UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
(Mark One)
[X] Quarterly Report Pursuant to Section 13 or 15 (d) of the Securities
Exchange Act of 1934
For the quarterly period ended October 31, 1997
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: 0-8454
JLG INDUSTRIES, INC.
(Exact name of registrant as specified in its charter)
PENNSYLVANIA
(State or other jurisdiction
of incorporation or
organization)
25-1199382
(I.R.S. Employer
Identification No.)
1 JLG Drive, McConnellsburg,
PA
(Address of principal
executive offices)
17233-9533
(Zip Code)
Registrant's telephone number, including area code:
(7l7) 485-5161
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 November 17, 1997, there were 44,014,836 shares of capital stock of the
Registrant outstanding.
PART I FINANCIAL INFORMATION
JLG INDUSTRIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
October 31, July 31,
1997 1997
(in thousands) (Unaudited)
ASSETS
Current Assets
Cash $16,502 $25,436
Accounts receivable 65,966 70,164
Inventories:
Finished goods 35,092 30,441
Work in process 6,885 12,132
Raw materials 10,258 11,154
52,235 53,727
Future income tax benefits 4,113 4,133
Other current assets 4,193 2,248
Total Current Assets 143,009 155,708
Property, Plant and Equipment - net 56,747 56,064
Equipment Held for Rental - net 26,435 24,951
Other Assets 14,816 12,669
$241,007 $249,392
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Accounts payable $30,765 $43,027
Other current liabilities 25,694 28,043
Total Current Liabilities 56,459 71,070
Long-Term Debt 3,637 3,685
Contingent and Other Liabilities 11,959 12,692
Shareholders' Equity
Capital stock:
Authorized shares: 100,000 at $.20 par
Outstanding shares: Fiscal 1998 - 44,015
shares; Fiscal 1997 - 43,726 shares 8,803 8,745
Additional paid-in capital 14,664 11,391
Equity adjustment from translation (2,910) (2,180)
Retained earnings 148,395 143,989
Total Shareholders' Equity 168,952 161,945
$241,007 $249,392
The accompanying notes are an integral part of these financial statements.
JLG INDUSTRIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
Three Months Ended
October 31,
(in thousands, except per share data) 1997 1996
Net Sales $95,644 $120,205
Cost of sales 74,476 87,503
Gross Profit 21,168 32,702
Selling, administrative and
product development expenses 12,134 13,484
Restructuring charges 1,689
Income from Operations 7,345 19,218
Other income (deductions):
Interest expense (63) (41)
Miscellaneous, net (273) 413
Income before Income Taxes 7,009 19,590
Income tax provision 2,383 7,248
Net Income $4,626 $12,342
Net Income per Share $.11 $.28
Weighted Average Shares 43,911 43,472
Dividends per Share $.005 $.005
The accompanying notes are an integral part of these financial statements.
JLG INDUSTRIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Unaudited)
Three Months Ended
October 31,
(in thousands) 1997 1996
Operations
Net income $4,626 $12,342
Adjustments to reconcile net income to cash
provided by (used for) operating activities:
Depreciation and amortization 3,589 2,389
Provision for self-insured losses 960 900
Deferred income taxes 122 (130)
9,297 15,501
Changes in operating assets and liabilities (10,831) (9,524)
Changes in other assets and liabilities (787) (1,408)
Cash (used for) provided by operations (2,321) 4,569
Investments
Purchases of property, plant and equipment (3,143) (3,181)
Additions to equipment held for rental (2,693) (3,655)
Cash used for investments (5,836) (6,836)
Financing
Repayment of long-term debt (66) (52)
Payment of dividends (220) (217)
Exercise of stock options 240 1,743
Cash (used for) provided by financing (46) 1,474
Currency Adjustments
Effect of exchange rate changes on cash flows (731) (40)
Cash
Net change in cash (8,934) (833)
Beginning balance 25,436 30,438
Ending balance $16,502 $29,605
The accompanying notes are an integral part of these financial statements.
JLG INDUSTRIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 31, 1997
(unaudited)
BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements 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 information
and notes 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.
Interim results for the three months ended October 31, 1997 are not necessarily
indicative of the results that may be expected for the fiscal year as a whole.
For further information, refer to consolidated financial statements and notes
thereto included in the Company's annual report on Form 10-K for the fiscal
year ended July 31, 1997.
NET INCOME PER COMMON SHARE
Net income per share is computed by dividing net income by the weighted average
shares outstanding during the period. The effect of capital stock equivalents
is immaterial to net income per share.
In February 1997, the Financial Accounting Standards Board issued Statement No.
128, "Earnings per Share," which is required to be adopted for periods ending
after December 15, 1997. Earlier application is not permitted. At that time,
the Company will be required to change the method currently used to compute
earnings per share and to restate all prior periods. Under the new
requirements for calculating primary earnings per share, the dilutive effect of
options will be excluded. As a result of adopting Statement 128, no change is
anticipated in the previously reported primary earnings per share for the
fiscal 1998 and 1997 comparative amounts. The impact of Statement 128 on the
calculation of fully diluted earnings per share is not expected to be material.
INVENTORIES AND COST OF SALES
A precise inventory valuation under the LIFO (last-in, first-out) method can
only be made at the end of each fiscal year; therefore, interim LIFO inventory
valuation determinations, including the determination at October 31, 1997, must
necessarily be based on management's estimate of expected fiscal year-end
inventory levels and costs.
COMMITMENTS AND CONTINGENCIES
The Company is a party to personal injury and property damage litigation
arising out of incidents involving the use of its products. The Company's
insurance program for fiscal year 1998 is comprised of a self-insured retention
of $5 million and catastrophic coverage of $50 million in excess of the
retention. The Company contracts with an independent insurance firm to provide
claims handling and adjustment services. The Company's estimates with respect
to claims are based on internal evaluations of the merits of individual claims
and the reserves assigned by the Company's independent insurance firm. The
methods of making such estimates and establishing the resulting accrued
liability are reviewed frequently, and any adjustments resulting therefrom are
reflected in current earnings. Claims are paid over varying periods, which
generally do not exceed five years. Accrued liabilities for future claims are
not discounted.
With respect to all product liability claims of which the Company is aware,
accrued liabilities of $9.8 million and $9.6 million were established at
October 31, 1997 and July 31, 1997, respectively. While the Company's ultimate
liability may exceed or be less than the amounts accrued, the Company believes
that it is unlikely that it would experience losses that are materially in
excess of such reserve amounts. As of October 31, 1997 and July 31, 1997,
there were no insurance recoverables or offset implications and there were no
claims by the Company being contested by insurers.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Results for the First Quarters of Fiscal 1998 and 1997
Sales for the quarter were $95.6 million, $24.6 million or 20% below the first
quarter of 1997 primarily due to decreased domestic sales and higher discounts
resulting from competitive pricing pressures in the marketplace. Lower
domestic sales were partially offset by an increase in sales to customers
outside the United States, which were 41% and 30% of total sales for the first
quarters of 1998 and 1997, respectively. Sales from new and redesigned
products introduced during the past two years represented 44% of sales for the
first quarter of 1998.
Gross profit, as a percent of sales, decreased to 22% in the first quarter of
1998 compared to 27% for the same period of 1997. The major contributors to
this decrease were the effects of fixed costs spread over lower production
levels, unfavorable product mix weighted towards smaller, less profitable
machines; lower prices due principally to foreign currency movements and
increased sales discounts; and higher spending for labor, depreciation and
consumables. Partially offsetting these reductions were increased service
parts sales which have higher margins.
Selling, administrative and product development expenses were 10% or $1.4
million below the prior year first quarter. As a percent of sales, they were
13% and 11% for the current and last year first quarter, respectively. The
decrease in dollars over the last year quarter was primarily due to the
Company's decision to resize the business for current market conditions and
included lower personnel and related costs; reduced advertising expenses and
lower consulting costs. Partially offsetting these reductions were higher
product development costs in support of new and improved products and higher
selling expenses associated with increased international business.
The current year quarter includes $1.7 million in restructuring charges
related to workforce reductions.
Miscellaneous expense was $336,000 versus last year income of $372,000,
primarily due to currency losses in the current year first quarter resulting
from the strength of the U.S. dollar against the Australian dollar.
The effective tax rate for the quarter was 34% compared to last year's 37%.
The lower rate for the current quarter is primarily related to tax benefits
resulting from higher international sales.
Financial Condition
The Company continues to maintain a strong financial position, funding capital
projects and working capital needs principally out of operating cash flow and
cash reserves, while remaining virtually debt-free.
At July 31, 1997, the Company had unused credit lines totaling $28.9 million
and cash balances of $16.5 million. The Company considers these resources,
coupled with cash expected to be generated by operations, adequate to meet
its foreseeable funding needs, including anticipated additional fiscal 1998
expenditures of $10 million for capital projects and $10 million in
additions to its equipment held for rental.
The Company's exposure to product liability claims is discussed in the note
entitled Commitments and Contingencies of the Notes to Condensed
Consolidated Financial Statements of this report. Future results of
operations, financial condition and liquidity may be affected to the extent
that the Company's ultimate exposure with respect to product liability
varies from current estimates.
Outlook
This Outlook section and other parts of this Management's Discussion and
Analysis contain forward-looking information and involve risks and
uncertainties that could significantly impact expected results. Certain
important factors that, in some cases have affected and in the future could
affect, the Company's results of operations and that could cause such
future results of operations to differ are described in "Cautionary
Statements Pursuant to the Securities Litigation Reform Act" which is an
exhibit to this report.
Management believes that the Company's performance will improve as the 1998
fiscal year progresses, especially during the second half of the year. This
forecast is supported by customer surveys and industry analyses, which
predict ongoing growth in industrial and construction markets, as well as in
the rental industry during calendar 1998. These trends assume continued
stability in U.S. interest rates and ongoing, steady growth in the domestic
economy.
Although backlogs were significantly below the year-ago levels, they
increased during the first quarter of fiscal 1998 and were above the level
at fiscal 1997 year-end. In addition, the second half of the fiscal year is
usually a stronger buying season for the Company's products. Provided
rental fleet utilization rates remain strong and rental rates continue to
improve, management expects a resumption in the expansion of its customers'
rental fleets. The Company plans a significant worker recall for boom lift
production beginning in December 1997 in order to support its planned
production increases to meet the expected stronger second half demand. The
Company's cost reduction expectations are on track, which management
believes will help to offset continuing pricing pressures in the marketplace.
Management continues to pursue specific improvement goals during fiscal 1998
including: improve processes and reduce costs; accelerate new product
development; expand global distribution; enhance customer support services;
grow JLG Equipment Services; strengthen employee involvement and pursue
strategic acquisitions. The goal of this business plan is to position the
Company for long-term profitable growth and enhanced shareholder value.
Ernst & Young LLP
Independent Accountants' Review Report
To The Board of Directors
JLG Industries, Inc.
McConnellsburg, Pennsylvania
We have reviewed the accompanying condensed consolidated balance sheet of JLG
Industries, Inc. and subsidiaries as of October 31, 1997, and the related
condensed consolidated statements of income and cash flows for the three-month
periods ended October 31, 1997 and 1996. These financial statements are the
responsibility of the Company's management.
We conducted our reviews in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures to
financial data, and making inquiries of persons responsible for financial and
accounting matters. It is substantially less in scope than an audit conducted
in accordance with generally accepted auditing standards, which will be
performed for the full year with the objective of expressing an opinion
regarding the financial statements taken as a whole. Accordingly, we do not
express such an opinion.
Based on our reviews, we are not aware of any material modifications that
should be made to the accompanying condensed consolidated financial statements
referred to above for them to be in conformity with generally accepted
accounting principles.
We have previously audited, in accordance with generally accepted auditing
standards, the consolidated balance sheet of JLG Industries, Inc. as of July
31, 1997, and the related consolidated statements of income, shareholders'
equity and cash flows for the year then ended, not presented herein, and in our
report dated September 4, 1997, we expressed an unqualified opinion on those
consolidated financial statements. In our opinion, the information set forth
in the accompanying condensed consolidated balance sheet as of July 31, 1997,
is fairly stated, in all material respects, in relation to the consolidated
balance sheet from which it has been derived.
/s/Ernst & Young LLP
Baltimore, Maryland
November 13, 1997
PART II OTHER INFORMATION
ITEMS 1 - 3 and 5
None/not applicable.
ITEM 4
The Company held its Annual Meeting of Shareholders on November 17, 1997.
Management solicited proxies for the election of eight directors and for
ratification of the appointment of Ernst & Young LLP as the Company's
independent auditors for the 1998 fiscal year. Of the 44,009,117 shares of
capital stock outstanding on the record date, 41,123,971 or 93% were voted in
person or by proxy at the meeting date. The tabulated results are set forth
below:
Election of directors
FOR AGAINST
L. D. Black 40,737,446 386,525
C. H. Diller, Jr. 40,738,435 385,536
G. R. Kempton 40,750,407 373,564
J. A. Mezera 40,739,180 384,791
G. Palmer 40,736,447 387,524
S. Rabinowitz 40,734,000 389,971
T. C. Wajnert 40,736,800 387,171
C. O. Wood, III 40,752,727 371,244
Ratification of the appointment of Ernst & Young LLP as independent auditors
for the ensuing year.
For Against Abstain
40,833,403 70,242 220,326
ITEM 6 -- EXHIBITS AND REPORTS ON FORM 8-K
(a) The following exhibits are included herein:
15 Letter re: Unaudited Interim Financial Information
27 Financial Data Schedule
99 Cautionary Statements Pursuant to the Securities Litigation
Reform Act
(b) The Company was not required to file Form 8-K pursuant to
requirements of such form for any of the three months ended October 31,
1997.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized who is also signing in his capacity as
principal financial officer.
JLG INDUSTRIES, INC.
(Registrant)
/s/ Charles H. Diller, Jr.
Charles H. Diller, Jr.
Executive Vice President and
Chief Financial Officer
[DESCRIPTION] LETTER RE UNAUDITED INTERIM FINANCIAL INFORMATION
EXHIBIT 15
We are aware of the incorporation by reference in the Registration
Statements on Form S-8, No. 33-60366, No. 33-61333 and No. 33-75746 of JLG
Industries, Inc. of our report dated November 13, 1997, relating to the
unaudited condensed consolidated interim financial statements of JLG
Industries, Inc. which are included in its Form 10-Q for the quarter ended
October 31, 1997.
Pursuant to Rule 436(c) of the Securities Act of 1933 our report is not a part
of the registration statement prepared or certified by accountants within the
meaning of Section 7 or 11 of the Securities Act of 1933.
/s/ Ernst & Young LLP
Baltimore, Maryland
November 13, 1997
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EXHIBIT 99
Cautionary Statements Pursuant to the Securities
Litigation Reform Act of 1995
The Company wishes to inform its investors of the following important factors
that in some cases have affected, and in the future could affect, the
Company's results of operations and that could cause such future results of
operations to differ materially from those expressed in any forward looking
statements made by or on behalf of the Company. Disclosure of these factors is
intended to permit the Company to take advantage of the "safe harbor"
provisions of the Private Securities Litigation Reform Act of 1995. Many of
these factors have been discussed in prior SEC filings by the Company. Though
the Company has attempted to list comprehensively these important cautionary
factors, the Company wishes to caution investors that other factors may in the
future prove to be important in affecting the Company's results of operations.
Cyclical Demand -- Demand for new equipment manufactured by the Company tends
to be cyclical, responding historically to varying levels of construction and
industrial activity, principally in the United States and, to a lesser extent,
in other industrialized nations. Other factors affecting demand include the
availability and cost of financing for equipment purchases and the market
availability of used equipment. Company management regularly monitors these
and other factors that affect demand for the Company's equipment. However,
predicting levels of demand beyond a short term is necessarily imprecise and
demand may at times change dramatically.
Consolidating Customers Base; Rental Companies -- The principal customers for
the Company's new equipment are over 110 independent equipment rental
companies that rent the Company's products and provide service support to
equipment users. In recent years, growth in sales to equipment rental
companies has outpaced growth in direct sales to end-users, resulting in
equipment rental companies comprising a larger share of total sales. At the
same time, there has been substantial consolidation in ownership among rental
companies, resulting in a more limited number of major customers comprising a
substantial portion of total sales. A change in purchasing decisions by any
of these major customers could materially affect overall demand for the
Company's products and the Company's financial performance. More generally,
during recessionary conditions, demand for equipment by equipment rental
companies typically declines more sharply than demand for equipment purchased
by end-users.
Manufacturing Capacity -- Given the cyclical nature of demand, the Company must
periodically expand and contract its manufacturing facilities. Capital
investment to acquire additional manufacturing facilities involves significant
risks. Excess manufacturing capacity adversely affects profitability because
higher fixed costs are spread over a lower sales volume. Insufficient capacity
adversely affects profitability as long lead-times required to fill customer
orders may impair the Company's ability to compete for new business and
subcontracting costs incurred to increase capacity affect profitability.
Product Liability -- Use of the Company's products involves risks of personal
injury and property damage and liability exposure for the Company. The Company
insures against this liability through a combination of a self-insurance
retention and catastrophic insurance coverage in excess of the retention. The
Company monitors all incidents of which it becomes aware involving the use of
its products that result in personal injury or property damage and establishes
accrued liability reserves on its financial statements based on liability
estimates with respect to claims arising from such incidents. Future or
unreported incidents involving personal injury or property damage or
unanticipated variances between actual liabilities for known incidents and
Company estimates may adversely affect the Company's financial performance.
Availability of Product Components -- The Company obtains raw materials and
certain manufactured components from third-party suppliers. To reduce
materials costs and inventories, the Company relies on supplier partnership
arrangements with preferred vendors as a sole source for "just-in-time"
delivery of many raw materials and manufactured components. Because the
Company maintains limited raw material inventories, even brief unanticipated
delays in delivery by suppliers, including due to labor disputes, impaired
financial condition of suppliers, weather emergencies or other natural
disasters, may adversely affect the Company's ability to satisfy its customers
on a timely basis and thereby affect the Company's financial performance.
Foreign Sales; Currency Risks -- A growing component of the Company's business
has been export sales to Europe, Latin America and Asia. Maintenance and
continued growth of this segment of the Company's business may be affected by
changes in trade, monetary and fiscal policies, laws and regulations of the
United States and other trading nations and by foreign currency exchange rate
fluctuations and the ability or inability of the Company to hedge against
exchange rate risks.
Competition; Continued Innovation -- The Company faces substantial competition
in the market for its products and some of the Company's competitors are, or
in the future may be, owned by larger enterprises that may have greater
financial resources and offer wider product lines than the Company. Product
line expansion by existing competitors and potential entry by new competitors
also may affect the Company's market position. Throughout its history, the
Company has devoted substantial resources to product development and has
generally succeeded in being a market leader in introducing new high-reach
products or incorporating new features and functions into existing products.
The Company also holds certain patents which it believes are valuable.
Successful product innovation by competitors that reach the market prior to
comparable innovation by the Company or that are amenable to patent protection
may adversely affect the Company's financial performance.
Mergers and Acquisitions -- The Company intends to pursue strategic
acquisitions as a means of increasing sales and earnings and promoting
shareholder value. Acquisitions generally may involve a number of risks that
may affect the Company's financial performance including increased leverage,
diversion of management resources, possible shareholder dilution, assumption
of liabilities of acquired businesses and corporate culture conflicts.
Specific acquisitions may involve other risks unique to the acquired business.
Finally there is no assurance that the Company will be able to conclude
satisfactory agreements to acquire any businesses as a means to increase sales
and earnings.
Unanticipated Litigation -- The Company occasionally has faced unanticipated
intellectual property and shareholder litigation which has involved
significant, unbudgeted expenditures. The costs and other effects of any
future, unanticipated legal or administrative proceedings may be significant.
Dependence Upon Key Personnel -- The Company believes that it has developed a
strong management team which intends to continue the Company's growth and
profitability. However, the loss or unavailability of certain key management
personnel, principally L. David Black, the Company's Chairman of the Board,
President and Chief Executive Officer, could adversely affect the Company's
business and prospects.
