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