JLG INDUSTRIES INC - 10-Q Quarterly Report

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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 January 31, 2004

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: 1-12123

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 (Zip Code)
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
---------- --------

Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act).
Yes X No
---------- ---------

The number of shares of capital stock outstanding as of March 12, 2004
was 43,529,330.

TABLE OF CONTENTS

PART 1

Item 1. Financial Information.......................................... 1

Condensed Consolidated Balance Sheets........................ 1

Condensed Consolidated Statements of Income.................. 2

Condensed Consolidated Statements of Cash Flows............. 3

Notes to Condensed Consolidated Financial Statements......... 4

Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations........................... 20

Item 3. Quantitative and Qualitative Disclosures about
Market Risk................................................... 33

Item 4. Controls and Procedures........................................ 34

Independent Accountants' Review Report.................................. 36

PART II

Item 1. Legal Proceedings.............................................. 37

Item 6. Exhibits and Reports on Form 8-K............................... 37

Signatures.............................................................. 39

PART I FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS

JLG INDUSTRIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except per share data) July 31,
January 31, 2003
2004 Restated
------------ ------------
(Unaudited)

ASSETS
Current assets
Cash and cash equivalents $ 18,125 $ 132,809
Accounts receivable - net 315,304 257,519
Finance receivables - net 8,252 3,168
Pledged finance receivables - net 42,189 41,334
Inventories 150,074 122,675
Other current assets 27,441 46,474
--------- ---------
Total current assets 561,385 603,979
Property, plant and equipment - net 90,862 79,699
Equipment held for rental - net 22,903 19,651
Finance receivables, less current portion 22,882 31,156
Pledged finance receivables, less current portion 105,915 119,073
Goodwill - net 66,501 29,509
Intangible assets - net 33,709 --
Other assets 67,961 53,135
--------- ---------
$ 972,118 $ 936,202
========= =========

LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Short-term debt and current portion of long-term debt $ 1,758 $ 1,472
Current portion of limited recourse debt from finance
receivables monetizations 40,824 45,279
Accounts payable 92,762 83,408
Accrued expenses 89,934 91,057
--------- ---------
Total current liabilities 225,278 221,216
Long-term debt, less current portion 312,568 294,158
Limited recourse debt from finance receivables monetizations,
less current portion 109,459 119,661
Accrued post-retirement benefits 27,998 26,179
Other long-term liabilities 30,487 15,160
Provisions for contingencies 14,076 12,114
Shareholders' equity
Capital stock:
Authorized shares: 100,000 at $.20 par
Issued and outstanding shares: 43,558;
fiscal 2003 - 43,367 8,712 8,673
Additional paid-in capital 24,725 23,597
Retained earnings 230,746 228,490
Unearned compensation (3,796) (5,428)
Accumulated other comprehensive loss (8,135) (7,618)
--------- ---------
Total shareholders' equity 252,252 247,714
--------- ---------
$ 972,118 $ 936,202
========= =========

The accompanying notes are an integral part of these financial statements.

1

JLG INDUSTRIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except per share data)
(Unaudited)

The accompanying notes are an integral part of these financial statements.

2

JLG INDUSTRIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)

The accompanying notes are an integral part of these financial statements.

3

JLG INDUSTRIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 31, 2004
(in thousands, except per share data)
(Unaudited)

NOTE 1 - BASIS OF PRESENTATION
We have prepared the accompanying unaudited condensed consolidated financial
statements 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 our opinion, we have included all normal recurring adjustments
necessary for a fair presentation of results for the unaudited interim periods.

Interim results for the six-month period ended January 31, 2004 are not
necessarily indicative of the results that may be expected for the fiscal year
as a whole. For further information, refer to the consolidated financial
statements and notes thereto included in our annual report on Form 10-K/A for
the fiscal year ended July 31, 2003.

Where appropriate, we have reclassified certain amounts in fiscal 2003 to
conform to the fiscal 2004 presentation.

NOTE 2 - RECENT ACCOUNTING PRONOUNCEMENTS
In January 2003, the Financial Accounting Standards Board ("FASB') issued FASB
Interpretation No. 46 ("FIN 46"), "Consolidation of Variable Interest Entities."
This interpretation of Accounting Research Bulletin No. 51, "Consolidated
Financial Statements," addresses consolidation of variable interest entities.
FIN 46 requires certain variable interest entities ("VIE's") to be consolidated
by the primary beneficiary if the entity does not effectively disperse risks
among the parties involved. The provisions of FIN 46 are effective immediately
for those variable interest entities created after January 31, 2003. The
provisions are effective for the first annual or interim period beginning after
December 15, 2003. We have determined that our only joint venture is deemed to
be a business under the definition of FIN 46 and that in accordance with the
interpretation, the joint venture need not be evaluated to determine if the
entity is a VIE under the requirements of FIN 46. Additionally, we have
concluded that no other structures exist that qualify as VIE's as defined by FIN
46.

On December 8, 2003, the Medicare Prescription Drug, Improvement and
Modernization Act of 2003 (the "Act") was signed into law which introduced a
prescription drug benefit under Medicare (Medicare Part D) as well as a federal
subsidy to sponsors of retiree health care benefit plans that provide a benefit
that is at least actuarially equivalent to Medicare Part D. In January 2004, the
FASB issued FASB Staff Position ("FSP") No. FAS 106-1, "Accounting and
Disclosure Requirements Related to the Medicare Prescription Drug, Improvement
and Modernization Act of 2003." As provided under FSP No. FAS 106-1, we have
elected to defer accounting for the effects of the Act until authoritative
guidance on the accounting for the federal subsidy is issued or until a
significant event occurs that ordinarily would call for us to remeasure our
plan's assets and obligations. The guidance, when issued, could require us to
change previously reported information. Additionally, the accrued benefit
obligation and the net periodic postretirement benefit cost included in our
condensed consolidated financial statements do not reflect the effects of the
Act on our plan.

NOTE 3 - ACQUISITION
On August 1, 2003, we acquired the OmniQuip business unit ("OmniQuip") of
Textron Inc., which includes all operations relating to the Sky Trak(R) and
Lull(R) brand commercial telehandler products and the All-Terrain Lifter, Army
System and the Millennia Military Vehicle military telehandler products, for
$105.4 million, which included transaction expenses of $5.4 million, with $90
million paid in cash at closing and $10 million paid in the form of an unsecured
subordinated promissory note due on the second anniversary of the closing date.
In addition, we will incur estimated expenditures totaling $47.4 million over a
four-year period related to our integration plan. Through January 31, 2004, we
have incurred expenditures of $13.7 million related to our OmniQuip integration
plan. The integration plan expenditures are associated with personnel
reductions, facility closings, plant start-up costs and

4

facility operating expenses. We funded the cash portion of the purchase price
and the transaction expenses with the remaining unallocated proceeds from the
sale of our $125 million senior notes due 2008 and we anticipate funding
integration expenses with cash generated from operations and borrowings under
our credit facilities.

We made this acquisition because of its strategic fit and adherence to our
growth strategy and acquisition criteria. This acquisition was an addition to
our Machinery segment and has been accounted for as a purchase. Goodwill arising
from the purchase price reflects a number of factors including the future
earnings and cash flow potential of the acquired business and the complementary
strategic fit and resulting synergies this acquisition brings to existing
operations.

The following table summarizes our estimated fair values of the OmniQuip assets
acquired and liabilities assumed on August 1, 2003:

Accounts receivable $33,940
Inventory 37,438
Property, plant and equipment 13,929
Goodwill 36,941
Other intangible assets, primarily trademarks and patents 34,210
Accounts payable (19,565)
Other assets and liabilities, net (27,892)
Assumed debt (3,630)
-------------
Net cash consideration $105,371
=============

Of the $34.2 million of acquired intangible assets, $23.6 million was assigned
to registered trademarks that are not subject to amortization. The remaining
$10.6 million of acquired intangible assets has a weighted-average useful life
of approximately 8 years. The intangible assets that make up that amount include
distributor and customer relations of $1.0 million (20-year weighted-average
useful life), patents of $5.8 million (9-year weighted-average useful life), and
contracts of $3.8 million (2-year weighted-average useful life). The entire
amount of goodwill is expected to be deductible for tax purposes.

We continue to evaluate the initial purchase price allocation for the OmniQuip
acquisition and will adjust the allocations as additional information relative
to the estimated integration costs of the acquired businesses and the fair
market values of the assets and liabilities of the businesses become known.
Examples of factors and information that we use to refine the allocations
include: tangible and intangible asset appraisals; cost data related to
redundant facilities; employee/personnel data related to redundant functions;
product line integration and rationalization information; and management
capabilities. In addition, we will accrue the estimated cost of integration
activities when such amounts are determined, but in no event beyond one year
from the date of acquisition.

The operating results of OmniQuip are included in our consolidated results from
operations beginning August 1, 2003.

5

In compliance with generally accepted accounting principles, the following
unaudited pro forma financial information for the three and six months ended
January 31, 2003 reflects our consolidated results of operations as if the
OmniQuip acquisition had taken place on August 1, 2002. The unaudited pro forma
financial information is not necessarily indicative of the results of operations
had the transaction been effected on the assumed date.

In connection with our acquisitions, we assess and formulate plans related to
their future integration. This process begins during the due diligence process
and is concluded within twelve months of the acquisition. We accrue estimates
for certain costs, related primarily to personnel reductions and facility
closures or restructurings, anticipated at the date of acquisition, in
accordance with Emerging Issues Task Force Issue No. 95-3, "Recognition of
Liabilities in Connection with a Purchase Business Combination." Adjustments to
these estimates are made as plans are finalized, but in no event beyond one year
from the acquisition date. To the extent these accruals are not utilized for the
intended purpose, the excess is recorded as a reduction of the purchase price,
typically by reducing recorded goodwill balances. Costs incurred in excess of
the recorded accruals are expensed as incurred.

Accrued liabilities associated with these integration activities include the
following (in thousands, except headcount):

Planned Headcount Reduction:
Number of employees related to OmniQuip acquisition 350
Reductions (279)
-----------
Balance at January 31, 2004 71
===========

Involuntary Employee Termination Benefits:
Accrual related to OmniQuip acquisition $10,030
Costs incurred (1,953)
-----------
Balance at January 31, 2004 $8,077
===========

Facility Closure and Restructuring Costs:
Accrual related to OmniQuip acquisition $13,601
Costs incurred (1,248)
-----------
Balance at January 31, 2004 $12,353
===========

6

NOTE 4 - GOODWILL
The following table presents the rollforward of goodwill for the period from
July 31, 2003 to January 31, 2004:

Balance as of August 1, 2003 $29,509
Acquisitions 36,992
-----------
Balance as of January 31, 2004 $66,501
===========

There were no dispositions of businesses with related goodwill during the six
months ended January 31, 2004. On August 1, 2003, we acquired OmniQuip for
$105.4 million which resulted in the increase to goodwill. The acquired goodwill
change in the period related to our Machinery segment.

We assess goodwill for impairment at least annually at the beginning of the
fourth quarter of each fiscal year or as "triggering" events occur. In making
this assessment, we rely on a number of factors including operating results,
business plans, economic projections, anticipated future cash flows,
transactions and market place data. There are inherent uncertainties related to
these factors and management's judgment in applying them to the analysis of
goodwill impairment which may affect the carrying value of goodwill.

NOTE 5 - INTANGIBLE ASSETS
Intangible assets consist of the following at January 31, 2004:

Gross Net
Carrying Accumulated Carrying
Value Amortization Value
------------ ------------ ----------

Finite Lived
Patents $ 5,810 $ 393 $ 5,417
Contracts 3,800 950 2,850
Other 2,143 301 1,842
------- ------- -------
11,753 1,644 10,109
Indefinite Lived
Trademarks 23,600 -- 23,600
------- ------- -------
Total Intangible Assets $35,353 $ 1,644 $33,709
======= ======= =======

NOTE 6 - 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, 2004, must
necessarily be based on our estimate of expected fiscal year-end inventory
levels and costs. The cost of United States inventories is based primarily on
the LIFO (last-in, first-out) method. All other inventories are based on the
FIFO (first-in, first-out) method.

Inventories consist of the following:

January 31, July 31,
2004 2003
------------ ------------

Finished goods $ 79,710 $ 77,852
Raw materials and work in process 76,978 51,267
-------- --------
156,688 129,119
Less LIFO provision 6,614 6,444
-------- --------
$150,074 $122,675
======== ========

The cost of United States inventories stated under the LIFO method was 53% and
51% at January 31, 2004 and July 31, 2003, respectively, of our total inventory.

7

NOTE 7 - FINANCE AND PLEDGED FINANCE RECEIVABLES
Finance receivables represent sales-type leases resulting from the sale of our
products. Our net investment in finance and pledged finance receivables was as
follows at:

January 31, July 31,
2004 2003
------------ ------------

Gross finance and pledged finance receivables $ 197,252 $ 205,390
Estimated residual value 22,514 35,337
--------- ---------
219,766 240,727
Unearned income (36,746) (42,811)
--------- ---------
Net finance and pledged finance receivables 183,020 197,916
Provision for losses (3,782) (3,185)
--------- ---------
$ 179,238 $ 194,731
========= =========

Of the finance receivables balances at January 31, 2004 and July 31, 2003,
$148.1 million and $160.4 million, respectively, are pledged finance receivables
resulting from the monetization of finance receivables. In compliance with SFAS
No. 140, "Accounting for Transfers and Servicing of Financial Assets and
Extinguishment of Liabilities," these transactions are accounted for as debt on
our Condensed Consolidated Balance Sheets. The maximum loss exposure associated
with these transactions was $24.5 million as of January 31, 2004. As of January
31, 2004, our provision for losses related to these transactions was $3.2
million.

The following table displays the contractual maturity of our finance and pledged
finance receivables. It does not necessarily reflect the timing of future cash
collections because of various factors including the possible refinancing or
sale of finance receivables and repayments prior to maturity.

For the twelve-month periods ended January 31:

2005 $ 63,047
2006 46,507
2007 41,621
2008 26,768
2009 10,688
Thereafter 8,621
Residual value in equipment at lease end 22,514
Less: unearned finance income (36,746)
-----------
Net investment in leases $183,020
===========

Provisions for losses on finance and pledged finance receivables are charged to
income in amounts sufficient to maintain the allowance at a level considered
adequate to cover potential losses in the existing receivable portfolio.

NOTE 8 - CHANGES IN ACCOUNTING ESTIMATES
During the second quarter of fiscal 2004, we determined that the amount of the
discretionary profit sharing contribution for calendar year 2003 would be lower
than what was originally estimated. This change resulted in an increase in net
income of $0.7 million, or $.02 per diluted share, for the second quarter of
fiscal 2004 and $0.2 million for the first six months of fiscal 2004.

During the second quarter of fiscal 2003, we determined that we would not make a
discretionary profit sharing contribution for calendar year 2002. This change
resulted in an increase in net income of $1.8 million, or $.04 per diluted
share, for the second quarter of fiscal 2003 and $1.3 million, or $.03 per
diluted share, for the first six months of fiscal 2003.

8

NOTE 9 - STOCK BASED INCENTIVE PLANS
At our Annual Meeting of Shareholders on November 20, 2003, shareholders
approved our Long Term Incentive Plan (the "Plan"), which replaced our Amended
and Restated Stock Incentive Plan and our Directors' Stock Option Plan (the
"Prior Plans"). This allowed us to combine the Prior Plans into a single
integrated plan that will provide greater flexibility for additional types of
awards, including performance based cash awards. We account for the award of
stock options pursuant to the Plan under the recognition and measurement
principles of APB Opinion No. 25, "Accounting for Stock Issued to Employees,"
and related Interpretations. Under this opinion, we do not recognize
compensation expense arising from the grant of stock options because the
exercise price of our stock options equals the market price of the underlying
stock on the date of grant. The following table illustrates the effect on net
income and earnings per share if we had applied the fair value recognition
provisions of SFAS No. 123, "Accounting for Stock-Based Compensation," for each
of the periods ended January 31:

9

NOTE 10 - BASIC AND DILUTED EARNINGS PER SHARE
This table presents our computation of basic and diluted earnings per share for
each of the periods ended January 31:

Three Months Ended Six Months Ended
January 31, January 31,
2004 2003 2004 2003
----------- ----------- ---------- ----------

Net income $ 2,158 $ 4,226 $ 2,691 $ 4,555
======= ======= ======= =======

Denominator for basic earnings per share --
weighted average shares 42,791 42,570 42,725 42,568
Effect of dilutive securities - employee stock
options and unvested restricted shares 1,361 297 1,140 305
------- ------- ------- -------
Denominator for diluted earnings per share --
weighted average shares adjusted for
dilutive securities 44,152 42,867 43,865 42,873
======= ======= ======= =======

Earnings per common share $ .05 $ .10 $ .06 $ .11
======= ======= ======= =======

Earnings per common share - assuming dilution $ .05 $ .10 $ .06 $ .11
======= ======= ======= =======

During the quarter ended January 31, 2004, options to purchase 0.8 million
shares of capital stock at a range of $14.75 to $21.94 per share were not
included in the computation of diluted earnings per share because exercise
prices for the options were more than the average market price of the capital
stock.

NOTE 11 - SEGMENT INFORMATION
We have organized our business into three segments - Machinery, Equipment
Services and Access Financial Solutions. The Machinery segment contains the
design, manufacture and sale of new equipment. The Equipment Services segment
contains after-sales service and support, including parts sales, equipment
rentals, and used and remanufactured or reconditioned equipment sales. The
Access Financial Solutions segment contains financing and leasing activities. We
evaluate performance of the Machinery and Equipment Services segments and
allocate resources based on operating profit before interest, miscellaneous
income/expense and income taxes. We evaluate performance of the Access Financial
Solutions segment and allocate resources based on its operating profit less
interest expense. Intersegment sales and transfers are not significant. The
accounting policies of the reportable segments are the same as those described
in the summary of significant accounting policies.

10

Our business segment information consisted of the following for each of the
periods ended January 31:

This table presents our business segment assets at:

We manufacture our products in the United States and Belgium and sell these
products globally, but principally in North America, Europe, Australia and South
America. No single foreign country is significant to the consolidated
operations. Our revenues by geographic area consisted of the following for each
of the periods ended January 31:

Three Months Ended Six Months Ended
January 31, January 31,
2004 2003 2004 2003
---------- ---------- ----------- -----------

United States $177,542 $107,920 $349,213 $225,270
Europe 40,286 32,816 64,237 64,064
Other 18,702 10,577 36,665 22,466
-------- -------- -------- --------
$236,530 $151,313 $450,115 $311,800
======== ======== ======== ========

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NOTE 12 - COMPREHENSIVE INCOME
On an annual basis, comprehensive income is disclosed in the Statement of
Shareholders' Equity. This statement is not presented on a quarterly basis. The
following table presents the components of comprehensive income for each of the
periods ended January 31:

Three Months Ended Six Months Ended
January 31, January 31,
2004 2003 2004 2003
---------- ---------- ---------- ---------

Net income $ 2,158 $ 4,226 $ 2,691 $ 4,555
Aggregate translation adjustment (912) 1,718 (516) 1,171
------- ------- ------- -------
$ 1,246 $ 5,944 $ 2,175 $ 5,726
======= ======= ======= =======

NOTE 13 - PRODUCT WARRANTY
This table presents our reconciliation of accrued product warranty during the
period from July 31, 2003 to January 31, 2004:

Balance as of August 1, 2003 $ 8,585
Additions due to acquisition of OmniQuip 5,683
Payments (4,924)
Accruals 1,543
Changes in the liability for accruals 599
--------
Balance as of January 31, 2004 $ 11,486
========

NOTE 14 - RESTRUCTURING COSTS
During the second quarter of fiscal 2003, we announced further actions related
to our ongoing longer-term strategy to streamline operations and reduce fixed
and variable costs. As part of our capacity rationalization plan for our
Machinery segment that commenced in early 2001, the 130,000-square foot
Sunnyside facility in Bedford, Pennsylvania, which produced selected scissor
lift models, was idled and production integrated into our Shippensburg,
Pennsylvania facility. Additionally, reductions in selling, administrative and
product development costs resulted from changes in our global organization and
from process consolidations.

The announced plan contemplates that we will reduce a total of 189 people
globally and transfer 99 production jobs from the Sunnyside facility to the
Shippensburg facility. As a result, pursuant to the plan we anticipate incurring
a pre-tax charge of $5.9 million, consisting of $3.5 million in restructuring
costs associated with personnel reductions and employee relocation and lease and
contract terminations and $2.4 million in charges related to relocating certain
plant assets and start-up costs. In addition, we will spend approximately $3.5
million on capital requirements. Almost all of these expenses will be cash
charges.

As noted above, the continuing streamlining of our operations will result in
$3.5 million in personnel reductions and relocation and lease and contract
terminations and will be recorded as a restructuring cost. In accordance with
new accounting requirements, through the second quarter of fiscal 2004, we
recognized $2.8 million of the pre-tax restructuring charge, consisting of an
accrual for termination benefit costs and employee relocation costs. In
addition, we incurred $1.2 million of costs related to relocating certain plant
assets and start-up costs, which was recorded as a cost of sales. Also, through
the second quarter of fiscal 2004, we spent approximately $3.5 million on
capital requirements. We anticipate recording the remaining restructuring and
restructuring-related costs in our third quarter of fiscal 2004.

12

The following table presents a rollforward of our activity in the restructuring
accrual and our charges related to relocating certain plant assets and start-up
costs associated with the move of the Sunnyside facility to the Shippensburg
facility and costs related to our process consolidations:

During the third quarter of fiscal 2002, we announced the closure of our
manufacturing facility in Orrville, Ohio as part of our capacity rationalization
plan for our Machinery segment. Operations at that facility have been integrated
into our McConnellsburg, Pennsylvania facility. As a result, through January 31,
2004, we have incurred a pre-tax charge of $6.9 million, consisting of $1.2
million for termination benefits and lease termination costs, a $4.9 million
asset write-down and $0.9 million in charges related to relocating certain plant
assets and start-up costs associated with the move of the Orrville operations to
the McConnellsburg facility.

13

The following table presents a rollforward of our activity in the restructuring
accrual and our charges related to relocating certain plant assets and start-up
costs associated with the move of the Orrville operations to McConnellsburg:

Other
Termination Impairment Restructuring Restructuring
Benefits of Assets Costs Total Related Charges
------------ ----------- ------------- ---------- --------------

Total restructuring charge $ 1,120 $ 4,613 $ 358 $ 6,091 $ 1,658
Fiscal 2002 utilization of
reserves - cash (135) -- (86) (221) (399)
Fiscal 2002 utilization of
reserves - non-cash -- (4,613) -- (4,613) (225)
-------------------------------------------------------------
Balance at July 31, 2002 985 -- 272 1,257 1,034
Fiscal 2003 utilization of
reserves - cash (985) -- (88) (1,073) (228)
-------------------------------------------------------------
Balance at July 31, 2003 -- -- 184 184 806
Fiscal 2004 utilization of
reserves - cash -- -- (82) (82) --
-------------------------------------------------------------

Balance at January 31, 2004 $ -- $ -- $ 102 $ 102 $ 806
=============================================================

At January 31, 2004, we included $6.2 million of assets held for sale on the
Condensed Consolidated Balance Sheets in other current assets and ceased
depreciating these assets during the third quarter of fiscal 2002 and the fourth
quarter of fiscal 2001.

Our accrued liabilities associated with the acquisition of OmniQuip are
discussed in Note 3 of the Notes to Condensed Consolidated Financial Statements
of this report.

NOTE 15 - COMMITMENTS AND CONTINGENCIES
We are a party to personal injury and property damage litigation arising out of
incidents involving the use of our products. Our insurance program for fiscal
2004 is comprised of a self-insured retention of $3 million per occurrence for
domestic claims, insurance coverage of $2 million for international claims and
catastrophic coverage for domestic and international claims of $100 million in
excess of the retention and international primary coverage. We contract with an
independent firm to provide claims handling and adjustment services. Our
estimates with respect to claims are based on internal evaluations of the merits
of individual claims and the reserves assigned by our independent insurance
claims adjustment firm. We frequently review the methods of making such
estimates and establishing the resulting accrued liability, and any resulting
adjustments 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 we are aware, we
established accrued liabilities of $21.2 million and $19.0 million at January
31, 2004 and July 31, 2003, respectively. These amounts are included in accrued
expenses and provisions for contingencies on our Condensed Consolidated Balance
Sheets. While our ultimate liability may exceed or be less than the amounts
accrued, we believe that it is unlikely that we would experience losses that are
materially in excess of such reserve amounts. The provisions for self-insured
losses are included within cost of sales in our Condensed Consolidated
Statements of Income. As of January 31, 2004 and July 31, 2003, there were no
insurance recoverables or offset implications and there were no claims by us
being contested by insurers.

At January 31, 2004, we are a party to multiple agreements whereby we guarantee
$107.6 million in indebtedness of others, including the $24.5 million maximum
loss exposure associated with our limited recourse agreements. As of January 31,
2004, two customers owed approximately 30% of the guaranteed indebtedness. Under
the terms of these

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and various related agreements and upon the occurrence of certain events, we
generally have the ability, among other things, to take possession of the
underlying collateral and/or make demand for reimbursement from other parties
for any payments made by us under these agreements. At January 31, 2004, we had
$10.2 million reserved related to these agreements, including a provision for
losses of $3.2 million related to our limited recourse agreements. If the
financial condition of our customers were to deteriorate resulting in an
impairment of their ability to make payments, additional allowances may be
required. While we believe it is unlikely that we would experience losses under
these agreements that are materially in excess of the amounts reserved, we can
provide no assurance that the financial condition of the third parties will not
deteriorate resulting in the customers' inability to meet their obligations and,
in the event that occurs, we can not guarantee that the collateral underlying
the agreements will not result in losses materially in excess of those reserved.

We have received notices of proposed adjustments from the Pennsylvania
Department of Revenue ("PA") in connection with settlements and audits of the
tax years 1998 through 2001. The principal adjustments proposed by PA consist of
the disallowance of a royalty deduction taken in our income tax returns and the
denial of the manufacturing exemption taken in our capital stock tax returns. We
believe that the state has acted contrary to applicable law and we are
vigorously disputing their position. Should PA prevail in its disallowance of
the royalty deduction and denial of the manufacturing exemption, it would result
in a cash outflow by us of approximately $7 million. Although unlikely, we
believe that any such cash outflow would not occur until some time after 2004.

NOTE 16 - BANK CREDIT LINES AND LONG-TERM DEBT
Our long-term debt was as follows at:

January 31, July 31,
2004 2003
------------ ------------

8 3/8% senior subordinated notes due 2012 $ 175,000 $ 175,000
8 1/4% senior notes due 2008 125,000 125,000
Fair value of hedging adjustment (1,139) (6,353)
Other 14,748 1,348
--------- ---------
313,609 294,995
Less current portion 1,041 837
--------- ---------
$ 312,568 $ 294,158
========= =========

The aggregate amounts of long-term debt outstanding at January 31, 2004 which
will become due in 2005 through 2009 are: $1.0 million, $11.1 million, $1.1
million, $1.1 million and $124.3 million, respectively. Other includes a $10
million unsecured subordinated promissory note payable to a subsidiary of
Textron Inc. related to the acquisition of OmniQuip, which we paid off on
February 4, 2004.

At January 31, 2004, the fair values of our $175 million 8 3/8% senior
subordinated notes due 2012 and our $125 million 8 1/4% senior unsecured notes
due 2008 were $181.1 million and $135.6 million, respectively, based on quoted
market values. At July 31, 2003, the fair values of our $175 million 8 3/8%
senior subordinated notes due 2012 and our $125 million 8 1/4% senior unsecured
notes due 2008 were $158.5 million and $126.3 million, respectively, based on
quoted market values. The fair value of our remaining long-term debt at January
31, 2004 and at July 31, 2003 is estimated to approximate the carrying amount
reported in the Condensed Consolidated Balance Sheets based on current interest
rates for similar types of borrowings.

NOTE 17 - LIMITED RECOURSE DEBT
As a result of the sale of finance receivables through limited recourse
monetization transactions, we have $150.3 million of limited recourse debt
outstanding as of January 31, 2004. The aggregate amounts of limited recourse
debt outstanding at January 31, 2004 which will become due in 2005 through 2009
are: $40.8 million, $35.8 million, $34.1 million, $23.7 million and $8.8
million, respectively.

15

NOTE 18 - PROPERTY, PLANT AND EQUIPMENT
Our property, plant and equipment consists of the following at:

January 31, July 31,
2004 2003
------------ ------------

Land and improvements $ 7,301 $ 7,119
Buildings and improvements 56,522 51,420
Machinery and equipment 132,432 117,564
--------- ---------
196,255 176,103
Less allowance for depreciation and amortization (105,393) (96,404)
--------- ---------
$ 90,862 $ 79,699
========= =========

At January 31, 2004, assets under capital leases totaled approximately $3.5
million. Accumulated amortization of assets held under capital leases totaled
approximately $0.3 million at January 31, 2004.

16

NOTE 19 - CONDENSED CONSOLIDATING FINANCIAL INFORMATION OF GUARANTOR
SUBSIDIARIES
Certain of our indebtedness is guaranteed by our significant subsidiaries (the
"guarantor subsidiaries"), but is not guaranteed by our other subsidiaries (the
"non-guarantor subsidiaries"). The guarantor subsidiaries are all wholly owned,
and the guarantees are made on a joint and several basis and are full and
unconditional subject to a standard limitation which provides that the maximum
amount guaranteed by each guarantor will not exceed the maximum amount
guaranteed without making the guarantee void under fraudulent conveyance laws.
Separate financial statements of the guarantor subsidiaries have not been
presented because management believes it would not be material to investors. The
principal elimination entries eliminate investment in subsidiaries, intercompany
balances and transactions and certain other eliminations to properly eliminate
significant transactions in accordance with our accounting policy for the
principles of consolidated and statement presentation. The condensed
consolidating financial information of the Company and its subsidiaries are as
follows:

CONDENSED CONSOLIDATED BALANCE SHEET
As of January 31, 2004

----------------------------------------------------------------------
Guarantor Non-Guarantor Other and Consolidated
Parent Subsidiaries Subsidiaries Eliminations Total
- ----------------------------------------------------------------------------------------------------------------

ASSETS
- ------
Accounts receivable - net $ 176,107 $ 55,032 $ 89,727 $ (5,562) $ 315,304
Finance receivables - net 6,224 23,257 (1,607) 3,260 31,134
Pledged finance receivables - net -- 148,104 -- -- 148,104
Inventories 64,064 40,242 45,155 613 150,074
Property, plant and equipment - net 50,292 26,786 14,268 (484) 90,862
Equipment held for rental - net 828 18,293 3,782 -- 22,903
Investment in subsidiaries 350,121 -- 5,016 (355,137) --
Other assets 83,676 110,477 19,570 14 213,737
---------------------------------------------------------------------
$ 731,312 $ 422,191 $ 175,911 $(357,296) $ 972,118
=====================================================================

LIABILITIES AND
- ---------------
SHAREHOLDERS' EQUITY
- --------------------
Accounts payable and accrued
expenses $ 137,814 $ 50,289 $ 21,182 $ (26,589) $ 182,696
Long-term debt, less current
portion 299,283 13,285 -- -- 312,568
Limited recourse debt from finance
receivables monetizations,
less current portion -- 109,459 -- -- 109,459
Other liabilities (79,356) 10,286 160,027 24,186 115,143
---------------------------------------------------------------------
Total liabilities 357,741 183,319 181,209 (2,403) 719,866
---------------------------------------------------------------------
Shareholders' equity 373,571 238,872 (5,298) (354,893) 252,252
---------------------------------------------------------------------
$ 731,312 $ 422,191 $ 175,911 $(357,296) $ 972,118
=====================================================================

17

CONDENSED CONSOLIDATED BALANCE SHEET
As of July 31, 2003

- ---------------------------------------------------------------------------------------------------------------
Guarantor Non-Guarantor Other and Consolidated
Parent Subsidiaries Subsidiaries Eliminations Total
- ---------------------------------------------------------------------------------------------------------------

ASSETS
- ------
Accounts receivable - net $ 142,552 $ 40,059 $ 74,977 $ (69) $ 257,519
Finance receivables - net 5,992 24,956 (1,596) 4,972 34,324
Pledged finance receivables - net -- 160,411 (4) -- 160,407
Inventories 52,091 31,326 39,651 (393) 122,675
Property, plant and equipment - net 24,749 42,234 13,152 (436) 79,699
Equipment held for rental - net 919 16,130 2,602 -- 19,651
Investment in subsidiaries 244,788 -- 4,977 (249,765) --
Other assets 197,275 30,357 34,234 61 261,927
--------- --------- --------- --------- ---------
$ 668,366 $ 345,473 $ 167,993 $(245,630) $ 936,202
========= ========= ========= ========= =========

LIABILITIES AND
- ---------------
SHAREHOLDERS' EQUITY
- --------------------
Accounts payable and accrued
expenses $ 118,539 $ 24,497 $ 50,580 $ (19,151) $ 174,465
Long-term debt, less current
portion 294,158 -- -- -- 294,158
Limited recourse debt from finance
receivables monetizations,
less current portion -- 119,661 -- -- 119,661
Other liabilities (250,124) 232,883 95,583 21,862 100,204
--------- --------- --------- --------- ---------
Total liabilities 162,573 377,041 146,163 2,711 688,488
--------- --------- --------- --------- ---------

Shareholders' equity 505,793 (31,568) 21,830 (248,341) 247,714
--------- --------- --------- --------- ---------
$ 668,366 $ 345,473 $ 167,993 $(245,630) $ 936,202
========= ========= ========= ========= =========

CONDENSED CONSOLIDATED STATEMENT OF INCOME
For the Six Months Ended January 31, 2004

18

CONDENSED CONSOLIDATED STATEMENT OF INCOME
For the Six Months Ended January 31, 2003

CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
For the Six Months Ended January 31, 2004

----------------------------------------------------------------------------------
Guarantor Non-Guarantor Other and Consolidated
Parent Subsidiaries Subsidiaries Eliminations Total
- -----------------------------------------------------------------------------------------------------------------------------

Cash flow from operating activities $ (26,755) $ (6,667) $ 11,782 $ (334) $ (21,974)
Cash flow from investing activities (98,503) (6,877) (3,733) 1 (109,112)
Cash flow from financing activities 2,270 13,592 83 (1) 15,944
Effect of exchange rate changes on
cash 2,376 -- (2,247) 329 458
--------- --------- --------- --------- ---------
Net change in cash and cash
equivalents (120,612) 48 5,885 (5) (114,684)
Beginning balance 127,197 26 5,570 16 132,809
--------- --------- --------- --------- ---------
Ending balance $ 6,585 $ 74 $ 11,455 $ 11 $ 18,125
========= ========= ========= ========= =========

CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
For the Six Months Ended January 31, 2003

--------------------------------------------------------------------
Guarantor Non-Guarantor Other and Consolidated
Parent Subsidiaries Subsidiaries Eliminations Total
- -----------------------------------------------------------------------------------------------------------

Cash flow from operating activities $(83,033) $(11,873) $ 2,936 $ (672) $(92,642)
Cash flow from investing activities (3,295) 1,627 (2,999) (71) (4,738)
Cash flow from financing activities 69,933 29,372 16 (16) 99,305
Effect of exchange rate changes on
cash 422 21 (66) 1,058 1,435
-------- -------- -------- -------- --------
Net change in cash and cash
equivalents (15,973) 19,147 (113) 299 3,360
Beginning balance 22,949 (19,545) 3,093 (292) 6,205
-------- -------- -------- -------- --------
Ending balance $ 6,976 $ (398) $ 2,980 $ 7 $ 9,565
======== ======== ======== ======== ========

19

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

OVERVIEW
We focused during the second quarter of fiscal 2004 on continuing the
implementation of our aggressive OmniQuip integration plan. Following the move
of both SkyTrak and Lull telehandler production lines from the Port Washington,
Wisconsin, facility to our McConnellsburg, Pennsylvania, facility last November,
the transfer of the remaining production of military-design telehandlers - for
use by the U.S. Army and Marine Corps - marks the successful completion of the
first phase of our integration plan. The second phase of our integration plan,
commonization of the supply base and integration of the OmniQuip and JLG brands
and marketing programs, is well underway. We have also begun evaluating
standardization of design, which is phase three of the plan, the details of
which will depend for the most part on customer input regarding the critical
characteristics of each of our brands. We have already begun taking OmniQuip
orders and shipping from our McConnellsburg facility, and we continue to work
toward completing the transfer of all remaining activity including the worldwide
service parts business by the end of fiscal year 2004.

As an added part of the OmniQuip integration, we have analyzed the capacity
utilization at our facilities in order to increase efficiency and use of the
combined assets. As a result of this analysis, we recently met with team members
and Union leaders in New Philadelphia, Ohio, to unveil our plans for this
facility. Essentially, we will be integrating the New Philadelphia
administrative and support activities and outsourcing many production processes
to our facilities in McConnellsburg, PA, Oakes, ND, or outside suppliers. We
anticipate this will result in a downsizing of the entire New Philadelphia
workforce by approximately one-third. We expect this to improve the
profitability of our excavator sales as we also seek additional distribution
opportunities for these products and evaluate appropriate products or
complementary businesses to supplement the New Philadelphia operations.

In addition, we have seen the recent market prices of some of the raw materials
we use, such as steel and energy, increase significantly. Coupled with rising
prices, the availability of steel is becoming limited as producers are rapidly
consuming capacity. With a recovering U.S. economy, we expect the demand for raw
materials and related costs to increase. However, we are very focused on finding
solutions to increasing steel costs and continue to concentrate our efforts on
ongoing overall cost reduction initiatives.

With the economic recovery well underway in North America and a modest recovery
projected in the Euro zone for calendar 2004, demand for our core access
equipment is strengthening. Order patterns strengthened considerably in the
second quarter for all product groups, and we remain cautiously optimistic that
order patterns will continue to reflect increased fleet refreshment activity and
customer confidence.

In the discussion and analysis of financial condition and results of operations
that follows, we attempt to list contributing factors in order of significance
to the point being addressed.

RESULTS FOR THE SECOND QUARTERS OF FISCAL 2004 AND 2003
We reported net income of $2.2 million, or $.05 per share on a diluted basis,
for the second quarter of fiscal 2004, compared to net income of $4.2 million,
or $.10 per share on a diluted basis, for the second quarter of fiscal 2003. As
discussed below and more fully described in Note 14 of the Notes to Condensed
Consolidated Financial Statements, earnings for the second quarter of fiscal
2004 and fiscal 2003 included charges of $0.1 million ($36 thousand net of tax)
and $1.3 million ($0.9 million net of tax), respectively, related to
repositioning our operations to more appropriately align our costs with our
business activity. In addition, earnings for the second quarter of fiscal 2004
included $4.1 million ($2.6 million net of tax) of integration expenses related
to our acquisition of the OmniQuip business unit ("OmniQuip") of Textron Inc.
Also, earnings for the second quarter of fiscal 2004 included favorable

20

currency adjustments of $0.7 million ($0.4 million net of tax) compared to
favorable currency adjustments of $7.6 million ($5.2 million net of tax) for the
second quarter of fiscal 2003.

Our revenues for the second quarter of fiscal 2004 were $236.5 million, up 56.3%
from the $151.3 million in the comparable year-ago period. Our revenues for the
second quarter of fiscal 2004 included OmniQuip revenues of $49.8 million. The
following tables outline our revenues by segment, products and geography (in
thousands) for the quarter ended:

(a) Revenues for Access Financial Solutions and for financial products are
not the same because Access Financial Solutions also receives revenues
from rental purchase agreements that are recorded for accounting
purposes as rental revenues from operating leases.

The increase in Machinery segment revenues from $109.6 million to $192.3
million, or 75.5%, was principally attributable to the additional sales from
OmniQuip products, increased sales of aerial work platforms in North America,
Europe, Australia and Latin America, higher telehandler sales from new products,
principally the new North America all-wheel-steer machines, and increased sales
of our excavator product line. The increase in Equipment Services segment
revenues from $36.7 million to $40.8 million, or 11.3%, was principally
attributable to the additional OmniQuip revenues and increased service parts
sales, partially offset by lower rebuild and rental fleet sales. The decrease in
Access Financial Solutions segment revenues from $5.1 million to $3.4 million,
or 32.3%, was principally attributable to an early payoff of a financed
receivable, partially offset by income received on a larger portfolio of pledged
finance receivables from prior monetization transactions. While we have
increased interest income attributable to our pledged finance receivables, a
corresponding increase in our limited recourse debt results in $2.7 million of
interest income being passed on to monetization purchasers in the form of
interest expense on limited recourse debt. In accordance with the required
accounting treatment, payments to monetization purchasers are reflected as
interest expense in our Condensed Consolidated Statements of Income.

21

Our domestic revenues for the second quarter of fiscal 2004 were $177.5 million,
up 64.5% from the comparable year-ago period revenues of $107.9 million. The
increase in our domestic revenues was primarily attributable to the additional
sales from OmniQuip products and increased sales of aerial work platforms,
telehandlers, parts and excavators, partially offset by lower sales of used
equipment. Revenues generated from sales outside the United States for the
second quarter of fiscal 2004 were $59 million, up 35.9% from the comparable
year-ago period revenues of $43.4 million. The increase in our revenues
generated from sales outside the United States was primarily attributable to
increased sales of aerial work platforms in Europe, Australia and Latin America.

Our gross profit margin was 18.4% for the second quarter of fiscal 2004 compared
to the prior year quarter's 17.2% due to higher margins in each of our segments.
The gross profit margin of our Machinery segment was 13.5% for the second
quarter of fiscal 2004 compared to 12.6% for the second quarter of fiscal 2003.
The increase was principally due to the weakening of the U.S. dollar against the
Euro, British pound and Australian dollar, partially offset by OmniQuip
integration expenses of $2 million and higher product costs. The gross profit
margin of our Equipment Services segment was 35.2% for the second quarter of
fiscal 2004 compared to 20.2% for the corresponding period in the prior year.
The increase was primarily attributable to an increase in higher margin service
parts sales as a percentage of total segment revenues due primarily to the
additional sales from OmniQuip and improved margins on used equipment sales. The
gross profit margin of our Access Financial Solutions segment was 99.9% for the
second quarter of fiscal 2004 compared to 97% for the corresponding period in
the prior year. The increase was primarily attributable to an increase in
financial product revenues as a percentage of total segment revenues. Because
the costs associated with these revenues are principally selling and
administrative expenses and interest expense, gross margins are typically higher
in this segment.

Our selling, administrative and product development expenses increased $12.5
million in the second quarter of fiscal 2004 compared to the prior year second
quarter and as a percent of revenues were 13.9% for the current year second
quarter compared to 13.4% for the prior year second quarter. Of the $12.5
million increase in our selling, administrative and product development
expenses, $5.7 million was associated with the addition of OmniQuip and
integration expenses. Our Machinery segment's selling, administrative and
product development expenses increased $1.7 million due primarily to the
addition of OmniQuip, higher payroll and related costs, amortization expense
associated with the acquired OmniQuip intangible assets, an increase in pension
and other postretirement benefits and costs associated with the accelerated
vesting of restricted stock awards triggered by our share price appreciation.
The increase in our Machinery segment's selling, administrative and product
development expenses was partially offset by a decrease in bad debt provisions.
Our Equipment Services segment's selling and administrative expenses increased
$0.8 million due primarily to the addition of OmniQuip and higher payroll and
related costs. Our Access Financial Solutions segment's selling and
administrative expenses increased $0.4 million due primarily to an increase in
bad debt provisions, partially offset by lower payroll and related costs. Our
general corporate selling, administrative and product development expenses
increased $9.6 million primarily due to an increase in bad debt provisions for
specific reserves related to certain customers, OmniQuip integration expenses of
$3.3 million, costs associated with the accelerated vesting of restricted stock
awards triggered by our share price appreciation, the addition of OmniQuip, a
discretionary profit sharing contribution paid for calendar year 2003 compared
to no contribution for calendar year 2002, an increase in pension and other
postretirement benefits and higher payroll and related costs.

During the second quarter of fiscal 2003, we announced further actions related
to our ongoing longer-term strategy to streamline operations and reduce fixed
and variable costs. As part of our capacity rationalization plan commenced in
early 2001, the 130,000-square foot Sunnyside facility in Bedford, Pennsylvania,
which produced selected scissor lift models, was idled and production integrated
into our Shippensburg, Pennsylvania facility. Additionally, reductions in
selling, administrative and product development costs resulted from changes in
our global organization and from process consolidations. As a result, pursuant
to the plan we anticipate incurring a pre-tax charge of $5.9 million. In
addition, we will spend approximately $3.5 million on capital requirements.

During the second quarter of fiscal 2004, we incurred approximately $0.1 million
of the pre-tax charge discussed above, consisting of charges related to
relocating certain plant assets and start-up costs, which were reported in cost

22

of sales, compared to $1.2 million during the second quarter of fiscal 2003,
which were reported as restructuring costs. In addition, during the second
quarter of fiscal 2004, we paid and charged $0.1 million of termination benefits
and relocation costs against the accrued liability.

During fiscal 2002, we announced the closure of our manufacturing facility in
Orrville, Ohio as part of our capacity rationalization plan for our Machinery
segment. Operations at this facility have been integrated into our
McConnellsburg, Pennsylvania facility. As a result, pursuant to the plan we
anticipate incurring a pre-tax charge of $7.7 million.

During the second quarter of fiscal 2004 and 2003, we incurred $0 and $0.1
million, respectively, of the pre-tax charge related to our closure of the
Orrville, Ohio facility, consisting of production relocation costs, which were
reported in cost of sales.

For additional information related to our capacity rationalization plans, see
Note 14 of the Notes to Condensed Consolidated Financial Statements of this
report.

The increase in interest expense of $3.5 million for the second quarter of
fiscal 2004 was primarily due to interest associated with our 8 1/4% senior
unsecured notes due 2008 that were sold during the fourth quarter of fiscal 2003
and increased interest expense associated with our limited recourse and
non-recourse monetizations. Interest expense associated with our limited
recourse and non-recourse monetizations was $2.7 million and $1.4 million for
the second quarters of fiscal 2004 and 2003, respectively.

Our miscellaneous income (deductions) category included currency gains of $0.7
million in the second quarter of fiscal 2004 compared to gains of $7.6 million
in the corresponding prior year period. The decrease in currency gains was
primarily attributable to our relatively high unhedged position during the
second quarter of fiscal 2003.

Our provision for income taxes in the second quarter of fiscal 2004 reflects an
estimated annual tax rate of 38% compared to 32% for the second quarter of
fiscal 2003. The increase in the rate was primarily due to lower estimated
benefits related to export sales and the geographic mix of profits. If the
estimates and related assumptions used to calculate the effective tax rate
change in the future, we may be required to adjust our effective rate which
could change income tax expense.

23

RESULTS FOR THE FIRST SIX MONTHS OF FISCAL 2004 AND 2003
We reported net income of $2.7 million, or $.06 per share on a diluted basis,
for the first six months of fiscal 2004, compared to net income of $4.6 million,
or $.11 per share on a diluted basis, for the first six months of fiscal 2003.
Earnings for the first six months of fiscal 2004 and fiscal 2003 included
restructuring and restructuring-related charges of $0.1 million ($0.1 million
net of tax) and $1.4 million ($1.0 million net of tax), respectively. In
addition, earnings for the first six months of fiscal 2004 included $8.0 million
($5.1 million net of tax) of integration expenses related to our acquisition of
OmniQuip. Also, earnings for the first six months of fiscal 2004 included
favorable currency adjustments of $0.8 million ($0.5 million net of tax)
compared to favorable currency adjustments of $5.1 million ($3.5 million net of
tax) for the first six months of fiscal 2003.

Our revenues for the first six months of fiscal 2004 were $450.1 million, up
44.4% from the $311.8 million in the comparable year-ago period. Our revenues
for the first six months of fiscal 2004 included OmniQuip revenues of $103.2
million. The following tables outline our revenues by segment, products and
geography (in thousands) for the six months ended:

(a) Revenues for Access Financial Solutions and for financial products are
not the same because Access Financial Solutions also receives revenues
from rental purchase agreements that are recorded for accounting
purposes as rental revenues from operating leases.

The increase in Machinery segment revenues from $234.1 million to $361.2
million, or 54.3%, was principally attributable to the additional sales from
OmniQuip products, increased sales of aerial work platforms in North America and
Australia, higher telehandler sales from new products, principally the new North
America all-wheel-steer machines, and increased sales of our excavator product
line. The increase in Equipment Services segment revenues from $68 million to
$81.6 million, or 20%, was principally attributable to the additional OmniQuip
revenues and increased service parts sales, partially offset by lower rebuild
and rental fleet sales. The decrease in Access Financial Solutions segment
revenues from $9.7 million to $7.3 million, or 24.9%, was principally

24

attributable to an early payoff of a financed receivable, partially offset by
income received on a larger portfolio of pledged finance receivables from prior
monetization transactions. While we have increased interest income attributable
to our pledged finance receivables, a corresponding increase in our limited
recourse debt results in $5.4 million of interest income being passed on to
monetization purchasers in the form of interest expense on limited recourse
debt. In accordance with the required accounting treatment, payments to
monetization purchasers are reflected as interest expense in our Condensed
Consolidated Statements of Income.

Our domestic revenues for the first six months of fiscal 2004 were $349.2
million, up 55% from the comparable year-ago period revenues of $225.3 million.
The increase in our domestic revenues was primarily attributable to the
additional sales from OmniQuip products and increased sales of aerial work
platforms, telehandlers, parts and excavators, partially offset by lower sales
of used equipment. Revenues generated from sales outside the United States for
the first six months of fiscal 2004 were $100.9 million, up 16.6% from the
comparable year-ago period revenues of $86.5 million. The increase in our
revenues generated from sales outside the United States was primarily
attributable to increased sales of aerial work platforms in Australia.

Our gross profit margin was 18.2% for the first six months of fiscal 2004
compared to the prior year period's 17.7%. The increase was primarily
attributable to higher margins in our Equipment Services and Access Financial
Solutions segments, offset in part by lower margins in our Machinery segment.
The gross profit margin of our Machinery segment was 13.3% for the first six
months of fiscal 2004 compared to 13.8% for the first six months of fiscal 2003.
The decrease was principally due to OmniQuip integration expenses of $4.7
million and higher product costs, partially offset by the weakening of the U.S.
dollar against the Euro, British pound and Australian dollar. The gross profit
margin of our Equipment Services segment was 32.6% for the first six months of
fiscal 2004 compared to 20% for the corresponding period in the prior year. The
increase was primarily attributable to an increase in higher margin service
parts sales as a percentage of total segment revenues due primarily to the
additional sales from OmniQuip and improved margins on used equipment sales. The
gross profit margin of our Access Financial Solutions segment was 97.8% for the
first six months of fiscal 2004 compared to 96.6% for the corresponding period
in the prior year. The increase was primarily attributable to an increase in
financial product revenues as a percentage of total segment revenues. Because
the costs associated with these revenues are principally selling and
administrative expenses and interest expense, gross margins are typically higher
in this segment.

Our selling, administrative and product development expenses increased $19.6
million in the first six months of fiscal 2004 compared to the first six months
of the prior year and as a percent of revenues were 13.6% for the first six
months of the current year compared to 13.4% for the first six months of the
prior year. Of the $19.6 million increase in our selling, administrative and
product development expenses, $10.4 million was associated with the addition of
OmniQuip and integration expenses. Our Machinery segment's selling,
administrative and product development expenses increased $3.9 million due
primarily to the addition of OmniQuip, higher payroll and related costs,
amortization expense associated with the acquired OmniQuip intangible assets, an
increase in pension and other postretirement benefits and costs associated with
the accelerated vesting of restricted stock awards triggered by our share price
appreciation. The increase in our Machinery segment's selling, administrative
and product development expenses was partially offset by a decrease in bad debt
provisions. Our Equipment Services segment's selling and administrative expenses
increased $1 million due primarily to the addition of OmniQuip and higher
payroll and related costs. Our Access Financial Solutions segment's selling and
administrative expenses decreased $0.3 million due primarily to a decrease in
software costs, lower payroll and related costs and a decrease in bad debt
provision. Our general corporate selling, administrative and product development
expenses increased $15 million due primarily to an increase in bad debt
provisions, OmniQuip integration expenses of $3.3 million, the addition of
OmniQuip, costs associated with the accelerated vesting of restricted stock
awards triggered by our share price appreciation, a discretionary profit sharing
contribution paid for calendar year 2003 compared to no contribution for
calendar year 2002, an increase in pension and other postretirement benefits and
higher payroll and related costs.

During the first six months of fiscal 2004, we incurred approximately $0.1
million of the pre-tax charge related to the idling of our Bedford, Pennsylvania
facility, discussed above, consisting of accruals for termination benefit costs
and relocation costs and charges related to relocating certain plant assets and
start-up costs, which were reported in cost

25

of sales, compared to $1.2 million during the first six months of fiscal 2003,
which were reported as restructuring costs. In addition, during the first
quarter of fiscal 2004, we paid and charged $0.2 million of termination benefits
and relocation costs against the accrued liability.

During the first six months of fiscal 2004 and 2003, we incurred $0 and $0.2
million, respectively, of the pre-tax charge related to our closure of the
Orrville, Ohio facility, discussed above, consisting of production relocation
costs, which were reported in cost of sales. Additionally, during the first six
months of fiscal 2004, we paid and charged $0.1 million of lease termination
costs against the accrued liability.

The increase in interest expense of $7.8 million for the first six months of
fiscal 2004 was primarily due to interest associated with our 8 1/4% senior
unsecured notes due 2008 that were sold during the fourth quarter of fiscal 2003
and increased interest expense associated with our limited recourse and
non-recourse monetizations. Interest expense associated with our limited
recourse and non-recourse monetizations was $5.4 million and $2.8 million for
the first six months of fiscal 2004 and 2003, respectively.

Our miscellaneous income (deductions) category included currency gains of $0.8
million in the first six months of fiscal 2004 compared to gains of $5.1 million
in the corresponding prior year period. The decrease in currency gains was
primarily attributable to our relatively high unhedged position during the first
six months of fiscal 2003.

Our provision for income taxes in the first six months of fiscal 2004 reflects
an estimated annual tax rate of 37% compared to 32% for the first six months of
fiscal 2003. The increase in the rate was primarily due to lower estimated
benefits related to export sales and the geographic mix of profits. If the
estimates and related assumptions used to calculate the effective tax rate
change in the future, we may be required to adjust our effective rate which
could change income tax expense.

OMNIQUIP ACQUISITION
On August 1, 2003, we acquired the OmniQuip business unit of Textron Inc.
("Textron"), which includes all operations relating to the Sky Trak and Lull
brand commercial telehandler products and the All-Terrain Lifter, Army System
and the Millennia Military Vehicle military telehandler products, for $105.4
million, which included transaction expenses of $5.4 million, with $90 million
paid in cash at closing and $10 million paid in the form of an unsecured
subordinated promissory note due on the second anniversary of the closing date.
On February 4, 2004, we paid off the $10 million unsecured subordinated
promissory note and post-closing purchase price adjustments in favor of Textron
totaling $1.5 million.

The following table shows the major components of operating income for the
OmniQuip operation on a stand-alone basis:

The increase in OmniQuip's operating income in the second quarter of fiscal 2004
compared to the first quarter of fiscal 2004 was primarily the result of the
$2.1 million inventory step-up costs recorded in the first quarter, partially
offset by higher integration expenses incurred during the second quarter.
Operating income for the first and second quarters of fiscal 2004 included $3.9
million and $4.1 million, respectively, of integration expenses associated with

26

our acquisition of OmniQuip. Integration expenses include the costs of the
integration team, start-up costs related to moving production, retention bonuses
and the inventory step-up recorded in purchase accounting.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles ("GAAP") requires our management to make estimates and
assumptions about future events that affect the amounts reported in the
financial statements and related notes. Future events and their effects cannot
be determined with absolute certainty. Therefore, the determination of estimates
requires the exercise of judgment. Actual results inevitably will differ from
those estimates, and such differences may be material to the financial
statements.

We believe that of our significant accounting policies, the following may
involve a higher degree of judgment, estimation, or complexity than other
accounting policies.

Allowance for Doubtful Accounts and Reserves for Finance Receivables: We
evaluate the collectibility of accounts and finance receivables based on a
combination of factors. In circumstances where we are aware of a specific
customer's inability to meet its financial obligations, a specific reserve is
recorded against amounts due to reduce the net recognized receivable to the
amount reasonably expected to be collected. Additional reserves are established
based upon our perception of the quality of the current receivables, the current
financial position of our customers and past experience of collectibility. If
the financial condition of our customers were to deteriorate resulting in an
impairment of their ability to make payments, additional allowances would be
required.

Income Taxes: We record the estimated future tax effects of temporary
differences between the tax bases of assets and liabilities and amounts reported
in the accompanying Condensed Consolidated Balance Sheets, as well as operating
loss and tax credit carry-forwards. We evaluate the recoverability of any tax
assets recorded on the balance sheet and provide any necessary allowances as
required. The carrying value of the net deferred tax assets assumes that we will
be able to generate sufficient future taxable income in certain tax
jurisdictions, based on estimates and assumptions. If these estimates and
related assumptions change in the future, we may be required to record
additional valuation allowances against our deferred tax assets resulting in
additional income tax expense in our consolidated statement of income. In
assessing the realizability of deferred tax assets, we consider whether it is
more likely than not that some portion or all of the deferred tax assets will
not be realized. We consider the scheduled reversal of deferred tax liabilities,
projected future taxable income, carry back opportunities, and tax planning
strategies in making the assessment. We evaluate the ability to realize the
deferred tax assets and assess the need for additional valuation allowances
quarterly. In addition, we are subject to income tax laws in many countries and
judgment is required in assessing the future tax consequences of events that
have been recognized in our financial statements or tax returns. The final
outcome of these future tax consequences, tax audits, and changes in regulatory
tax laws and rates could materially impact our financial statements.

Inventory Valuation: Inventories are valued at the lower of cost or market.
Certain items in inventory may be considered impaired, obsolete or excess, and
as such, we may establish an allowance to reduce the carrying value of these
items to their net realizable value. Based on certain estimates, assumptions and
judgments made from the information available at that time, we determine the
amounts in these inventory allowances. If these estimates and related
assumptions or the market change, we may be required to record additional
reserves.

Goodwill: We perform a goodwill impairment test on at least an annual basis and
more frequently in certain circumstances. We cannot predict the occurrence of
certain events that might adversely affect the reported value of goodwill that
totaled $66.5 million at January 31, 2004 and $29.5 million at July 31, 2003.
Such events may include, but are not limited to, strategic decisions made in
response to economic and competitive conditions, the impact of the economic
environment on our customer base, or a material negative change in a
relationship with a significant customer.

Guarantees of the Indebtedness of Others: We enter into agreements with finance
companies whereby our equipment is sold to a finance company, which, in turn,
sells or leases it to a customer. In some instances, we retain

27

a liability in the event the customer defaults on the financing. Under certain
terms and conditions where we are aware of a customer's inability to meet its
financial obligations, we establish a specific reserve against the liability.
Additional reserves have been established related to these guarantees based upon
the current financial position of these customers and based on estimates and
judgments made from information available at that time. If the financial
condition of our customers were to deteriorate resulting in an impairment of
their ability to make payments, additional allowances would be required.
Although we are liable for the entire amount under guarantees, our losses would
be mitigated by the value of the underlying collateral, JLG equipment.

In addition, we monetize a substantial portion of the receivables originated by
AFS through an ongoing program of syndications, limited recourse financings and
other monetization transactions. In connection with some of these monetization
transactions, we have limited recourse obligations of $24.5 million as of
January 31, 2004 related to possible defaults by the obligors under the terms of
the contacts, which comprise these finance receivables. Allowances have been
established related to these monetization transactions based upon the current
financial position of these customers and based on estimates and judgments made
from information available at that time. If the financial condition of these
obligors were to deteriorate resulting in an impairment of their ability to make
payments, additional allowances would be required.

Long-Lived Assets: We evaluate the recoverability of property, plant and
equipment and intangible assets other than goodwill whenever events or changes
in circumstances indicate the carrying amount of any such assets may not be
fully recoverable. Changes in circumstances include technological advances,
changes in our business model, capital strategy, economic conditions or
operating performance. Our evaluation is based upon, among other things,
assumptions about the estimated future undiscounted cash flows these assets are
expected to generate. When the sum of the undiscounted cash flows is less than
the carrying value, we would recognize an impairment loss. We continually apply
our best judgment when performing these valuations to determine the timing of
the testing, the undiscounted cash flows used to assess recoverability and the
fair value of the asset.

Pension and Postretirement Benefits: Pension and postretirement benefit costs
and obligations are dependent on assumptions used in calculation of these
amounts. These assumptions, used by actuaries, include discount rates, expected
return on plan assets for funded plans, rate of salary increases, health care
cost trend rates, mortality rates and other factors. In accordance with
accounting principles generally accepted in the United States, actual results
that differ from the actuarial assumptions are accumulated and amortized to
future periods and therefore affect recognized expense and recorded obligations
in future periods. While we believe that the assumptions used are appropriate,
differences in actual experience or changes in assumptions may materially effect
our financial position or results of operations. We expect that our pension and
other postretirement benefits costs in fiscal 2004 will exceed the costs
recognized in fiscal 2003 by approximately $3.8 million. This increase is
principally attributable to the change in various assumptions, including the
expected long-term rate of return, discount rate, and health care cost trend
rate.

Product Liability: Our business exposes us to possible claims for personal
injury or death and property damage resulting from the use of equipment that we
rent or sell. We maintain insurance through a combination of self-insurance
retentions, primary insurance and excess insurance coverage. We monitor claims
and potential claims of which we become aware and establish liability reserves
for the self-insurance amounts based on our liability estimates for such claims.
Our liability estimates with respect to claims are based on internal evaluations
of the merits of individual claims and the reserves assigned by our independent
insurance claims adjustment firm. The methods of making such estimates and
establishing the resulting accrued liability are reviewed frequently, and
adjustments resulting from our reviews are reflected in current earnings. If
these estimates and related assumptions change, we may be required to record
additional reserves.

Restructuring and Restructuring-Related: As more fully described in Note 14 of
the Notes to Condensed Consolidated Financial Statements, we recognized pre-tax
restructuring and restructuring-related charges of $0.1 million, $4.0 million
and $6.7 million during the first six months of fiscal 2004, fiscal 2003 and
fiscal 2002, respectively. The related reserves reflect estimates, including
those pertaining to separation costs, settlements of

28

contractual obligations, and asset valuations. We reassess the reserve
requirements to complete each individual plan within the program at the end of
each reporting period or as conditions change. Actual experience has been and
may continue to be different from the estimates used to establish the reserves.
At January 31 2004, we had liabilities established in conjunction with these
activities of $21.3 million, including the accrued liabilities associated with
the acquisition of OmniQuip, and assets held for sale of $6.2 million.

Revenue Recognition: Sales of non-military equipment and service parts are
unconditional sales that are recorded when product is shipped and invoiced to
independently owned and operated distributors and customers. Normally our sales
terms are "free-on-board" shipping point (FOB shipping point). However, certain
sales, including our All-Terrain Lifter, Army System ("ATLAS") brand of military
telehandler products, may be invoiced prior to the time customers take physical
possession. In such cases, revenue is recognized only when the customer has a
fixed commitment to purchase the equipment, the equipment has been completed and
made available to the customer for pickup or delivery, and the customer has
requested that we hold the equipment for pickup or delivery at a time specified
by the customer. In such cases, the equipment is invoiced under our customary
billing terms, title to the units and risks of ownership passes to the customer
upon invoicing, the equipment is segregated from our inventory and identified as
belonging to the customer and we have no further obligations under the order
other than customary post-sales support activities. During the first six months
of fiscal 2004, approximately 2% of our sales were invoiced and the revenue
recognized prior to customers taking physical possession. In the instance that
our shipping terms are "shipping point destination," revenue is recorded at the
time the goods reach our customers.

The sales terms for our ATLAS brand of military telehandler products are FOB
Origin. In addition, the ATLAS telehandler products must pass inspection by a
government Quality Assurance Representative ("QAR") at the point of production
to insure adequate special paint requirements. The sales terms of our Millennia
Military Vehicle ("MMV") brand of military telehandler products are FOB
Destination. In addition, the MMV telehandler products must pass inspection by a
government QAR at the point of production to insure adequate special paint
requirements and must pass inspection by a government representative at the
point of destination to insure against damage during transportation and verify
delivery.

Revenue from certain equipment lease contracts is accounted for as sales-type
leases. The present value of all payments, net of executory costs (such as legal
fees), is recorded as revenue and the related cost of the equipment is charged
to cost of sales. The associated interest is recorded over the term of the lease
using the interest method. In addition, net revenues include rental revenues
earned on the lease of equipment held for rental. Rental revenues are recognized
in the period earned over the lease term.

Warranty: We establish reserves related to the warranties we provide on our
products. Specific reserves are maintained for programs related to machine
safety and reliability issues. Estimates are made regarding the size of the
population, the type of program, costs to be incurred by us and estimated
participation. Additional reserves are maintained based on the historical
percentage relationships of such costs to machine sales and applied to current
equipment sales. If these estimates and related assumptions change, we may be
required to record additional reserves.

Additional information regarding our critical accounting policies is in Note 1
of the Notes to Consolidated Financial Statements included in our annual report
on Form 10-K/A for the fiscal year ended July 31, 2003.

FINANCIAL CONDITION
Cash used in operating activities was $22 million for the first six months of
fiscal 2004 compared to $92.6 million in the comparable period of fiscal 2003.
The decrease in cash usage primarily resulted from days payables outstanding
decreasing 12 days during the first six months of fiscal 2004 compared to
decreasing 31 days during the first six months of fiscal 2003. Days payables
outstanding were 59 days, 71 days, 36 days and 67 days at January 31, 2004, July
31, 2003, January 31, 2003 and July 31, 2002, respectively. In addition, there
were fewer originations of finance receivables during the first six months of
fiscal 2004 compared to the same period of fiscal 2003 as a result of the
program agreement we entered into in September 2003 with GE Dealer Finance, a
division of General Electric

29

Capital Corporation ("GECC"), to provide financing solutions for our customers
and a lower volume for customer financing. Accounts receivable increased for the
first six months of fiscal 2004 compared to a decrease for the first six months
of fiscal 2003 primarily due to increased sales in the 2004 period compared to a
decrease in day's sales outstanding at January 31, 2003 compared to July 31,
2002.

Investing activities during the first six months of fiscal 2004 used $109.1
million of cash compared to $4.7 million used for the first six months of fiscal
2003. The increase in cash usage was principally due to the acquisition of
OmniQuip that was completed during the first quarter of fiscal 2004 and lower
sales of our rental fleet during the first six months of fiscal 2004 compared to
the first six months of fiscal 2003.

Financing activities provided cash of $15.9 million for the first six months of
fiscal 2004 compared to $99.3 million for the first six months of fiscal 2003.
The decrease in cash provided by financing activities was largely attributable
to lower borrowings under our credit facilities due to working capital
reductions discussed above and fewer monetizations of our finance receivables
due to the impact of prior monetizations on the relative marketability of our
remaining receivables portfolio and the new financing program discussed above.

The following table provides a summary of our contractual obligations (in
thousands) at January 31, 2004:

Payments Due by Period
------------------------------------------------
Less than 1-3 After 5
Tota 1 Year Years 4-5 Years Years
---------- --------- --------- ---------- ----------

Short and long-term debt (a) $314,326 $ 1,758 $ 12,123 $125,367 $175,078
Limited recourse debt 150,283 40,824 69,929 32,517 7,013
Operating leases (b) 28,904 6,105 14,017 3,295 5,487
-------- -------- -------- -------- --------
Total contractual obligation $493,513 $ 48,687 $ 96,069 $161,179 $187,578
======== ======== ======== ======== ========

(a) Included in long-term debt is our senior secured revolving credit facility
with a group of financial institutions that provide an aggregate commitment
of $175 million. We also have a $15 million cash management facility with a
term of one year, renewable annually. Both facilities are secured by a lien
on substantially all of our assets. Availability of credit requires
compliance with financial and other covenants. If we were to become in
default of these covenants, the financial institutions could call the loans.
On February 4, 2004, we paid off the $10 million unsecured subordinated
promissory note payable to a subsidiary of Textron related to the
acquisition of OmniQuip, which is included in the $12.1 million due within
one to three years in the table above.

(b) In accordance with SFAS No. 13, "Accounting for Leases," operating lease
obligations are not reflected in the balance sheet.

The following table provides a summary of our other commercial commitments (in
thousands) at January 31, 2004: