<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 28, 1999.
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ______ to ______ .
Commission file number: 333-31187
W.R. CARPENTER NORTH AMERICA, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 54-1049647
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
801 S. PINE ST.
MADERA, CALIFORNIA 93637
(Address of principal executive offices and zip code)
(559) 662-3900
(Registrant's telephone number, including area code)
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 [ ]
At May 11, 1999, there were 55,000 shares of Class A common stock, $1.00 par
value, and 5,000 shares of Class B common stock, $1.00 par value, of the
registrant issued and outstanding.
<PAGE> 2
PART I -- FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
W.R. CARPENTER NORTH AMERICA, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands)
<TABLE>
<CAPTION>
Jun. 28 Mar.29 Mar.28
1998 1998 1999
(audited) (unaudited) (unaudited)
-------------------------------------------
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 63,669 $ 67,640 $ 30,984
Accounts receivable (net of allowance for doubtful
accounts of $410, $516, and $551, respectively) 28,625 31,343 31,548
Inventories 27,407 22,720 43,117
Prepaid expenses and other 2,995 2,644 1,108
Deferred income taxes 1,791 1,091 1,790
-------------------------------------------
Total current assets 124,487 125,438 108,547
Property, plant and equipment, net 62,765 53,558 101,470
Other assets 9,407 5,948 12,987
-------------------------------------------
Total assets $ 196,659 $ 184,944 $ 223,004
===========================================
LIABILITIES AND STOCKHOLDER'S EQUITY
CURRENT LIABILITIES
Accounts payable $ 18,028 $ 14,902 $ 26,217
Other accrued expenses 11,778 10,112 16,278
Current portion of long-term debt 6,191 3,500 6,364
-------------------------------------------
Total current liabilities 35,997 28,514 48,859
Senior Subordinated Notes Payable 104,571 104,559 104,607
Long-term debt, net of current portion 13,365 11,741 31,475
Other long-term liabilities 5,108 4,868 7,211
Deferred income taxes 2,928 4,273 1,356
-------------------------------------------
Total liabilities $ 161,969 $ 153,955 $ 193,508
-------------------------------------------
Commitments and contingencies
Stockholder's equity
Common stock 60 60 60
Preferred stock 25 25 25
Additional paid-in capital 8,767 8,767 8,767
Cumulative currency translation adjustment (CTA) 2,084 2,084 2,084
Retained earnings (on July 3, 1994 a deficit of $31,395 was
eliminated due to a subsidiary's quasi-reorganization) 23,754 20,053 18,560
-------------------------------------------
34,690 30,989 29,496
-------------------------------------------
Total liabilities and stockholder's equity $ 196,659 $ 184,944 $ 223,004
===========================================
</TABLE>
Page 2
<PAGE> 3
W.R. CARPENTER NORTH AMERICA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except share and per-share data)
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
----------------------------- -----------------------------
Mar. 29 Mar. 28 Mar. 29 Mar. 28
1998 1999 1998 1999
-----------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenues
Equipment sales
New $ 33,923 $ 35,595 $ 94,549 $ 106,290
Used 629 1,740 2,055 4,771
Rental, parts and service 7,070 10,350 22,108 30,938
-----------------------------------------------------------------
Total revenues 41,622 47,685 118,712 141,999
-----------------------------------------------------------------
Cost of Revenues
Equipment sales
New 23,887 26,580 66,801 78,232
Used 299 1,201 1,066 3,164
Rental, parts and service 4,801 7,179 13,708 19,870
-----------------------------------------------------------------
Total cost of revenues 28,987 34,960 81,575 101,266
-----------------------------------------------------------------
Gross profit
Equipment sales
New 10,036 9,015 27,748 28,058
Used 330 539 989 1,607
Rental, parts and service 2,269 3,171 8,400 11,068
-----------------------------------------------------------------
Total gross profit 12,635 12,725 37,137 40,733
-----------------------------------------------------------------
Operating expenses
Selling, general and administrative 5,679 8,248 16,990 22,512
Product liability 555 260 2,252 1,130
Research and development 1,236 2,673 4,331 6,848
-----------------------------------------------------------------
Total operating expenses 7,470 11,181 23,573 30,490
-----------------------------------------------------------------
Income from operations 5,165 1,544 13,564 10,243
Other (expense)/income
Interest expense, net (2,254) (3,278) (6,543) (8,729)
Other (expense)/income (76) (16) (429) 18
-----------------------------------------------------------------
Income/(loss) before income taxes 2,835 (1,750) 6,592 1,532
Provision for income taxes (1,134) 526 (2,634) (613)
-----------------------------------------------------------------
Net income/(loss) $ 1,701 $ (1,224) $ 3,958 $ 919
=================================================================
Net income/(loss) per common share $ 28.35 $ (20.40) $ 65.97 $ 15.32
=================================================================
Weighted average number of common shares
used to compute net income/(loss) per share 60,000 60,000 60,000 60,000
=================================================================
</TABLE>
Page 3
<PAGE> 4
W.R. CARPENTER NORTH AMERICA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
---------------------------
Mar. 29 Mar. 28
1998 1999
---------------------------
<S> <C> <C>
Cash flows from operating activities
Net income $ 3,958 $ 919
---------------------------
Adjustments to reconcile net income to net cash provided by operating activities
Depreciation and amortization 5,815 9,304
Gain on disposition of property, plant and equipment (1,071) (1,607)
Changes in operating assets and liabilities
Accounts receivable (7,752) (2,923)
Inventories (5,887) (15,710)
Prepaid expenses and other assets (871) 1,887
Deferred income taxes, net 2,138 1
Accounts payable 3,317 8,189
Accrued expenses 739 4,500
Other, net 2,137 (3,013)
---------------------------
Total adjustments (1,435) 628
---------------------------
Net cash provided by operating activities 2,523 1,547
---------------------------
Cash flows from investing activities
Additions to property, plant and equipment (18,018) (50,786)
Proceeds from disposition of assets 2,055 4,771
---------------------------
Net cash used by investing activities (15,963) (46,015)
---------------------------
Cash flows from financing activities
Proceeds from long-term debt 4,778 19,962
Repayment of long-term debt (1,043) (1,679)
Dividends paid 0 (6,500)
---------------------------
Net cash provided by financing activities 3,735 11,783
---------------------------
Net decrease in cash and cash equivalents (9,705) (32,685)
Cash and cash equivalents at beginning of period 77,345 63,669
---------------------------
Cash and cash equivalents at end of period $ 67,640 $ 30,984
===========================
</TABLE>
Page 4
<PAGE> 5
W.R. CARPENTER NORTH AMERICA, INC. AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS
(Unaudited)
1. BASIS OF PRESENTATION
The accompanying unaudited financial statements for the three and nine months
ended March 28, 1999 have been prepared in accordance with generally accepted
accounting principles for interim financial information and with the
instructions to Form 10-Q and Article 10 of Regulation S-X.
Accordingly, they do not include all of the information and footnotes required
by generally accepted accounting principles for complete financial statements.
In the opinion of management, all adjustments (consisting of normal recurring
accruals) considered necessary for a fair presentation have been included.
Results of operations for the interim periods are not necessarily indicative of
the results that may be expected for a full year.
2. CONTINGENCIES
W.R. Carpenter North America, Inc. ("the Company") and its subsidiaries have
various product liability claims and suits pending. The Company's policy is to
defend each suit vigorously, regardless of the amount sought in damages.
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 all claims, legal actions, complaints and proceedings which
have been filed or are pending against the Company and its subsidiaries, as well
as possible future claims, are adequately covered by reserves or insurance, and
are not expected to have a material adverse effect on the Company's consolidated
financial position.
Page 5
<PAGE> 6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Certain statements in this Quarterly Report on Form 10-Q 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.
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.
<TABLE>
<CAPTION>
Three Months Ended
----------------------------------------------------------------
March 28, 1999 March 29, 1998
-------------- --------------
<S> <C> <C> <C> <C>
(Dollars in Thousands)
(Unaudited)
Revenue $ 47,685 100.0% $ 41,622 100.0%
Cost of revenue 34,960 73.3 28,987 69.6
Gross profit 12,725 26.7 12,635 30.4
Operating expenses 11,181 23.5 7,470 17.9
Operating income 1,544 3.2 5,165 12.4
Interest expense, net 3,278 6.9 2,254 5.4
Other (expenses)/income (16) 0.0 (76) 0.2
Provision for income taxes 526 1.1 (1,134) 2.7
Net income/(loss) (1,224) (2.6) 1,701 4.1
EBITDA 4,932 10.3 7,364 17.6
Depreciation and amortization 3,388 7.1 2,199 5.3
</TABLE>
SEGMENT OPERATIONS
The Company, through its wholly-owned subsidiaries, UpRight, Inc. ("UpRight")
and Horizon High Reach, Inc. ("Horizon"), manufactures, sells, rents and
services aerial work platform equipment to a diverse customer base.
UpRight is a leading manufacturer of aerial work platforms. Horizon is a leading
industrial equipment rental, sales and service company specializing in aerial
work platforms and is a significant customer of UpRight. Sales to Horizon
accounted for approximately 21.2% and 9.9% of UpRight's revenue for the three
months ended March 28, 1999 and March 29, 1998, respectively. Sales to Horizon
accounted for approximately 22.4% and 13.6% of UpRight's revenue for the nine
months ended March 28, 1999 and March 29, 1998, respectively.
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 quarter, and the level of UpRight equipment held
in sales inventory by Horizon fluctuates by quarter, the resulting elimination
of Gross Profit on consolidation can cause consolidated Income from operations
to fluctuate on a quarterly basis.
The Company believes its results of operations for its UpRight and Horizon
subsidiaries 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.
Page 6
<PAGE> 7
<TABLE>
<CAPTION>
Consolidating Statement of Operations
Three Months Ended
March 28, 1999
(Dollars in Thousands)
(Unaudited)
---------------------------------------------------------------------------------
Carpenter Horizon UpRight Eliminations Consolidated
---------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
REVENUES
New equipment sales $ 5,970 $ 37,546 $ (7,921) $ 35,595
Used equipment sales 1,740 1,740
Rental, parts and service 10,350 10,350
---------------------------------------------------------------------------------
TOTAL REVENUES 18,060 37,546 (7,921) 47,685
---------------------------------------------------------------------------------
COST OF REVENUES
New equipment sales 4,742 28,336 (6,498) 26,580
Used equipment sales 1,201 1,201
Rental, parts and service 7,179 7,179
---------------------------------------------------------------------------------
TOTAL COST OF REVENUES 13,122 28,336 (6,498) 34,960
---------------------------------------------------------------------------------
GROSS PROFIT
New equipment sales 1,228 9,210 (1,423) 9,015
Used equipment sales 539 539
Rental, parts and service 3,171 3,171
---------------------------------------------------------------------------------
TOTAL GROSS PROFIT 4,938 9,210 (1,423) 12,725
---------------------------------------------------------------------------------
% of revenue 27.3% 24.5% 26.7%
INCOME FROM OPERATIONS
Selling, general and administrative $ 1,923 3,724 2,601 8,248
Product liability 260 260
Research and development 2,673 2,673
---------------------------------------------------------------------------------
Total operating expenses 1,923 3,724 5,534 11,181
=================================================================================
INCOME FROM OPERATIONS (1,923) 1,214 3,676 (1,423) 1,544
% of revenue 6.7% 9.8% 18.0% 3.2%
</TABLE>
<TABLE>
<CAPTION>
Consolidating Statement of Operations
Three Months Ended
March 29, 1998
(Dollars in Thousands)
(Unaudited)
---------------------------------------------------------------------------
Carpenter Horizon UpRight Eliminations Consolidated
---------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
REVENUES
New equipment sales $ 4,640 $ 32,496 $ (3,213) $ 33,923
Used equipment sales 629 629
Rental, parts and service 7,070 7,070
---------------------------------------------------------------------------
TOTAL REVENUES 12,339 32,496 (3,213) 41,622
---------------------------------------------------------------------------
COST OF REVENUES
New equipment sales 3,568 23,422 (3,103) 23,887
Used equipment sales 299 299
Rental, parts and service 4,801 4,801
---------------------------------------------------------------------------
TOTAL COST OF REVENUES 8,668 23,422 (3,103) 28,987
---------------------------------------------------------------------------
GROSS PROFIT
New equipment sales 1,072 9,074 (110) 10,036
Used equipment sales 330 330
Rental, parts and service 2,269 2,269
---------------------------------------------------------------------------
TOTAL GROSS PROFIT 3,671 9,074 (110) 12,635
---------------------------------------------------------------------------
% of revenue 29.8% 27.9% 30.4%
INCOME FROM OPERATIONS
Selling, general and administrative $ 538 2,584 2,557 5,679
Product liability 555 555
Research and development 1,236 1,236
---------------------------------------------------------------------------
Total operating expenses 538 2,584 4,348 7,470
===========================================================================
INCOME FROM OPERATIONS (538) 1,087 4,726 (110) 5,165
% of revenue 8.8% 14.5% 3.4% 12.4%
</TABLE>
Page 7
<PAGE> 8
<TABLE>
<CAPTION>
Consolidating Statement of Operations
Nine Months Ended
March 28, 1999
(Dollars in Thousands)
(Unaudited)
-------------------------------------------------------------------------------
Carpenter Horizon UpRight Eliminations Consolidated
-------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
REVENUES
New equipment sales $ 19,262 $ 112,105 $ (25,077) $ 106,290
Used equipment sales 4,771 4,771
Rental, parts and service 30,938 30,938
-------------------------------------------------------------------------------
TOTAL REVENUES 54,971 112,105 (25,077) 141,999
-------------------------------------------------------------------------------
COST OF REVENUES
New equipment sales 15,594 83,242 (20,604) 78,232
Used equipment sales 3,164 3,164
Rental, parts and service 19,870 19,870
-------------------------------------------------------------------------------
TOTAL COST OF REVENUES 38,628 83,242 (20,604) 101,266
-------------------------------------------------------------------------------
GROSS PROFIT
New equipment sales 3,668 28,863 (4,473) 28,058
Used equipment sales 1,607 1,607
Rental, parts and service 11,068 11,068
-------------------------------------------------------------------------------
TOTAL GROSS PROFIT 16,343 28,863 (4,473) 40,733
-------------------------------------------------------------------------------
% of revenue 29.7% 25.7% 28.7%
INCOME FROM OPERATIONS
Selling, general and administrative $ 4,213 10,063 8,236 22,512
Product liability 1,130 1,130
Research and development 6,848 6,848
-------------------------------------------------------------------------------
Total operating expenses 4,213 10,063 16,214 30,490
===============================================================================
INCOME FROM OPERATIONS (4,213) 6,280 12,649 (4,473) 10,243
% of revenue 11.4% 11.3% 17.8% 7.2%
</TABLE>
<TABLE>
<CAPTION>
Consolidating Statement of Operations
Nine Months Ended
March 29, 1998
(Dollars in Thousands)
(Unaudited)
-------------------------------------------------------------------------------
Carpenter Horizon UpRight Eliminations Consolidated
-------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
REVENUES
New equipment sales $13,056 $ 94,312 $ (12,819) $ 94,549
Used equipment sales 2,055 2,055
Rental, parts and service 22,108 22,108
-------------------------------------------------------------------------------
TOTAL REVENUES 37,219 94,312 (12,819) 118,712
-------------------------------------------------------------------------------
COST OF REVENUES
New equipment sales 10,337 67,591 (11,127) 66,801
Used equipment sales 1,066 1,066
Rental, parts and service 13,708 13,708
-------------------------------------------------------------------------------
TOTAL COST OF REVENUES 25,111 67,591 (11,127) 81,575
-------------------------------------------------------------------------------
GROSS PROFIT
New equipment sales 2,719 26,721 (1,692) 27,748
Used equipment sales 989 989
Rental, parts and service 8,400 8,400
-------------------------------------------------------------------------------
TOTAL GROSS PROFIT 12,108 26,721 (1,692) 37,137
-------------------------------------------------------------------------------
% of revenue 32.5% 28.3% 31.3%
INCOME FROM OPERATIONS
Selling, general and administrative $ 1,783 7,377 7,830 16,990
Product liability 2,252 2,252
Research and development 4,331 4,331
-------------------------------------------------------------------------------
Total operating expenses 1,783 7,377 14,413 23,573
===============================================================================
INCOME FROM OPERATIONS (1,783) 4,731 12,308 (1,692) 13,564
% of revenue 12.7% 13.1% 13.2% 11.4%
</TABLE>
Page 8
<PAGE> 9
THREE MONTHS ENDED MARCH 28, 1999 COMPARED TO THREE MONTHS ENDED MARCH 29, 1998
Revenue for the three months ended March 28, 1999 was $47.7 million, an increase
of $6.1 million over revenue of $41.6 million for the three months ended March
29, 1998. The increase in revenue was mainly due to an increase in Horizon's
rental, parts and service revenue of $3.3 million and an increase in Horizon's
new and used equipment sales of $2.4 million in the same period. The increase in
Horizon's rental, parts and service revenue is primarily attributable to rental
fleet additions and the inclusion of results from businesses acquired subsequent
to the third quarter of fiscal 1998. Horizon's new equipment sales include the
sale of UpRight equipment.
Gross profit for the three months ended March 28, 1999 was $12.7 million, an
increase of $0.1 million from gross profit of $12.6 million for the three months
ended March 29, 1998. Gross margin decreased to 26.7% in the three months ended
March 28, 1999 compared to 30.4% in the three months ended March 29, 1998. The
decline in gross margin is due to: increased pricing pressures at UpRight;
manufacturing inefficiencies at UpRight's Selma and Madera facilities; higher
depreciation expense on rental equipment at Horizon; and higher elimination of
gross profit attributable to UpRight's products held in Horizon's rental fleet
as of March 28, 1999 compared to March 29, 1998. The manufacturing
inefficiencies at UpRight were primarily due to (1) start-up costs associated
with the Madera facility, which was opened in December 1998, and (2) special
requirements for a large order, which exacerbated manufacturing inefficiencies
resulting from capacity constraints, at the Selma facility. Management believes
that the opening of the Madera facility in December 1998 will provide UpRight
with the additional capacity necessary to overcome capacity constraints existing
at the Selma facility. Management further believes that opportunities to improve
operational effectiveness have been and will continue to be identified and has
initiated programs designed to realize the benefits of improved operational
effectiveness.
Operating expenses, consisting of selling, general and administrative expense
(SG & A), product liability and research and development expense, were $11.2
million in the three months ended March 28, 1999 compared to $7.5 million for
the same period last year. SG & A expenses increased by $2.6 million to $8.2
million in the three months ended March 28, 1999 compared to the three months
ended March 29, 1998. The increase in SG & A expenses is primarily due to higher
costs incurred by Horizon to support increased service and rental activity
(although as a percentage of revenue Horizon's SG & A expenses declined from
20.9% for the quarter ended March 29, 1998 to 20.6% for the quarter ended March
28, 1999) and higher corporate expenses incurred by the Company. In the three
months ended March 28, 1999 the Company incurred a one-time charge of $1.0
million which amount was paid to its former President as a consequence of his
early departure. As a percentage of revenue SG & A expenses increased by 3.7% to
17.3% in the quarter ended March 28, 1999 compared to the quarter ended March
29, 1998 mainly due to higher elimination of inter-company revenue and the
increased Company corporate expenses described above. Product liability expense
was $0.3 million in the three months ended March 28, 1999 compared to $0.6
million in the three months ended March 29, 1998. Research and development
expenses for the three months ended March 28, 1999 were $2.7 million, an
increase of $1.4 million compared to the three months ended March 29, 1998. The
increase in research and development expenses reflected the Company's continued
emphasis on developing new and re-designed aerial work platform products.
Interest expense, net of interest income, increased to $3.3 million for the
three months ended March 28, 1999 from $2.3 million for the three months ended
March 29, 1998 due to higher borrowing by UpRight and lower cash balances.
Income tax for the three months ended March 28, 1999 was a benefit of $0.5
million compared to an expense of $1.1 million for the three months ended March
29, 1998. The Company's effective tax rate was minus 30.0% for the three months
ended March 28, 1999 compared to 40.0% for the three months ended March 29,
1998.
Net loss for the three months ended March 28, 1999 was $1.2 million,
representing a decrease of $2.9 million from net income of $1.7 million for the
three months ended March 29, 1998, as a result of the factors described above.
NINE MONTHS ENDED MARCH 28, 1999 COMPARED TO NINE MONTHS ENDED MARCH 29, 1998
Revenue for the nine months ended March 28, 1999 was $142.0 million, an increase
of $23.3 million over revenue of $118.7 million for the nine months ended March
29, 1998. The increase in revenue was mainly attributable to an increase in
revenue from sales of boom lifts and large scissor lifts of $11.6 million and an
increase in Horizon's rental, parts and service revenue of $8.8 million compared
to the nine months ended March 29, 1998.
Gross profit increased from $37.1 million for the nine months ended March 29,
1998 to $40.7 million for the nine months ended March 28, 1999. However, gross
profit as a percentage of total revenue decreased to 28.7% for the nine months
ended March 28, 1999 compared to 31.3 % for the same period during the prior
year due to the factors described above.
Operating expenses were $30.5 million or 21.5% of revenue for the nine months
ended March 28, 1999 compared to $23.6 million or 19.9% of revenue for the same
period in the previous year. The $6.9 million increase in operating expenses in
the nine months ended March 28, 1999 compared to the nine months ended March 29,
1998 primarily resulted from the factors described above.
Interest expense, net of interest income, increased to $8.7 million for the nine
months ended March 28, 1999 compared to $6.5 million during the comparable
period in the previous year. This increase in interest expense resulted
primarily from the factors described above.
Income tax for the nine months ended March 28, 1999 was $0.6 million compared to
$2.6 million for the nine months ended March 29, 1998. The Company's effective
income tax rate was 40.0% and 39.9% for the nine months ended March 28, 1999 and
March 29, 1998, respectively.
Net income for the nine months ended March 28, 1999 was $0.9 million,
representing a decrease of $3.0 million compared to the nine months ended March
29, 1998. This decrease in net income resulted primarily from the factors
described above.
CAPITAL RESOURCES AND LIQUIDITY
The Company's cash flow requirements are for working capital, capital
expenditures and debt service.
The Company's working capital was $59.7 million and $88.4 million at March 28,
1999 and June 28, 1998, respectively. The reduction of working capital is mainly
due to a reduction in cash of $32.7 million during such period. The reduction in
cash resulted primarily from the increase in cash used for the purchase of
property, plant and equipment described below.
Page 9
<PAGE> 10
The Company's outstanding debt was $142.4 million and $124.1 million at March
28, 1999 and June 28, 1998, respectively. Increased borrowings were due to
UpRight's financing its capital expenditure of $20.6 million during the nine
months ended March 28, 1999. Cash and cash equivalents were $31.0 million and
$63.7 million at March 28, 1999 and June 28, 1998, respectively.
Net cash provided by operating activities was $1.5 million in the nine months
ended March 28, 1999 and $2.5 million in the nine months ended March 29, 1998.
The decrease in net cash provided by operating activities of $1.0 million is
related to an increase in operating income before depreciation of $0.2 million
for the nine months ended March 28, 1999 compared to the nine months ended March
29, 1998, offset by an increase in working capital other than cash.
Net cash used by investing activities was $46.0 million in the nine months ended
March 28, 1999 compared to $16.0 million in the nine months ended March 29,
1998. The increase in net cash used by investing activities resulted primarily
from an increase in cash used for the purchase of property, plant and equipment
which totaled $50.8 million for the nine months ended March 28, 1999 compared to
$18.0 million for the nine months ended March 29, 1998. This capital expenditure
was incurred to construct UpRight's new manufacturing facilities in Madera,
California, buy new equipment for its Selma, California facility and upgrade and
expand Horizon's rental fleet.
Net cash provided by financing activities was $11.8 million and $3.7 million in
the nine months ended March 28, 1999 and March 29, 1998, respectively. The
change in net cash provided by financing activities is primarily due to
UpRight's financing its capital expenditure of $20.6 million during the nine
months ended March 28, 1999. The Company paid a dividend of $6.5 million in the
third quarter ended March 28, 1999 to its sole stockholder, WRC Holdings, Inc.
The Company did not pay any dividends in the nine months ended March 29, 1998.
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 if the Company undertakes acquisitions.
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.
YEAR 2000
The Year 2000 ("Y2K") issue is the result of computer programs being written
using two digits (i.e. "98") rather than four (i.e. "1998") to define the
applicable year. These programs treat years as occurring between 1900 and the
end of 1999 and do not self-convert to reflect the upcoming change in the
century. In addition, February 2000 is a leap year at the end of a century, an
event that occurs only once every 400 years. If not corrected, computer
applications could fail or create erroneous results in date sensitive
applications.
Each of the Company, UpRight and Horizon has undertaken a program to understand
the nature and extent of the work required to make its respective systems Y2K
compliant. These programs encompass information systems, facilities systems,
vehicles, UpRight and Horizon's products and the readiness of UpRight and
Horizon's suppliers and customers. These programs include the following phases:
identification and assessment, compliance plan development, remediation and
testing, and contingency planning.
The objective of each of the Company, UpRight and Horizon is to become Y2K
compliant no later than June 28, 1999. Each of the Company, UpRight and Horizon
has already updated its information systems to be Y2K compliant. The Company
(including UpRight and Horizon) does not believe there to be any Y2K issue with
the products it sells, rents or services. Each of the Company, UpRight and
Horizon will be requesting written assurances from its respective suppliers to
confirm this.
The total cost of the Y2K project to date has not been material. Based on its
program to date, the Company does not expect that future costs of modifications
will have a material adverse effect on the Company's financial position or
results of operations. Because the Company expects that its internal systems
will become Y2K compliant in a timely manner, the Company believes that the most
reasonably likely worst case Y2K scenario would result from suppliers or other
third parties failing to achieve Y2K compliance. Depending upon the number of
third parties, their identity and the nature of the non-compliance, the Y2K
issue could have a material adverse effect on the Company's financial position
or results of operations. The Y2K project is expected to significantly reduce
the Company's level of uncertainty about the compliance and readiness of third
parties. The Company is developing contingency plans to cover problems which may
occur in critical areas.
EURO CONVERSION
On January 1, 1999 certain countries of the European Union established fixed
conversion rates between their existing currencies and one common currency, the
euro. The euro trades on currency exchanges and may be used in business
transactions. Beginning in January 2002, new euro-denominated currencies will be
issued and the existing currencies will be withdrawn from circulation. The
Company is currently evaluating the systems and business issues raised by the
euro conversion. These issues include the need to adapt computer and business
systems and equipment and the competitive impact of cross-border transparency.
The Company completed its preliminary estimate of the potential impact likely to
be caused by the euro conversion. Based on the preliminary estimate, the Company
has no reason to believe the euro conversion will have a material impact on the
Company's financial condition or results of operation.
Page 10
<PAGE> 11
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
On July 14, 1998, in connection with a sales contract with a customer in
Germany, UpRight entered into a forward foreign exchange contract for the
purpose of managing its exposure to fluctuations in the value of the German
Deutsche Mark. At March 28, 1999, the fair value of this contract was
approximately $2.7 million. The maturity of this instrument is less than 12
months. The Company has not entered into this forward foreign exchange contract
for speculative or trading purposes. The Company's accounting policies for this
contract are based on the Company's designation of such contract as a hedging
transaction. Gains and losses on forward foreign exchange contracts are
recognized in income in the same period as gains and losses on the underlying
transactions. Since the Company has entered into this forward contract only as a
hedge, any change in currency rates would not result in any material gain or
loss, as any gain or loss on the underlying foreign currency denominated balance
would be offset by the gain or loss on the forward contract.
PART II - OTHER INFORMATION
ITEM 5. OTHER INFORMATION
On April 15, 1999, the United Steelworkers of America Union petitioned the
National Labor Relations Board to hold an election to certify the union as the
exclusive representative for UpRight's production and maintenance employees at
its Selma and Madera, California facilities. The election is currently scheduled
to be held on June 10, 1999. While UpRight management believes that its employee
relations are good, in the event that such an election takes place which results
in unionization of UpRight's Selma and Madera employees, there can be no
assurance that the effect thereof would not have a material adverse effect on
the Company's business and financial condition.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS. The following Exhibits are filed herewith and made a part
hereof:
Exhibit
Number Description of Document
- ------- -----------------------
*3.1(i) Certificate of Incorporation of the Company, as amended.
*3.1(ii) Bylaws of the Company, as amended.
*4.1 Indenture, dated as of June 10, 1997, by and among the Company,
the Guarantors named therein and U.S. Trust Company of
California, N.A.
*4.4 Form of Exchange Global Note.
*10.3 Industrial Lease, dated February 7, 1997, between A.L.L., a
general partnership, and UpRight.
*10.4 Lease, entered into as of November, 1995, by and between
Townview Partners, an Ohio partnership, and UpRight.
*10.5 Recourse Agreement, dated February 11, 1997, by and between
Horizon and American Equipment Leasing.
*10.6 Management Services Agreement, dated May 12, 1997, by and
between the Company and Griffin Group International Management
Ltd.
*10.8 Lease, dated January, 1997, by and between Morris Ragona and
Joan Ragona, and Horizon.
*10.9 Agreement of Lease, dated January 26, 1995, by and between
Richard V. Gunner and George Andros, and Horizon.
*10.10(i) Lease Agreement, executed November 10, 1989, by and between
Trussel Electric, Inc., and Up-Right, 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) Lease Extension and Modification Agreement dated September 3,
1998.
***10.10(iii) Lease Extension and Modification Agreement dated October 28,
1997.
*10.11 Lease Agreement (undated) by and between T.T. Templin and
Horizon.
*10.12 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 and Horizon and
Consent to Assignment dated July 15, 1994.
*10.13 Lease Agreement, dated April 27, 1990, by and between D.L.
Phillips Investment Builders, Inc., and Up-Right, 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
Page 11
<PAGE> 12
between Up-Right and Horizon and Consent to Assignment dated
July 15, 1994.
*10.15 Lease, dated March 7, 1995, by and between BMB Investment Group
and Horizon.
**10.16 Lease Agreement dated December 31, 1997 by and between William
L. Morillon and Marie Anne Morillon and Horizon High Reach, Inc.
**10.17 Revolving Loan Agreement, dated May 5, 1998, between UpRight,
Inc., and Union Bank of California.
**10.18 Equipment Financing Agreement, dated April 23, 1998, between
UpRight, Inc. and KeyCorp Leasing LTD.
10.19 Equipment Financing Agreement, dated February 26, 1999, between
UpRight, Inc and Associates Commercial Corp.
27.1 Financial Data Schedule.
- --------------------
* 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.
** 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.
*** 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.
(b) REPORTS ON FORM 8-K. The Company filed a report on Form 8-K with the
Securities and Exchange Commission on March 19, 1999 announcing the March 8,
1999 departure of the Company's President and Chief Executive Officer.
Page 12
<PAGE> 13
SIGNATURES
Pursuant to the requirements 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: May 12, 1999
By: /s/ Graham D. Croot
-----------------------------------
Graham D. Croot
Chief Financial Officer
(Principal Financial Officer and
Duly Authorized Signatory)
Page 13
<PAGE> 14
INDEX TO EXHIBITS
Exhibit
Number Description of Document
- ------- -----------------------
*3.1(i) Certificate of Incorporation of the Company, as amended.
*3.1(ii) Bylaws of the Company, as amended.
*4.1 Indenture, dated as of June 10, 1997, by and among the Company,
the Guarantors named therein and U.S. Trust Company of
California, N.A.
*4.4 Form of Exchange Global Note.
*10.3 Industrial Lease, dated February 7, 1997, between A.L.L., a
general partnership, and UpRight.
*10.4 Lease, entered into as of November, 1995, by and between
Townview Partners, an Ohio partnership, and UpRight.
*10.5 Recourse Agreement, dated February 11, 1997, by and between
Horizon and American Equipment Leasing.
*10.6 Management Services Agreement, dated May 12, 1997, by and
between the Company and Griffin Group International Management
Ltd.
*10.8 Lease, dated January, 1997, by and between Morris Ragona and
Joan Ragona, and Horizon.
*10.9 Agreement of Lease, dated January 26, 1995, by and between
Richard V. Gunner and George Andros, and Horizon.
*10.10(i) Lease Agreement, executed November 10, 1989, by and between
Trussel Electric, Inc., and Up-Right, 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) Lease Extension and Modification Agreement dated September 3,
1998.
***10.10(iii) Lease Extension and Modification Agreement dated October 28,
1997.
*10.11 Lease Agreement (undated) by and between T.T. Templin and
Horizon.
*10.12 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 and Horizon and
Consent to Assignment dated July 15, 1994.
*10.13 Lease Agreement, dated April 27, 1990, by and between D.L.
Phillips Investment Builders, Inc., and Up-Right, 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 and Horizon and
Consent to Assignment dated July 15, 1994.
*10.15 Lease, dated March 7, 1995, by and between BMB Investment Group
and Horizon.
**10.16 Lease Agreement dated December 31, 1997 by and between William
L. Morillon and Marie Anne Morillon and Horizon High Reach, Inc.
**10.17 Revolving Loan Agreement, dated May 5, 1998, between UpRight,
Inc., and Union Bank of California.
**10.18 Equipment Financing Agreement, dated April 23, 1998, between
UpRight, Inc. and KeyCorp Leasing LTD.
10.19 Equipment Financing Agreement, dated February 26, 1999, between
UpRight, Inc and Associates Commercial Corp.
27.1 Financial Data Schedule.
- --------------------
* 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.
** 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.
*** 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.
Page 14
<PAGE> 1
Exhibit 10.19
[ASSOCIATES COMMERCIAL CORPORATION LETTERHEAD]
Loren Pease
Regional Sales Manager
February 24, 1999
Alan Harper
Controller
UPRIGHT, INC.
1775 Park Street
Selma, CA 93662
Dear Mr. Harper
Pursuant to your request, Associates Commercial Corporation is pleased to submit
the following financing proposal for your consideration:
Transaction : Secured Financing
Borrower : Upright, Inc.
Lender : Associates Commercial Corporation or one of it's
wholly-owned subsidiaries or assignees
Equipment : Standard machine tool equipment and tooling
acceptable to both borrower and lender
Equipment
Cost : $10,000,000.00
Finance
Amount : 10,000,000.00 or 100% of the invoiced amounts
Basic Loan
Term : 60 months
Base Payment : Months 1-24 Months 25-60
.01360604 .02469436
<PAGE> 2
Note: The Base Payments are based on the assumption that, at the
time of funding, the then most recent weekly average of the
5/04 5 year Treasury notes as published in the Wall Street
Journal as of 02/24/98 will be 5.14%. Should at the time of
funding the yield for the designated Treasury increase or
decrease by .05 (5BP) or more, the LRF will be adjusted
accordingly. The spread is 184 BP.
Commencement
Date: : Each Schedule will commence on the first day of the
calendar quarter following delivery with Base
Payments billed monthly in arrears.
This proposal is based upon the following additional terms and conditions:
1. Secured Financing: This proposed financing will be a secured financing
which anticipates Lender having a first priority lien position on all
of the Equipment, and with Borrower responsible for paying the monthly
installments under all circumstances. Borrower is specifically
responsible for all expenses, maintenance, insurance and taxes relating
to the purchase, possession and use of the Equipment.
2. Interim Period: The base term would include an interim period in the
event that any unit of Equipment is delivered before the Commencement
Date. Interim Rent would be equal to .000454 on a per diem basis.
3. Maintenance and Insurance: All maintenance and insurance (fire and
theft, extended coverage) are the responsibility of Borrower.
4. Amortization: This proposed financing will amortize over five years. In
the case where the borrower wishes to prepay the proposed financing
there will be a fee on the original equipment cost of three percent for
the first year, two percent for the second year and one percent every
year after.
5. Documentation: Associate Commercial Corp.'s current standard security
agreement for this type of Equipment and Transaction will be used.
6. Transaction Costs: Associates Commercial Corp. will be responsible for
all of its closing and transaction costs. Borrower will be responsible
for all of its closing and transaction costs. Associates Commercial
Corp. will Invoice Borrower for a Documentation Fee of $2,000.00.
<PAGE> 3
7. Proposal Fee: By signing below, Borrower acknowledges the terms and
conditions of this proposal and agrees to pay a proposal fee of
$20,000.00. Upon receipt of the executed proposal letter and
accompanying fee, Associates Commercial Corp. shall commence the
investment approval process. If this proposal is approved and accepted
by Associates Commercial Corp., the proposal fee will be considered to
have been earned by Associates Commercial Corp., and shall not be
refundable. If the proposed transaction is NOT approved by Associates
Commercial Corp., the fee shall be returned promptly to Borrower. Upon
consummation of the financing contemplated herein, Associates
Commercial Corp. shall, nevertheless, apply the entire $20,000.00 to
Borrower's first payment due under the Secured Financing Agreement.
8. Expiration: This proposal and all of its terms shall expire on February
26, 1999, if Associates Commercial Corp. has not received your
acceptance hereof by such date.
This proposal constitutes only a general, non-binding expression of interest on
the part of Associates Commercial Corp.. THIS PROPOSAL IS SUBJECT TO ASSOCIATES
COMMERCIAL CORPORATION'S CREDIT, LEGAL AND INVESTMENT APPROVAL PROCESS AND IS
NOT INTENDED TO, AND DOES NOT, CREATE A LEGALLY BINDING COMMITMENT OR OBLIGATION
ON THE PART OF ASSOCIATES COMMERCIAL CORPORATION. The creation of such a legally
binding commitment or obligation is subject to, among other things, the issuance
of an approval letter by Associates Commercial Corp., and the negotiation,
execution and delivery of definitive documents which shall be mutually agreed
upon by all parties. IT IS UNDERSTOOD THAT NO PARTY HERETO SHALL BE LEGALLY
BOUND TO THE OTHER BY REASON OF THIS LETTER, NOR SHALL RIGHTS, LIABILITIES OR
OBLIGATIONS ARISE AS A RESULT OF THIS LETTER.
We look forward to your early review and response. If you have any questions,
please contact me at 562-903-2004, at your earliest convenience.
Sincerely,
Associates Commercial Corp.
PROPOSAL ACCEPTED:
/s/ Loren Pease UPRIGHT, INC.
BY: /s/ Alan Harper
--------------------------
Loren Pease NAME: ALAN HARPER
Regional Sales Manager --------------------------
TITLE: CONTROLLER
-----------------------
DATE: 2/26/99
------------------------
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