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, 1998
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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 (I.R.S. Employer
of 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, 1998
Common Stock, $.001 par value: 9,508,234
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GRADALL INDUSTRIES, INC.
FORM 10-Q
QUARTER ENDED SEPTEMBER 30, 1998
Index
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Page
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PART I FINANCIAL INFORMATION
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Item 1 -- Condensed Consolidated Financial
Statements 1
Item 2 -- Management's Discussion and Analysis
of Results of Operations and Financial Condition 7
Item 3 -- Quantitative and Qualitative Disclosures
About Market Risk 13
PART II OTHER INFORMATION
Item 6 -- Exhibits and Reports on Form 8-K 14
Signatures 14
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PART I - FINANCIAL INFORMATION
ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
GRADALL INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
(Dollars in Thousands, Except Per Share Data)
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Three Months Ended Nine Months Ended
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Sept. 30, 1998 Sept. 30, 1997 Sept. 30, 1998 Sept. 30, 1997
-------------- -------------- -------------- --------------
Net sales $ 44,138 $ 40,310 $ 135,468 $ 114,576
Cost of sales 34,158 30,496 104,794 86,877
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Gross profit 9,980 9,814 30,674 27,699
Operating expenses:
Research, development and
product engineering costs 999 904 3,047 2,769
Selling, general and
administrative expenses 3,202 3,600 10,596 10,211
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Operating income 5,779 5,310 17,031 14,719
Interest, net (40) 132 337 546
Other, net (107) (72) (121) 329
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Income before provision for taxes 5,926 5,250 16,815 13,844
Income tax provision 2,314 2,051 6,567 5,411
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Net income $ 3,612 $ 3,199 $ 10,248 $ 8,433
============== ============== ============== ===============
Earnings per common share:
Basic: 9,508,234 8,939,627 9,137,268 8,939,406
Weighted average
Shares outstanding
Earnings per common share: $ 0.38 $ 0.36 $ 1.12 $ 0.94
Diluted: 9,593,196 9,022,728 9,223,213 9,014,830
Weighted average
Shares outstanding
Earnings per common share: $ 0.38 $ 0.35 $ 1.11 $ 0.94
<FN>
The accompanying notes are an integral part of these condensed consolidated financial statements.
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GRADALL INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands)
Unaudited Audited
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Sept. 30, 1998 Dec. 31, 1997
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ASSETS
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Current assets:
Cash $ 4,759 $ 1,605
Accounts receivable - trade, net of allowance
For doubtful accounts 27,434 25,290
Inventories 26,755 25,564
Prepaid expenses and deferred charges 1,164 1,645
Deferred income taxes 742 742
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Total current assets 60,854 54,846
Deferred income taxes 5,752 5,402
Property, plant and equipment, net 18,670 15,108
Other assets 1,256 1,379
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Total assets $ 86,532 $ 76,735
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LIABILITIES & STOCKHOLDERS' EQUITY
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Current liabilities:
Current portion long term debt $ 264 $ 297
Accounts payable - trade 18,069 17,113
Accrued other expenses 11,386 10,927
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Total current liabilities 29,719 28,337
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Long term obligations:
Long-term debt, net of current portion 374 10,015
Accrued post-retirement benefit cost 16,614 15,719
Other long term liabilities 1,446 1,445
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Total long term obligations 18,434 27,179
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Total liabilities 48,153 55,516
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Stockholders' equity:
Serial preferred shares, par value $.001 per
Share 2,000,000 shares authorized, none
Issued and outstanding - -
Common shares, $.001 par value; 18,000,000
Shares authorized; 9,508,234 and 8,940,194
Issued and outstanding on September 30,
1998 and December 31, 1997, respectively 10 9
Additional paid-in capital 45,805 38,894
Accumulated deficit (7,436) (17,684)
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Total stockholders' equity 38,379 21,219
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Total liabilities and stockholders' equity $ 86,532 $ 76,735
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<FN>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
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GRADALL INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(Dollars in Thousands)
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Nine Months Ended
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Sept. 30, 1998 Sept. 30, 1997
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Operating Activities:
Net income $ 10,248 $ 8,433
Adjustments to reconcile net income to net cash
provided by operating activities:
Post-retirement benefit transition obligation 895 787
Depreciation and amortization 1,730 1,329
Deferred income taxes (350) (267)
Gain on sale of property, plant & equipment (104) (7)
Increase in accounts receivable (2,144) (5,268)
Increase in inventory (1,191) (955)
Decrease (Increase) in prepaid expenses 481 (227)
Increase in other assets - (1)
Increase in accounts payable and accrued
expenses 1,415 1,243
Increase in other long term liabilities 1 -
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Net cash provided by operating activities 10,981 5,067
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Investing Activities:
Proceeds from sale of property, plant & equipment 217 12
Purchase of property, plant and equipment (5,282) (2,031)
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Net cash used in investing activities (5,065) (2,019)
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Financing Activities:
Net proceeds from sale of stock 6,912 -
Net repayments under lines of credit (9,603) (1,868)
Repayments on capital leases (71) (130)
Other - (13)
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Net cash used in financing activities (2,762) (2,011)
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Net increase in cash 3,154 1,037
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Cash at beginning of year 1,605 215
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Cash at end of period $ 4,759 $ 1,252
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<FN>
The accompanying notes are an integral part of these condensed consolidated financial
statements.
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GRADALL INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
1. BASIS OF PRESENTATION:
The unaudited interim financial information as of September 30,1998 and for the
nine months ended September 30, 1998 and 1997 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, 1998 are
not necessarily indicative of the results that may be expected for the entire
year ending December 31, 1998.
These financial statements and the notes thereto should be read in conjunction
with the Company's audited financial statements included in its Annual Report or
Form 10-K for the fiscal year ended December 31, 1997.
2. OTHER COMPREHENSIVE INCOME:
The Company has no significant items of other comprehensive income.
3. INVENTORIES:
Inventories were comprised of:
Sept. 30,1998 Dec. 31,1997
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Raw materials $ 1,344 $ 921
Work in process 21,056 24,739
Finished goods 9,925 5,474
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32,325 31,134
LIFO reserve (5,570) (5,570)
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Total inventory $ 26,755 $ 25,564
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4. PUBLIC OFFERING:
On June 29, 1998 the Company completed a public offering in which 562,500 shares
of common stock were issued by the Company for a total sum of $7.3 million.
Expenses incurred in connection with the issue approximated $0.6 million
including $0.1 million related to selling shareholders. The net proceeds of the
offering were used to repay the revolving credit facility.
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
5. EARNINGS PER COMMON SHARE:
The computation of the earnings per common share are as follows:
Sept. 30, 1998 Sept. 30, 1997
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Basic earnings per common share:
Net income $ 10,248 $ 8,433
========== ==========
Weighted average number of shares
outstanding during the periods and used
in calculation of basic earnings per
common share 9,137,268 8,939,406
========== ==========
Basic earnings per common share $ 1.12 $ 0.94
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Diluted earnings per common share:
Net income $ 10,248 $ 8,433
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Weighted average number of shares
outstanding and used in calculation
of diluted earnings per common share 9,223,213 9,014,830
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Diluted earnings per common share $ 1.11 $ 0.94
========== =========
Common shares:
Weighted average number of shares used
in calculating basic earnings per
common share 9,137,268 8,939,406
Shares issuable upon exercise of stock
options based on average market prices 85,945 75,424
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Weighted average number of shares used
in calculation of diluted earnings per
common share 9,223,213 9,014,830
========== =========
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
6. SHAREHOLDER RIGHTS PLAN:
The Company adopted a Shareholder Rights Plan on May 29, 1998. Under the Plan,
each holder of Common Stock at the close of business on June 10, 1998 received a
dividend of one Right for each share of Common Stock held. Each share of Common
Stock issued after June 10, 1998 but prior to the earlier of May 29, 2008 and
the Distribution Date (as defined in the Plan) will be issued with a Right
attached thereto. Following the Distribution Date, each Right will be
exercisable to purchase one one-hundredth of a share of Series B Participating
Cumulative Preferred Stock, par value $0.001 per share at an exercise price of
$60 (the Purchase Price). Once a person has become the beneficial owner of 15%
or more of the Company's Common Stock, the Rights would permit holders of Common
Stock, other than the acquiring person, to purchase additional Common Stock at a
50% discount to its then-current market price. In addition, if, after any
person has acquired such ownership, the Company or any subsidiary is involved in
a merger or business combination in which it is not the surviving corporation or
a sale of substantial assets, then each Right will entitle the holder to
purchase, for the Purchase Price, a number of shares of common stock of the
other party to such business combination or sale (or, in certain circumstances,
an affiliate) at a 50% discount to its then-current market price. Current
holders of 15% or more of the Company's Common Stock and Morgan Lewis Githens &
Ahn and any of its current or future affiliates, associates, and direct
transferees are not deemed "acquiring persons" under the Rights Plan. The
Rights Plan is designed to deter abusive market manipulation or unfair takeover
tactics and to restrict an acquirer's ability to gain control of the Company
without offering a fair price to all shareholders. The Rights expire on May 29,
2008 unless earlier exchanged or redeemed. The Rights can be redeemed at a
price of $0.01 per Right.
7. 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.
8. SUBSEQUENT EVENT:
On October 13, 1998 the Company purchased an additional 300,000 sq. ft. facility
in Orrville, Ohio which will serve as additional space for production and other
operations. Acquiring additional manufacturing facilities is an important step
in the Company's previously announced capacity expansion program. The program
is intended to raise capacity up to 50% over the next five years and require an
investment of $30 to $50 million.
ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
GENERAL
Gradall Industries, Inc. ("the Company" or "Gradall") is a leading manufacturer
of wheeled hydraulic excavators and rough-terrain variable reach material
handlers as well as related service parts. The Company's products are marketed
under the widely respected Gradall trademark and are distinguished by their
telescopic boom technology, versatility, productivity and reliability. Gradall
products serve many markets within the construction and mining industries as
well as special applications. Gradall excavators are typically used by general
contractors and government agencies for ditching, sloping, finish grading,
general maintenance and infrastructure projects. Gradall rough-terrain variable
reach material handlers are typically used by residential, non-residential and
institutional building contractors for lifting, transporting and placing a wide
variety of materials at their point of use or storage. The Company's products
and service parts are sold through independent distributors and national rental
companies.
Excavator contractor sales activity increased in the latter part of the third
quarter as contractors continued to experience a supportive economy and as a
result of the passage of the Federal Highway Bill (TEA-21). TEA-21 guarantees a
minimum of $167 billion in spending for the highway program over the next six
years and represents a 40% increase over the 1991 Federal Highway Bill.
Municipal bidding and demonstration activity also increased in the third quarter
as a significant number of states prepare to receive new annual budget funds
beginning October 1, 1998. Fourth quarter excavator sales will be supported by
the introduction of the new XL2300. The XL2300 is a 12 to 15 ton all-wheeled
non-highway speed telescopic excavator which will compete in a new market
segment for Gradall. Gradall presently has not been adversely affected by the
current Asian economic problems. In 1997 98.5% of Gradall net sales were from
North America. However, in 1998 Gradall has experienced increased overseas
quoting activity, which may result in a higher percentage of future excavator
export sales.
Strength in the Company's material hander sales was the direct result of
stronger than expected activity in the industrial sector and in residential and
non-residential construction. Rental fleets continued to grow in size and were
near full utilization while rental rates remained constant throughout 1998.
Material handler sales were enhanced by the introduction of the new 534D-10, 45
foot lift height machine into the fast growing 10,000 pound market. The new
machine was well received by bridge and highway contractors who require 10,000
pound lift capacity along with increased lift and reach capabilities.
Service parts activity remains high as construction activity continues its
strong trends. The recently completed Gradall Distributor PC/CD-ROM system
which provides current information on service parts, machine maintenance, and
operator and safety manuals should increase fourth quarter sales through
distributor subscriptions and increased service parts shipments.
RESULTS OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 1998, COMPARED TO THREE MONTHS ENDED SEPTEMBER
30, 1997.
Net Sales. Net sales for the three months ended September 30, 1998, were $44.1
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million, an increase of $3.8 million or 9.5% compared to $40.3 million for the
three months ended September 30, 1997. The increase in net sales included a
significant increase in material handler unit volume and a decrease in excavator
units. Higher rental utilization and retail sales along with growth in the
rental fleets have driven the high material handler demand. The lower excavator
shipments are the outcome of the third quarter 1997 surge created by the
introduction of the new XL2200 model. Service parts shipments were about flat
compared to the prior year quarter.
Gross Profit. Gross profit for the three months ended September 30, 1998, was
- -------------
$10.0 million, an increase of $0.2 million or 1.7%, compared to $9.8 million for
the three months ended September 30, 1997. Gross profit as a percentage of net
sales decreased to 22.6% for the three months ended September 30, 1998, from
24.3% for the three months ended September 30, 1997, attributable to service
parts promotion plans, greater mix of lower margin for material handler service
parts, higher material handler discounts and increased production costs from raw
material procurement plus reduced manufacturing efficiency from capacity
constraints.
Research, Development and Product Engineering Costs. Research, development and
- ----------------------------------------------------
product engineering costs for the three months ended September 30, 1998, was
$1.0 million, an increase of $0.1 million or 10.5% compared to $0.9 million for
the three months ended September 30, 1997. Spending in the research and
development function was higher in the third quarter 1998 than the same quarter
in the prior year due to additional engineering personnel and outside
engineering design costs for the new material handler cabs.
Selling, General and Administrative Expenses. Selling, general and
- ------------------------------------------------
administrative expense for the three months ended September 30, 1998, was $3.2
million, a decrease of $0.4 million or 11.1%, compared to $3.6 million for the
three months ended September 30, 1997. The decrease is attributable to a
marketing expense adjustment of $0.2 million which capitalizes prior period
replica costs and lower floor plan interest expense from less excavator
shipments.
Interest, Net. Interest income for the three months ended September 30, 1998
- --------------
was $0.04 versus an interest expense of $0.1 for the three months ended
September 30, 1997. This change from interest expense to interest income was
due to bank debt elimination from the proceeds of the June 29, 1998 public
offering.
Income Tax Provision. Income tax expense for the three months ended September
- ----------------------
30, 1998, was $2.3 million, an increase of $0.3 million or 12.8%, compared to
$2.1 million for the three months ended September 30, 1997, and represents an
effective tax rate of 39.0% and 39.1% respectively after rounding.
RESULTS OF OPERATIONS (CONTINUED)
Net Income. Net income for the three months ended September 30, 1998, was $3.6
- -----------
million, an increase of $0.4 million or 12.9%, compared to $3.2 million for the
three months ended September 30, 1997. This increase was primarily attributable
to the increased sales volume of the material handler product line.
Earnings Per Common Share. Basic earnings per common share for the three months
- -------------------------
ended September 30, 1998 were $0.38, an increase of $0.02 or 5.6% per basic
share from the three months ended September 30, 1997. Diluted earnings per
common share for the three months ended September 30, 1998 were $0.38, an
increase of $0.03 or 8.6% per diluted share from the three months ended
September 30, 1997.
NINE MONTHS ENDED SEPTEMBER 30, 1998, COMPARED TO NINE MONTHS ENDED SEPTEMBER
30, 1997.
Net Sales. Net sales for the nine months ended September 30, 1998, were $135.5
- ----------
million, an increase of $20.9 million or 18.2% compared to $114.6 million for
the nine months ended September 30, 1997. The increase in net sales was
attributable to a significant increase in volume of material handlers and a
slight increase in service parts sales. Strength in the Company's material
handler sales was the direct result of stronger than expected activity in the
industrial sector and in residential and non-residential construction. Although
excavator sales were down slightly for the nine months ended September 30, 1998
from the same prior year period, contractor sales activity increased in the
latter part of the third quarter as contractors continued to experience a
supportive economy and as a result of the passage of the Federal Highway Bill
(TEA-21).
Gross Profit. Gross profit for the nine months ended September 30, 1998,
- -------------
amounted to $30.7 million, an increase of $3.0 million or 10.7% compared to
$27.7 million for the nine months ended September 30, 1997. Gross profit as a
percentage of net sales decreased to 22.6% for the nine months ended September
30, 1998, from 24.2% for the nine months ended September 30, 1997 attributable
to service parts promotion plans, greater mix of lower margin material handler
service parts and increased production costs from dual sourcing plus overall
lower manufacturing efficiency from capacity constraints.
Research, Development and Product Engineering Costs. Research, development and
- ----------------------------------------------------
product engineering cost for the nine months ended September 30, 1998, was $3.0
million, an increase of $0.3 million or 10.0% compared to $2.8 million for the
nine months ended September 30, 1997. This increase was due to the addition of
engineering personnel to support new product development and prototype product
for testing.
Selling, General and Administrative Expenses. Selling, general and
- ------------------------------------------------
administrative expenses for the nine months ended September 30, 1998, were $10.6
million, an increase of $0.4 million or 3.8% compared to $10.2 million for the
nine months ended September 30, 1997. This increase was primarily attributable
to additional field sales personnel and interest subsidies for dealer floor
plans and retail sales. The Selling, General and Administrative expenses when
expressed as a percent of net sales decreased to 7.8% for the nine months ended
September 30, 1998 from 8.9% for the same period in the prior year.
RESULTS OF OPERATIONS (CONTINUED)
Interest, Net. Interest expense for the nine months ended September 30, 1998 was
- -------------
$0.3 million, a decrease from the $0.5 million for the nine months ended
September 30, 1997. The decrease results from the debt reduction with proceeds
from the June 29, 1998 public offering.
Income Tax Provision. Income tax expense for the nine months ended September
- ----------------------
30, 1998 was $6.6 million, an increase of $1.2 million or 21.4% compared to $5.4
million for the nine months ended September 30, 1997. This increase was
attributable to the increased sales volume from material handler shipments.
Earnings Per Common Share. Basic earnings per common share for the nine months
- --------------------------
ended September 30, 1998, were $1.12, an increase of $0.18 or 19.1% per basic
share from the nine months ended September 30, 1997. Diluted earnings per
common share for the nine months ended September 30, 1998, were $1.11, an
increase of $0.17 or 18.1% per diluted share from the nine months ended
September 30, 1997.
LIQUIDITY AND CAPITAL RESOURCES
The Company generated net cash from operating activities of $11.0 million during
the first nine months of 1998. Net cash from operating activities resulted from
the sum of $10.2 million of net income, $1.7 million of depreciation and
amortization and $0.5 million from post-retirement benefit transition
obligation, net of deferred taxes, reduced by $1.4 million of net cash used by
changes in operating assets and liabilities, primarily an increase in accounts
receivable and inventory.
For the first nine months of 1998 the Company's purchases of new equipment and
permanent tooling was $5.3 million. Management plans to invest approximately
$8.1 million in plant and equipment in 1998. In addition the Company purchased
on October 13, 1998 a 300,000 sq. ft. facility in Orrville, Ohio to serve as
additional space for production. This acquisition is part of a board-approved
five year plan to invest $30 to $50 million to raise capacity and improve
production efficiencies.
For the first nine months of 1998 net cash used by financing activities was $2.8
million resulting from the Company's first half positive cash flow. In
addition, the net proceeds of $6.9 million from the Company's 1998 public
offering were used to repay the revolving credit facility.
A substantial amount of the Company's working capital consists of accounts
receivable and inventories. The Company periodically reviews accounts
receivable for noncollectibility and inventories for obsolescence and
establishes allowances it believes are appropriate.
<PAGE>
RESULTS OF OPERATIONS (CONTINUED)
As of September 30, 1998 the Company had no borrowings outstanding under its $25
million bank revolving credit facility which is collateralized principally by
the Company's inventory and receivables. 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. The
Company is reviewing this revolving credit facility in relation to future needs.
The Company believes that cash flows from operations, excess cash and funds
available under its revolving credit facility are adequate to fund its working
capital and capital expenditure requirements for the foreseeable future.
YEAR 2000 DATA CONVERSION
The year 2000 issue is the result of computer programs having been written using
two digits rather than four to define the applicable year. Any of the Company's
computers, computer programs, manufacturing and administration equipment or
products that have date-sensitive software may recognize a date using "00" as
the year 1900 rather than the year 2000. If any of the Company's systems or
equipment that have date-sensitive software use only two digits, system failures
or miscalculations may result causing disruptions of operations, including among
other things, a temporary inability to process transactions or send and receive
electronic data with third parties or engage in similar normal business
activities. Significant uncertainty exists concerning the scope and magnitude
of problems associated with the year 2000 change.
The Company recognizes the need to ensure its operations will not be adversely
impacted by year 2000 software failures and has established a project team to
address year 2000 risks. The project team has coordinated the identification of
and will coordinate the implementation of changes to computer hardware and
software applications that will attempt to ensure availability and integrity of
the Company's information systems and the reliability of its operational systems
and manufacturing processes.
The Company believes that it has identified substantially all of the major
computers, software applications and related equipment used in connection with
its internal operations that must be modified, upgraded or replaced to minimize
the possibility of a material disruption to its business. The Company has
commenced the process of modifying, upgrading and replacing major systems that
have been identified as adversely affected and expects to complete this process
by the end of September 1999. In addition to computers and related systems, the
operation of office and facilities equipment such as fax machines, photocopiers,
telephone switches, security systems, elevators and other common devices may be
affected by the year 2000 problem. The Company is currently assessing the
potential effect of and costs of remediating the year 2000 problem on its office
and facilities equipment.
<PAGE>
RESULTS OF OPERATIONS (CONTINUED)
The Company also faces risk to the extent that suppliers of products, services
and systems purchased by the Company and others with whom the Company transacts
business on a worldwide basis do not comply with year 2000 requirements. The
Company has initiated formal communications with significant suppliers and
customers to determine the extent to which the Company is vulnerable to the
failure of such third parties to remediate their own year 2000 issues. In the
event any such third parties cannot provide the Company with products, services
or systems that meet the year 2000 requirements on a timely basis or
in the event year 2000 issues prevent such third parties from timely delivery of
products or services required by the Company, the Company's results of
operations could be materially adversely affected. To the extent year 2000
issues cause significant delays in supplier shipments, the sourcing of
alternative suppliers or increasing inventory levels, the Company's business,
results of operations and financial position could be materially adversely
affected.
The Company's research and supplier response indicate that all of our products
manufactured to date and all future designs are year 2000 compliant.
External and internal costs specifically associated with modifying internal use
software for year 2000 compliance are expensed as incurred. To date the Company
has spent $0.15 million on this project. Costs to be incurred in the remainder
of 1998 and 1999 to fix year 2000 problems are estimated at approximately $0.5
million. Such costs do not include normal system upgrades and replacements.
The Company does not expect the costs relating to year 2000 remediation to have
a material adverse effect on its results of operations or financial condition.
As part of Gradall's contingency planning, the Company is developing business
continuity plans for those areas that are critical to Gradall's business. These
business continuity plans will be designed to mitigate serious disruptions to
the business flow beyond the end of 1999. The major drive for contingency
planning will be in the last quarter of 1998 and the first half of 1999 with the
expectation that the Company will have plans in place by the end of the second
quarter of 1999.
The failure to correct a material year 2000 problem could result in an
interruption in or a failure of certain normal business activities or
operations. Such failures could materially and adversely affect the Company's
results of operations, liquidity and financial condition. Due to the general
uncertainty inherent in the year 2000 problem, resulting in part from the
uncertainty of the year 2000 readiness of critical suppliers and customers, the
Company is unable to determine at this time whether the consequences of year
2000 failures will have a material impact on the Company's results of
operations, liquidity or financial condition. The year 2000 project is expected
to significantly reduce the Company's level of uncertainty about the year 2000
problem and in particular about the year 2000 compliance and readiness of its
critical suppliers and customers. The Company believes that, with the
implementation of new business systems and completion of the project as
scheduled, the possibility of significant interruptions of normal operations
should be reduced.
<PAGE>
RESULTS OF OPERATIONS (CONTINUED)
The estimates and conclusions herein contain forward-looking statements and are
based on management's best estimates of future events. Risks to completing the
plan include the ability to retain human resources, our ability to discover and
correct the potential year 2000 sensitive problems which could have a serious
impact on operations, and the ability of suppliers and customers to bring their
systems into year 2000 compliance.
NEW ACCOUNTING STANDARDS
In the first quarter, the Company adopted Statement of Financial Accounting
Standards ("SFAS") No. 130, "Reporting Comprehensive Income." This Standard had
no effect on the financial statements of the Company.
In February 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standard No. 132, "Employers' Disclosures About Pensions
and Other Postretirement Benefits," which is effective for financial years
beginning after December 31, 1997. The Company will adopt the provisions of SFAS
for its fiscal year ending December 31, 1998, but does not expect such adoption
to have material impact on the financial statements of the Company.
In March 1998 the Accounting Standards Executive Committee issued Statement of
Position ("SOP") 98-1, "Accounting for the Costs of Computer Software Developed
or Obtained for Internal Use," which is effective for financial years beginning
after December 15, 1998. The Company will adopt the provisions of this SOP
beginning January 1, 1999. The Company is currently assessing the provisions of
this SOP.
CAUTIONARY STATEMENT
Statements included in this Form 10-Q which are not historical in nature are
forward-looking statements made pursuant to the safe harbor provisions of the
Private Securities Litigation Reform Act of 1995. Forward-looking statements
regarding the Company's future performance and financial results are subject to
certain risks and uncertainties that could cause actual results to differ
materially from those set forth in the forward-looking statements. The
Company's Quarterly Report on Form 10-Q contains certain detailed factors that
could cause the Company's actual results to materially differ from
forward-looking statements made by the Company.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
<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, 1998:
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 6, 1998 By: /s/ Barry L. Phillips
------------------------
Barry L. Phillips
President and Chief Executive Officer
Date: November 6, 1998 By: /s/ Bruce A. Jonker
----------------------
Bruce A. Jonker
Chief Financial Officer
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