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 April 30, 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 May 19, 1998, there were 44,086,223 shares of capital stock of the
Registrant outstanding.
PART I FINANCIAL INFORMATION
JLG INDUSTRIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
April 30, July 31,
1998 1997
(in thousands) (Unaudited)
ASSETS
Current Assets
Cash $ 25,458 $ 25,436
Accounts receivable 90,055 70,164
Inventories 59,212 53,727
Future income tax benefits 5,317 4,133
Other current assets 3,193 2,248
Total current assets 183,235 155,708
Property, Plant and Equipment - net 56,211 56,064
Equipment Held for Rental - net 25,151 24,951
Other Assets 16,276 12,669
$280,873 $249,392
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Accounts payable $ 41,992 $ 43,027
Other current liabilities 32,231 28,043
Total current liabilities 74,223 71,070
Long-Term Debt 3,513 3,685
Accrued Contingent Liabilities 7,807 7,646
Other Liabilities 5,570 5,046
Shareholders' Equity
Capital stock:
Authorized shares: 100,000 at $.20 par
Outstanding shares: 44,086;
fiscal 1997 - 43,726 8,817 8,745
Additional paid-in capital 14,738 11,391
Equity adjustment from translation (3,467) (2,180)
Retained earnings 169,672 143,989
Total shareholders' equity 189,760 161,945
$280,873 $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 Nine Months Ended
April 30, April 30,
(in thousands, except per share data) 1998 1997 1998 1997
Net Sales $146,323 $143,642 $353,674 $385,093
Cost of sales 110,369 107,951 271,666 285,703
Gross Profit 35,954 35,691 82,008 99,390
Selling, administrative and
product development expenses 15,137 14,613 39,612 41,380
Restructuring charges 1,689
Income from Operations 20,817 21,078 40,707 58,010
Other income (deductions):
Interest expense (62) (183) (197) (276)
Miscellaneous, net 564 (385) (597) 187
Income before Income Taxes 21,319 20,510 39,913 57,921
Income tax provision 7,248 7,589 13,570 21,431
Net Income $ 14,071 $ 12,921 $ 26,343 $ 36,490
Earnings per Common Share $ .32 $ .30 $ .60 $ .84
Earnings per Common Share --
Assuming Dilution $ .32 $ .29 $ .59 $ .83
Dividends per Share $ .005 $ .005 $ .015 $ .015
The accompanying notes are an integral part of these financial statements.
JLG INDUSTRIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Unaudited)
Nine Months Ended
April 30,
(in thousands) 1998 1997
Operations
Net income $26,343 $36,490
Adjustments to reconcile net income to cash
provided by (used for) operating activities:
Depreciation and amortization 12,186 6,591
Provision for self-insured losses 3,570 2,100
Deferred income taxes 208 142
Changes in operating assets and liabilities (24,138) (38,145)
Changes in other assets and liabilities (4,285) (3,224)
Cash provided by operations 13,884 3,954
Investments
Purchases of property, plant and equipment (7,995) (16,297)
Net additions to equipment held for rental (4,700) (9,871)
Cash used for investments (12,695) (26,168)
Financing
Repayment of long-term debt (188) (159)
Payment of dividends (660) (654)
Exercise of stock options 969 2,960
Cash provided by financing 121 2,147
Currency Adjustments
Effect of exchange rate changes on cash flows (1,288) (97)
Cash
Net increase (decrease) in cash 22 (20,164)
Beginning balance 25,436 30,438
Ending balance $25,458 $ 10,274
The accompanying notes are an integral part of these financial statements.
JLG INDUSTRIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
APRIL 30, 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 nine months ended April 30, 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 April 30, 1998, must
necessarily be based on management's estimate of expected fiscal year-end
inventory levels and costs.
Inventories consist of the following:
April 30, July 31,
1998 1997
Finished goods $39,987 $33,689
Work in process 9,954 13,537
Raw materials 14,803 12,371
64,744 59,597
Less LIFO provision 5,532 5,870
$59,212 $53,727
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 $11.9 million and $9.6 million were established at April
30, 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 April 30, 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 Nine Months Ended
April 30, April 30,
1998 1997 1998 1997
Net income $14,071 $12,921 $26,343 $36,490
Denominator for basic
earnings per share --
weighted average shares 43,687 43,495 43,650 43,428
Effect of dilutive securities
-- employee stock options 707 666 774 727
Denominator for diluted
earnings per share -
weighted average shares
adjusted for dilutive
securities 44,394 44,161 44,424 44,155
Earnings per common share $ .32 $ .30 $ .60 $ .84
Earnings per common share --
assuming dilution $ .32 $ .29 $ .59 $ .83
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Results for the Third Quarters of Fiscal 1998 and 1997
The Company achieved record third-quarter sales of $146.3 million, $2.7
million or 2% higher than last year's third quarter. This improvement
reflected record international sales. Sales to customers outside the United
States were 33% and 27% of total sales for the third quarters of 1998 and
1997, respectively. Sales from new and redesigned products introduced during
the past two years represented 40% of sales for the third quarter of 1998
compared to 51% for the third quarter of 1997.
Gross profit, as a percent of sales, was 25% for the third quarters of 1998
and 1997. Margin improvement associated with cost reductions during the
current year third quarter was essentially offset by lower selling prices due
to competitive pressures and the strength of the US dollar in certain foreign
markets.
Selling, administrative and product development expenses were up $524,000, or
4% compared to the third quarter of fiscal 1997. As a percent of sales,
selling, administrative and product development expenses were 10% for both
periods. The increase in dollars is primarily the result of higher product
development costs in support of new and improved products.
For the quarter, miscellaneous income was $564,000 compared to last year's
expense of $385,000. The change from last year's comparable quarter was
largely the result of currency gains of $590,000, primarily resulting from
the strength of the UK pound sterling against the US dollar.
The effective tax rate for the quarter was 34%, lower than last year's 37% for
the comparable period primarily due to increased tax benefits resulting from a
higher level of international sales.
Results for the First Nine Months of Fiscal 1998 and 1997
Sales for the nine months were $353.7 million, $31.4 million or 8% below last
year's comparable period. In terms of dollars, decreases in domestic and
Pacific Rim sales for the nine months of 1998 compared to 1997 were partially
offset by increased European and Australian sales. Sales to customers outside
the United States were 36% and 29% of total sales for the nine months of 1998
and 1997, respectively. Sales from new and redesigned products introduced
during the past two years represented 43% of sales for the nine months of 1998
compared to 46% for the 1997 nine months.
Gross profit, as a percent of sales, decreased to 23% for the first nine
months of 1998 compared to 26% for the same period of 1997. The major
contributors to this decrease were: product pricing pressures; unfavorable
currency effects due to the strength of the U.S. dollar; and unfavorable
product mix weighted towards smaller, less profitable machines. These
reductions were partially offset by lower product costs due to cost
reductions.
Selling, administrative and product development expenses were down $1.8
million or 4% compared to the first nine months of fiscal 1997. As a percent
of sales, selling, administrative and product development expenses were 11%
for both periods. The decrease in dollars is primarily the result of cost
reduction programs instituted to reduce personnel and related costs and
consulting costs. Partially offsetting these reductions were higher product
development costs in support of new and improved products.
The current year period includes $1.7 million in restructuring charges
principally related to a temporary reduction in workforce earlier in the
period.
Miscellaneous expense was $597,000 compared to last year's income of $187,000,
primarily due to currency losses of $1.2 million resulting from the strength
of the U.S. dollar against local currencies 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 increased tax benefits resulting from
a higher level of 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 $24.4 million principally due to higher receivable balances associated with
extended payment terms dictated by competitive pressures in the marketplace and
a higher percent of international sales which typically have longer payment
terms.
Supplementing its working capital at April 30, 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 anticipated funding needs for the remaining three months of fiscal 1998,
including $5 million for capital projects and $2 million for additional
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 anticipates that the fourth quarter of fiscal 1998 should
continue to reflect an improving trend as a result of strong market
acceptance of the new products the Company introduced recently. Management
is also pleased with the continuing high level of customer confidence which
is prompting the Company's customers to further expand their rental fleets
both domestically and overseas.
Provided the numerous positive trends currently affecting the Company's
business continue, management is optimistic about the Company's prospects
for further growth during fiscal 1999. Considering the typical seasonality
inherent in the Company's business, management does not expect the first
half of fiscal 1999 to be as strong as the last half of fiscal 1998.
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
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 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. If not corrected, management does not believe the inadequacy of
these systems would have a material impact on the Company's performance. 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
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 April 30, 1998, and the related
condensed consolidated statements of income for the three-month and nine-month
periods ended April 30, 1998 and 1997 and the condensed consolidated statement
of cash flows for the nine month periods ended April 30, 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
May 18, 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 April 30,
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 May 18, 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 April 30, 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
May 18, 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 those 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.
