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 January 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 February 17, 1998, there were 44,049,536 shares of capital stock of the
Registrant outstanding.
PART I FINANCIAL INFORMATION
JLG INDUSTRIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
January 31, July 31,
1998 1997
(in thousands) (Unaudited)
ASSETS
Current Assets
Cash $ 18,613 $ 25,436
Accounts receivable 80,431 70,164
Inventories:
Finished goods 33,343 30,441
Work in process 6,944 12,132
Raw materials 12,334 11,154
52,621 53,727
Future income tax benefits 4,207 4,133
Other current assets 4,131 2,248
Total current assets 160,003 155,708
Property, Plant and Equipment - net 57,206 56,064
Equipment Held for Rental - net 21,681 24,951
Other Assets 14,736 12,669
$253,626 $249,392
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Accounts payable $ 35,339 $ 43,027
Other current liabilities 25,552 28,043
Total current liabilities 60,891 71,070
Long-Term Debt 3,574 3,685
Accrued Contingent Liabilities 7,607 7,646
Other Liabilities 5,393 5,046
Shareholders' Equity
Capital stock:
Authorized shares: 100,000 at $.20 par
Outstanding shares: 44,029;
fiscal 1997 - 43,726 8,806 8,745
Additional paid-in capital 14,711 11,391
Equity adjustment from translation (3,177) (2,180)
Retained earnings 155,821 143,989
Total shareholders' equity 176,161 161,945
$253,626 $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 Six Months Ended
January 31, January 31,
(in thousands, except per share data) 1998 1997 1998 1997
Net Sales $111,706 $121,246 $207,351 $241,452
Cost of sales 86,821 90,250 161,298 177,753
Gross Profit 24,885 30,996 46,053 63,699
Selling, administrative and
product development expenses 12,341 13,282 24,475 26,767
Restructuring charges 1,689
Income from Operations 12,544 17,714 19,889 36,932
Other income (deductions):
Interest expense (73) (52) (136) (93)
Miscellaneous, net (886) 159 (1,159) 573
Income before Income Taxes 11,585 17,821 18,594 37,412
Income tax provision 3,939 6,594 6,322 13,842
Net Income $ 7,646 $ 11,227 $ 12,272 $ 23,570
Earnings per Share $ .17 $ .26 $ .28 $ .54
Earnings per Share --
Assuming Dilution $ .17 $ .25 $ .27 $ .53
Dividends per Share $ .005 $ .005 $ .01 $ .01
The accompanying notes are an integral part of these financial statements.
JLG INDUSTRIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Unaudited)
Six Months Ended
January 31,
(in thousands) 1998 1997
Operations
Net income $12,272 $23,570
Adjustments to reconcile net income to cash
provided by (used for) operating activities:
Depreciation and amortization 7,963 4,473
Provision for self-insured losses 2,290 1,800
Deferred income taxes 139 (260)
Changes in operating assets and liabilities (21,929) (40,253)
Changes in other assets and liabilities (608) (2,025)
Cash provided by (used for) operations 127 (12,695)
Investments
Purchases of property, plant and equipment (6,245) (8,418)
Net sales (additions) to equipment held for rental 290 (4,707)
Cash used for investments (5,955) (13,125)
Financing
Repayment of long-term debt (128) (106)
Payment of dividends (440) (436)
Exercise of stock options 571 1,854
Cash provided by financing 3 1,312
Currency Adjustments
Effect of exchange rate changes on cash flows (998) (280)
Cash
Net decrease in cash (6,823) (24,788)
Beginning balance 25,436 30,438
Ending balance $18,613 $ 5,650
The accompanying notes are an integral part of these financial statements.
JLG INDUSTRIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 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 and six months ended January 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, 1997.
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 January 31, 1998, 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 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 $11.2 million and $9.6 million were established at
January 31, 1998 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 January 31, 1998 and July 31, 1997,
there were no insurance recoverables or offset implications and there were no
claims by the Company being contested by insurers.
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. All earnings per share amounts for all periods
have been presented, and where appropriate, restated to conform to the
Statement 128 requirements.
The following table sets forth the computation of basic and diluted earnings
per share:
Three Months Ended Six Months Ended
January 31, January 31,
1998 1997 1998 1997
Net Income $7,646 $11,227 $12,272 $23,570
Denominator for basic
earnings per share --
weighted average shares 44,016 43,584 43,964 43,528
Effect of dilutive securities
-- employee stock options 805 730 797 757
Denominator for diluted
earnings per share --
weighted average shares
adjusted for dilutive
securities 44,821 44,314 44,761 44,285
Earnings per share $ .17 $ .26 $ .28 $ .54
Earnings per share --
assuming dilution $ .17 $ .25 $ .27 $ .53
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Results for the Second Quarters of Fiscal 1998 and 1997
Sales for the quarter were $111.7 million, $9.5 million or 8% below last
year's second quarter, primarily due to decreased domestic sales and higher
discounts resulting from competitive pricing pressures in the marketplace. In
terms of dollars, the reduction principally related to lower domestic
equipment sales. Sales to customers outside the United States were 34% and
31% of total sales for the second quarters of 1998 and 1997, respectively.
Sales from new and redesigned products introduced during the past two years
represented 46% of sales for the second quarters of 1998 and 1997.
Gross profit, as a percent of sales, decreased to 22% in the second quarter of
1998 compared to 26% for the same period of 1997. The major contributors to
this decrease were: unfavorable currency effects due to the strength of the
U.S. dollar; pricing pressure in an increasingly competitive marketplace;
unfavorable product mix weighted towards smaller, less profitable machines;
and the effects of fixed costs spread over lower production levels.
Selling, administrative and product development expenses were down $942,000,
or 7%, representing 11% of sales for both periods. The decrease in dollars is
primarily the result of cost reduction programs instituted to reduce personnel
and related costs, advertising expenses and consulting costs. Partially
offsetting these reductions were: higher product development costs in support
of new and improved products; increased bad debt expenses and higher selling
expenses associated with increased international business.
For the quarter, miscellaneous expense was $886,000 compared to last year's
income of $159,000. The change from last year's comparable quarter was largely
the result of currency losses of $1.1 million, due to the strength of the U.S.
dollar in the Company's foreign markets.
The effective tax rate for the quarter was 34%, lower than last year's 37% for
the comparable period primarily due to tax benefits resulting from
international sales.
Results for the First Six Months of Fiscal 1998 and 1997
Sales for the six months were $207.4 million, $34.1 million or 14% below last
year's comparable period. In terms of dollars, the variations in sales for
the six months of 1998 compared to 1997 were due generally to the same factors
discussed in the second quarter comparison. Sales to customers outside the
United States were 37% and 30% of total sales for the six months of 1998 and
1997, respectively. Sales from new and redesigned products introduced during
the past two years represented 45% of sales for the first-half of 1998
compared to 43% for the 1997 six months.
Gross profit, as a percent of sales, decreased to 22% in the first six months
of 1998 compared to 26% for the same period of 1997. The decrease was
due generally to the same factors as discussed in the second quarter
comparison.
Selling, administrative and product development expenses were down $2.3
million or 9% compared to the first six months of fiscal 1997. As a percent of
sales, selling, administrative and product development expenses were 12% and
11% for the current period and last year comparable period, respectively. The
dollar decrease over the prior year period is due generally to the same factors
discussed in the second quarter comparison.
The current year period includes $1.7 million in restructuring charges
principally related to workforce reductions.
Miscellaneous expense was $1.2 million compared to last year's income of
$573,000, primarily due to currency losses of $1.7 million resulting from the
strength of the U.S. dollar in the Company's foreign markets.
The effective tax rate for the quarter was 34% compared to last year's 37% for
the comparable period, primarily due to tax benefits resulting from
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. Working capital increased
by $14.5 million at January 31, 1998 compared to July 31, 1997 principally due
to higher receivable balances associated with extended payment terms dictated
by competitive pressures in the marketplace.
At January 31, 1998, the Company had unused credit lines totaling $30
million and cash balances of $18.6 million. The Company considers these
resources, coupled with cash expected to be generated by operations,
adequate to meet its anticipated funding needs for the remaining six months
of fiscal 1998, including $14 million for capital projects and $14 million
for additions to 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 continue to improve
as fiscal 1998 progresses. Its surveyed customers remain confident that
calendar 1998 will be another year of continuing economic growth, healthy
capital spending, ongoing low inflation and stability in interest rates.
Management believes this portends continuing strength in customer rental
fleet utilization rates and added business to the Company through expansion
of those rental fleets.
The Company's orders and backlog continue to trend upward from the levels at
the end of the first quarter of fiscal 1998 and the second half of the
fiscal year is normally a stronger buying season for the Company's products.
The Company recently completed a significant worker recall at its
McConnellsburg and Bedford facilities to support production increases to
meet this anticipated stronger second-half demand.
The Company will begin shipping many new products toward the end of this
fiscal year and early next year. In addition to offering the Company's
customers enhanced performance and value-added features, these machines are
designed to cost less to produce than the machines they are replacing to
help address, in part, the highly competitive pricing environment the
Company is facing in its marketplace. Management believes this cost
efficiency will allow the Company to reduce selling prices on select models
and hold prices on others without an erosion in its profit margin
percentages. A new scissor lift line will permit the Company to enter the
market at a lower price level, thus giving it a two price-point product
range. Although at lower prices, this scissor lift line is also expected to
produce profit margin percentages comparable to the Company's premium line
of products.
Year 2000 Issue
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
all years as occurring between 1900 and 1999 and do not self-correct to reflect
the upcoming change in the century. If not corrected, computer applications
could fail or create erroneous results by or at the Year 2000.
The Company has taken actions to understand the nature and extent of the work
required to make its systems Year 2000 compliant. Management believes that
only minor modifications will be required to its software so that its computer
systems will function properly with respect to dates in the Year 2000 and
thereafter. The total cost of the Year 2000 project is not expected to have a
material effect on the Company's results of operations and is being funded
through operating cash flows. The Company has determined that it has no
exposure to contingencies related to the Year 2000 issue for products it has
sold.
The Company has also initiated formal communications with its significant
suppliers and large customers to determine the extent to which the Company is
vulnerable to those third-parties' failures to remediate their own Year 2000
issues. The Company anticipates completing its Year 2000 project prior to
December 31, 1998, which is prior to any anticipated impact on its operating
systems.
The costs of the Company's efforts and the date on which the Company believes
it will complete the Year 2000 compliance efforts reflect management's current
estimates based on available information. Management will continue to monitor
this issue, particularly the possible impact of third-party Year 2000
compliance on the Company's operations, and will modify its estimates if
warranted.
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 January 31, 1998, and the related
condensed consolidated statements of income and cash flows for the three-month
and six-month periods ended January 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 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
February 17, 1998
PART II OTHER INFORMATION
ITEMS 1 - 5
None/not applicable.
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 January 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
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 February 17, 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
January 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
February 27, 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.
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 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 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. 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.
