; 8,940,194 issued and
outstanding 9 9
Additional paid-in capital 38,894 38,907
Accumulated (deficit) surplus (21,407) (29,840)
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Total stockholders' equity 17,496 9,076
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Total liabilities and stockholders' equity $ 66,678 $ 58,226
=========== =========
<FN>
The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
GRADALL INDUSTRIES, INC., AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(Dollars in Thousands)
Nine Months Ended
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Sep. 30, 1997 Sep. 30, 1996
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<S> <C> <C>
Operating Activities:
Net income $ 8,433 $ 4,648
Adjustments to reconcile net income to net
cash provided by operating activities:
Extraordinary charge, before tax benefit 1,595
Post-retirement benefit transition obligation 787 663
Depreciation and amortization 1,329 1,278
Deferred income taxes (267) (225)
Gain on sale of property, plant and equipment (7) (85)
Increase in accounts receivable (5,268) (6,391)
(Increase)/decrease in inventory (955) 735
Increase in prepaid expenses (227) (111)
Increase in other assets (1) (192)
Increase/(decrease) in accounts payable and
accrued expenses 1,243 (450)
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Net cash provided by operating activities 5,067 1,465
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Investing Activities:
Proceeds from sale of property, plant and
equipment 12 98
Purchase of property, plant and equipment (2,031) (1,535)
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Net cash used in investing activities (2,019) (1,437)
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Financing Activities:
Net proceeds from initial public offering 26,929
Payment of term debt (10,000)
Payment of subordinated debt (10,000)
Net reduction in revolver (5,303)
Net advances (repayments) on revolving line
of credit (1,868)
Redemption of preferred stock (2,000)
Repayments on capital leases (130) (134)
Other (13)
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Net cash used in financing activities (2,011) (508)
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Net increase/(decrease) in cash 1,037 (480)
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Cash at beginning of year 215 1,537
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Cash at end of period $ 1,252 $ 1,057
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<FN>
The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
<PAGE>
GRADALL INDUSTRIES, INC., AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION:
The unaudited interim financial information as of September 30, 1997 and 1996,
and for the nine months ended September 30, 1997 and 1996, has been prepared
on the same basis as the audited financial statements. In the opinion of
management, such unaudited information includes all adjustments (consisting
only of normal recurring accruals) necessary for a fair presentation of the
interim information. Operating results for the nine months ended September
30, 1997, are not necessarily indicative of the results that may be expected
for the entire year ending December 31, 1997.
2. INVENTORIES:
Inventories were comprised of:
September 30, December 31,
1997 1996
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Raw materials $ 1,243 $ 1,167
Work in process 21,110 18,402
Finished goods 5,810 7,187
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28,163 26,756
LIFO reserve (5,882) (5,430)
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Total inventory $ 22,281 $ 21,326
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3. PUBLIC OFFERING:
On September 3, 1996, the Company completed an initial public offering in
which 2,950,000 shares of common stock were issued for a total sum of $29.5
million. Expenses incurred in connection with the issue approximated $2.6
million. The net proceeds of the offering were used as follows:
Repay outstanding senior term debt $ 9,550
Repay subordinate debt 10,000
Redeem preferred stock 2,000
Reduce revolving credit liability 5,379
In connection with the offering, the Company increased the number of its
authorized shares of common stock from 2,200 to 18,000,000 and effected a
5,540 to 1 stock split. All applicable share and per share data have been
retroactively adjusted for the stock split.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
4. CONTINGENCIES:
The Company is involved in certain claims and litigation related to its
operations. Based upon the facts known at this time, management is of the
opinion that the ultimate outcome of all such claims and litigation will not
have a material adverse effect on the financial condition or results of
operations of the Company.
ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
GENERAL
Gradall Industries operates in two segments of the construction equipment
market, hydraulic excavators and rough-terrain variable reach material
handlers. As a result of the growth of Gradall's rough terrain variable reach
material handler business and related parts, this segment accounted for the
majority of the Company's revenues in 1996. During the first nine months of
fiscal 1997 material handlers continue to lead the Company's net sales. In
July 1997 the Company introduced the model 544D, which is one of the largest
material handlers in the industry. Broad based acceptance of this product in
conjunction with a supportive market for residential and non-residential
construction established record material handler sales for the first nine
months of 1997. Although there has been some downward pressure on rental
rates, rental utilization as measured by the Company exceeds 85%, with a
continuing strong demand from national rental companies.
Since its introduction in May 1997, the XL2200 hydraulic excavator has been
well received by distributors and contractors. During the third quarter
Gradall introduced the XL2210 hydraulic excavator, which is targeted for the
industrial markets. Total Gradall excavator shipments for the first nine
months has remained even with the same time period in 1996.
Gross profit and operating profit continue to increase as a percent of net
sales. For the first nine months of 1997 gross profit as a percent of sales
is up 1.1% from 23.1% to 24.2%. Production efficiencies resulting from
increased volume and capital investments along with continued negotiation of
favorable long term purchasing agreements have reduced product costs.
Operating expenses for engineering, marketing and administration have
increased to support the aggressive new product development plan and higher
sales volume; however, operating profit continues to increase as a percent of
sales.
<PAGE>
RESULTS OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 1997, COMPARED TO THREE MONTHS ENDED
SEPTEMBER 30, 1996.
Net Sales. Net sales for the three months ended September 30, 1997, were
$40.3 million, an increase of $5.1 million or 14.5% compared to $35.2 million
for the three months ended September 30, 1996. The increase in net sales was
attributable to significant increases in unit volume of both excavators and
material handlers and a moderate increase in service parts sales.
Gross Profit. Gross profit for the three months ended September 30, 1997, was
$9.8 million, an increase of $1.6 million or 18.8%, compared to $8.3 million
for the three months ended September 30, 1996. Gross profit as a percentage
of net sales increased to 24.3% for the three months ended September 30, 1997,
from 23.5% for the three months ended September 30, 1996, primarily due to
improved production efficiencies and the economies of higher production
volume.
Engineering. Engineering expense for the three months ended September 30,
1997, was $0.9 million, an increase of $0.2 million or 24.3%, compared to $0.7
million for the three months ended September 30, 1996. This increase was due
to the addition of engineering personnel to support new product development.
Selling and Marketing. Selling and marketing expense for the three months
ended September 30, 1997, was $2.0 million, an increase of $0.5 million or
31.5% compared to $1.5 million for the three months ended September 30, 1996.
This increase is attributable to the addition of field sales and service
representatives and interest subsidy for a higher number of dealer floor plan
units.
Administrative. Administrative expenses for the three months ended September
30, 1997, were $1.6 million, an increase of $0.2 million or 11.3%, compared to
$1.5 million for the three months ended September 30, 1996. This increase was
primarily attributable to wages and benefits, additional personnel to support
new MIS projects and the higher business volume.
Interest Expense. Interest expense for the three months ended September 30,
1997, was $0.1 million, a decrease of $0.6 million or 82.5%, compared to $0.8
million for the three months ended September 30, 1996. This decrease in
interest expense was due to lower borrowings in connection with the debt
reduction from the proceeds of the September 3, 1996, initial public offering.
Income Tax Provision. Income tax expense for the three months ended September
30, 1997, was $2.1 million, an increase of $0.7 million or 51.8%, compared to
$1.4 million for the three months ended September 30, 1996, and represented an
effective tax rate of 39.1% and 39.2%, respectively.
Income Before Extraordinary Charge. Income before extraordinary charge for
the three months ended September 30, 1997, was $3.2 million, an increase of
$1.1 million or 52.7%, compared to $2.1 million for the three months ended
September 30, 1996. This increase was attributable to the increased sales
volume, increased margins and lower interest expense.
Extraordinary Charge. An extraordinary charge of $1.0 million, net of taxes,
related to early extinguishment of debt which was incurred in September 1996
to write off unamortized deferred financing costs and the discount on
subordinated debt which were paid off with the proceeds from the initial
public offering which was completed on September 3, 1996.
Net Income Per Share After Extraordinary Charge. Net income per share after
extraordinary charge for the three months ended September 30, 1997, was $0.36,
an increase of $0.20 per share or 125.0% compared to the $0.16 per share for
the three months ended September 30, 1996. This increase was attributable to
the increased sales volume, increased margins and lower interest expense.
Pro Forma Net Income Per Share. Net income per share for the three months
ended September 30, 1997, was $0.36, an increase of $0.09 per share or 33.3%
compared to the pro forma net income per share of $0.27 for the three months
ended September 30, 1996. The pro forma net income is presented as if the
issuance of shares of common stock pursuant to the initial public offering and
the application of the net proceeds thereof had occurred on January 1, 1996.
NINE MONTHS ENDED SEPTEMBER 30, 1997, COMPARED TO NINE MONTHS ENDED SEPTEMBER
30, 1996.
Net Sales. Net sales for the nine months ended September 30, 1997, were
$114.6 million, an increase of $9.7 million or 9.3% compared to $104.8 million
for the nine months ended September 30, 1996. The increase in net sales was
attributable to a significant increase in volume of material handlers and
service parts sales.
Gross Profit. Gross profit for the nine months ended September 30, 1997, was
$27.7 million, an increase of $3.5 million or 14.2% compared to $24.2 million
for the nine months ended September 30, 1996. Gross profit as a percentage of
net sales increased to 24.2% for the nine months ended September 30, 1997,
from 23.1% for the nine months ended September 30, 1996, primarily due to
improved production efficiencies and a more profitable sales mix within the
material handler product line.
Engineering. Engineering expense for the nine months ended September 30,
1997, was $2.8 million, an increase of $0.5 million or 21.1% compared to $2.3
million for the nine months ended September 30, 1996. This increase was due
to the addition of engineering personnel to support new product development.
Selling and Marketing. Selling and marketing expenses for the nine months
ended September 30, 1997, were $5.5 million, an increase of $0.6 million or
12.9% compared to $4.9 million for the nine months ended September 30, 1996.
This increase was primarily attributable to the addition of marketing
personnel to support the increased sales volume and interest subsidy for a
higher number of dealer floor plan units.
Administrative. Administrative expenses for the nine months ended September
30, 1997, were $4.7 million, an increase of $0.7 million or 18.0% compared to
$4.0 million for the nine months ended September 30, 1996. This increase was
primarily attributable to wage and benefits and extra security during the
three-week work stoppage in March and April.
Interest Expense. Interest expense for the nine months ended September 30,
1997, was $0.5 million, a decrease of $2.3 million or 80.5% compared to $2.8
million for the nine months ended September 30, 1996. This decrease in
interest expense was due to lower borrowings in connection with the debt
reduction from the proceeds of the September 3, 1996, initial public offering.
Income Tax Provision. Income tax expense for the nine months ended September
30, 1997, was $5.4 million, an increase of $1.8 million or 49.4% compared to
$3.6 million for the nine months ended September 30, 1996, and represented an
effective tax rate of 39.1% and 39.2%, respectively.
Income Before Extraordinary Charge. Income before extraordinary charge for
the nine months ended September 30, 1997, was $8.4 million, an increase of
$2.8 million or 50.0% compared to $5.6 million for the nine months ended
September 30, 1996. This increase was attributed to the increased sales
volume, increased margins and lower interest expense.
Extraordinary Charge. An extraordinary charge of $1.0 million, net of taxes,
related to early extinguishment of debt which was incurred in September 1996
to write off unamortized deferred financing costs and the discount on
subordinated debt which were paid off with the proceeds from the initial
public offering on September 3, 1996.
Net Income Per Share After Extraordinary Charge. Net income per share after
extraordinary charge for the nine months ended September 30, 1997, was $0.94,
an increase of $0.20 or 27.0% compared to $0.74 for the nine months ended
September 30, 1996. The higher sales, higher margins and lower interest
expense in 1997 were offset by a lower number of shares outstanding in 1996.
Pro Forma Net Income Per Share. Net income per share for the nine months
ended September 30, 1997, was $0.94, an increase of $0.17 per share, or 22.1%
compared to the pro forma net income per share of $0.77 for the nine months
ended September 30, 1996. The pro forma income is presented as if the
issuance of shares of common stock pursuant to the initial public offering and
the application of the net proceeds thereof had occurred on January 1, 1996.
LIQUIDITY AND CAPITAL RESOURCES
The Company generated net cash from operating activities of $5.1 million
during the first nine months of 1997. Net cash from operating activities
resulted from $8.4 million of net income, $1.3 million of depreciation and
$0.5 million from post retirement benefit net of deferred taxes reduced by
$5.2 million of net cash used by changes in operating assets and liabilities,
primarily due to an increase in accounts receivable to support the revenue
growth and reduced by an increase in accounts payable primarily from the
higher volume of purchases.
For the first nine months of 1997, net cash invested in purchases of new
equipment and permanent tooling was $2.0 million. Management expects to
complete several large cap ex projects during the fourth quarter to bring 1997
total capital expenditures into the $4 to $5 million range. For the next several
years Gradall plans to continue the Company's multi-year capital investment
program to increase productivity and product output at the New Philadelphia
facility.
For the first nine months of 1997, net borrowings under the Company's lines of
credit decreased as a result of strong net cash from operating activities.
A substantial amount of the Company's working capital is invested in accounts
receivable and inventories. The Company periodically reviews accounts receivable
for noncollectibility and inventories for obsolescence and establishes
allowances it believes are appropriate.
As of September 30, 1997, the Company had borrowed $5.4 million of its $25
million bank revolving credit facility which is collateralized by most of the
assets of the Company. Interest is calculated, at the Company's option, at
LIBOR plus 1.0% or a commercial bank's base rate less 0.5% and requires a
commitment fee of 0.25% per annum on the unused portion of the revolving credit
commitment. At September 30, 1997, $19.6 million was available for future
borrowings under the revolver and the Company was in compliance with all
financial covenants.
The Company believes that cash flows from operations and funds available under
its revolving credit facility will be adequate to fund its working capital and
capital expenditure requirements for the foreseeable future.
NEW ACCOUNTING STANDARDS
In February, 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standard No. 128, "Earnings per Share," which is
effective for financial statements issued for periods after December 15, 1997.
This Statement simplifies the standards for computing earnings per share
("EPS") and makes them comparable to international EPS standards. The Company
will adopt the provisions of SFAS for its fiscal year ending December 31, 1997,
but does not expect such adoption to have a material impact on EPS.
<PAGE>
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a) Exhibits: None
b) Reports on Form 8-K filed for the three months ended September 30,
1997: None
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Gradall Industries, Inc.
Date: November 13, 1997 By: /s/ Barry L. Phillips
------------------------
Barry L. Phillips
President and Chief Executive Officer
Date: November 13, 1997 By: /s/ Bruce A. Jonker
----------------------
Bruce A. Jonker
Chief Financial Officer
<TABLE> <S> <C>
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<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> SEP-30-1997
<CASH> 1252
<SECURITIES> 0
<RECEIVABLES> 22114
<ALLOWANCES> 0
<INVENTORY> 22281
<CURRENT-ASSETS> 47520
<PP&E> 12358
<DEPRECIATION> 0
<TOTAL-ASSETS> 66678
<CURRENT-LIABILITIES> 26382
<BONDS> 0
0
0
<COMMON> 9
<OTHER-SE> 17496
<TOTAL-LIABILITY-AND-EQUITY> 66678
<SALES> 40310
<TOTAL-REVENUES> 40310
<CGS> 30496
<TOTAL-COSTS> 30496
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 132
<INCOME-PRETAX> 5250
<INCOME-TAX> 2051
<INCOME-CONTINUING> 3199
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<EPS-PRIMARY> .27
<EPS-DILUTED> .00
</TABLE>
