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, 1999
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 24, 1999, there were 44,099,586 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)
January 31, July 31,
1999 1998
(Unaudited)
ASSETS
Current assets
Cash $ 16,763 $ 56,793
Accounts receivable 120,597 94,610
Inventories 71,352 47,568
Other current assets 8,448 6,544
Total current assets 217,160 205,515
Property, plant and equipment - net 56,017 57,652
Equipment held for rental - net 31,797 25,103
Other assets 13,106 19,069
$318,080 $307,339
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Current portion of long-term debt $ 1,255 $ 1,253
Accounts payable 46,358 43,119
Accrued expenses 23,936 38,471
Total current liabilities 71,549 82,843
Long-term debt, less current portion 2,319 2,455
Contingent liabilities 8,132 8,800
Accrued employee benefits 6,271 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 15,527 15,626
Unearned compensation (1,854) (2,633)
Accumulated other comprehensive income (3,441) (3,662)
Retained earnings 210,757 189,618
Total shareholders' equity 229,809 207,768
$318,080 $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 Six Months Ended
January 31, January 31,
1999 1998 1999 1998
Net sales $138,235 $111,706 $266,890 $207,351
Cost of sales 106,727 86,821 205,656 161,298
Gross profit 31,508 24,885 61,234 46,053
Selling, administrative and
product development expenses 16,284 12,341 31,300 24,475
Restructuring charges 1,689
Income from operations 15,224 12,544 29,934 19,889
Other income (deductions):
Interest expense (58) (73) (111) (136)
Miscellaneous, net 481 (886) 1,359 (1,159)
Income before income taxes 15,647 11,585 31,182 18,594
Income tax provision 4,320 3,939 9,602 6,322
Net income $ 11,327 $ 7,646 $ 21,580 $ 12,272
Earnings per common share $ .26 $ .17 $ .49 $ .28
Earnings per common share
assuming dilution $ .25 $ .17 $ .48 $ .27
Cash dividends per share $ .005 $ .005 $ .01 $ .01
Weighted average shares
outstanding 43,794 44,016 43,793 43,964
Weighted average shares
outstanding - assuming dilution 44,935 44,821 44,924 44,761
The accompanying notes are an integral part of these financial statements
JLG INDUSTRIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(Unaudited)
Six Months Ended
January 31,
1999 1998
Operations
Net income $ 21,580 $ 12,272
Adjustments to reconcile net income to cash
provided by (used for) operating activities:
Depreciation and amortization 9,440 7,963
Other 2,412 2,429
Changes in operating assets and liabilities (62,910) (20,805)
Changes in other assets and liabilities 4,045 823
Cash (used for) provided by operations (25,433) 2,682
Investments
Purchases of property, plant and equipment (4,726) (6,245)
Net (additions to) sales of equipment held for rental (10,198) 290
Cash used for investments (14,924) (5,955)
Financing
Repayment of long-term debt (134) (128)
Payment of dividends (441) (440)
Exercise of stock options and issuance of
restricted awards 681 (1,984)
Cash provided by (used for) financing 106 (2,552)
Currency adjustments
Effect of exchange rate changes on cash flows 241 (998)
Cash
Net decrease (40,030) (6,823)
Beginning balance 56,793 25,436
Ending balance $ 16,763 $ 18,613
The accompanying notes are an integral part of these financial statements.
JLG INDUSTRIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 31, 1999
(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 month periods ended January 31, 1999 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.
INCOME TAXES
The Company's effective tax rates for the three and six month periods ended
January 31, 1999 included a change in accounting estimate resulting in a $1.0
million benefit to net income ($.02 per basic and diluted earnings per share.)
The change was primarily attributable to certain tax incentives related to
export sales for the year ended July 31, 1998.
BASIC AND DILUTED EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted earnings
per share:
Three Months Ended Six Months Ended
January 31, January 31,
1999 1998 1999 1998
Net income $11,327 $7,646 $21,580 $12,272
Denominator for basic earnings
per share - weighted average shares 43,794 44,016 43,793 43,964
Effect of dilutive securities -
employee stock options and
unvested restricted shares 1,141 805 1,131 797
Denominator for diluted earnings
per share - weighted average
shares adjusted for dilutive
securities 44,935 44,821 44,924 44,761
Earnings per common share $ .26 $ .17 $ .49 $ .28
Earnings per common share -
assuming dilution $ .25 $ .17 $ .48 $ .27
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 retention and 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 $11.9 million and $12.4 million were established at
January 31, 1999 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 January 31, 1999 and July 31, 1998,
there were no insurance recoverables or offset implications and there
were no claims by the Company being contested by insurers.
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, 1999, must
necessarily be based on management's estimate of expected fiscal year-end
inventory levels and costs.
Inventories consist of the following:
January 31, July 31,
1999 1998
Finished goods $48,070 $27,784
Work in process 7,857 9,291
Raw materials 20,004 15,067
75,931 52,142
Less LIFO provision 4,579 4,574
$71,352 $47,568
COMPREHENSIVE INCOME
The components of comprehensive income for the three and six months ended
January 31, 1999 and 1998 were as follows:
Three Months Ended Six Months Ended
January 31, January 31,
1999 1998 1999 1998
Net income $11,327 $7,646 $21,580 $12,272
Aggregate translation adjustment 26 267 (221) 998
$11,353 $7,913 $21,359 $13,270
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Results for the Second Quarters of Fiscal 1999 and 1998
Sales for the second quarter of fiscal 1999 were $138.2 million, up 24% over
the $111.7 million in the comparable year-ago period. Domestic sales were
$93.5 million, up 27% over last year's second quarter sales of $73.5 million,
reflecting increased demand across all of the Company's product groups. The
increase resulted, in part, from an expanded customer base due to many rental
company consolidators selecting the Company as their primary supplier.
International sales were also strong, representing 32% of sales for the current
quarter and up 17% to $44.7 million, compared to $38.2 million in the second
quarter of the previous year. Europe led all foreign markets with a 48%
increase, which helped to offset the effects of continuing economic weakness in
the Asia/Pacific and Latin American markets.
Gross profit, as a percent of sales, was up .5% for the second quarter of
fiscal 1999 compared to the same period of fiscal 1998. The improvement
principally reflects a more profitable product mix and the benefits of cost
reduction efforts. Partially offsetting these improvements were higher sales
discounts resulting from continued pricing pressures in the Company's markets
and costs associated with gearing up the Company's manufacturing capabilities
for expected strong demand in the second half of fiscal 1999.
Selling, administrative and product development expenses were up $3.9 million,
or 32% compared to the second quarter of 1998. As a percent of sales, these
expenses were 12% and 11% for the current and last year's second quarter,
respectively. The increase in dollars is primarily the result of increased
personnel and related costs associated with serving the Company's expanding
customer base.
Miscellaneous income was $481,000 compared to last year's second quarter
expense of $886,000. This change was largely the result of investment income
earned on higher cash balances and lower currency losses in the current year
quarter.
The effective tax rates were 28% and 34% for the current and last year's second
quarters, respectively. The current quarter's rate included a change in
accounting estimate resulting in a $1.0 million benefit to net income ($.02
per basic and diluted earnings per share.) The change was primarily
attributable to certain tax incentives related to export sales for the year
ended July 31, 1998.
Results for the First Six Months of Fiscal 1999 and 1998
Sales for the first six months of fiscal 1999 were $266.9 million, an increase
of 29% from the $207.4 million in the comparable prior year period. Domestic
sales for the first six months of fiscal 1999 were up $54.4 million, or 42%
from the prior year comparable period. International sales continued to be
strong, representing 31% of sales in the current year period, principally due
to a 48% increase in European sales, which helped to offset the effects of
continuing economic weakness in the Asia/Pacific and Latin American markets.
Gross profit, as a percent of sales, increased .7% in the first six months of
fiscal 1999 compared to the same period of fiscal 1998. A more profitable
geographic product mix and the benefits of cost reduction efforts were
partially offset by higher sales discounts resulting from continued pricing
pressures in the Company's markets and costs associated with gearing up the
Company's manufacturing capabilities for expected strong demand in the second
half of fiscal 1999.
Selling, administrative and product development expenses were up $6.8 million,
or 28% compared to the first six months of fiscal 1998. As a percent of sales,
these expenses were 12% for both periods. The dollar increase over the prior
year period was due to the same factors discussed in the second quarter
comparison.
The prior year period included $1.7 million in restructuring charges related to
temporary workforce reductions.
Miscellaneous income was $1.4 million compared to last year's expense of
$1.2 million. This change was largely the result of investment income earned on
higher cash balances and lower currency losses in the current year period.
The effective tax rate for the current year period was 31%, lower than last
year's rate of 34%. This reduction was primarily a result of the same factors
as discussed in the quarter to quarter comparison.
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 $22.9 million at January 31, 1999 compared to July
31, 1998. The increase included additional inventory to support the Company's
strategic decision to provide a higher level of product availability to its
worldwide customer base and higher accounts receivable balances attributable
to extended payment terms resulting from competitive market pressures.
During February 1999, the Company entered into a new financing agreement with
its primary lending banks providing for an additional $20 million of credit
availability. As a result, the Company now has a $40 million revolving credit
facility plus $10 million in banker acceptances. The Company considers
this credit availability combined with cash expected to be generated by
operations adequate to meet its forecasted funding needs for the remainder of
the fiscal year, including higher inventory levels, additional equipment held
for rental and 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 a stronger second half of the fiscal year performance, which
combined with the strong first half, should lead to another record year of
sales and earnings. Management's expectations are supported by a high level
of customer optimism, a strong order pattern and backlog, as well as the
enthusiastic customer response to the Company's many new products. Management
anticipates that the Company will continue to face gross profit margin
pressures as a result of competitive market conditions as well as third fiscal
quarter costs associated with gearing up the Company's manufacturing
capabilities.
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 has substantially completed identification and assessment,
compliance plan development, remediation and testing, and production
implementation for its critical activities and systems. One of the Company's
key production systems remains to be tested and such testing is expected to be
completed within the next three months. 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 received assurances from most of 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 is
currently evaluating its need to develop contingency plans and the extent
thereof. Such plans should be completed and implemented during the first half
of calendar 1999.
The total cost of the Year 2000 project to date has not been material and,
based on its program to date, the Company does not expect that future costs
related to the project will have a material adverse effect on the Company's
financial position or results of operations. Because the Company believes that
its internal systems are substantially Year 2000 compliant, the Company
believes that the most reasonably likely worst case Year 2000 scenario would
result from suppliers' or other third parties' failures to be Year 2000
compliant. 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.
Altogether, 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.
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 January 31, 1999, and the related
condensed consolidated statements of income, shareholders' equity and cash
flows for the three-month and six-month periods ended January 31, 1999
and 1998. 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 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, 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
February 16, 1999
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, 1999.
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