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, 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 (I.R.S. Employer jurisdiction of Identification No.) incorporation or organization) 1 JLG Drive, 17233-9533 McConnellsburg, PA (Address of principal (Zip Code) executive offices) 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 26, 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) April 30, July 31, 1999 1998 (Unaudited) ASSETS Current assets Cash $ 37,989 $ 56,793 Accounts receivable 135,878 94,610 Inventories 75,565 47,568 Other current assets 8,315 6,544 Total current assets 257,747 205,515 Property, plant and equipment - net 56,250 57,652 Equipment held for rental - net 30,667 25,103 Other assets 13,405 19,069 $358,069 $307,339 LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities Current portion of long-term debt $ 1,256 $ 1,253 Accounts payable 59,168 43,119 Accrued expenses 32,214 38,471 Total current liabilities 92,638 82,843 Long-term debt, less current portion 2,254 2,455 Provisions for contingencies 10,510 8,800 Accrued employee benefits 6,701 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 15,534 15,626 Unearned compensation (1,464) (2,633) Accumulated other comprehensive income (4,760) (3,662) Retained earnings 227,836 189,618 Total shareholders' equity 245,966 207,768 $358,069 $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 Nine Months Ended April 30, April 30, 1999 1998 1999 1998 Net sales $196,747 $146,323 $463,637 $353,674 Cost of sales 152,636 110,369 358,293 271,666 Gross profit 44,111 35,954 105,344 82,008 Selling, administrative and product development expenses 18,558 15,137 49,858 39,612 Restructuring charges 1,689 Income from operations 25,553 20,817 55,486 40,707 Other income (deductions): Interest expense (108) (62) (219) (197) Miscellaneous, net 462 564 1,822 (597) Income before income taxes 25,907 21,319 57,089 39,913 Income tax provision 8,608 7,248 18,210 13,570 Net income $ 17,299 $ 14,071 $ 38,879 $ 26,343 Earnings per common share $ .40 $ .32 $ .89 $ .60 Earnings per common share - assuming dilution $ .39 $ .32 $ .87 $ .59 Cash dividends per share $ .005 $ .005 $ .015 $ .015 Weighted average shares 43,792 43,687 43,792 43,650 outstanding Weighted average shares outstanding - 44,915 44,394 44,915 44,424 assuming dilution The accompanying notes are an integral part of these financial statements. JLG INDUSTRIES, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands) (Unaudited) Nine Months Ended April 30, 1999 1998 Operations Net income $ 38,879 $ 26,343 Adjustments to reconcile net income to cash provided by (used for) operating activities: Depreciation and amortization 14,147 12,186 Changes in operating assets and liabilities (60,760) (23,092) Changes in other assets and liabilities 4,889 (3,327) Other 3,821 3,778 Cash provided by operations 976 15,888 Investments Purchases of property, plant and equipment (8,205) (7,995) Net additions to equipment held for rental (10,697) (4,700) Cash used for investments (18,902) (12,695) ) Financing Repayment of long-term debt (198) (188) Payment of dividends (661) (660) Exercise of stock options and issuance of restricted awards 1,078 (1,035) Cash provided by (used for) financing 219 (1,883) Currency adjustments Effect of exchange rate changes on cash flows (1,097) (1,288) Cash Net (decrease) increase (18,804) 22 Beginning balance 56,793 25,436 Ending balance $ 37,989 $ 25,458 The accompanying notes are an integral part of these financial statements. JLG INDUSTRIES, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS APRIL 30, 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 nine month periods ended April 30, 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. 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, 1999, 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, 1999 1998 Finished goods $50,222 $27,784 Work in process 8,921 9,291 Raw materials 21,001 15,067 80,144 52,142 Less LIFO provision 4,579 4,574 $75,565 $47,568 COMPREHENSIVE INCOME The components of comprehensive income for the three and nine months ended April 30, 1999 and 1998 were as follows: Three Months Ended Nine Months Ended April 30, April 30, 1999 1998 1999 1998 Net income $17,299 $14,071 $38,879 $26,343 Aggregate currency 1,319 290 1,097 1,288 translation adjustment $18,618 $14,361 $39,976 $27,631 BASIC AND DILUTED EARNINGS PER SHARE The following table sets forth the computation of basic and diluted earnings per share: Three Months Ended Nine Months Ended April 30, April 30, 1999 1998 1999 1998 Net income $17,299 $14,071 $38,879 $26,343 Denominator for basic earnings per share -- weighted average share 43,792 43,687 43,792 43,650 Effect of dilutive securities - employee stock options and unvested restricted shares 1,123 707 1,123 774 Denominator for diluted earnings per share -- weighted average shares adjusted for dilutive securities 44,915 44,394 44,915 44,424 Earnings per common share $ .40 $ .32 $ .89 $ .60 Earnings per common share - assuming dilution $ .39 $ .32 $ .87 $ .59 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 international 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 $12.1 million and $12.4 million were established at April 30, 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 April 30, 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. INCOME TAXES The Company's effective tax rates for the nine month period ended April 30, 1999 included a change in accounting estimate resulting in a $1.2 million benefit to net income ($.03 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. SUBSEQUENT EVENT On May 11, 1999, the Company announced the signing of a definitive merger agreement with Gradall Industries, Inc. pursuant to which the Company has commenced an offer to purchase all the outstanding shares of Gradall for approximately $200 million in cash. The transaction will be financed using a $250 million five-year unsecured revolving credit facility. The transaction is expected to be completed during the fourth quarter of the Company's fiscal year ending July 31, 1999 and is subject to the tender of a majority of Gradall's shares. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Results for the Third Quarters of Fiscal 1999 and 1998 Sales for the third quarter of fiscal 1999 were $196.7 million, up 34% over the $146.3 million in the comparable year-ago period. Sales growth for the third quarter of fiscal 1999 was attributable to strong domestic sales of $147.4 million, up 51% from the comparable year-ago period sales of $97.9 million. The increase resulted from market share gains, strong demand across all product groups, customer acceptance of the Company's new products and continued growth in the aerial work platform market. European sales increased 16%, offsetting lower sales in other regions of the world and boosting international sales to $49.3 million for the current year quarter from $48.4 million for the comparable year-ago quarter. Gross profit, as a percent of sales, decreased 2.2 percentage points for the third quarter of fiscal 1999 compared to the same period of fiscal 1998. The decrease principally reflects higher sales discounts resulting from continued pricing pressures in the Company's markets; costs associated with the ramp-up of production to meet higher product demand and customer scheduling requirements; and costs associated with new product introductions. Partially offsetting these charges was a more profitable geographic product mix and the benefits of continuing cost reduction efforts. Selling, administrative and product development expenses were up $3.4 million, or 23% compared to the third quarter of 1998. As a percent of sales, these expenses were 9% and 10% for the current and last year's third 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. The effective tax rates were 33% and 34% for the current and last year's third quarter, respectively. The reduction was primarily attributable to certain tax incentives related to export sales. Results for the First Nine Months of Fiscal 1999 and 1998 Sales for the first nine months of fiscal 1999 were $463.6 million, an increase of 31% from the $353.7 million in the comparable prior year period. Domestic sales for the first nine months of fiscal 1999 were $331.6 million, up 46% from the comparable year-ago period of $227.7 million. International sales for the current year period were $132.0 million, representing 28% of total sales and up 5% from the $126.0 million for the nine months of the previous year. Gross profit, as a percent of sales, decreased .5 percentage points in the first nine months of fiscal 1999 compared to the same period of fiscal 1998. The decrease over the prior year period was principally due to the same factors discussed in the third quarter comparison. Selling, administrative and product development expenses were up $10.2 million, or 26% compared to the first nine months of fiscal 1998. As a percent of sales, these expenses were 11% for both periods. The dollar increase over the prior year period was principally due to the same factors discussed in the third quarter comparison. The prior year period included $1.7 million in restructuring charges related to temporary workforce reductions. Miscellaneous income net of interest expense was $1.6 million compared to last year's expense of $793,000. 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 32%, lower than last year's rate of 34%. The current year's rate included a change in accounting estimate resulting in a $1.2 million benefit to net income ($.03 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. Financial Condition The Company continues to maintain a strong financial position, with the funding of capital projects and working capital needs being principally made out of operating cash flow and cash reserves, while remaining virtually debt-free. Working capital increased by $42.4 million at April 30, 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 principally attributable to higher sales volume and extended payment terms resulting from competitive market pressures . On May 11, 1999, the Company announced the signing of a definitive merger agreement with Gradall pursuant to which the Company has commenced an offer to purchase all the outstanding shares of Gradall for approximately $200 million in cash. This transaction will be financed using a $250 million unsecured five- year revolving credit facility. The Company believes the combination of the unused portion of the new revolving credit facility, a separate $40 million bank overdraft facility (which will be reduced to $20 million upon closing) and cash expected to be generated by operations will be sufficient to fund its ongoing operations and capital-related projects for the next twelve months. 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 strong European order levels and continuing domestic factors that led to the solid third quarter performance to result in another record performance for the fourth quarter. The continuing demand for its products, indicated by a strong order flow and backlog, positions the Company to achieve another record setting year in fiscal 2000. New product innovations, global market expansion, and the completion of the Gradall acquisition, will provide the Company with a solid foundation for growth into the new millennium. Additional information regarding the anticipated effect of the Gradall acquisition is described in the Company's Form 8-K dated May 13, 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 has substantially completed identification and assessment, compliance plan development, remediation and testing, and production implementation for its critical activities and systems. The financial software in the Company's Australian operation is being upgraded and one of the Company's key production systems remains to be tested and such testing is expected to be completed during June 1999. 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 developing contingency plans. 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 Accountants' 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 April 30, 1999, and the related condensed consolidated statements of income for the three-month and nine-month periods ended April 30, 1999 and 1998 and the condensed consolidated statements of cash flows for the nine-month period ended April 30, 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 May 17, 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 April 30, 1999. The Company filed a Form 8-K on May 13, 1999 under Item 5 Other Events with respect to its definitive merger agreement with Gradall pursuant to which the Company commenced an offer to purchase the outstanding shares of Gradall. 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