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, 1996
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission file number: 001-12049
Gradall Industries, Inc.
(Exact name of registrant as specified in its charter)
Delaware 36-3381606
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
406 Mill Avenue S. W., New Philadelphia, OH 44663
(Address of principal executive offices)
(330) 339-2211
(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 No X (A)
------------ -----------
(A) Filing requirements began with the initial public offering on
September 3, 1996
Number of shares outstanding at September 30, 1996
Common Stock, $.001 par value: 8,939,294
GRADALL INDUSTRIES, INC.
FORM 10-Q
QUARTER ENDED SEPTEMBER 30, 1996
Index
Page
PART I FINANCIAL INFORMATION
Item 1 -- Consolidated Financial Statements 1
Item 2 -- Management's Discussion and Analysis of
Financial Condition and Results of Operations 6
PART II OTHER INFORMATION
Item 1 -- Legal Proceedings 10
Item 6 -- Exhibits and Reports on Form 8-K 10
Signatures 10
PART I - FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
GRADALL INDUSTRIES, INC., AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Dollars in Thousands, Except Per Share Data)
Unaudited Unaudited
-------------------- --------------------
Three Months Ended Nine Months Ended
September 30 September 30
-------------------- --------------------
1996 1995 1996 1995
--------- --------- --------- ---------
Net sales ......................... $ 35,205 $ 26,593 $ 104,841 $ 88,917
Cost of sales ..................... 26,941 20,703 80,594 69,396
--------- --------- --------- ---------
Gross profit ...................... 8,264 5,890 24,247 19,521
Operating expenses:
Engineering ................... 727 627 2,286 1,887
Selling and marketing ......... 1,494 1,400 4,853 3,907
Administrative ................ 1,469 1,276 4,011 3,497
--------- --------- --------- ---------
Operating income .................. 4,574 2,587 13,097 10,230
Interest expense .................. 755 250 2,805 704
Other, net ........................ 373 240 1,048 693
--------- --------- --------- ---------
Income before provision for taxes 3,446 2,097 9,244 8,833
Income tax provision .............. 1,351 751 3,623 3,167
--------- --------- --------- ---------
Income before extraordinary charge 2,095 1,346 5,621 5,666
Extraordinary charge .............. 973 973
--------- --------- --------- ---------
Net income ........................ $ 1,122 $ 1,346 $ 4,648 $ 5,666
========= ========= ========= =========
Net income per share:
Before extraordinary charge ... $ .30 $ .24 $ .89 $ 1.02
========= ========= ========= =========
After extraordinary charge .... $ .16 $ .24 $ .74 $ 1.02
========= ========= ========= =========
Weighted average shares outstanding 6,887,120 5,540,000 6,290,754 5,540,000
========= ========= ========= =========
The accompanying notes are an integral part of these consolidated
financial statements.
GRADALL INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands)
Unaudited
--------------------
September 30
--------------------
1996 1995
-------- --------
ASSETS
Current assets:
Cash ............................................ $ 1,057 $ 1,537
Accounts receivable - trade, net
of allowance for doubtful accounts ............ 18,542 12,151
Inventories ..................................... 17,775 18,510
Prepaid expenses and deferred charges ........... 540 429
Deferred income taxes ........................... 1,371 1,371
-------- --------
Total current assets ....................... 39,285 33,998
Deferred income taxes .............................. 5,368 5,143
Property, plant and equipment, net ................. 11,165 10,619
Other assets ....................................... 1,526 2,264
-------- --------
Total assets ............................... $ 57,344 $ 52,024
======== ========
LIABILITIES & STOCKHOLDERS' EQUITY
Current liabilities:
Current portion long term debt .................. $ 168 $ 1,522
Accounts payable - trade ........................ 12,715 14,672
Accrued other expenses:
Income taxes .................................. 99 (2,156)
Other ......................................... 8,476 9,225
-------- --------
Total current liabilities .................. 21,458 23,263
-------- --------
Long term obligations:
Long-term debt, net of current portion .......... 13,284 36,400
Accrued post-retirement benefit cost ............ 14,487 13,824
Other long term liabilities ..................... 1,656 1,656
-------- --------
Total long term obligations ................ 29,427 51,880
-------- --------
Total liabilities .......................... 50,885 75,143
-------- --------
Stockholders' equity:
Common shares, $.001 par value; 18,000,000 shares
authorized; 8,939,294 and 5,540,000 issued and
outstanding in 1996 and 1995 .................. 9 1
Additional paid-in capital ...................... 38,921 11,999
Accumulated (deficit) surplus ................... (32,471) (35,119)
-------- --------
Total stockholders' equity (deficit)........ 6,459 (23,119)
-------- --------
Total liabilities and stockholders' equity . $ 57,344 $ 52,024
======== ========
The accompanying notes are an integral part of these
consolidated financial statements.
GRADALL INDUSTRIES, INC., AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in Thousands)
Unaudited
--------------------
Nine Months Ended
September 30
--------------------
1996 1995
-------- --------
Operating Activities:
Net income ........................................ $ 4,648 $ 5,666
Adjustments to reconcile net income to net
cash provided by operating activities:
Extraordinary charge, before tax benefit ....... 1,595
Post-retirement benefit transition obligation .. 663 585
Depreciation and amortization .................. 1,286 804
Deferred income taxes .......................... (225) (198)
Increase in accounts receivable ................ (6,391) (3,076)
Decrease/(increase) in inventory ............... 735 (4,018)
Increase in prepaid expenses ................... (111) (83)
(Increase)/decrease in other assets ............ (186) 90
(Decrease)/increase in accounts payable
and accrued expenses .......................... (451) 2,992
Decrease in accrued other long-term liabilities. (129)
-------- --------
Net cash provided by operating activities ..... 1,563 2,633
-------- --------
Investing Activities:
Purchase of property, plant and equipment ......... (1,535) (2,767)
-------- --------
Financing Activities:
Net proceeds from initial public offering ......... 26,929 -
Payment of term debt .............................. (10,000) (557)
Payment of subordinated debt ...................... (10,000)
Net reduction in revolver ......................... (5,303)
Net borrowings under lines of credits ............. 133
Redemption of preferred stock ..................... (2,000)
Repayments on capital leases ...................... (134) (69)
New capital lease debt ............................ 467
-------- --------
Net cash used in financing activities ......... (508) (26)
-------- --------
Net decrease in cash .......................... (480) (160)
Cash at beginning of year ............................ 1,537 160
-------- --------
Cash at end of period ................................ $ 1,057 $ -
======== ========
The accompanying notes are an integral part of these
consolidated financial statements.
GRADALL INDUSTRIES, INC., AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION:
Reference is made to the audited financial statements included in the
Company's registration statement, as amended, on Form S-1 dated August
28, 1996, (No. 333-0677) for the years ended December 31, 1995 and
1994.
The unaudited interim financial information as of September 30, 1996,
and for the nine months ended September 30, 1996 and 1995, 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, 1996, are not necessarily
indicative of the results that may be expected for the entire year
ending December 31, 1996.
2. INVENTORIES:
Inventories were comprised of:
Raw materials $ 1,069 $ 936
Work in process 17,008 16,585
Finished goods 5,518 6,150
--------- ---------
23,595 23,671
LIFO reserve (5,820) (5,161)
--------- ---------
Total inventory $ 17,775 $ 18,510
========= =========
3. PUBLIC OFFERING:
On September 3, 1996, the Company completed an initial public offering
in which 2,950,000 shares of common stock were issued for a total sum
of $29.5 million. Expenses incurred in connection with the issue
approximated $2.6 million. The net proceeds of the offering were used
as follows:
Repay outstanding term debt $ 9,550
Repay subordinate debt 10,000
Redeem preferred stock 2,000
Reduce revolving credit liability 5,379
The early repayment of the term debt and subordinated debt resulted in
the write off of $723 of deferred financing costs and unamortized
discount on the subordinated debt of $872 which have been accounted for
as an extraordinary charge resulting from early extinguishment of debt
net of applicable income taxes of $622.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
In connection with the offering, the Company increased the number of
its authorized shares of common stock from 2,200 to 18,000,000 and
effected a 5,540 to 1 stock split. Share data in the accompanying
financial statements have been restated to reflect these changes.
4. CONTINGENCIES:
In July 1996 the Company entered into a binding settlement with respect
to certain litigation with a distributor. As of September 30, 1996, the
Company had fully accrued such cost in its historical financial
statements.
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
RESULTS OF OPERATIONS
Three months ended September 30, 1996, compared to three months ended September
30, 1995:
Net Sales: Net sales for the three months ended September 30, 1996, were $35.2
million, an increase of $8.6 million or 32.4% compared to $26.6 million for the
three months ended September 30, 1995. The increase in net sales was
attributable to a significant increase in unit volume of material handlers.
Gross Profit: Gross profit for the three months ended September 30, 1996, was
$8.3 million, an increase of $2.4 million or 40.3%, compared to $5.9 million for
the three months ended September 30, 1995. Gross profit as a percentage of net
sales increased to 23.5% for the three months ended September 30, 1996, from
22.1% for the three months ended September 30, 1995, primarily due to improved
production efficiencies and economies of higher production volume.
Engineering: Engineering expense for the three months ended September 30, 1996,
was $0.7 million, an increase of $0.1 million or 15.9%, compared to $0.6 million
for the three months ended September 30, 1995. This increase was due to the
addition of engineering personnel to support new product development.
Selling and Marketing: Selling and marketing expenses for the three months ended
September 30, 1996, were $1.5 million, an increase of $0.1 million or 6.7%,
compared to $1.4 million for the three months ended September 30, 1995. This
increase was primarily attributable to the addition of a field service
representative and a service parts sales representative.
Administrative: Administrative expenses for the three months ended September 30,
1996, were $1.5 million, an increase of $0.2 million or 15.1%, compared to $1.3
million for the three months ended September 30, 1995. This increase was
primarily attributable to various timing adjustments on insurance payments and
employee benefits.
Interest Expense: Interest expense for the three months ended September 30,
1996, was $0.8 million, an increase of $0.5 million or 202.0%, compared to $0.3
million for the three months ended September 30, 1995. This increase in interest
expense was due to increased borrowings in connection with the October 1995
recapitalization of the Company.
Income Tax Provision: Income tax expense for the three months ended September
30, 1996, was $1.4 million, an increase of $0.6 million or 79.9%, compared to
$0.8 million for the three months ended September 30, 1995, and represented an
effective tax rate of 39.2% and 35.8%, respectively.
RESULTS OF OPERATIONS (CONTINUED)
Income Before Extraordinary Charge: Income before extraordinary charge for the
three months ended September 30, 1996, was $2.1 million, an increase of $0.7
million or 55.6%, compared to $1.3 million for the three months ended September
30, 1995. This increase was attributable to the increased sales volume.
Extraordinary Charge: An extraordinary charge of $1.0 million, net of taxes,
related to early extinguishment of debt was incurred in September 1996 to write
off unamortized deferred financing costs and the discount on subordinated debt
which were paid off with the proceeds from the initial public offering which was
completed on September 3, 1996.
Earnings Per Share After Extraordinary Charge: Earnings per share after
extraordinary charge decreased to $0.16 for the three months ended September 30,
1996, from $0.24 for the three months ended September 30, 1995, principally as a
result of the extraordinary charge described above and a higher number of shares
outstanding from the initial public offering.
Nine months ended September 30, 1996, compared to nine months ended September
30, 1995:
Net Sales: Net sales for the nine months ended September 30, 1996, were $104.8
million, an increase of $15.9 million or 17.9% compared to $88.9 million for the
nine months ended September 30, 1995. The increase in net sales was
substantially attributable to a significant increase in unit volume of material
handlers.
Gross Profit: Gross profit for the nine months ended September 30, 1996,
amounted to $24.2 million, an increase of $4.7 million or 24.2% compared to
$19.5 million for the nine months ended September 30, 1995. Gross profit as a
percentage of net sales increased to 23.1% for the nine months ended September
30, 1996, from 22.0% for the nine months ended September 30, 1995, primarily due
to improved production efficiencies and the economics of higher production
volume.
Engineering: Engineering expense for the nine months ended September 30, 1996,
was $2.3 million, an increase of $0.4 million or 21.1% compared to $1.9 million
for the nine months ended September 30, 1995. This increase was due to the
addition of engineering personnel to support new product development.
Selling and Marketing: Selling and marketing expenses for the nine months ended
September 30, 1996, were $4.9 million, an increase of $0.9 million or 24.2%
compared to $3.9 million for the nine months ended September 30, 1995. This
increase was primarily attributable to the expenses related to the 1996 ConExpo,
a major trade show held every three years, and marketing costs tied to the
increased sales volume.
RESULTS OF OPERATIONS (CONTINUED)
Administrative: Administrative expenses for the nine months ended September 30,
1996, were $4.0 million, an increase of $0.5 million or 14.7% compared to $3.5
million for the nine months ended September 30, 1995. This increase was
primarily attributable to higher legal expenses in connection with the
settlement of litigation and the addition of professional employees to support
quality control and management information systems.
Interest Expense: Interest expense for the nine months ended September 30,1996,
was $2.8 million, an increase of $2.1 million or 298.4% compared to $0.7 million
for the nine months ended September 30, 1995. This increase in interest expense
was due to increased borrowings in connection with the October 1995
recapitalization.
Income Tax Provision: Income tax expense for the nine months ended September 30,
1996, was $3.6 million, an increase of $0.5 million or 14.4% compared to $3.2
million for the nine months ended September 30, 1995, and represented an
effective tax rate of 39.2% and 35.9%, respectively.
Income Before Extraordinary Charge: Income before extraordinary charge was
approximately the same for both nine month periods. The higher level of sales in
the nine months ended September 30, 1996, generated higher operating margins
which were offset by the additional interest cost related to the debt incurred
with the recapitalization on October 13, 1995.
Extraordinary Charge: An extraordinary charge of $1.0 million, net of taxes,
related to early extinguishment of debt was incurred in September 1996 to write
off unamortized deferred financing costs and the discount on subordinated debt
which were paid off with the proceeds from the initial public offering on
September 3, 1996.
Earnings Per Share After Extraordinary Charge: Earnings per share after
extraordinary charge decreased to $0.74 for the nine months ended September 30,
1996, from $1.02 for the nine months ended September 30, 1995, principally as a
result of the extraordinary charge described above and a higher number of shares
outstanding from the initial public offering.
LIQUIDITY AND CAPITAL RESOURCES
The Company generated net cash from operating activities of $1.6 million for the
first nine months of 1996. Net cash from operating activities resulted primarily
from $4.6 million of net income, $1.3 million of depreciation, $0.4 million of
post retirement benefit net of deferred taxes, and a $1.6 million extraordinary
charge to write off unamortized deferred financing costs and the discount on
subordinated debt which were paid off with proceeds from the initial public
offering on September 3, 1996. The sum of these operating activities prior to
changes in working capital totaled $7.9 million and was partially offset by $6.4
million of net cash used by changes in operating assets and liabilities,
primarily due to an increase in accounts receivable in support of the Company's
revenue growth.
LIQUIDITY AND CAPITAL RESOURCES (CONTINUED)
For the first nine months of 1996, net cash invested in purchases of property
and equipment was $1.5 million. For the year ended December 31, 1996, the
Company expects that purchases of property and equipment will be approximately
$4.2 million.
For the first nine months of 1996, net cash used by financing activities was
$508,000 resulting from the proceeds from the initial public offering less the
pay down of bank debt and redemption of preferred stock.
A substantial amount of the Company's working capital is invested in accounts
receivable and inventories. The Company periodically reviews accounts receivable
for noncollectibility and inventories for obsolescence and establishes
allowances it believes are appropriate.
As of September 30, 1996, the Company has borrowed $12.8 million of its $22
million bank revolving credit facility which is secured by most of the assets of
the Company. Interest is calculated, at the Company's option, at LIBOR plus 1.0%
or a commercial bank's base rate less 0.5% and requires a commitment fee of
0.25% per annum on the unused portion of the revolving credit commitment. At
September 30, 1996, $9.2 million was available for future borrowings under the
revolver and the Company was in compliance with all financial covenants. The
Company is in the process of revising the terms of its senior credit facility
which will increase the facility amount and provide greater financial
flexibility to the Company. The present facility expires October 13, 2000.
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.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
See Footnote No. 4, Contingencies, in Part I - Financial 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, 1996: None
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Gradall Industries, Inc.
Date: November 12, 1996 By: /s/ Barry L. Phillips
President and Chief Executive Officer
Date: November 12, 1996 By: /s/ Bruce A. Jonker
Chief Financial Officer