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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, 1999
or
[ ] Transition Report Pursuant to Section 13 or 15 (d) of the
Securities Exchange Act of 1934
For the transition period from to
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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 (I.R.S. Employer
incorporation or organization) 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 2, 1999, there were 44,320,948 shares of capital stock of the
Registrant outstanding.
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PART I FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
JLG INDUSTRIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands) October 31, July 31,
1999 1999
----------- --------
(Unaudited)
ASSETS
CURRENT ASSETS
Cash $ 7,317 $ 19,033
Accounts receivable-net 196,714 162,820
Inventories 175,536 125,571
Other current assets 9,406 8,563
-------- --------
Total current assets 388,973 315,987
PROPERTY, PLANT AND EQUIPMENT - NET 104,364 100,534
EQUIPMENT HELD FOR RENTAL - NET 16,325 23,068
GOODWILL - NET 154,316 155,655
OTHER ASSETS 30,788 30,573
-------- --------
$694,766 $625,817
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Short-term debt $ 7,864 $ 2,656
Current portion of long-term debt 799 625
Accounts payable 71,054 78,793
Accrued expenses 51,027 57,598
-------- --------
Total current liabilities 130,744 139,672
LONG-TERM DEBT, LESS CURRENT PORTION 237,444 172,512
ACCRUED POSTRETIREMENT BENEFITS 21,808 21,471
OTHER LONG-TERM LIABILITIES 10,074 9,463
PROVISIONS FOR CONTINGENCIES 10,014 11,416
SHAREHOLDERS' EQUITY
Capital stock:
Authorized shares: 100,000 at $.20 par
Issued and outstanding shares: 44,298; fiscal 1999 - 44,250 8,861 8,850
Additional paid-in capital 17,996 17,246
Unearned compensation (1,572) (1,324)
Accumulated other comprehensive income (3,637) (3,495)
Retained earnings 263,034 250,006
-------- --------
Total shareholders' equity 284,682 271,283
-------- --------
$694,766 $625,817
======== ========
The accompanying notes are an integral part of these financial statements.
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JLG INDUSTRIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except per share data)
(Unaudited)
Three Months Ended
October 31,
1999 1998
--------- ---------
NET SALES $217,995 $128,655
Cost of sales 165,422 98,930
-------- --------
GROSS PROFIT 52,573 29,725
Selling, administrative and
product development expenses 27,055 15,015
Goodwill amortization 1,561 --
-------- --------
INCOME FROM OPERATIONS 23,957 14,710
Other income (deductions):
Interest expense (3,434) (54)
Miscellaneous, net 506 879
-------- --------
INCOME BEFORE INCOME TAXES 21,029 15,535
Income tax provision 7,781 5,282
-------- --------
NET INCOME $ 13,248 $ 10,253
======== ========
EARNINGS PER COMMON SHARE $ .30 $ .23
======== ========
EARNINGS PER COMMON SHARE -
ASSUMING DILUTION $ .29 $ .23
======== ========
CASH DIVIDENDS PER SHARE $ .005 $ .005
======== ========
The accompanying notes are an integral part of these financial statements.
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JLG INDUSTRIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(Unaudited)
Three Months Ended
October 31,
1999 1998
-------- --------
OPERATIONS
Net income $ 13,248 $ 10,253
Adjustments for noncash items:
Depreciation and amortization 6,983 4,573
Other 1,224 1,461
Changes in operating assets and liabilities (95,766) (25,448)
Changes in other assets and liabilities (3,490) (2,266)
-------- --------
Cash used for operations (77,801) (11,427)
INVESTMENTS
Purchases of property, plant and equipment (9,977) (1,192)
Sales of (additions to) equipment held for rental 5,612 (6,028)
-------- --------
Cash used for investments (4,365) (7,220)
FINANCING
Net issuance of short-term debt 5,208 --
Issuance of long-term debt 65,169 --
Repayment of long-term debt (64) (71)
Payment of dividends (221) (220)
Exercise of stock options and issuance of restricted awards 514 267
-------- --------
Cash provided by (used for) financing 70,606 (24)
CURRENCY ADJUSTMENTS
Effect of exchange rate changes on cash (156) 247
-------- --------
CASH
Net change in cash (11,716) (18,424)
Beginning balance 19,033 56,793
-------- --------
Ending balance $ 7,317 $ 38,369
======== ========
The accompanying notes are an integral part of these financial statements.
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JLG INDUSTRIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 31, 1999
(in thousands, except per share data)
(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 month period ended October 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, 1999.
BASIC AND DILUTED EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted earnings per
share for the three months ended October 31:
1999 1998
------- -------
Net income $13,248 $10,253
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Denominator for basic earnings per share --
weighted average shares 43,969 43,792
Effect of dilutive securities - employee stock options and
unvested restricted shares 1,528 1,121
------- -------
Denominator for diluted earnings per share --
weighted average shares adjusted for
dilutive securities 45,497 44,913
======= =======
Earnings per common share $ .30 $ .23
======= =======
Earnings per common share - assuming dilution $ .29 $ .23
======= =======
Options to purchase 758 shares of common stock at a range of $17.31 to $21.94
were outstanding during the first quarter of fiscal 2000 but were not included
in the computation of diluted earnings per share because the options' exercise
price was greater than the average market price of the common shares.
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COMPREHENSIVE INCOME
The following table sets forth the components of comprehensive income for the
three months ended October 31:
1999 1998
------- -------
Net income $13,248 $10,253
Aggregate currency translation adjustment 141 246
------- -------
$13,389 $10,499
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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, 1999, 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,
1999 1999
----------- --------
Finished goods $113,287 $ 68,994
Work in process 15,529 12,544
Raw materials 51,428 48,561
-------- --------
180,244 130,099
Less LIFO provision 4,708 4,528
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$175,536 $125,571
======== ========
SEGMENT INFORMATION
The Company operates in two reportable business segments - machinery, which
consists of the design, manufacture and sale of new equipment; and customer
services and support, which consists of after-sales service and support,
including parts sales, equipment rentals, used equipment sales and rebuilding
used equipment. The Company evaluates the performance of its reportable segments
based upon a number of factors including segment profit. Segment profit excludes
interest, miscellaneous income/expense and income taxes. Intersegment sales and
transfers are accounted for at cost and are not significant.
Business segment information consisted of the following for the three months
ended October 31:
1999 1998
-------- --------
Sales to unaffiliated customers:
Machinery $182,129 $111,878
Customer services and support 35,866 16,777
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$217,995 $128,655
======== ========
Segment profit (loss):
Machinery $ 24,193 $ 15,853
Customer services and support 11,087 6,040
General corporate expenses (11,323) (7,183)
-------- --------
$ 23,957 $ 14,710
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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 2000 is comprised of a self-insured retention of $7
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 $13.2 million and $14.1 million were established at
October 31, 1999 and July 31, 1999, 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, 1999 and July 31, 1999, there
were no insurance recoverables or offset implications and there were no claims
by the Company being contested by insurers.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS FOR THE FIRST QUARTERS OF FISCAL 2000 AND 1999
Sales for the first quarter of fiscal 2000 were $218.0 million, up 69% over the
$128.7 million in the comparable year-ago period. The acquisition of Gradall on
June 18, 1999 contributed $37.1 million to the current year first quarter sales.
Domestic sales for the first quarter of fiscal 2000 were $162.9 million, up 80%
from the comparable year-ago period sales of $90.7 million. Excluding Gradall,
sales increased by $36.8 million or 41 percent. International sales were $55.1
million for the current year quarter, up $17.2 million or 45% from the
comparable year-ago quarter.
Aerial work platforms led the sales gain with a 36 percent increase over the
comparable year-ago period. These products are currently available for sale or
rental in more than 2,100 rental company outlets in North America, up from 600
outlets just two years ago when the Company changed its distribution practices.
The Company expects this number to continue to grow as its sales force is able
to reach an increasing number of the rental company outlets; as the number of
total rental outlets grows; and as aerial work platforms products are included
in the product portfolios of a greater number of the rental locations. Aerial
work platforms shipments benefited from the 31 new products introduced over the
past two fiscal years, which accounted for 33 percent of current year first
quarter revenues. The Company's solid sales gains also continue to reflect the
strong growth rate for the North American rental industry and continuing robust
demand in Europe. The strength of the Company's international markets,
particularly Europe, reflect an improving global economic picture as well as a
heightened need for increasing workplace productivity and concern for worker
safety, both of which are key benefits of using the Company's products. Gradall
brand excavator sales were up slightly compared to the year-ago pro forma level,
but below expectations due to a large order destined for Turkey being delayed
because of the recent earthquakes in that region. These products are expected to
ship over the next six months. Gradall brand material handler shipments were
below expectations and last year's pro-forma level mainly due to the procurement
timing of rental customers and a change in our distribution practices adopted
for those products as part of the integration of the Company and Gradall.
Gross profit margins improved to 24.1% for the first quarter over the comparable
year-ago quarter's 23.1%. The principal contributors to this improvement were
cost reductions and the leveraging of certain fixed costs over a higher
production base, as well as a better product mix. These improvements more than
offset start-up costs for new facilities in Pennsylvania and Ohio; Gradall
products carrying profit margins that have been historically lower than the
aerial work platform products; and the effects of increased sales discounts
associated with higher volume program pricing and competitive market conditions.
Selling, administrative and product development expenses were up $12.0 million
from last year's first quarter reflecting the addition of Gradall as well as
higher personnel and related costs associated with the Company's continued
investment in expanding its distribution and increasing levels of customer
support for all product groups. At 12.4% of sales, these expenses were only
seven tenths of a percent above the year-ago quarter.
The current year quarter includes goodwill amortization of $1.6 million related
to the Gradall acquisition. Interest expense was up $3.4 million, primarily due
to the higher levels of borrowing to fund the acquisition of Gradall and, to a
lesser extent, to fund higher working capital requirements.
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The effective tax rate of 37% was up from 34% for the year-ago quarter,
primarily due to goodwill charges not being tax deductible and lower tax
benefits related to export sales as a result of these sales projected to be a
smaller percentage of overall sales for the current year.
FINANCIAL CONDITION
Cash used for operations increased to $77.8 million in the first quarter of
fiscal 2000 from $11.4 million in the comparable quarter of 1999. The increase
in cash used for operations in fiscal 2000 compared to fiscal 1999 was primarily
due to a $70 million change in operating assets and liabilities principally
reflecting higher receivable and inventory levels. Receivables were higher in
dollar terms and days sales outstanding due to expanded use of extended payment
terms as an added sales inducement. In anticipation of the high level of demand
corresponding to the prime buying season of the Company's customers, which
historically begins early in the calendar year, and to ensure product
availability, the Company in fiscal 2000 changed its strategy for managing
inventory levels and its supply chain by maintaining relatively constant
production levels. Although, in the short term this results in higher inventory
levels during the first half of the fiscal year, in the longer term, management
believes this will be a more efficient and cost-effective approach to capture
seasonal peaks of demand.
Cash used for investing activities during the first quarter of fiscal 2000 was
$4.4 million compared to $7.2 million for last year's first quarter. The
increase primarily relates to capital expenditures for the Shippensburg,
Pennsylvania and Orrville, Ohio facilities. Partially offsetting the increase in
cash used for investing activities were sales of equipment held for rental.
Cash used for financing activities was $70.6 million for the first quarter of
fiscal 2000 compared to twenty-four thousand dollars provided for the first
quarter of fiscal 1999. Increased borrowings under the existing revolving credit
agreement and lines of credit were used for business expansion as discussed
above. On November 17, 1999, the Board of Directors increased its quarterly cash
dividend to $.01 per common share, or four cents per common share on an
annualized basis.
At October 31, 1999, the Company had unused credit lines totaling $13 million
and is currently in the process of adding $100 million to its credit lines to
fund future working capital requirements. This additional line is expected to be
in place by the end of the calendar year. The Company believes that these
resources, coupled with cash expected to be generated by operations, to be
sufficient to fund its ongoing operations and capital-related projects for
fiscal 2000. These expenditures are expected to consist of capital projects
primarily for the Shippensburg, Pennsylvania and Orrville, Ohio facilities.
The Company's exposure to product liability claims is discussed in the note
entitled Commitments and Contingencies of the Notes to 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 certain 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
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described in "Cautionary Statements Pursuant to the Securities Litigation Reform
Act" which is an exhibit to this report.
The Company's North American customers remain optimistic that calendar year 2000
will be another excellent growth year for the rental industry, as well as end
user markets. With Europe expected to have another record year, coupled with
continuing recovery for the Company's business in other parts of the world
market, management anticipates another strong contribution from international
sales. Additionally, management expects revenues to benefit from the 14 new
products introduced last fiscal year and the more than 30 new and redesigned
products expected to be introduced this year.
Based on these expectations, management anticipates this year's revenues to grow
to the $1.0 to $1.1 billion range, including the contribution from the Gradall
acquisition. Also, earnings per share this year are expected to be in the $1.60
to $1.65 range which is consistent with analysts' consensus estimates and in
line with the Company's long-term target of 20 percent EPS growth.
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 completed identification and assessment, compliance plan
development, remediation and testing, and production implementation 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 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 has developed
contingency plans where applicable.
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.
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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is exposed to market risk from changes in interest rates and foreign
currency exchange rates, which could affect its future results of operations and
financial condition. The Company manages exposure to these risks principally
through its regular operating and financing activities.
While the Company is exposed to changes in interest rates as a result of its
outstanding debt, the Company does not currently utilize any derivative
financial instruments related to its interest rate exposure. Total short-term
and long-term debt outstanding at October 31, 1999 was $246.9 million,
consisting of $240.2 million in variable rate borrowing and $6.7 million in
fixed rate borrowing. At the current level of variable rate borrowing, a
hypothetical 10% increase in interest rates would decrease pre-tax current year
earnings by approximately $1.6 million on an annual basis. A hypothetical 10%
change in interest rates would not result in a material change in the fair value
of the Company's fixed rate debt. 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, 1999.
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Independent Accountants' Review Report
The Board of Directors
JLG Industries, Inc.
We have reviewed the accompanying condensed consolidated balance sheet of JLG
Industries, Inc. (the "Company") as of October 31, 1999, and the related
condensed consolidated statements of income and cash flows for the three-month
periods ended October 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,
1999, 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 9, 1999, 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, 1999, 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, 1999
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PART II OTHER INFORMATION
ITEMS 1 - 3 AND 5
None/not applicable.
ITEM 4
The Company held its Annual Meeting of Shareholders on November 17, 1999.
Management solicited proxies for the election of seven directors; for approval
of the Company's Annual Management Incentive Plan; for approval of the Company's
Amended and Restated Stock Incentive Plan; and for ratification of the
appointment of Ernst & Young LLP as the Company's independent auditors for the
2000 fiscal year. Of the 44,280,539 shares of capital stock outstanding on the
record date, 42,893,755 or 97% 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 42,113,948 779,807
C. H. Diller, Jr. 42,138,786 754,969
G. R. Kempton 42,133,862 759,893
J. A. Mezera 42,051,818 841,937
S. Rabinowitz 42,038,828 854,927
T. C. Wajnert 42,129,917 763,838
C. O. Wood, III 42,060,063 833,692
Approval of the Company's Annual Management Incentive Plan.
For Against Abstain Broker non-votes
---------- --------- ------- ----------------
41,029,453 1,657,165 207,137 0
Approval of the Company's Amended and Restated Stock Incentive Plan.
For Against Abstain Broker non-votes
---------- --------- ------- ----------------
24,461,825 11,650,635 206,929 6,574,366
Ratification of the appointment of Ernst & Young LLP as independent auditors for
the ensuing year.
For Against Abstain Broker non-votes
---------- --------- ------- ----------------
42,231,205 503,828 158,722 0
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ITEM 6 -- EXHIBITS AND REPORTS ON FORM 8-K
(a) The following exhibits are included herein:
3.1 By-laws of JLG Industries, Inc.
10.1 JLG Industries, Inc. Executive Severance Plan effective
November 17, 1999
10.2 Employment Agreement dated November 1, 1999 between
JLG Industries, Inc. and William M. Lasky
15 Letter re: Unaudited Interim Financial Information
27 Financial Data Schedule
99 Cautionary Statements Pursuant to the Securities Litigation
Reform Act
(b) On August 31, 1999, the Company filed a Form 8-K/A to include previously
omitted information regarding the Gradall acquisition including financial
statements for Gradall and pro forma financial information for the Company
relative to its acquisition 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
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