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, 1998
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
25-1199382
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer
Identification No.)
1 JLG Drive, McConnellsburg, PA
17233-9533
(Address of principal executive offices)
(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 December 3, 1998, there were 44,099,672 shares of capital stock of the
Registrant outstanding.
PART I FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
JLG INDUSTRIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
October 31, July 31,
1998 1998
(Unaudited)
ASSETS
Current assets
Cash $ 38,369 $ 56,793
Accounts receivable 100,030 94,610
Inventories 64,354 47,568
Other current assets 8,390 6,544
Total current assets 211,143 205,515
Property, plant and equipment - net 55,866 57,652
Equipment held for rental - net 29,512 25,103
Other assets 19,785 19,069
$316,306 $307,339
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Current portion of long-term debt $ 1,254 $ 1,253
Accounts payable 48,721 43,119
Accrued payroll and related taxes 4,986 11,652
Accrued sales costs 1,378 3,937
Income taxes 8,202 7,251
Other current liabilities 16,216 15,631
Total current liabilities 80,757 82,843
Long-term debt, less current portion 2,383 2,455
Contingent liabilities 9,128 8,800
Accrued employee benefits 5,723 5,473
Shareholders' equity
Capital stock:
Authorized shares: 100,000 at $.20 par
Outstanding shares: 44,100;
fiscal 1998 - 44,096 8,820 8,819
Additional paid-in capital 15,503 15,626
Unearned compensation (2,243) (2,633)
Accumulated other comprehensive income (3,416) (3,662)
Retained earnings 199,651 189,618
Total shareholders' equity 218,315 207,768
$316,306 $307,339
The accompanying notes are an integral part of these financial statements.
JLG INDUSTRIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except per share data)
(Unaudited)
Three Months Ended
October 31,
1998 1997
Net sales $128,655 $95,644
Cost of sales 98,930 74,476
Gross profit 29,725 21,168
Selling, administrative and
product development expenses 15,015 12,134
Restructuring charges 1,689
Income from operations 14,710 7,345
Other income (deductions):
Interest expense (54) (63)
Miscellaneous, net 879 (273)
Income before income taxes 15,535 7,009
Income tax provision 5,282 2,383
Net income $ 10,253 $ 4,626
Earnings per common share $ .23 $ .11
Earnings per common share -- assuming
dilution $ .23 $ .10
Cash dividends per share $ .005 $ .005
Weighted average shares outstanding 43,792 43,632
Weighted average shares outstanding --
assuming dilution 44,913 44,426
The accompanying notes are an integral part of these financial statements
JLG INDUSTRIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(Unaudited)
Three Months Ended
October 31,
1998 1997
Operations
Net income $ 10,253 $ 4,626
Adjustments to reconcile net income
to cash provided by (used for)
operating activities:
Depreciation and amortization 4,573 3,589
Other 1,461 1,082
Changes in operating assets and
liabilities (25,448) (10,831)
Changes in other assets and
liabilities (2,266) (915)
Cash used for operations (11,427) (2,449)
Investments
Purchases of property, plant and
equipment (1,192) (3,142)
Net additions to equipment held for
rental (6,028) (2,694)
Cash used for investments (7,220) (5,836)
Financing
Repayment of long-term debt (71) (66)
Payment of dividends (220) (220)
Exercise of stock options and issuance
of restricted awards 267 368
Cash (used for) provided by financing (24) 82
Currency adjustments
Effect of exchange rate changes on
cash flows 247 (731)
Cash
Net decrease in cash (18,424) (8,934)
Beginning balance 56,793 25,436
Ending balance $ 38,369 $ 16,502
The accompanying notes are an integral part of these financial statements.
JLG INDUSTRIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 31, 1998
(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, 1998 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, 1998.
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, 1998, must necessarily be based on management's estimate of
expected fiscal year-end inventory levels and costs.
Inventories consist of the following:
October 31, July 31,
1998 1998
Finished goods $41,001 $27,784
Work in process 8,279 9,291
Raw materials 19,828 15,067
69,108 52,142
Less LIFO provision 4,754 4,574
$64,354 $47,568
COMPREHENSIVE INCOME
The components of comprehensive income for the first quarters of 1999 and
1998 were as follows:
October 31, October 31,
1998 1997
Net income $10,253 $4,626
Aggregate translations adjustment 246 (730)
$10,499 $3,896
BASIC AND DILUTED EARNINGS PER SHARE
In 1997, the Financial Accounting Standards Board issued Statement No. 128,
"Earnings per Share". Statement 128 replaced the calculation of primary
and fully diluted earnings per share with basic and diluted earnings per
share. Unlike primary earnings per share, the calculation of basic earnings
per share excludes any dilutive effects of options, warrants and convertible
securities. Diluted earnings per share is very similar to the previously
reported fully diluted earnings per share.
The following table sets forth the computation of basic and diluted earnings
per share:
Three Months Ended
October 31,
1998 1997
Net income $10,253 $4,626
Denominator for basic earnings per share --
weighted average shares 43,792 43,632
Effect of dilutive securities - employee
stock options and unvested restricted
shares 1,121 794
Denominator for diluted earnings per share
weighted average shares adjusted for
dilutive securities 44,913 44,426
Earnings per common share $ .23 $ .11
Earnings per common share - assuming
dilution $ .23 $ .10
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 1999 is comprised of a self-insured
retention of $5 million for domestic claims, insurance coverage of $2 million
for international claims and catastrophic coverage for domestic and
international claims of $75 million in excess of the primary coverage.
The Company contracts with an independent 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 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 $12.0 million and $12.4 million were established at
October 31, 1998 and July 31, 1998, 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, 1998 and
July 31, 1998, there were no insurance recoverables or offset implications
and there were no claims by the Company being contested by insurers.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Results for the First Quarters of Fiscal 1999 and 1998
Sales for the first quarter of 1999 were $128.7 million, a 35% increase over
the $95.6 million for the first quarter of 1998. Domestic sales of $90.6
million were up 61% over last year's first quarter sales of $56.2 million
reflecting increased demand for the Company's products. International sales
at $38.1 million, represented 30% of sales for the current quarter, were
slightly lower than the $39.4 million, or 41% achieved in the first quarter
of the previous year. Strong European sales were partially offset by
weakness in the Asia/Pacific market and effects of a strong U.S. dollar in
foreign markets.
Gross profit, as a percent of sales, increased to 23% for the first quarter of
1999 compared to 22% for the same period of 1998. The improvement reflects
reduced product costs partially offset by a shift in product mix to less
profitable machines and the effects of a strong US dollar.
Selling, administrative and product development expenses were up $2.9 million,
or 24% compared to the first quarter of 1998. As a percent of sales, they
were 12% and 13% for the current and last year first quarter, respectively.
The increase in dollars is primarily the result of higher advertising expenses
as well as increased personnel and related costs associated with several
strategic initiatives begun last year.
The prior year quarter included $1.7 million in restructuring charges related
to workforce reductions.
Miscellaneous income was $879,000 compared to last year's first quarter expense
of $273,000. This change was largely the result of investment income earned on
higher cash balances and lower currency losses in the current year quarter.
Financial Condition
The Company continues to maintain a strong financial position, with the
funding of capital projects and working capital needs principally out of
operating cash flow and cash reserves, while remaining virtually debt-free.
Working capital increased by $7.7 million at October 31, 1998 compared to
July 31, 1998, principally to rebuild inventories in anticipation of strong
second half sales and higher accounts receivable balances attributable to
extended payment terms resulting from competitive market pressures.
Supplementing its working capital at October 31, 1998, the Company had unused
credit lines totaling $30 million. The Company considers these resources,
coupled with cash expected to be generated by operations, adequate to meet
its foreseeable funding needs, including higher accounts receivable balances,
$48 million for additional equipment held for rental and $15 million for other
capital-related projects.
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 expects momentum to build in the second half of the fiscal year
so that full-year sales will again reach record levels with profitability
climbing at an even faster rate. Management anticipates that favorable
factors including wide acceptance of new products in domestic and international
markets, leveraging the Company's brand equity with the consolidating rental
customers, expansion of the Company's customer base, coupled with high levels
of customer confidence, gradual lessening of previously reported supplier
constraints and significant operational improvements will contribute to
increased sales and earnings in fiscal 1999.
Year 2000
The Year 2000 issue is the result of computer programs being written using
two digits rather than four 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. If not corrected,
computer applications could fail or create erroneous results in date sensitive
applications.
The Company has undertaken a program to understand the nature and extent of
the work required to make its systems Year 2000 compliant. This program
encompasses information systems, shop floor equipment and facilities systems,
the Company's products and the readiness of the Company's suppliers and
customers. The program includes the following phases: identification and
assessment, compliance plan development, remediation and testing, production
implementation and contingency plan development for critical areas.
The Company's objective is to become Year 2000 compliant with its critical
activities and systems by December 31, 1998. The Company has substantially
completed identification and assessment, compliance plan development and
remediation for its critical activities and systems. The Company has
determined that it has no exposure to contingencies related to the Year 2000
issue for products it has sold. The Company is also requesting assurances by
no later than December 31, 1998 from its significant suppliers and customers
that they are addressing this issue to ensure that there will be no major
disruptions to the Company's business. The Company has received a significant
number of positive assurances to date and continues to actively pursue the
open requests.
The total cost of the Year 2000 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 Year 2000 compliant in a timely manner, the
Company believes that the most reasonably likely worst case Year 2000 scenario
would result from suppliers or other third parties failing to achieve Year 2000
compliance. Depending upon the number of third parties, their identity and
the nature of the non-compliance, the Year 2000 issue could have a material
adverse effect on the Company's financial position or results of operations.
However, the Company will develop contingency plans, which should be
complete in early 1999, should any critical problems occur in any of the
assessment areas noted above.
Accordingly, the Company does not expect Year 2000 problems to result in any
material adverse effect on the Company's financial position or results of
operations.
Euro Conversion
On January 1, 1999, certain countries of the European Union are scheduled to
establish fixed conversion rates between their existing currencies and one
common currency, the euro. The euro will then trade 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 other 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 operations.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company does not have a material exposure to financial risk from using
derivative financial instruments to manage its foreign currency exposures.
For additional information, reference is made to Item 7 in the Company's
annual report on Form 10-K for the fiscal year ended July 31, 1998. There
has been no material change in the Company's market risk exposures that affect
the quantitative and qualitative disclosures as presented as of July 31, 1998.
Independent Accounts' Review Report
The Board of Directors
JLG Industries, Inc.
We have reviewed the accompanying condensed consolidated balance sheet of JLG
Industries, Inc. and subsidiaries as of October 31, 1998, and the related
condensed consolidated statements of income, shareholders equity and cash flows
for the three-month periods ended October 31, 1998 and 1997. 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 financial statements 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, 1998, 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 3, 1998, 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,
1998, 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 16, 1998
PART II OTHER INFORMATION
ITEMS 1 - 3 and 5
None/not applicable.
ITEM 4
The Company held its Annual Meeting of Shareholders on November 19, 1998.
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 1999 fiscal year. Of the 44,099,586 shares
of capital stock outstanding on the record date, 41,036,988 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 40,713,267 323,721
C. H. Diller, Jr. 40,720,548 316,440
G. R. Kempton 40,720,349 316,639
J. A. Mezera 40,713,198 323,790
G. Palmer 40,719,799 317,189
S. Rabinowitz 40,697,549 339,439
T. C. Wajnert 40,718,349 318,639
C. O. Wood, III 40,719,848 317,140
Ratification of the appointment of Ernst & Young LLP as independent auditors
for the ensuing year.
For Against Abstain
40,697,943 191,018 148,027
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, 1998.
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
EXHIBIT 15
The Board of Directors
JLG Industries, Inc.
McConnellsburg, PA 17233
We are aware of the incorporation by reference in the Registration Statements
Form S-8, No. 33-60366; Form S-8, No. 33-61333; Form S-8, No. 33-75746; and
Form S-3, No. 333-47487 of JLG Industries, Inc. of our report dated November
16, 1998, 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, 1998.
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 16, 1998
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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.
Demand Variability -- 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, the
market availability of used equipment and alternatives to purchases such as
equipment leases directly from the Company. 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 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 material
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 those due to capacity constraints, labor disputes,
Year 2000 readiness, 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, Australia, 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. 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. 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. In addition, 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.
