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 June 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 (I.R.S.
jurisdiction of Employer
incorporation or Identification No.)
organization)
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 June 30, 1998
Common Stock, $.001 par value: 9,508,234
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GRADALL INDUSTRIES, INC.
FORM 10-Q
QUARTER ENDED JUNE 30, 1998
Index
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Page
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PART I FINANCIAL INFORMATION
Item 1 -- Condensed Consolidated Financial Statements 1
Item 2 -- Management's Discussion and Analysis of Financial
Condition and Results of Operations 7
Item 3 -- Quantitative and Qualitative Disclosures About Market Risk 11
PART II OTHER INFORMATION
Item 6 -- Exhibits and Reports on Form 8-K 11
Signatures 11
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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)
<S> <C> <C> <C> <C>
Three Months Ended Six Months Ended
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June 30, 1998 June 30, 1997 June 30, 1998 June 30, 1997
------------- ------------- ------------- -------------
Net sales $ 49,789 $ 38,356 $ 91,330 $ 74,266
Cost of sales 38,646 29,089 70,636 56,381
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Gross profit 11,143 9,267 20,694 17,885
Operating expenses:
Research, development and
Product engineering costs 994 970 2,048 1,865
Selling, general and
Administrative expenses 4,131 3,562 7,394 6,611
------------ ------------- ------------- -------------
Operating income 6,018 4,735 11,252 9,409
Interest expense 159 175 377 414
Other, net (19) 329 (14) 401
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Income before provision for taxes 5,878 4,231 10,889 8,594
Income tax provision 2,296 1,654 4,253 3,360
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Net income $ 3,582 $ 2,577 $ 6,636 $ 5,234
============= ============= ============= =============
Earnings per common share:
Basic: 8,957,133 8,939,294 8,948,710 8,939,294
Weighted average
Shares outstanding
Earnings per common share $ 0.40 $ 0.29 $ 0.74 $ 0.59
Diluted: 9,042,536 9,014,369 9,035,156 9,009,012
Weighted average
Shares outstanding
Earnings per common share $ 0.40 $ 0.29 $ 0.73 $ 0.58
<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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<S> <C> <C>
June 30, 1998 December 31, 1997
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ASSETS
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Current assets:
Cash $ 2,675 $ 1,605
Accounts receivable - trade, net of allowance
for doubtful accounts 27,352 25,290
Inventories 24,718 25,564
Prepaid expenses and deferred charges 243 1,645
Deferred income taxes 742 742
--------------- -------------------
Total current assets 55,730 54,846
Deferred income taxes 5,676 5,402
Property, plant and equipment, net 16,299 15,108
Other assets 1,297 1,379
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Total assets $ 79,002 $ 76,735
=============== ===================
LIABILITIES & STOCKHOLDERS' EQUITY
- ------------------------------------------------
Current liabilities:
Current portion long term debt $ 264 $ 297
Accounts payable - trade 15,552 17,113
Accrued other expenses 10,182 10,927
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Total current liabilities 25,998 28,337
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Long term obligations:
Long-term debt, net of current portion 373 10,015
Accrued post-retirement benefit cost 16,419 15,719
Other long term liabilities 1,445 1,445
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Total long term obligations 18,237 27,179
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Total liabilities 44,235 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 10 9
shares authorized; 9,508,234 and 8,940,194
issued and outstanding on June 30, 1998 and
December 31, 1997 respectively
Additional paid-in capital 45,805 38,894
Accumulated deficit (11,048) (17,684)
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Total stockholders' equity 34,767 21,219
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Total liabilities and stockholders' equity $ 79,002 $ 76,735
=============== ===================
<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)
<S> <C> <C>
Six Months Ended
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June 30, 1998 June 30, 1997
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Operating Activities:
Net income $ 6,636 $ 5,234
Adjustments to reconcile net income to net cash
provided by operating activities:
Post-retirement benefit transition obligation 700 525
Depreciation and amortization 1,209 951
Deferred income taxes (274) (178)
Gain on sale of property, plant & equipment (15) (7)
Increase in accounts receivable (2,062) (2,686)
Decrease (increase) in inventory 846 (444)
Decrease in prepaid expenses 1,402 190
Decrease in accounts payable and accrued expenses (2,306) (1,525)
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Net cash provided by operating activities 6,136 2,060
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Investing Activities:
Proceeds from sale of property, plant & 69 12
equipment
Purchase of property, plant and equipment (2,372) (1,554)
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Net cash used in investing activities (2,303) (1,542)
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Financing Activities:
Net proceeds from sale of stock 6,912
Net (repayments) borrowings under lines of credits (9,603) 1,085
Repayments on capital leases (72) (93)
Other (19)
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Net cash (used in) provided by financing (2,763) 973
activities ----------- ------------
Net increase in cash 1,070 1,491
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Cash at beginning of year 1,605 215
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Cash at end of period $ 2,675 $ 1,706
============ ============
<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 June 30,1998, and for the six
and three months ended June 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 six months ended June 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:
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June 30,1998 December 31,1997
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$ 1,120 $ 921
Raw materials
Work in process 18,651 24,739
Finished goods 10,517 5,474
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30,288 31,134
LIFO reserve (5,570) (5,570)
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Total inventories $ 24,718 $ 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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5. EARNINGS PER COMMON SHARE:
The computation of the earnings per common share are as follows:
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<S> <C> <C>
June 30, 1998 June 30, 1997
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Basic earnings per common share:
Net income $ 6,636 $ 5,234
============== ==============
Weighted average number of shares
outstanding during the periods and
used in calculation of basic earnings
per common share 8,948,710 8,939,294
============== ==============
Basic earnings per common share $ 0.74 $ 0.59
============== ==============
Diluted earnings per common share:
Net income $ 6,636 $ 5,234
============== ==============
Weighted average number of shares
outstanding and used in
calculation of diluted earnings
per common share 9,035,156 9,009,012
============== ==============
Diluted earnings per common share $ 0.73 $ 0.58
============== ==============
Common shares:
Weighted average number of shares
used in calculating basic earnings
per common share 8,948,710 8,939,294
Shares issuable upon exercise of
stock options based on average
market prices 86,446 69,718
-------------- --------------
Weighted average number of shares
Used in calculation of diluted
earnings per common share 9,035,156 9,009,012
============== ==============
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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.
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ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
GENERAL
Gradall Industries, Inc. (the "Company") 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 and related parts business, this segment
accounts for the majority of the Company's revenues. The second quarter of 1998
represents the 25th successive quarter material handlers have achieved record
quarterly sales. The increase in material handler sales was driven by strong
second quarter rental utilization, good weather, and larger distributor rental
fleets along with strong demand from national rental companies.
The new rough terrain wheeled excavator Model XL2300 was introduced in March
1998 at the BAUMA construction equipment show in Germany. Production shipments
for this machine are planned to start in September 1998. Excavator shipments in
the first half of 1998 showed a moderate increase over the first half 1997 and
prospects remain encouraging for a strong second half. The passage of the
highway bill, potential opportunities internationally and the new Model XL2300
shipments are expected to strengthen second half excavator shipments.
The differences between the second quarter and first half results for 1998 and
the same periods for 1997 were to some extent attributable to a three week work
stoppage from March 22, 1997 to April 13, 1997.
RESULTS OF OPERATIONS
THREE MONTHS ENDED JUNE 30, 1998, COMPARED TO THREE MONTHS ENDED JUNE 30, 1997.
Net Sales. Net sales for the three months ended June 30, 1998, were $49.8
- ----------
million, an increase of $11.4 million or 29.8% compared to $38.4 million for the
three months ended June 30, 1997. The increase in net sales was attributable to
a significant increase in unit volume of material handlers and excavators and a
moderate increase in service parts sales.
Gross Profit. Gross profit for the three months ended June 30, 1998, was $11.1
- -------------
million, an increase of $1.9 million or 20.2%, compared to $9.3 million for the
three months ended June 30, 1997. Gross profit as a percentage of net sales
decreased to 22.4% for the three months ended June 30, 1998, from 24.2% for the
three months ended June 30, 1997, attributable to service parts promotion plans,
greater mix of lower margin material handler service parts and increased
production costs from raw material procurement plus reduced manufacturing
efficiency from capacity constraints.
<PAGE>
RESULTS OF OPERATIONS (CONTINUED)
Research, Development and Product Engineering Costs. Research, development and
- ----------------------------------------------------
product engineering costs for the three months ended June 30, 1998, was $1.0
million, unchanged from the $1.0 million for the three months ended June 30,
1997. Spending in the research and development function was actually higher in
the second quarter 1998 than the same quarter in the prior year due to
additional engineering personnel; however, this increase was offset by $0.2
million proceeds from a government engineering project.
Selling, General and Administrative. Selling, general and administrative
- --------------------------------------
expense for the three months ended June 30, 1998, was $4.1 million, an increase
of $0.6 million or 16.0%, compared to $3.6 million for the three months ended
June 30, 1997. This increase is attributable to higher advertising spending and
interest subsidy associated with increased number of unit shipments. Total
Selling General and Administrative expenses when expressed as a percent of net
sales decreased to 8.3% for the second quarter of 1998 from 9.3% for the same
period in the prior year.
Interest Expense. Interest expense for the three months ended June 30, 1998,
- -----------------
was $0.2, which was a slight decrease from the three months ended June 30, 1997.
This decrease in interest expense was due to lower average borrowings, slightly
offset by a small increase in average borrowing rates.
Income Tax Provision. Income tax expense for the three months ended June 30,
- ----------------------
1998, was $2.3 million, an increase of $0.6 million or 38.8%, compared to $1.7
million for the three months ended June 30, 1997, and represents an effective
tax rate of 39.1% for both periods.
Net Income. Net income for the three months ended June 30, 1998, was $3.6
- -----------
million, an increase of $1.0 million or 39.0%, compared to $2.6 million for the
three months ended June 30, 1997. This increase was primarily attributable to
the increased sales volume of the material handler and excavator product lines.
Earnings Per Common Share. Basic and fully diluted earnings per common share
- ----------------------------
for the three months ended June 30, 1998, was $0.40, an increase of $0.11 per
share or 37.9% compared to $0.29 per share for the three months ended June 30,
1997.
SIX MONTHS ENDED JUNE 30, 1998, COMPARED TO SIX MONTHS ENDED JUNE 30, 1997.
Net Sales. Net sales for the six months ended June 30, 1998, were $91.3
- ----------
million, an increase of $17.1 million or 23.0% compared to $74.3 million for the
six months ended June 30, 1997. The increase in net sales was attributable to a
significant increase in volume of material handlers and a moderate increase in
volume of excavators and service parts sales.
<PAGE>
RESULTS OF OPERATIONS (CONTINUED)
Gross Profit. Gross profit for the six months ended June 30, 1998, amounted to
- -------------
$20.7 million, an increase of $2.8 million or 15.7% compared to $17.9 million
for the six months ended June 30, 1997. Gross profit as a percentage of net
sales decreased to 22.7% for the six months ended June 30, 1998, from 24.1% for
the six months ended June 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 Cost. Research, development and
- ----------------------------------------------------
product engineering cost for the six months ended June 30, 1998, was $2.1
million, an increase of $0.2 million or 9.8% compared to $1.9 million for the
six months ended June 30, 1997. This increase was due to the addition of
engineering personnel to support new product development.
Selling, General and Administrative. Selling, general and administrative
- --------------------------------------
expenses for the six months ended June 30, 1998, were $7.4 million, an increase
of $0.8 million or 11.8% compared to $6.6 million for the six months ended June
30, 1997. This increase was primarily attributable to higher advertising
spending and interest subsidy associated with increased number of unit
shipments. The Selling, General and Administrative expenses when expressed as a
percent of net sales decreased to 8.1% for the six months ended June 30, 1998
from 8.9% for the same period in the prior year.
Interest Expense. Interest expense for the six months ended June 30, 1998, was
- -----------------
$0.4 million, unchanged from the $0.4 million for the six months ended June 30,
1997. In actual dollars there was a slight decrease in interest expense due to
lower average borrowings.
Income Tax Provision. Income tax expense for the six months ended June 30,
- ----------------------
1998, was $4.3 million, an increase of $0.9 million or 26.6% compared to $3.4
million for the six months ended June 30, 1997. This increase was attributed to
the increased sales volume.
Earnings Per Common Share. Basic earnings per common share for the six months
- ---------------------------
ended June 30, 1998, were $0.74, an increase of $0.15 or 25.4% per basic share
from the six months ended June 30, 1997. Diluted earnings per common share for
the six months ended June 30, 1998, were $0.73, an increase of $0.15 or 25.9%
per diluted share from the six months ended June 30, 1997.
LIQUIDITY AND CAPITAL RESOURCES
The Company generated net cash from operating activities of $6.1 million during
the first six months of 1998. Net cash from operating activities resulted from
the sum of $6.6 million of net income, $1.2 million of depreciation and
amortization and $0.4 million from post-retirement benefit transition
obligation, net of deferred taxes, reduced by $2.1 million of net cash used by
changes in operating assets and liabilities, primarily an increase in accounts
receivable and a decrease in accounts payable.
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LIQUIDITY AND CAPITAL RESOURCES (CONTINUED)
For the first six months of 1998, the Company's purchases of new equipment and
permanent tooling was $2.3 million. Management plans to invest approximately
$8.1 million in plant and equipment in 1998. In addition, the board of
directors has recently approved in principal a $50 million capacity expansion
program for which the Company expects to have final plans for by year end.
For the first six 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 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.
As of June 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 will maintain this revolving credit
facility for future use.
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 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 SFAS No. 132,
"Employers' Disclosures About Pensions and Other Post-retirement Benefits,"
which is effective for financial years beginning after December 31, 1997. The
Company will adopt the provisions of this SFAS for its fiscal year ending
December 31, 1998, but does not expect such adoption to have material impact on
the consolidated financial statements of the Company.
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.
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 June 30, 1998: 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: August 11, 1998 By: /s/ Barry L. Phillips
------------------------
Barry L. Phillips
President and Chief Executive Officer
Date: August 11, 1998 By: /s/ Bruce A. Jonker
----------------------
Bruce A. Jonker
Chief Financial Officer
<TABLE> <S> <C>
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<CAPTION>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> JUN-30-1998
<CASH> 2675
<SECURITIES> 0
<RECEIVABLES> 27,352
<ALLOWANCES> 0
<INVENTORY> 24,718
<CURRENT-ASSETS> 55,730
<PP&E> 16,299
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<TOTAL-ASSETS> 79,002
<CURRENT-LIABILITIES> 25,998
<BONDS> 0
0
0
<COMMON> 10
<OTHER-SE> 34,767
<TOTAL-LIABILITY-AND-EQUITY> 79,002
<SALES> 49,789
<TOTAL-REVENUES> 49,789
<CGS> 38,646
<TOTAL-COSTS> 38,646
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 159
<INCOME-PRETAX> 5,878
<INCOME-TAX> 2,296
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<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,582
<EPS-PRIMARY> .40
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