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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, 2003
or
[ ] Transition Report Pursuant to Section 13 or 15 (d) of the Securities
Exchange Act of 1934
For the transition period from to
-------- --------
Commission file number: 0-8454
JLG INDUSTRIES, INC.
(Exact name of registrant as specified in its charter)
PENNSYLVANIA 25-1199382
(State or other jurisdiction of (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 / /
The number of shares of capital stock outstanding as of February 27, 2003 was
42,992,910.
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.................... 19
Item 3. Quantitative and Qualitative Disclosures about
Market Risk............................................ 30
Item 4. Controls and Procedures................................. 30
Independent Accountants' Review Report............................ 31
PART II
Item 6. Exhibits and Reports on Form 8-K........................ 32
Signatures........................................................ 33
PART I FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
JLG INDUSTRIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except per share data) January 31, July 31,
2003 2002
--------- ---------
(Unaudited)
ASSETS
Current assets
Cash and cash equivalents $ 9,565 $ 6,205
Accounts receivable - net 210,192 227,809
Finance receivables - net 18,031 27,529
Pledged finance receivables 39,685 34,985
Inventories 168,612 165,536
Other current assets 24,404 31,042
--------- ---------
Total current assets 470,489 493,106
Property, plant and equipment - net 81,165 84,370
Equipment held for rental - net 20,288 20,979
Finance receivables, less current portion 61,427 45,412
Pledged finance receivables, less current portion 73,971 53,703
Goodwill - net 29,509 28,791
Other assets 59,231 51,880
--------- ---------
$ 796,080 $ 778,241
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Short-term debt and current portion of long-term debt $ 23,436 $ 14,427
Current portion of limited recourse debt 36,511 34,850
Accounts payable 70,162 129,317
Accrued expenses 62,949 83,309
--------- ---------
Total current liabilities 193,058 261,903
Long-term debt, less current portion 242,207 177,331
Limited recourse debt, less current portion 70,151 52,721
Accrued post-retirement benefits 25,833 24,989
Other long-term liabilities 11,317 10,807
Provisions for contingencies 11,754 14,448
Shareholders' equity
Capital stock:
Authorized shares: 100,000 at $.20 par
Issued and outstanding shares: 42,969; fiscal 2002 - 42,728 8,594 8,546
Additional paid-in capital 20,508 18,846
Retained earnings 221,083 216,957
Unearned compensation (2,938) (1,649)
Accumulated other comprehensive income (loss) (5,487) (6,658)
--------- ---------
Total shareholders' equity 241,760 236,042
--------- ---------
$ 796,080 $ 778,241
========= =========
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)
Three Months Ended Six Months Ended
January 31, January 31,
2003 2002 2003 2002
--------- --------- --------- ---------
Revenues
Net sales $ 143,961 $ 150,617 $ 298,349 $ 300,823
Financial products 4,836 2,958 9,226 6,107
Rentals 2,516 2,777 4,225 5,584
--------- --------- --------- ---------
151,313 156,352 311,800 312,514
Cost of sales 125,215 131,822 256,586 257,924
--------- --------- --------- ---------
Gross profit 26,098 24,530 55,214 54,590
Selling and administrative expenses 16,377 15,756 33,862 34,861
Product development expenses 3,889 3,664 7,790 7,667
Restructuring charges 1,183 -- 1,183 --
--------- --------- --------- ---------
Income from operations 4,649 5,110 12,379 12,062
Interest expense (6,072) (4,027) (11,576) (8,365)
Miscellaneous, net 7,638 909 5,896 1,826
--------- --------- --------- ---------
Income before taxes and cumulative effect of
change in accounting principle 6,215 1,992 6,699 5,523
Income tax provision 1,989 658 2,144 1,823
--------- --------- --------- ---------
Income before cumulative effect of change in
accounting principle 4,226 1,334 4,555 3,700
Cumulative effect of change in accounting
principle -- -- -- (114,470)
--------- --------- --------- ---------
Net income (loss) $ 4,226 $ 1,334 $ 4,555 $(110,770)
========= ========= ========= =========
Earnings (loss) per common share:
Earnings per common share before cumulative
effect of change in accounting principle $ .10 $ .03 $ .11 $ .09
Cumulative effect of change in accounting
principle -- -- -- (2.74)
--------- --------- --------- ---------
Earnings (loss) per common share $ .10 $ .03 $ .11 $ (2.65)
========= ========= ========= =========
Earnings (loss) per common share - assuming dilution:
Earnings per common share - assuming dilution
before cumulative effect of change in
accounting principle $ .10 $ .03 $ .11 $ .09
Cumulative effect of change in accounting
principle -- -- -- (2.70)
--------- --------- --------- ---------
Earnings (loss) per common share - assuming
dilution $ .10 $ .03 $ .11 $ (2.61)
========= ========= ========= =========
Cash dividends per share $ .005 $ .005 $ .01 $ .015
========= ========= ========= =========
Weighted average shares outstanding 42,570 41,813 42,568 41,816
========= ========= ========= =========
Weighted average shares outstanding - assuming
dilution 42,867 42,399 42,873 42,409
========= ========= ========= =========
The accompanying notes are an integral part of these financial statements.
2
JLG INDUSTRIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(Unaudited)
Six Months Ended
January 31,
2003 2002
--------- ---------
OPERATIONS
Net income (loss) $ 4,555 $(110,770)
Adjustments to reconcile net income to cash flow from
operating activities:
Loss (gain) on sale of property, plant and equipment 92 (63)
Gain on sale of equipment held for rental (3,851) (102)
Non-cash charges and credits:
Cumulative effect of change in accounting principle -- 114,470
Depreciation and amortization 10,415 11,119
Other 8,282 3,552
Changes in selected working capital items:
Accounts receivable 15,329 48,230
Inventories (3,571) 39,920
Accounts payable (59,479) (22,949)
Other operating assets and liabilities (18,088) (16,862)
Changes in finance receivables (7,108) (7,662)
Changes in pledged finance receivables (35,345) --
Changes in other assets and liabilities (3,873) 1,392
--------- ---------
Cash flow from operating activities (92,642) 60,275
INVESTMENTS
Purchases of property, plant and equipment (4,936) (6,571)
Proceeds from the sale of property, plant and equipment 124 137
Purchases of equipment held for rental (11,337) (15,881)
Proceeds from the sale of equipment held for rental 12,604 5,840
Other (1,193) --
--------- ---------
Cash flow from investing activities (4,738) (16,475)
FINANCING
Net increase in short-term debt 9,049 816
Issuance of long-term debt 220,000 221,459
Repayment of long-term debt (159,261) (272,157)
Issuance of limited recourse debt 29,468 --
Payment of dividends (429) (631)
Exercise of stock options and issuance of restricted awards 478 570
--------- ---------
Cash flow from financing activities 99,305 (49,943)
CURRENCY ADJUSTMENTS
Effect of exchange rate changes on cash 1,435 461
--------- ---------
CASH
Net change in cash and cash equivalents 3,360 (5,682)
Beginning balance 6,205 9,254
--------- ---------
Ending balance $ 9,565 $ 3,572
========= =========
The accompanying notes are an integral part of these financial statements.
3
JLG INDUSTRIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 31, 2003
(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, 2003 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 for the
fiscal year ended July 31, 2002.
Where appropriate, we have reclassified certain amounts in fiscal 2002 to
conform to the fiscal 2003 presentation.
NOTE 2 - RECENT ACCOUNTING PRONOUNCEMENTS
Effective August 1, 2002, we adopted Statement of Financial Accounting Standards
("SFAS") No. 143 "Accounting for Asset Retirement Obligations," which
establishes the accounting and reporting standards for obligations associated
with the retirement of tangible long-lived assets and the associated asset
retirement costs. The adoption of SFAS No. 143 did not have an impact on our
consolidated financial position or results of operations.
Effective August 1, 2002, we adopted SFAS No. 144 "Accounting for the Impairment
or Disposal of Long-Lived Assets." This statement addresses financial accounting
and reporting for the impairment or disposal of long-lived assets and supersedes
SFAS No. 121 "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed Of." The adoption of SFAS No. 144 did not have
a significant impact on our consolidated financial position or results of
operations.
Effective June 1, 2002, we adopted SFAS No. 145, "Rescission of FASB Statements
No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical
Corrections." This statement requires, among other things, that gains and losses
on the early extinguishment of debt be classified as extraordinary only if they
meet the criteria for extraordinary treatment set forth in Accounting Principles
Board Opinion No. 30. The adoption of SFAS No. 145 did not have a significant
impact on our consolidated financial position or results of operations.
Effective January 1, 2003, we adopted SFAS No. 146, "Accounting for Costs
Associated with Exit or Disposal Activities." This statement addresses financial
accounting and reporting for costs associated with exit or disposal activities
when they are incurred rather than at the date of a commitment to an exit or
disposal plan. This statement nullifies EITF Issue No. 94-3, "Liability
Recognition for Certain Employee Termination Benefits and Other Costs to Exit an
Activity (including Certain Costs Incurred in a Restructuring)," and is
effective for exit or disposal activities initiated after December 31, 2002. As
more fully described in Note 11 of the Notes to Condensed Consolidated Financial
Statements, the adoption of SFAS No. 146 required that since some employees
terminated under our second quarter 2003 restructuring plan are required to
render service until they are terminated in order to receive the termination
benefit, we will recognize this liability ratably over the future periods of
service. Under previous accounting treatment, we would have immediately
recognized the entire obligation for this severance at the time of approval of
the restructuring plan.
Effective January 1, 2003 we adopted the provisions of FASB Interpretation No.
45 ("FIN 45"), "Guarantor's Accounting and Disclosure Requirements for
Guarantees, Including Indirect Guarantees of Indebtedness of Others." The
implementation of this interpretation requires certain disclosures regarding
guarantees of the indebtedness of
4
others as provided in Note 12 of the Notes to Condensed Consolidated Financial
Statements. In addition, FIN 45 requires that we recognize at inception of a
guarantee a liability for the fair value of the obligation undertaken in issuing
the guarantee. The requirements of FIN 45 did not have a significant impact on
our results of operations or financial position at January 31, 2003.
In December 2002, the Financial Accounting Standards Board issued SFAS No. 148,
"Accounting for Stock-Based Compensation - Transition and Disclosure." SFAS No.
148 provides alternative methods of transition for a voluntary change to the
fair value based method of accounting for stock-based employee compensation and
amends the disclosure requirements of SFAS No. 123 and Accounting Principles
Board ("APB") No. 28, "Interim Financial Reporting." The transition provisions
of this Statement are effective for fiscal years ending after December 15, 2002,
and the disclosure requirements of the Statement are effective for interim
periods beginning after December 15, 2002. The adoption of SFAS No. 148 will not
have an impact on us as we have elected to continue to follow APB No. 25,
"Accounting for Stock Issued to Employees," and its related interpretations. In
addition, pro forma disclosure of stock based compensation, as measured under
the fair value requirements of SFAS No. 123, "Accounting for Stock Based
Compensation," will be provided quarterly and annually commencing with the
effective dates of SFAS No. 148 for our third quarter ended April 30, 2003.
NOTE 3 - 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, 2003, must
necessarily be based on our estimate of expected fiscal year-end inventory
levels and costs.
Inventories consist of the following:
January 31, July 31,
2003 2002
-------- --------
Finished goods $110,117 $104,680
Raw materials and work in process 63,717 65,579
-------- --------
173,834 170,259
Less LIFO provision 5,222 4,723
-------- --------
$168,612 $165,536
======== ========
NOTE 4 - FINANCE RECEIVABLES
Finance receivables represent sales-type leases resulting from the sale of our
products. Our net investment in finance receivables was as follows at:
January 31, July 31,
2003 2002
--------- ---------
Gross finance receivables $ 184,921 $ 155,786
Estimated residual value 50,259 44,608
--------- ---------
235,180 200,394
Unearned income (39,076) (36,384)
--------- ---------
Net finance receivables 196,104 164,010
Provision for losses (2,990) (2,381)
--------- ---------
$ 193,114 $ 161,629
========= =========
Of the finance receivables balances at January 31, 2003 and July 31, 2002,
$113.7 million and $88.7 million, respectively, are pledged finance receivables
resulting from the sale of finance receivables through limited recourse and
non-recourse monetization transactions during fiscal 2002 and the first six
months of fiscal 2003. 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
5
maximum loss exposure associated with these limited recourse agreements is $8.5
million as of January 31, 2003. Based on our estimates, we believe that no
losses are probable and have not recorded any reserves.
The following table displays the contractual maturity of our finance
receivables. It does not necessarily reflect 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:
2003 $ 41,705
2004 41,076
2005 39,410
2006 35,486
2007 19,409
Thereafter 7,835
Residual value in equipment at lease end 50,259
Less: unearned finance income (39,076)
--------
Net investment in leases $196,104
========
Provisions for losses on 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 5 - GOODWILL
In July 2001, the FASB issued SFAS No. 142, "Goodwill and Other Intangible
Assets," establishing new financial reporting standards for acquired goodwill
and other intangible assets. On August 1, 2001, we elected early adoption of
SFAS No. 142. Under SFAS No. 142, goodwill and intangible assets deemed to have
indefinite lives will no longer be amortized but will be subject to annual
impairment tests. Other intangible assets will continue to be amortized over
their useful lives. Accordingly, we ceased amortization of all goodwill.
During the second quarter of fiscal 2002, we concluded that goodwill was
impaired and during the fourth quarter of fiscal 2002 recorded an impairment
charge of $114.5 million, or $2.65 per diluted share, as a cumulative effect of
change in accounting principle. As required, we have restated the fiscal 2002
interim statements to reflect the transitional impairment loss as if the
accounting change had occurred during the first quarter of fiscal 2002. There
was no income tax effect on this change in accounting principle. The
circumstances leading to the impairment of goodwill primarily resulted from
changing business conditions including consolidation of the telehandler market,
unplanned excess manufacturing capacity costs and eroded margins due to
competitive pricing pressures. We calculated the fair value of our Gradall and
foreign reporting units, which are part of our Machinery segment, using third
party appraisals and expected future discounted cash flows.
This table presents our reconciliation of the recorded goodwill during the
period from July 31, 2002 to January 31, 2003:
Balance as of August 1, 2002 $28,791
Additions 718
Impairment charge recorded --
-------
Balance as of January 31, 2003 $29,509
=======
During the second quarter of fiscal 2003, we purchased the assets of a trailer
manufacturer, which caused the increase in the recorded goodwill. These trailers
feature a unique hydraulic system that allows the operator to lower the trailer
deck to ground level. This product series is complementary to our aerial work
platform product lines and is offered in 20 models with three styles: flat bed,
utility or enclosed.
6
NOTE 6 - CHANGES IN ACCOUNTING ESTIMATES
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.
During the second quarter of fiscal 2002, we determined that certain
volume-related customer incentives would not be achieved and that we would not
make a discretionary profit sharing contribution for calendar year 2001. The
reversal of the accrual related to volume-related customer incentives resulted
in an increase in net income of $2.6 million, or $.06 per diluted share, for the
second quarter of fiscal 2002 and $2.3 million, or $.06 per diluted share, for
the first six months of fiscal 2002. The reversal of the accrual related to the
discretionary profit sharing contribution for calendar year 2001 resulted in an
increase in net income of $2.2 million, or $.05 per diluted share, for the
second quarter of fiscal 2002 and $1.8 million, or $.04 per diluted share, for
the first six months of fiscal 2002.
NOTE 7 - 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,
2003 2002 2003 2002
------- ------- ------- ---------
Income before cumulative effect of change in
accounting principle $ 4,226 $ 1,334 $ 4,555 $ 3,700
Cumulative effect of change in accounting principle -- -- -- (114,470)
------- ------- ------- ---------
Net income (loss) $ 4,226 $ 1,334 $ 4,555 $(110,770)
======= ======= ======= =========
Denominator for basic earnings per share --
weighted average shares 42,570 41,813 42,568 41,816
Effect of dilutive securities - employee stock options
and unvested restricted shares 297 586 305 593
------- ------- ------- ---------
Denominator for diluted earnings per share --
weighted average shares adjusted for
dilutive securities 42,867 42,399 42,873 42,409
======= ======= ======= =========
Earnings per common share before cumulative effect of
change in accounting principle $ .10 $ .03 $ .11 $ .09
Cumulative effect of change in accounting principle -- -- -- (2.74)
------- ------- ------- ---------
Earnings (loss) per common share $ .10 $ .03 $ .11 $ (2.65)
======= ======= ======= =========
Earnings per common share - assuming dilution before
cumulative effect of change in accounting principle $ .10 $ .03 $ .11 $ .09
Cumulative effect of change in accounting principle -- -- -- (2.70)
------- ------- ------- ---------
Earnings (loss) per common share - assuming dilution $ .10 $ .03 $ .11 $ (2.61)
======= ======= ======= =========
7
During the quarter ended January 31, 2003, options to purchase 4.1 million
shares of capital stock at a range of $8.10 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 8 - 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 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. 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.
Our business segment information consisted of the following for each of the
periods ended January 31:
Three Months Ended Six Months Ended
January 31, January 31,
2003 2002 2003 2002
--------- --------- --------- ---------
Revenues:
Machinery $ 109,550 $ 122,925 $ 234,096 $ 251,963
Equipment Services 36,676 29,963 68,047 53,430
Access Financial Solutions 5,087 3,464 9,657 7,121
--------- --------- --------- ---------
$ 151,313 $ 156,352 $ 311,800 $ 312,514
========= ========= ========= =========
Segment profit (loss):
Machinery $ 168 $ 465 $ 5,147 $ 3,486
Equipment Services 6,632 8,352 11,886 16,062
Access Financial Solutions 1,881 1,175 2,979 2,595
General corporate (6,475) (5,889) (12,211) (12,189)
--------- --------- --------- ---------
Segment profit 2,206 4,103 7,801 9,954
Add Access Financial Solutions' interest expense 2,443 1,007 4,578 2,108
--------- --------- --------- ---------
Operating income $ 4,649 $ 5,110 $ 12,379 $ 12,062
========= ========= ========= =========
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,
2003 2002 2003 2002
-------- -------- -------- --------
United States $107,920 $112,643 $225,270 $220,065
Europe 32,816 33,923 64,064 73,009
Other 10,577 9,786 22,466 19,440
--------- --------- --------- ---------
$ 151,313 $ 156,352 $ 311,800 $ 312,514
========= ========= ========= =========
NOTE 9 - SUPPLEMENTAL INFORMATION
The following supplemental consolidated data submitted with the condensed
consolidated financial statements is presented for the sole purpose of
facilitating the analysis of the results of our Equipment Operations and
Financial Services businesses as included in the condensed consolidated
financial statements. These two operations are engaged in fundamentally
different businesses and cannot be easily analyzed on a consolidated basis.
Equipment
8
Operations includes the operations of our Machinery and Equipment Services
segments with Financial Services reflected on the equity basis. Access Financial
Solutions consists of our financial services business. In addition to the
monthly amortization of monetization transactions, Access Financial Solutions
recognizes an allocation of interest expense. The amount of interest expense
that is transferred from Equipment Operations is based upon the monthly weighted
cost of debt multiplied by Access Financial Solutions' portfolio balance less
the initial investment in Access Financial Solutions of $30.0 million.
Condensed Statements of Income
Equipment Operations with Access Financial Solutions on the Equity Basis
Three Months Ended Six Months Ended
January 31, January 31,
2003 2002 2003 2002
--------- --------- --------- ---------
Revenues:
Net sales $ 143,961 $ 150,617 $ 298,349 $ 300,823
Rentals 2,265 2,271 3,794 4,570
--------- --------- --------- ---------
146,226 152,888 302,143 305,393
Costs of sales 125,060 131,526 256,254 257,365
--------- --------- --------- ---------
Gross profit 21,166 21,362 45,889 48,028
Selling, administrative and product development
expenses 19,659 18,434 39,884 40,669
Restructuring charges 1,183 -- 1,183 --
--------- --------- --------- ---------
Income from operations 324 2,928 4,822 7,359
Interest expense (3,628) (3,020) (6,998) (6,257)
Miscellaneous, net 7,625 909 5,883 1,826
--------- --------- --------- ---------
Income before taxes and cumulative effect of
change in accounting principle 4,321 817 3,707 2,928
Income tax provision (1,383) (270) (1,187) (966)
Equity in income of Access Financial Solutions 1,288 787 2,035 1,738
--------- --------- --------- ---------
Income before cumulative effect of change in
accounting principle 4,226 1,334 4,555 3,700
Cumulative effect of change in accounting principle -- -- -- (114,470)
--------- --------- --------- ---------
Net income (loss) $ 4,226 $ 1,334 $ 4,555 $(110,770)
========= ========= ========= =========
9
Condensed Statements of Income
Financial Services
Access Financial Solutions
Three Months Ended Six Months Ended
January 31, January 31,
2003 2002 2003 2002
------ ------ ------ ------
Revenues:
Financial products $4,836 $2,958 $9,226 $6,107
Rentals 251 506 431 1,014
------ ------ ------ ------
5,087 3,464 9,657 7,121
Operating expenses:
Administrative and other expense 762 1,282 2,100 2,418
Interest expense 2,444 1,007 4,578 2,108
------ ------ ------ ------
Total operating expenses 3,206 2,289 6,678 4,526
------ ------ ------ ------
Income from operations 1,881 1,175 2,979 2,595
Miscellaneous, net 13 -- 13 --
------ ------ ------ ------
Income before taxes 1,894 1,175 2,992 2,595
Income tax provision 606 388 957 857
------ ------ ------ ------
Net income $1,288 $ 787 $2,035 $1,738
====== ====== ====== ======
10
Condensed Balance Sheets
Equipment Operations with Access Financial Solutions on the Equity Basis
January 31, July 31,
2003 2002
-------- --------
ASSETS
Current Assets
Cash and cash equivalents $ 9,565 $ 6,205
Accounts receivable, net 182,280 204,779
Inventories 168,612 165,536
Other current assets 24,404 31,042
-------- --------
Total current assets 384,861 407,562
Property, plant and equipment, net 81,165 84,354
Equipment held for rental, net 17,777 17,576
Goodwill, net 29,509 28,791
Investment in Access Financial Solutions 35,438 33,403
Receivable from Access Financial Solutions 78,715 64,106
Other assets 58,973 52,805
-------- --------
$686,438 $688,597
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Short-term debt and current portion of long-term debt $ 23,436 $ 14,427
Accounts payable 70,162 129,317
Accrued expenses 59,969 81,236
-------- --------
Total current liabilities 153,567 224,980
Long-term debt, less current portion 242,207 177,331
Accrued post-retirement benefits 25,833 24,989
Other long-term liabilities 11,317 10,807
Provisions for contingencies 11,754 14,448
Shareholders' equity 241,760 236,042
-------- --------
$686,438 $688,597
======== ========
11
Condensed Balance Sheets
Financial Services
Access Financial Solutions
January 31, July 31,
2003 2002
-------- --------
ASSETS
Current Assets
Accounts receivable, net $ 27,912 $ 23,030
Finance receivables, net 18,031 27,529
Pledged finance receivables 39,685 34,985
-------- --------
Total current assets 85,628 85,544
Property, plant and equipment, net -- 16
Finance receivables, less current portion 61,427 45,412
Pledged finance receivables, less current portion 73,971 53,703
Other assets 2,769 2,478
-------- --------
$223,795 $187,153
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Current portion of limited recourse debt $ 36,511 $ 34,850
Accrued expenses 2,980 2,073
-------- --------
Total current liabilities 39,491 36,923
Limited recourse debt, less current portion 70,151 52,721
Payable to JLG Industries, Inc. 78,715 64,106
Shareholders' equity 35,438 33,403
-------- --------
$223,795 $187,153
======== ========
Condensed Statements of Cash Flows
Equipment Operations with Access Financial Solutions on the Equity Basis
Six Months Ended
January 31,
2003 2002
-------- --------
Cash flow from operating activities $(47,026) $ 69,101
Cash flow from investing activities (6,277) (15,778)
Cash flow from financing activities 55,228 (59,466)
Effect of exchange rate changes on cash 1,435 461
-------- --------
Net change in cash and cash equivalents 3,360 (5,682)
Beginning balance 6,205 9,254
-------- --------
Ending balance $ 9,565 $ 3,572
======== ========
12
Condensed Statements of Cash Flows
Financial Services
Access Financial Solutions
Six Months Ended
January 31,
2003 2002
-------- --------
Cash flow from operating activities $(43,581) $ (7,088)
Cash flow from investing activities (496) (2,435)
Cash flow from financing activities 44,077 9,523
-------- --------
Net change in cash and cash equivalents -- --
Beginning balance -- --
-------- --------
Ending balance $ -- $ --
======== ========
NOTE 10 - 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,
2003 2002 2003 2002
--------- --------- --------- ---------
Net income (loss) $ 4,226 $ 1,334 $ 4,555 $(110,770)
Aggregate translation adjustment 1,718 63 1,171 159
--------- --------- --------- ---------
$ 5,944 $ 1,397 $ 5,726 $(110,611)
========= ========= ========= =========
NOTE 11 - 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 commenced in
early 2001, the 130,000-square foot Sunnyside facility in Bedford, Pennsylvania,
which currently produces selected scissor lift models, will be temporarily idled
and production integrated into our Shippensburg, Pennsylvania facility.
Additionally, reductions in selling, administrative and product development
costs will result from changes in the global organizational and process
consolidations. When these changes are fully implemented, we expect to generate
approximately $20 million in annualized savings at a cost of $9.4 million
representing a payback of approximately six months.
We will be reducing a total of 189 people globally and transferring 99
production jobs from the Bedford Sunnyside operation to the Shippensburg
facility. Production of scissor lifts, which are now assembled at the Sunnyside
facility, will be integrated into our newer and more flexible 300,000-square
foot facility in Shippensburg by fiscal year end. As a result, we anticipate
incurring a pre-tax charge of $5.9 million, consisting of $3.5 million in
restructuring costs associated with personnel reductions and relocation and
lease and contract terminations and $2.4 million in charges related to
relocating certain plant assets and start-up costs associated with the move of
the Bedford operations to the Shippensburg facility and costs related to our
process consolidations. In addition, we will spend approximately $3.5 million on
capital requirements. Almost all of these expenses will be cash charges, which
will be recorded over the next three quarters.
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. In accordance with new accounting requirements, during the second
quarter of fiscal 2003, we recognized approximately $1.2 million of the pre-tax
charge, consisting of an accrual for termination benefit costs, which were
reported as restructuring costs. We anticipate recording $1.5 million and $0.8
13
million of restructuring costs in our third and fourth quarters of fiscal 2003,
respectively, with employee termination dates staggered throughout these
quarters.
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 Bedford operations to the Shippensburg
facility and costs related to our process consolidations:
Other Restructuring
Termination Restructuring Related
Benefits Costs Total Charges
------------ ------------- ------- --------------
Restructuring charge recorded $ 1,183 $ -- $ 1,183 $ 2,402
Fiscal 2003 utilization of
reserves - cash (114) (114) (19)
------- ------- ------- -------
Balance at January 31, 2003 $ 1,069 $ -- $ 1,069 $ 2,383
======= ======= ======= =======
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 this facility have been integrated
into our McConnellsburg, Pennsylvania facility. As a result, we anticipated
incurring a pre-tax charge of $7.7 million, consisting of $6.1 million in
restructuring costs associated with approximately 170 personnel reductions and
the write-down of idle facilities and $1.6 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.
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 Restructuring
Termination Impairment Restructuring Related
Benefits of Assets Costs Total 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 (852) -- 5 (847) (217)
------- ------- ------- ------- -------
Balance at January 31, 2003 $ 133 $ -- $ 277 $ 410 $ 817
======= ======= ======= ======= =======
At January 31, 2003, we included $5.3 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.
NOTE 12 - 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
year 2003 is comprised of a self-insured retention of $7 million for
14
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 $17.7 million and $18.8 million at January
31, 2003 and July 31, 2002, respectively. These amounts are included in other
current liabilities 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, 2003 and July 31,
2002, there were $0 and $0.1 million of insurance recoverables or offset
implications, respectively, and there were no claims by us being contested by
insurers.
At January 31, 2003, we are a party to multiple agreements whereby we guarantee
$107.5 million in indebtedness of others. As of January 31, 2003, approximately
50% of the guaranteed indebtedness was owed by three customers. Under the terms
of these 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, 2003,
we had a $2.2 million reserve related to these 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 its obligation and in the event
that occurs, we can not guarantee that the collateral underlying the agreement
will not result in losses materially in excess of those reserved.
NOTE 13 - BANK CREDIT LINES AND LONG-TERM DEBT
Our credit facilities contain customary affirmative and negative covenants
including financial covenants requiring the maintenance of specified
consolidated interest coverage, leverage ratios and a minimum net worth. For the
quarter ended January 31, 2003, we received waivers from compliance with our
Limitations on Investments negative covenant. On February 21, 2003, we entered
amendments to the credit agreements, which principally added JLG Europe BV and
JLG Manufacturing Europe BVBA as borrowers and modified our Limitations on
Investments negative covenant. Based on the amendments to the credit facilities
and our forecasted ability to comply with the revised covenant, we continue to
classify this debt as long-term.
NOTE 14 - LIMITED RECOURSE DEBT
As a result of the sale of finance receivables through limited recourse and
non-recourse monetization transactions, we have $106.7 million of limited
recourse debt outstanding as of January 31, 2003. The aggregate amounts of
limited recourse debt outstanding at January 31, 2003 which will become due in
2004 through 2008 are: $36.5 million, $20.5 million, $21.6 million, $18.4
million and $6.8 million, respectively.
15
NOTE 15 - 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 subordination provisions and 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, 2003
Guarantor Non-Guarantor Other and Consolidated
Parent Subsidiaries Subsidiaries Eliminations Total
------ ------------ ------------ ------------ -----
ASSETS
Accounts receivable - net $ 136,017 $ 30,502 $ 40,357 $ 3,316 $ 210,192
Finance receivables - net -- 76,087 -- 3,371 79,458
Pledged finance receivables -- 113,656 -- -- 113,656
Inventories 64,716 104,235 4,790 (5,129) 168,612
Property, plant and equipment - net 25,216 53,939 2,494 (484) 81,165
Equipment held for rental - net 1,110 16,340 2,838 -- 20,288
Investment in subsidiaries 244,238 28 2,650 (246,916) --
Other assets 71,477 44,515 6,708 9 122,709
--------- --------- --------- --------- ---------
$ 542,774 $ 439,302 $ 59,837 $(245,833) $ 796,080
========= ========= ========= ========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Accounts payable and accrued expenses $ 74,391 $ 38,493 $ 24,876 $ (4,649) $ 133,111
Long-term debt, less current portion 242,207 -- -- -- 242,207
Limited recourse debt,
less current portion -- 70,151 -- -- 70,151
Other liabilities (257,004) 341,394 12,436 12,025 108,851
--------- --------- --------- --------- ---------
Total liabilities 59,594 450,038 37,312 7,376 554,320
--------- --------- --------- --------- ---------
Shareholders' equity 483,180 (10,736) 22,525 (253,209) 241,760
--------- --------- --------- --------- ---------
$ 542,774 $ 439,302 $ 59,837 $(245,833) $ 796,080
========= ========= ========= ========= =========
16
Condensed Consolidated Balance Sheet
As of July 31, 2002
Guarantor Non-Guarantor Other and Consolidated
Parent Subsidiaries Subsidiaries Eliminations Total
------ ------------ ------------ ------------ -----
ASSETS
Accounts receivable - net $ 204,161 $ 19,215 $ 37,857 $ (33,424) $ 227,809
Finance receivables - net -- 73,138 -- (197) 72,941
Pledged finance receivables -- 88,688 -- -- 88,688
Inventories 91,649 49,107 25,432 (652) 165,536
Property, plant and equipment - net 31,376 46,874 6,548 (428) 84,370
Equipment held for rental - net 4,263 16,373 488 (145) 20,979
Investment in subsidiaries 248,114 -- 2,659 (250,773) --
Other assets 88,456 15,851 13,809 (198) 117,918
--------- --------- --------- --------- ---------
$ 668,019 $ 309,246 $ 86,793 $(285,817) $ 778,241
========= ========= ========= ========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Accounts payable and accrued expenses $ 158,046 $ 31,035 $ 44,902 $ (21,357) $ 212,626
Long-term debt, less current portion 177,309 22 -- -- 177,331
Limited recourse debt,
less current portion -- 52,721 -- -- 52,721
Other liabilities (108,932) 221,240 (1,492) (11,295) 99,521
--------- --------- --------- --------- ---------
Total liabilities 226,423 305,018 43,410 (32,652) 542,199
--------- --------- --------- --------- ---------
Shareholders' equity 441,596 4,228 43,383 (253,165) 236,042
--------- --------- --------- --------- ---------
$ 668,019 $ 309,246 $ 86,793 $(285,817) $ 778,241
========= ========= ========= ========= =========
Condensed Consolidated Statement of Income
For the Six Months Ended January 31, 2003
Guarantor Non-Guarantor Other and Consolidated
Parent Subsidiaries Subsidiaries Eliminations Total
------ ------------ ------------ ------------ -----
Revenues $ 216,394 $ 79,683 $ 43,408 $ (27,685) $ 311,800
Gross profit (loss) 56,587 (1,659) 3,837 (3,551) 55,214
Other expenses (income) 33,377 12,493 3,378 1,411 50,659
Net income (loss) $ 23,210 $ (14,152) $ 459 $ (4,962) $ 4,555
17
Condensed Consolidated Statement of Income
For the Six Months Ended January 31, 2002
Guarantor Non-Guarantor Other and Consolidated
Parent Subsidiaries Subsidiaries Eliminations Total
------ ------------ ------------ ------------ -----
Revenues $212,005 $97,170 $30,833 $(27,494) $312,514
Gross profit (loss) 52,692 (150) 2,277 (229) 54,590
Other expenses (income) 42,994 120,759 1,619 (12) 165,360
Net income (loss) $9,698 $(120,909) $658 $(217) $(110,770)
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) $(11,349) $2,412 $(672) $(92,642)
Cash flow from investing activities (3,295) 57 (1,429) (71) (4,738)
Cash flow from financing activities 69,933 29,372 16 (16) 99,305
Effect of exchange rate changes on cash 422 1,199 (1,244) 1,058 1,435
-------- -------- ------ ----- --------
Net change in cash and cash equivalents (15,973) 19,279 (245) 299 3,360
Beginning balance 22,949 (19,197) 2,745 (292) 6,205
-------- -------- ------ ----- --------
Ending balance $6,976 $82 $2,500 $7 $9,565
======== ======== ====== ===== ========
Condensed Consolidated Statements of Cash Flows
For the Six Months Ended January 31, 2002
Guarantor Non-Guarantor Other and Consolidated
Parent Subsidiaries Subsidiaries Eliminations Total
------ ------------ ------------ ------------ -----
Cash flow from operating activities $ 87,841 $(29,393) $ 2,020 $ (193) $ 60,275
Cash flow from investing activities (32,037) (11,856) (3,372) 30,790 (16,475)
Cash flow from financing activities (48,255) 29,847 (785) (30,750) (49,943)
Effect of exchange rate changes on cash 278 -- 261 (78) 461
-------- -------- ------- -------- ---------
Net change in cash and cash equivalents 7,827 (11,402) (1,876) (231) (5,682)
Beginning balance 6,034 (1,714) 4,636 298 9,254
-------- -------- ------- -------- ---------
Ending balance $ 13,861 $(13,116) $ 2,760 $ 67 $ 3,572
======== ======== ======= ======== =========
18
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
We reported net income of $4.2 million, or $.10 per share on a diluted basis,
for the second quarter of fiscal 2003, compared to net income of $1.3 million,
or $.03 per share on a diluted basis, for the second quarter of fiscal 2002. As
discussed below and more fully described in Note 11 of the Notes to Condensed
Consolidated Financial Statements, earnings for the second quarter of fiscal
2003 included charges of $1.3 million ($0.9 million net of tax) related to
repositioning our operations to more appropriately align our costs with our
business activity. In addition, earnings for the second quarter of fiscal 2003
included favorable currency adjustments of $7.6 million ($5.2 million net of
tax).
We reported net income of $4.6 million, or $.11 per share on a diluted basis,
for the first six months of fiscal 2003, compared to net income, before the
cumulative effect of change in accounting principle related to the adoption of
Statement of Financial Accounting Standards ("SFAS") No. 142, "Goodwill and
Other Intangible Assets," of $3.7 million, or $.09 per share on a diluted basis,
for the first six months of fiscal 2002. Earnings for the first six months of
fiscal 2003 included restructuring and restructuring-related charges of $1.4
million ($1.0 million net of tax). In addition, earnings for the first six
months of fiscal 2003 included favorable currency adjustments of $5.1 million
($3.5 million net of tax).
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 2003 AND 2002
Our revenues for the second quarter of fiscal 2003 were $151.3 million, down 3%
from the $156.4 million in the comparable year-ago period. The following tables
outline our revenues by segment, products and geography (in thousands) for the
quarter ended:
January 31,
2003 2002
---- ----
Segment:
Machinery $109,550 $122,925
Equipment Services 36,676 29,963
Access Financial Solutions (a) 5,087 3,464
-------- --------
$151,313 $156,352
======== ========
Product:
Aerial work platforms $79,615 $89,693
Telehandlers 19,417 18,624
Excavators 10,518 14,608
After-sales service and support, including parts sales, and used and
reconditioned equipment sales 34,411 27,692
Financial products (a) 4,836 2,958
Rentals 2,516 2,777
-------- --------
$151,313 $156,352
======== ========
Geographic:
United States $107,920 $112,643
Europe 32,816 33,923
Other 10,577 9,786
-------- --------
$151,313 $156,352
======== ========
19
(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 decrease in Machinery segment revenues from $122.9 million to $109.6
million, or 11%, was principally attributable to reduced sales of aerial work
platforms primarily due to the continued economic pressures in North America and
economic pressures and tightened credit conditions in Europe partially offset by
stronger sales in Australia. In addition, sales of our excavator product line
declined due to the softness in the United States construction market and
reduced state and municipal budgets. The decrease in sales of aerial work
platforms and excavators was partially offset by increased telehandler sales
reflecting share gains from new products, including the European-design product
offerings. The second quarter of fiscal 2002 Machinery segment revenues also
included the elimination of previously recorded volume-related customer
incentives. The increase in Equipment Services segment revenues from $30 million
to $36.7 million, or 22%, was principally attributable to increased sales of
used equipment and parts. The increase in Access Financial Solutions segment
revenues from $3.5 million to $5.1 million, or 47%, was principally attributable
to income received on pledged finance receivables. While we have increased
interest income attributable to our pledged finance receivables, a corresponding
increase in our limited recourse debt results in this increased revenue being
passed on to syndication purchasers in the form of interest expense on limited
recourse debt. In accordance with the required accounting treatment, payments to
syndication purchasers are reflected as interest expense in our Condensed
Consolidated Statements of Income..
Our domestic revenues for the second quarter of fiscal 2003 were $107.9 million,
down 4% from the comparable year-ago period revenues of $112.6 million. The
decrease in our domestic revenues is primarily attributable to lower aerial work
platform and excavator sales partially offset by higher sales of used equipment
and parts, and increased revenues from financial products. Revenues generated
from sales outside the United States for the second quarter of fiscal 2003 were
$43.4 million, down 1% from the comparable year-ago period revenues of $43.7
million. The slight decrease in our revenues generated from sales outside the
United States is primarily attributable to lower aerial work platform sales in
Europe due to economic pressures and customer credit constraints partially
offset by increased sales of aerial work platforms in Australia and increased
telehandler sales in Europe.
Our gross profit margin was 17.2% for the second quarter of fiscal 2003 compared
to the prior year quarter's 15.7%. The increase was primarily attributable to
higher margins in our Machinery and Access Financial Solutions segments offset
in part by lower margins in our Equipment Services segment. The gross profit
margin of our Machinery segment was 12.6% for the second quarter of fiscal 2003
compared to 9.8% for the second quarter of fiscal 2002. The increase is
principally due to a more profitable product mix mainly as a result of new
product introductions and 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 20.2% for the second quarter of fiscal 2003 compared to
31.1% for the corresponding period in the prior year. The decrease is primarily
attributable to deferred profit recognized during the second quarter of fiscal
2002 from a one-time rental fleet sale-leaseback transaction and the write-down
during the second quarter of fiscal 2003 of used equipment, primarily trade-ins,
to the lower of cost or market. The gross profit margin of our Access Financial
Solutions segment was 97% for the second quarter of fiscal 2003 compared to
91.5% for the corresponding period in the prior year. The increase is primarily
because of increased financial product revenues during the second quarter of
fiscal 2003 compared to the prior year period. 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 as a percent of
revenues were 13.4% for the current year second quarter compared to 12.4% for
the prior year second quarter. In dollar terms, these expenses were $0.8 million
higher in the second quarter of fiscal 2003 than in the second quarter of fiscal
2002. Our Machinery segment's selling, administrative and product development
expenses increased $0.8 million due primarily to increased bad debt provisions
for specific reserves related to certain customers, higher contract services
expenses and an increase in outside commissions, which were partially offset by
lower payroll and related costs due to our cost reduction initiatives. Our
Equipment Services segment's selling and administrative expenses decreased $0.2
million
20
due primarily to lower payroll and related costs. Our Access Financial Solutions
segment's selling and administrative expenses decreased $0.4 million due
primarily to a decrease in bad debt expense reflecting lower origination
activity and the reduced non-monetized portfolio exposure and lower payroll and
related costs, which were partially offset by increases in contract services and
legal costs. Our general corporate selling, administrative and product
development expenses increased $0.6 million primarily due to higher payroll and
related costs, which was partially offset by reductions in bad debt provisions
and employee benefit 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 currently produces selected scissor lift models, will be temporarily idled
and production integrated into our Shippensburg, Pennsylvania facility.
Additionally, reductions in selling, administrative and product development
costs will result from changes in the global organizational and process
consolidations. When these changes are fully implemented, we expect to generate
approximately $20 million in annualized savings at a cost of $9.4 million
representing a payback of approximately six months.
We will be reducing a total of 189 people globally and transferring 99
production jobs from the Bedford Sunnyside operation to the Shippensburg
facility. Production of scissor lifts, which are now assembled at the Sunnyside
facility, will be integrated into our newer and more flexible 300,000-square
foot facility in Shippensburg by fiscal year end. As a result, we anticipate
incurring a pre-tax charge of $5.9 million, consisting of $3.5 million in
restructuring costs associated with personnel reductions and relocation and
lease and contract terminations and $2.4 million in charges related to
relocating certain plant assets and start-up costs associated with the move of
the Bedford operations to the Shippensburg facility and costs related to our
process consolidations. In addition, we will spend approximately $3.5 million on
capital requirements. Almost all of these expenses will be cash charges, which
will be recorded over the next three quarters.
During the second quarter of fiscal 2003, we incurred approximately $1.2 million
of the pre-tax charge discussed above, consisting of an accrual for termination
benefit costs, which were reported as restructuring costs. During the second
quarter of fiscal 2003, we paid and charged $0.1 million of termination benefits
against the accrued liability.
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 this facility have been integrated
into our McConnellsburg, Pennsylvania facility. As a result, we anticipated
incurring a pre-tax charge of $7.7 million, consisting of $6.1 million in
restructuring costs associated with approximately 170 personnel reductions and
the write-down of idle facilities and $1.6 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.
During the second quarter of fiscal 2003, we incurred $0.1 million of the
pre-tax charge discussed above, consisting of production relocation costs. We
reported $0.1 million in cost of sales during the second quarter of fiscal 2003.
During the second quarter of fiscal 2003, we paid and charged $0.2 million of
termination benefits and lease termination costs against the accrued liability.
The increase in interest expense of $2.0 million for the second quarter of
fiscal 2003 was primarily due to the interest expense associated with our
limited recourse and non-recourse monetizations and increased rates on our
senior subordinated debt partially offset by lower debt levels and short-term
rates.
Our miscellaneous income (deductions) category included currency gains of $7.6
million in the second quarter of fiscal 2003 compared to gains of $0.7 million
in the corresponding prior year period. The increase in currency gains is
primarily attributable to the significant weakening of the U.S. dollar against
the Euro, British pound and Australian dollar during the second quarter of
fiscal 2003.
21
RESULTS FOR THE FIRST SIX MONTHS OF FISCAL 2003 AND 2002
Our revenues for the first six months of fiscal 2003 were $311.8 million, down
..2% from the $312.5 million in the comparable year-ago period. The following
tables outline our revenues by segment, products and geography (in thousands)
for the six months ended:
January 31,
2003 2002
---- ----
Segment:
Machinery $234,096 $251,963
Equipment Services 68,047 53,430
Access Financial Solutions (a) 9,657 7,121
-------- --------
$311,800 $312,514
======== ========
Product:
Aerial work platforms $170,928 $192,060
Telehandlers 47,019 32,728
Excavators 16,149 27,175
After-sales service and support, including parts sales, and used and
reconditioned equipment sales 64,253 48,860
Financial products (a) 9,226 6,107
Rentals 4,225 5,584
-------- --------
$311,800 $312,514
======== ========
Geographic:
United States $225,270 $220,065
Europe 64,064 73,009
Other 22,466 19,440
-------- --------
$311,800 $312,514
======== ========
(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 decrease in Machinery segment revenues from $252 million to $234.1 million,
or 7%, was principally attributable to reduced sales of aerial work platforms
primarily due to the economic pressures in North America and economic pressures
and tightened credit conditions in Europe partially offset by stronger sales in
Australia. In addition, sales of our excavator product line declined due to the
softness in the United States construction market and reduced state and
municipal budgets. The decrease in sales of aerial work platforms and excavators
was partially offset by increased telehandler sales reflecting share gains from
new products, including the European-design product offerings. The first six
months of fiscal 2002 Machinery segment revenues also included the elimination
of previously recorded volume-related customer incentives. The increase in
Equipment Services segment revenues from $53.4 million to $68 million, or 27%,
was principally attributable to increased sales of used equipment and parts. The
increase in Access Financial Solutions segment revenues from $7.1 million to
$9.7 million, or 36%, was principally attributable to income received on pledged
finance receivables. While we have increased interest income attributable to our
pledged finance receivables, a corresponding increase in our limited recourse
debt results in this increased revenue being passed on to syndication purchasers
in the form of interest expense on limited recourse debt. In accordance with the
required accounting treatment, payments to syndication purchasers are reflected
as interest expense in our Condensed Consolidated Statements of Income.
22
Our domestic revenues for the first six months of fiscal 2003 were $225.3
million, up 2% from the comparable year-ago period revenues of $220.1 million.
The increase in our domestic revenues is primarily attributable to higher
telehandler sales, reflecting share gains from new products, sales of used
equipment and parts, and increased revenues from financial products. Revenues
generated from sales outside the United States for the first six months of
fiscal 2003 were $86.5 million, down 6% from the comparable year-ago period
revenues of $92.4 million. The decrease in our revenues generated from sales
outside the United States is primarily attributable to lower aerial work
platform sales in Europe due to economic pressures and customer credit
constraints partially offset by increased sales of aerial work platforms in
Australia and increased telehandler sales in Europe.
Our gross profit margin was 17.7% for the first six months of fiscal 2003
compared to the prior year period's 17.5%. The increase was primarily
attributable to higher margins in our Machinery and Access Financial Solutions
segments offset in part by lower margins in our Equipment Services segment. The
gross profit margin of our Machinery segment was 13.8% for the first six months
of fiscal 2003 compared to 11.8% for the first six months of fiscal 2002. The
increase is principally due to a more profitable product mix mainly as a result
of new product introductions and the weakening of the U.S. dollar against the
Euro, British pound and Australian dollar, partially offset by higher product
costs as a result of production variances consisting mainly of under-absorbed
overhead and higher labor costs associated with the startup of our Maasmechelen
facility and the transfer of the telehandler product line to our McConnellsburg
facility. The gross profit margin of our Equipment Services segment was 20% for
the first six months of fiscal 2003 compared to 34.1% for the corresponding
period in the prior year. The decrease is primarily attributable to higher used
equipment sales in the auction channel, primarily former trade-ins of older
non-JLG brand machines, which have lower margins, the deferred profit recognized
during the first six months of fiscal 2002 from a one-time rental fleet
sale-leaseback transaction and the write-down of used equipment, primarily
trade-ins, to the lower of cost or market during the second quarter of fiscal
2003. The gross profit margin of our Access Financial Solutions segment was
96.6% for the first six months of fiscal 2003 compared to 92.1% for the
corresponding period in the prior year. The increase is primarily because of
increased financial product revenues during the first six months of fiscal 2003
compared to the prior year period. 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 as a percent of
revenues were 13.4% for the first six months of fiscal 2003 compared to 13.6%
for the first six months of fiscal 2002. In dollar terms, these expenses were
$0.9 million lower in the first six months of fiscal 2003 than in the
corresponding period of the previous year. Our Machinery segment's selling,
administrative and product development expenses decreased $0.4 million due
primarily to lower payroll and related costs due to our cost reduction
initiatives, which was partially offset by increased bad debt provisions for
specific reserves related to certain customers, higher contract services
expenses and an increase in outside commissions. Our Equipment Services
segment's selling and administrative expenses decreased $0.4 million due
primarily to lower payroll and related costs. Our Access Financial Solutions
segment's selling and administrative expenses decreased $0.1 million due
primarily to lower payroll and related costs, and decreases in bad debt
provisions reflecting lower origination activity and the reduced non-monetized
portfolio exposure and travel expenses, which were partially offset by increases
in contract services and legal costs. Our general corporate selling,
administrative and product development expenses were flat year over year. Higher
payroll and related costs were offset by reductions in bad debt provisions,
computer software costs and employee benefit costs.
During the first six months of fiscal 2003, we incurred approximately $1.2
million of the pre-tax charge related to the temporarily idling of our Bedford,
Pennsylvania facility, discussed above, consisting of an accrual for termination
benefit costs, which was reported as restructuring costs. During the first six
months of fiscal 2003, we paid and charged $0.1 million of termination benefits
against the accrued liability.
During the first six months of fiscal 2003, we incurred $0.2 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.
In addition, during the first six months of fiscal 2003, we paid and charged
$0.8 million of termination
23
benefits and lease termination costs against the accrued liability. Through the
first six months of fiscal 2003, we incurred $6.9 million of the pre-tax charge
consisting of an accrual of $1.2 million for termination benefit costs and a
$4.9 million asset write-down and $0.8 million of production relocation costs.
The increase in interest expense of $3.2 million for the first six months of
fiscal 2003 was primarily due to the interest expense associated with our
limited recourse and non-recourse monetizations and increased rates on our
senior subordinated debt partially offset by lower debt levels and short-term
rates.
Our miscellaneous income (deductions) category included currency gains of $5.1
million in the first six months of fiscal 2003 compared to gains of $0.5 million
in the corresponding prior year period. The increase in currency gains is
primarily attributable to the significant weakening of the U.S. dollar against
the Euro, British pound and Australian dollar during the first six of fiscal
2003.
During the fourth quarter of fiscal 2002, we completed our review of our
goodwill impairment as required by SFAS No. 142. As a result, we recorded a
transitional impairment loss, in accordance with the transition rules of SFAS
No. 142, of $114.5 million, primarily associated with our Gradall Industries,
Inc. acquisition. Pursuant to the requirements of SFAS No. 3, "Reporting
Accounting Changes in Interim Financial Statements," we have restated the fiscal
2002 interim statements to reflect the transitional impairment loss as if the
accounting change had occurred during the first quarter of fiscal 2002.
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 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 operations. 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.
24
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 $29.5 million at January 31, 2003 and $28.8 million at
July 31, 2002. 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 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.
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 generally 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.
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 therefrom are reflected in current earnings. If these
estimates and related assumptions change, we may be required to record
additional reserves.
Revenue Recognition: Sales of equipment and service parts are generally
unconditional sales that are recorded when product is shipped and invoiced to
independently owned and operated distributors and customers. Normally our
25
sales terms are "free-on-board" shipping point (FOB shipping point). However,
certain sales 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.
During the first six months of fiscal 2003, approximately 2% of our European
sales were invoiced and the revenue recognized prior to customers taking
physical possession.
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 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 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 the note
entitled "Summary of Significant Accounting Policies" to the Notes to
Consolidated Financial Statements included in our annual report on Form 10-K for
the fiscal year ended July 31, 2002.
FINANCIAL CONDITION
Cash flow used in operating activities was $92.6 million for the first six
months of fiscal 2003 compared to cash generated of $60.3 million in the
comparable period of fiscal 2002. The decrease in cash generated from operations
for fiscal 2003 primarily resulted from lower trade account payables as days in
accounts payable outstanding decreased to 36 days at January 31, 2003 compared
to 67 days at July 31, 2002 and increased finance receivables resulting from
$39.1 million of monetization transactions that were completed during the first
six months of fiscal 2003.
Investing activities during the first six months of fiscal 2003 used $4.7
million of cash compared to $16.5 million used for the first six months of
fiscal 2002. The decrease in cash usage was principally due to an increase in
sales of equipment held for rental during the first six months of fiscal 2003
and lower expenditures for equipment held for rental during the first six months
of fiscal 2003 compared to the corresponding prior year period.
Financing activities provided cash of $99.3 million for the first six months of
fiscal 2003 compared to $49.9 million used for the first six months of fiscal
2002. The increase in cash provided by financing activities was largely
attributable to increased debt used to finance working capital requirements as
discussed above.
26
The following table provides a summary of our contractual obligations (in
thousands) at January 31, 2003:
Payments Due by Period
--------------------------------------------------------
Less than After 5
Total 1 Year 1-3 Years 4-5 Years Years
----- ------ --------- --------- -----
Short and long-term debt (a) $265,643 $23,436 $ 61,274 $ 278 $180,655
Limited recourse debt 106,662 36,511 42,078 25,220 2,853
Operating leases (b) 28,577 5,803 12,147 8,033 2,594
-------- ------- -------- ------- --------
Total contractual obligations $400,882 $65,750 $115,499 $33,531 $186,102
======== ======= ======== ======= ========
(a) Included in long-term debt is our secured revolving credit facility with a
group of financial institutions that provide an aggregate commitment of
$250 million. We also have a $25 million secured bank revolving line of
credit with a term of one year, renewable annually. The credit facilities
contain customary affirmative and negative covenants including financial
covenants requiring the maintenance of specified consolidated interest
coverage, leverage ratios and a minimum net worth. If we were to become in
default of these covenants, the financial institutions could call the
loans.
(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, 2003:
Amount of Commitment Expiration Per Period
--------------------------------------------------------
Total
Amounts Less than Over 5
Committed 1 Year 1-3 Years 4-5 Years Years
--------- ------ --------- --------- -----
Standby letters of credit $ 6,054 $6,054 $ -- $ -- $ --
Guarantees (a) 107,474 84 35,937 57,095 14,358
-------- ------ ------- ------- -------
Total commercial commitments $113,528 $6,138 $35,937 $57,095 $14,358
======== ====== ======= ======= =======
(a) We discuss our guarantee agreements in Note 12 of Notes to Condensed
Consolidated Financial Statements of this report.
We also monitor our net debt, which is a non-GAAP measure. Net debt reflects the
sum of total debt and other off-balance sheet financing, minus cash and limited
and non-recourse debt arising from our monetizations of customer finance
receivables. The following presents net debt (in thousands) as of:
January 31, July 31,
2003 2002
---- ----
Total debt $372,304 $279,329
Rental fleet sale/leaseback 3,858 5,582
Equipment sale/leaseback 6,977 7,749
-------- --------
Gross debt 383,139 292,660
Less cash 9,565 6,205
Less limited and non-recourse debt 106,661 87,571
-------- --------
Net debt $266,913 $198,884
======== ========
As of January 31, 2003, we had unused credit lines totaling $190.9 million. In
order to meet our future cash requirements, we intend to use internally
generated funds and to borrow under our credit facilities. Availability of these
credit lines depends upon our continued compliance with certain covenants,
including certain financial ratios. Although we are currently in compliance with
all financial covenants, including negative covenants, in our senior credit
facilities, we received waivers to allow us to be in compliance at January 31,
2003 and the senior credit
27
facilities were amended during February 2003 to include JLG Europe BV and JLG
Manufacturing Europe BVBA as borrowers and to modify our Limitations on
Investments negative covenant.
We also borrow under our credit lines to fund originations of customer finance
receivables in our Access Financial Solutions segment. Our senior lenders have
agreed to permit Access Financial Solutions to originate and have outstanding no
more than $150 million in finance receivables, other than pledged receivables
that secure on-balance sheet, limited recourse and non-recourse monetization
transactions. As of January 31, 2003, we had outstanding finance receivables of
$79.5 million. Our business plan anticipates that we will originate
substantially more than $150 million in finance receivables. Accordingly, our
plan requires that we be able to monetize our finance receivables through
various means, including syndications, securitizations or other limited or
non-recourse transactions. We do not have in place any guaranteed facility to
monetize all of our finance receivables, and there can be no assurance that we
will be able to monetize sufficient finance receivables to avoid being
constrained by the $150 million limit imposed in our senior credit facilities.
However, during the first six months of fiscal 2003 and during all of fiscal
2002, we monetized $39.1 million and $101.9 million, respectively, in finance
receivables through syndications, and we are continuing to examine other
alternatives for Access Financial Solutions.
In addition to measuring our cash flow generation and usage based upon the
operating, investing, and financing classifications included in the Consolidated
Statements of Cash Flows, we also measure our free cash flow. Our measure of
free cash flow may not be comparable to similarly titled measures being
disclosed by other companies and is not a measure of financial performance that
is in accordance with GAAP. With the commencement of reporting Access Financial
Solutions as a separate segment, we modified our definition of free cash flow
during the third quarter of fiscal 2002 to include in cash flow proceeds from
on-balance sheet, limited and non-recourse monetization transactions in our
Access Financial Solutions segment.
We define free cash flow, a non-GAAP measure commonly employed by the financial
community, as:
(1) cash flow from operating activities plus
(2) cash flow from investing activities, less
(3) (a) unrealized currency gains or losses, (b) proceeds from the
disposal and monetization of assets and (c) changes in accounts
receivable securitization and off-balance sheet debt.
During the first six months of fiscal 2003, we had negative free cash flow of
$74.4 million compared to free cash flow of $85.9 million for the corresponding
period in fiscal 2002. The change in free cash flow was attributable principally
to the same factors impacting cash flow described above. The following table
provides a reconciliation of our cash flow from operating activities to our free
cash flow (in thousands) for the six months ended:
January 31,
2003 2002
---- ----
Cash flow from operating activities $(92,642) $ 60,275
Cash flow from investing activities (4,738) (16,475)
Unrealized currency (gains) losses (4,440) (745)
Changes in accounts receivable securitization, pledged
receivables monetization and off-balance sheet debt (a) 27,464 42,885
-------- --------
Free cash flow $(74,356) $ 85,940
======== ========
(a) Pledged receivables monetization reflects the proceeds of our sales,
on a non-recourse or limited recourse basis, of finance receivables
and related assets to third parties in transactions that are treated
as debt for purposes of GAAP but that are excluded from the
definition of total debt under our senior credit facilities, except
to the extent of any expected recourse liability.
28
As discussed in Note 12 of the Notes to Condensed Consolidated Financial
Statements of this report, we are a party to multiple agreements whereby we
guarantee $107.5 million in indebtedness of others. 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.
Our exposure to product liability claims is discussed in Note 12 of the Notes to
Condensed Consolidated Financial Statements of this report. Future results of
operations, financial condition and liquidity may be affected to the extent that
our ultimate exposure with respect to product liability varies from current
estimates.
There can be no assurance, that unanticipated events will not require us to
increase the amount we have accrued for any matter or accrue for a matter that
has not been previously accrued because it was not considered probable.
OUTLOOK
This Outlook section and other parts of this Management's Discussion and
Analysis contain forward-looking statements within the meaning of the Private
Securities Litigation Reform Act of 1995. Forward-looking statements are
identified by words such as "may," "believes," "expects," "plans" and similar
terminology. These statements are not guarantees of future performance, and
involve a number of risks and uncertainties that could cause actual results to
differ materially from those indicated by the forward-looking statements.
Important factors that could cause actual results to differ materially from
those suggested by the forward-looking statements which include, but are not
limited to, the following: (i) general economic and market conditions; (ii)
varying and seasonal levels of demand for our products and services; (iii)
competition and a consolidating customer base; (iv) risks from our customer
activities and limits on our abilities to finance customer purchases; (v)
interest and foreign currency exchange rates; (vi) costs of raw materials and
energy; and (vii) product liability and other litigation, as well as other risks
as described in "Cautionary Statements Pursuant to the Securities Litigation
Reform Act" which is an exhibit to this report. Actual future results could
differ materially from those projected herein. We undertake no obligation to
publicly update or revise any forward-looking statements.
Although forward visibility is problematic, there continue to be positive signs.
According to a recent study by CIT Equipment Rental and Finance, North American
contractors surveyed expect construction activity to increase by roughly
one-third and bidding activity to increase by more than 40 percent from year-ago
levels. In addition, ten percent of the contractors surveyed expect to purchase
an aerial work platform in 2003 compared to one percent in the 2002 survey.
Yengst & Associates, an industry market research and consulting firm, predicts
that North American shipments of aerial work platforms and telehandlers would
improve by 15 percent and nine percent, respectively, in calendar 2003. Yengst
bases this forecast on the continued `graying' of the fleet and building need
for refreshment. Supporting this position, according to industry sources, the
projected 2003 capital expenditure plans of the top ten domestic rental
companies is increasing 16 percent to $1.4 billion from $1.2 billion with
increases offsetting some of the more publicized decreases.
However, challenges remain and we continue to emphasize that fleet refreshment
depends on three factors both in North America and Europe; positive indications
of stronger non-residential construction, a healthy used equipment market and
available customer credit. While the economic recovery remains uncertain, we
continue to focus on reducing fixed costs and increasing revenues through our
unique growth opportunities, which include increased service parts and used
equipment sales, additional market share gains from new telehandler products,
and expanding applications for aerial work platforms and accessories. We expect
our revenues for the balance of the year to remain comparable with year ago
levels, roughly $800 million with earnings per share in the $0.37 to $0.40 range
for the full year.
In the short-term, the market is indeed characterized by uncertainty due to the
prevailing economic and geopolitical conditions, but we remain optimistic in the
longer term. Throughout the recession, we have remained profitable and focused
on generating free cash flow and reducing working capital and expenses.
29
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are exposed to market risk from changes in interest rates and foreign
currency exchange rates, which could affect our future results of operations and
financial condition. We manage exposure to these risks principally through our
regular operating and financing activities.
We are exposed to changes in interest rates as a result of our outstanding debt.
In June 2002, we entered into an $87.5 million notional fixed-to-variable
interest rate swap agreement with a fixed rate receipt of 8 3/8% in order to
mitigate our interest rate exposure. The basis of the variable rate paid is the
London Interbank Offered Rate (LIBOR) plus 2.76%. Total interest bearing
liabilities at January 31, 2003 consisted of $176.6 million in variable-rate
borrowing and $195.7 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 $0.7 million on an
annual basis. A hypothetical 10% change in interest rates would not result in a
material change in the fair value of our fixed-rate debt.
We do not have a material exposure to financial risk from using derivative
financial instruments to manage our foreign currency exposures. For additional
information, we refer you to Item 7 in our annual report on Form 10-K for the
fiscal year ended July 31, 2002.
ITEM 4. CONTROLS AND PROCEDURES
DISCLOSURE CONTROLS AND PROCEDURES
Within the 90-day period prior to the filing date of this report, an evaluation
was carried out under the supervision and with the participation of our
management, including our Chief Executive Officer and Chief Financial Officer,
of the effectiveness of our disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14(c) and 15d-14(c) under the Securities Exchange Act of
1934). Based on their evaluation, our Chief Executive Officer and Chief
Financial Officer have concluded that our disclosure controls and procedures
are, to the best of their knowledge, effective to ensure that information
required to be disclosed by us in reports that we file or submit under the
Exchange Act is recorded, processed, summarized and reported within the time
periods specified in Securities and Exchange Commission rules and forms.
INTERNAL CONTROLS
Our Chief Executive Officer and Chief Financial Officer determined that there
were no significant changes in our internal controls or in other factors that
could significantly affect our disclosure controls and procedures subsequent to
the date of their evaluation, nor were there any significant deficiencies or
material weaknesses in our internal controls. As a result, no corrective actions
were undertaken.
30
INDEPENDENT ACCOUNTANTS' REVIEW REPORT
The Board of Directors
JLG Industries, Inc.
We have reviewed the accompanying condensed consolidated balance sheet of JLG
Industries, Inc. as of January 31, 2003, and the related condensed consolidated
statements of income and cash flows for the three-month and six-month periods
ended January 31, 2003 and 2002. 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 auditing standards generally accepted in the United States,
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 condensed consolidated financial statements referred
to above for them to be in conformity with accounting principles generally
accepted in the United States.
We have previously audited, in accordance with auditing standards generally
accepted in the United States, the consolidated balance sheet of JLG Industries,
Inc. as of July 31, 2002, 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 16, 2002, 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, 2002, is fairly stated, in all material respects, in relation to
the consolidated balance sheet from which it has been derived.
/s/ Ernst & Young LLP
Baltimore, Maryland
February 21, 2003
31
PART II OTHER INFORMATION
ITEMS 1 - 5
None/not applicable.
ITEM 6 -- EXHIBITS AND REPORTS ON FORM 8-K
(a) The following exhibits are included herein:
3 By-laws of JLG Industries, Inc.
10 Amendment number two and waiver under Amended and Restated
Credit Agreement, dated February 21, 2003, by and among, JLG
Industries, Inc., JLG Equipment Services, Inc., JLG
Manufacturing, LLC, Fulton International, Inc., Gradall
Industries, Inc., The Gradall Company, Access Financial
Solutions, Inc., JLG Europe BV, JLG Manufacturing Europe BVBA
as Borrowers, the Lenders (as defined herein), Wachovia Bank,
National Association, as Administrative Agent and
Documentation Agent, and Bank One, Michigan, as Syndication
Agent.
12 Statement Regarding Computation of Ratios
15 Letter re: Unaudited Interim Financial Information
99.1 Cautionary Statements Pursuant to the Securities Litigation
Reform Act
99.2 Certification of the Chief Executive Officer
99.3 Certification of the Chief Financial Officer
(b) We filed a Current Report on Form 8-K on November 22, 2002, which included
our Press Release dated November 21, 2002. The items reported on such Form
8-K were Item 5. (Other Events) and Item 7. (Financial Statements and
Exhibits). We filed a Current Report on Form 8-K on January 7, 2003, which
included our Press Release dated January 6, 2003. The items reported on
such Form 8-K were Item 5. (Other Events) and Item 7. (Financial
Statements and Exhibits).
32
SIGNATURES
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.
JLG INDUSTRIES, INC.
(Registrant)
Date: March 4, 2003 /s/ James H. Woodward, Jr.
-----------------------------------
James H. Woodward, Jr.
Executive Vice President and
Chief Financial Officer
(Principal Financial Officer)
Date: March 4, 2003 /s/ John W. Cook
-----------------------------------
John W. Cook
Chief Accounting Officer
(Chief Accounting Officer)
33
SARBANES-OXLEY SECTION 302 CERTIFICATION
I, William M. Lasky, certify that:
1. I have reviewed this quarterly report on Form 10-Q of JLG Industries,
Inc.;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by this
quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly report is
being prepared;
b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the filing
date of this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officer and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have identified
for the registrant's auditors any material weaknesses in internal
controls; and
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officer and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date: March 4, 2003
/s/ William M. Lasky
--------------------
William M. Lasky
Chairman, President and Chief Executive
Officer
34
SARBANES-OXLEY SECTION 302 CERTIFICATION
I, James H. Woodward, Jr., certify that:
1. I have reviewed this quarterly report on Form 10-Q of JLG Industries,
Inc.;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by this
quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly report is
being prepared;
b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the filing
date of this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officer and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have identified
for the registrant's auditors any material weaknesses in internal
controls; and
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officer and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date: March 4, 2003
/s/ James H. Woodward, Jr.
--------------------------
James H. Woodward, Jr.
Executive Vice President and Chief
Financial Officer
35