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, 2002
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 offices) (Zip Code)
Registrant's telephone number, including area code:
(7l7) 485-5161
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No ______
The number of shares of capital stock outstanding as of March 11, 2002 was
42,139,828.
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............................ 10
Item 3. Quantitative and Qualitative Disclosures about
Market Risk.................................................... 16
Independent Accountants' Review Report.................................... 17
PART II
Item 6. Exhibits and Reports on Form 8-K............................... 18
Signature ............................................................... 18
PART I FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
JLG INDUSTRIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands) January 31, July 31,
2002 2001
------------ -----------
(Unaudited)
ASSETS
Current assets
Cash and cash equivalents $ 3,572 $ 9,254
Trade receivables - net 142,300 189,913
Finance receivables - net 18,753 16,760
Inventories 150,038 189,841
Other current assets 20,043 18,787
--------- ---------
Total current assets 334,706 424,555
Property, plant and equipment - net 96,437 98,403
Equipment held for rental - net 27,533 20,002
Finance receivables, less current portion 119,894 115,071
Goodwill - net 140,164 140,164
Other assets 24,333 27,394
--------- ---------
$ 743,067 $ 825,589
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Short-term debt $ 23,011 $ 22,193
Accounts payable 53,759 76,723
Accrued expenses 56,278 70,887
--------- ---------
Total current liabilities 133,048 169,803
Long-term debt, less current portion 226,293 276,994
Accrued post-retirement benefits 24,338 23,757
Other long-term liabilities 10,075 9,601
Provisions for contingencies 12,066 11,993
Shareholders' equity
Capital stock:
Authorized shares: 100,000 at $.20 par
Issued shares: 42,131; fiscal 2001 - 42,144 8,426 8,429
Additional paid-in capital 14,144 14,256
Retained earnings 322,675 319,607
Unearned compensation (2,683) (3,377)
Accumulated other comprehensive income (5,315) (5,474)
--------- ---------
Total shareholders' equity 337,247 333,441
--------- ---------
$ 743,067 $ 825,589
========= =========
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,
2002 2001 2002 2001
--------- --------- --------- ---------
Revenues
Net sales $ 150,369 $ 228,109 $ 300,575 $ 459,575
Rentals 2,777 1,539 5,584 2,781
Financial products 3,206 445 6,355 447
--------- --------- --------- ---------
156,352 230,093 312,514 462,803
Cost of sales 131,822 188,618 257,924 368,838
--------- --------- --------- ---------
Gross profit 24,530 41,475 54,590 93,965
Selling and administrative expenses 15,756 24,125 34,861 46,030
Product development expenses 3,664 4,105 7,667 8,020
Goodwill amortization -- 1,488 -- 2,979
--------- --------- --------- ---------
Income from operations 5,110 11,757 12,062 36,936
Other income (deductions):
Interest expense (4,027) (6,052) (8,365) (10,108)
Miscellaneous, net 909 2,053 1,826 1,576
--------- --------- --------- ---------
Income before taxes 1,992 7,758 5,523 28,404
Income tax provision 658 2,861 1,823 10,500
--------- --------- --------- ---------
Net income $ 1,334 $ 4,897 $ 3,700 $ 17,904
========= ========= ========= =========
Earnings per common share $ .03 $ .12 $ .09 $ .42
========= ========= ========= =========
Earnings per common share - assuming dilution $ .03 $ .12 $ .09 $ .42
========= ========= ========= =========
Cash dividends per share $ .005 $ .01 $ .015 $ .02
========= ========= ========= =========
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,
2002 2001
--------- ---------
Operations
Net income $ 3,700 $ 17,904
Adjustments to reconcile net income to
cash flow from operating activities:
Gain on sale of joint venture -- (1,008)
(Gain) loss on sale of property, plant and equipment (63) 288
Gain on sale of equipment held for rental (102) (3,956)
Non-cash charges and credits:
Depreciation and amortization 11,119 12,935
Other 3,552 6,238
Changes in selected working capital items:
Accounts receivables 48,230 (8,502)
Inventories 39,920 (90,459)
Accounts payable (22,949) (1,291)
Other operating assets and liabilities (16,862) (12,187)
Changes in finance receivables (7,662) (52,424)
Changes in other assets and liabilities 1,392 1,724
--------- ---------
Cash flow from operating activities 60,275 (130,738)
Investments
Purchases of property, plant and equipment (6,571) (5,132)
Proceeds from sale of property, plant and equipment 137 149
Purchases of equipment held for rental (15,881) (15,586)
Proceeds from sale of equipment held for rental 5,840 21,480
Proceeds from sale of joint venture -- 4,000
--------- ---------
Cash flow from investing activities (16,475) 4,911
Financing
Net increase in short-term debt 816 12,090
Issuance of long-term debt 221,459 264,150
Repayment of long-term debt (272,157) (137,597)
Payment of dividends (631) (860)
Purchase of common stock -- (22,201)
Exercise of stock options and issuance of restricted awards 570 70
--------- ---------
Cash flow from financing activities (49,943) 115,652
Currency Adjustments
Effect of exchange rate changes on cash 461 (477)
--------- ---------
Cash
Net change in cash and cash equivalents (5,682) (10,652)
Beginning balance 9,254 25,456
--------- ---------
Ending balance $ 3,572 $ 14,804
========= =========
The accompanying notes are an integral part of these financial statements.
3
JLG INDUSTRIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS JANUARY 31, 2002
(in thousands, except per share data)
(Unaudited)
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 to a fair presentation of results for the unaudited interim periods.
Interim results for the six-month period ended January 31, 2002 are not
necessarily indicative of the results that may be expected for the fiscal year
as a whole. For further information, refer to consolidated financial statements
and notes thereto included in our annual report on Form 10-K for the fiscal year
ended July 31, 2001.
RECLASSIFICATIONS
Where appropriate, we have reclassified certain amounts in fiscal 2001 to
conform to the fiscal 2002 presentation.
RECENT ACCOUNTING PRONOUNCEMENTS
Effective August 1, 2001, the Company adopted the provisions of Emerging Issues
Task Force 00-25, "Vendor Income Statement Characterization of Consideration
Paid to a Reseller of the Vendor's Products". As a result of the adoption, the
Company now classifies the costs associated with sales incentives provided to
retailers as a reduction in net sales. These costs were previously included in
selling, general and administrative expenses. This reclassification was not
material to the applicable individual line items of the financial statements and
had no impact on reported income before income taxes, net income or income per
share amounts.
In June 2001, the Financial Accounting Standards Board ("FASB") issued Statement
of Financial Accounting Standards ("SFAS") No. 143 "Accounting for Asset
Retirement Obligations," which is required to be adopted for financial
statements issued for fiscal years beginning after June 15, 2002. This statement
establishes the accounting and reporting standards for obligations associated
with the retirement of tangible long-lived assets and the associated asset
retirement costs. We do not expect adoption of this statement to have a
significant impact on our results of operations or financial position.
In August 2001, the FASB issued SFAS No. 144 entitled "Accounting for the
Impairment or Disposal of Long-Lived Assets," which is required to be adopted
for financial statements issued for fiscal years beginning after December 15,
2001. This statement establishes a single accounting model for long-lived assets
to be disposed of by sale and resolves significant implementation issues related
to SFAS No. 121 entitled "Accounting for the Impairment of Long-Lived Assets and
for Long-Lived Assets to be Disposed Of." We do not expect adoption of this
statement to have a significant impact on our results of operations or financial
position.
4
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, 2002, 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,
2002 2001
-------- --------
Finished goods $103,677 $137,500
Raw materials and work in process 49,687 56,185
-------- --------
153,364 193,685
Less LIFO provision 3,326 3,844
-------- --------
$150,038 $189,841
======== ========
GOODWILL
On August 1, 2001, we elected early adoption of SFAS No. 142, "Goodwill and
Other Intangible Assets". 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.
In the year of adoption, SFAS No. 142 requires the first step of the goodwill
impairment test to be completed within the first six months of adoption and the
final step to be completed within twelve months. The first step is a screen for
potential impairment and the second measures the amount of impairment, if any.
During the second quarter of fiscal 2002, we performed an initial impairment
test by reporting unit, which indicated potential impairment of goodwill
attributable to our Gradall reporting unit, which is part of our Machinery
business segment. The measurement of the impairment loss has not yet been
finalized. We will finalize the measurement by the end of fiscal 2002.
This table presents our reconciliation of reported net income to adjusted net
income and the adjusted earnings per common share, as if SFAS No. 142 had been
adopted, for each of the periods ended January 31, 2002 and 2001:
Three Months Ended Six Months Ended
January 31, January 31,
2002 2001 2002 2001
------- ------- ------- -------
Net income - reported $ 1,334 $ 4,897 $ 3,700 $17,904
Add: goodwill amortization -- 1,488 -- 2,979
------- ------- ------- -------
Net income - adjusted $ 1,334 $ 6,385 $ 3,700 $20,883
======= ======= ======= =======
Adjusted earnings per common share $ .03 $ .15 $ .09 $ .49
======= ======= ======= =======
Adjusted earnings per common share -
assuming dilution $ .03 $ .15 $ .09 $ .49
======= ======= ======= =======
5
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,
2002 2001
----------- ---------
Gross finance receivables $ 128,307 $ 123,124
Estimated residual value 44,243 45,067
--------- ---------
172,550 168,191
Unearned income (32,099) (35,402)
--------- ---------
Net finance receivables 140,451 132,789
Provision for losses (1,804) (958)
--------- ---------
$ 138,647 $ 131,831
========= =========
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 lease receivables
and repayments prior to maturity.
For the twelve-month periods ended January 31:
2003 $ 31,587
2004 28,362
2005 22,105
2006 21,262
2007 19,326
Thereafter 5,665
Residual value in equipment at lease end 44,243
Less: unearned finance income (32,099)
--------
Net investment in leases $140,451
========
ACCOUNTS RECEIVABLE SECURITIZATION
During February 2002, we terminated our receivables purchase agreement by
repurchasing for $18.1 million the undivided interest in pool receivables owned
by our securitization subsidiary.
CHANGES IN ACCOUNTING ESTIMATES
During the quarter, 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. These changes resulted in an
increase in net income of $4.7 million, or $.11 per diluted share, for the
second quarter of fiscal 2002 and $4.1 million, or $.10 per diluted share, for
the first six months of fiscal 2002.
6
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, 2002 and 2001:
Three Months Ended Six Months Ended
January 31, January 31,
2002 2001 2002 2001
------- ------- ------- -------
Net income $ 1,334 $ 4,897 $ 3,700 $17,904
======= ======= ======= =======
Denominator for basic earnings per share --
weighted average shares 41,813 41,866 41,816 42,512
Effect of dilutive securities - employee stock
options and unvested restricted shares 586 706 593 511
------- ------- ------- -------
Denominator for diluted earnings per
share - weighted average shares adjusted
for dilutive securities 42,399 42,572 42,409 43,023
======= ======= ======= =======
Earnings per common share $ .03 $ .12 $ .09 $ .42
======= ======= ======= =======
Earnings per common share -
assuming dilution $ .03 $ .12 $ .09 $ .42
======= ======= ======= =======
During the quarter ended January 31, 2002, options to purchase 3.4 million
shares of capital stock at a range of $10.53 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.
SEGMENT INFORMATION
We have organized our business into two segments - Machinery and Services. The
Machinery segment contains the design, manufacture and sale of new equipment.
The Services segment contains financing and leasing activities and after-sales
service and support, including parts sales, equipment rentals, and used and
reconditioned equipment sales. We evaluate performance and allocate resources
based on operating profit before interest, miscellaneous income/expense and
income taxes. 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, 2002 and 2001:
Three Months Ended Six Months Ended
January 31, January 31,
2002 2001 2002 2001
--------- --------- --------- ---------
External sales:
Machinery $ 127,791 $ 191,600 $ 260,121 $ 401,293
Services 28,561 38,493 52,393 61,510
--------- --------- --------- ---------
$ 156,352 $ 230,093 $ 312,514 $ 462,803
========= ========= ========= =========
7
Segment profit (loss):
Machinery $ 3,378 $ 16,766 $ 7,807 $ 46,057
Services 7,621 4,540 16,444 12,322
General corporate (5,889) (9,549) (12,189) (21,443)
--------- --------- --------- ---------
$ 5,110 $ 11,757 $ 12,062 $ 36,936
========= ========= ========= =========
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 sales by geographic area consisted of the following for each of
the periods ended January 31, 2002 and 2001:
Three Months Ended Six Months Ended
January 31, January 31,
2002 2001 2002 2001
-------- -------- -------- --------
United States $112,643 $168,801 $220,065 $351,906
Europe 33,923 49,869 73,009 85,922
Other 9,786 11,423 19,440 24,975
-------- -------- -------- --------
$156,352 $230,093 $312,514 $462,803
======== ======== ======== ========
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, 2002 and 2001:
Three Months Ended Six Months Ended
January 31, January 31,
2002 2001 2002 2001
-------- -------- -------- --------
Net income $ 1,334 $ 4,897 $ 3,700 $ 17,904
Aggregate currency translation adjustment 63 193 159 (824)
-------- -------- -------- --------
$ 1,397 $ 5,090 $ 3,859 $ 17,080
======== ======== ======== ========
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 2002 is comprised of a self-insured retention of $7 million for domestic
claims, insurance coverage of $2 million for international claims and
catastrophic coverage for domestic and international claims of $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 $17.3 million and $17.8 million at January
31, 2002 and July 31, 2001, respectively. These amounts are included in other
current liabilities and provisions for contingencies on our condensed
consolidated balance sheet. 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
provision for self-insured losses are included within cost of sales in our
condensed consolidated statement of income. As of January 31,
8
2002 and July 31, 2001, we had no insurance recoverables or offset implications
and no claims by us being contested by insurers.
At January 31, 2002, we are a party to multiple agreements whereby we guarantee
$89.8 million in indebtedness of others. 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 assets
and/or make demand for reimbursement from other parties for any payments made by
us under these agreements. At January 31, 2002, we had a $3.6 million reserve
related to these agreements. We believe that it is unlikely that we would
experience losses under these agreements that are materially in excess of this
reserve amount.
9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS FOR THE SECOND QUARTERS OF FISCAL 2002 AND 2001
Our revenues for the second quarter of fiscal 2002 were $156.4 million, down 32%
from the $230.1 million in the comparable year-ago period.
The following tables outline our revenues by product groups and geography (in
thousands) for the quarter ended January 31, 2002 and 2001:
2002 2001
-------- --------
Machinery:
Aerial work platforms $ 94,559 $158,907
Material handlers 18,624 16,623
Excavators 14,608 16,070
Services:
After-sales service and support, including parts sales,
equipment rentals and used and reconditioned equipment sales 22,578 36,509
Financial products 3,206 445
Rentals 2,777 1,539
-------- --------
$156,352 $230,093
======== ========
2002 2001
-------- --------
United States $112,643 $168,801
Europe 33,923 49,869
Other 9,786 11,423
-------- --------
$156,352 $230,093
======== ========
The decrease in Machinery segment sales from $191.6 million to $127.8 million,
or 33%, is principally attributable to reduced aerial work platform sales
resulting from a weakened economy and related factors affecting demand for these
products. Partially offsetting the decline in Machinery segment sales were
stronger material handler sales and the reversal of previously recorded
volume-related customer incentives. The decrease in Services segment revenues
from $38.5 million to $28.6 million, or 25%, is principally attributable to
lower sales of used equipment partially offset by increased revenues from
financing activities and equipment rentals. The second quarter of fiscal 2001
benefited from a $16.8 million sale-leaseback of rental fleet assets.
Our domestic revenues for the second quarter of fiscal 2002 were $112.6 million,
down 33% from the comparable year-ago period sales of $168.8 million. The
decrease in our domestic revenues is primarily attributable to lower aerial work
platform sales in the weakened domestic economy and the sale-leaseback of rental
fleet assets during the second quarter of fiscal 2001. Revenues generated from
sales outside the United States for the second quarter of fiscal 2002 were $43.7
million, down 29% from the corresponding quarter of the previous year primarily
as a result of a softer European economy and a tight credit environment for many
of our European customers.
Our gross profit margin was 15.7% for the second quarter of fiscal 2002 compared
to the prior year quarter's 18.0%. The gross profit margin of our Machinery
segment was 11.8% for the second quarter of fiscal 2002 compared to 17.7% for
the second quarter of fiscal 2001. The gross profit margin of our Machinery
segment declined principally because of lower production volumes due to lower
sales and expenses that are not directly tied to additional production, such as
inventory reserves. During the quarter, all manufacturing facilities were
10
shut down for nearly half of the available production days. Partially offsetting
the decline in gross profit margin was the elimination of our discretionary
profit sharing contribution related to production personnel for calendar year
2001. The gross profit margin of our Services segment was 33.0% for the second
quarter of fiscal 2002 compared to 19.6% for the corresponding period in the
prior year. The gross profit margin of our Services segment increased primarily
because of the increased revenues from our higher margin financing activities
and the negative impact that the rental fleet sale-leaseback transaction had on
the second quarter of fiscal 2001.
Our selling, administrative and product development expenses as a percent of
sales were 12.4% for the current year second quarter compared to 12.3% for the
prior year second quarter. However, these expenses were actually $8.8 million
less in the second quarter of 2002 than in the second quarter of 2001. Our
Machinery segment's selling, administrative and product development expenses
decreased $6.1 million due primarily to lower bad debt provisions, the
elimination of our discretionary profit sharing contribution related to selling
and administrative personnel for calendar year 2001 and a reduction in the use
of outside contractors and consultants. Our Services segment's selling,
administrative and product development expenses decreased $227 thousand due
primarily to the same reasons as described for our Machinery segment. Our
general corporate selling, administrative and product development expenses
decreased $2.5 million primarily due to lower pension charges and advertising
expenses and the elimination of our discretionary profit sharing contribution
partially offset by an increase in legal fees.
We were affected by the early adoption of SFAS No. 142. As a result of this new
accounting standard, we no longer amortize goodwill. This led to the reduction
of $1.5 million in goodwill amortization during the second quarter of fiscal
2002 compared to the second quarter of fiscal 2001.
Our miscellaneous income (deductions) category included currency gains of $723
thousand in the second quarter of fiscal 2002 compared to gains of $1.9 million
in the corresponding prior year period. The decrease in currency gains is
primarily attributable to the strengthening of the U.S. dollar against the euro
and Australian dollar during the second quarter of fiscal 2002 compared to the
prior year second quarter.
Our effective tax rate in the second quarter of fiscal 2002 was 33% as compared
to 37% for the second quarter of fiscal 2001. Since the amortization of goodwill
is not deductible for tax purposes, the elimination of its amortization reduced
our effective tax rate.
11
RESULTS FOR THE FIRST SIX MONTHS OF FISCAL 2002 AND 2001
Our revenues for the first six months of fiscal 2002 were $312.5 million, down
32% from the $462.8 million in the comparable year-ago period. The decline in
consolidated revenues is principally due to a decline in machinery sales.
The following tables outline our revenues by product groups and geography (in
thousands) for the six months ended January 31, 2002 and 2001:
2002 2001
-------- --------
Machinery:
Aerial work platforms $200,218 $336,234
Material handlers 32,728 36,991
Excavators 27,175 28,068
Services:
After-sales service and support, including parts sales,
equipment rentals and used and reconditioned equipment sales 40,454 58,282
Financing products 6,355 447
Rentals 5,584 2,781
-------- --------
$312,514 $462,803
======== ========
2002 2001
-------- --------
United States $220,065 $351,906
Europe 73,009 85,922
Other 19,440 24,975
-------- --------
$312,514 $462,803
======== ========
The decrease in Machinery segment sales from $401.3 million to $260.1 million,
or 35%, is principally attributable to lower aerial work platform sales
resulting from a weakened economy and related factors affecting demand for these
products. Partially offsetting the decline in Machinery segment sales was the
reversal of previously recorded volume-related customer incentives. The decrease
in Services segment revenues from $61.5 million to $52.4 million, or 15%, is
principally attributable to lower sales of used equipment partially offset by
increased revenues from financing activities and equipment rentals. The first
six months of fiscal 2001 benefited from a $16.8 million sale-leaseback of
rental fleet assets.
Our domestic revenues for the first six months of fiscal 2002 were $220.1
million, down 37% from the comparable year-ago period revenues of $351.9
million. The decrease in our domestic revenues is primarily attributable to
lower aerial work platform sales in the weakened domestic economy and the
sale-leaseback of rental fleet assets during the second quarter of fiscal 2001.
Revenues generated from sales outside the United States for the first six months
of fiscal 2002 were $92.4 million, down 17% from the corresponding period of the
previous year. The decrease in our revenues generated from sales outside the
United States is primarily attributable to lower aerial work platform sales
primarily as a result of a softer European economy, a tight credit environment
for many of our European customers and the revenue recognized related to the
sale of our interest in a Brazilian joint venture in the first quarter of fiscal
2001.
Our gross profit margin was 17.5% for the first six months of fiscal 2002
compared to the prior year period's 20.3%. The gross profit margin of our
Machinery segment was 13.3% for the first six months of fiscal 2002 compared to
19.4% for the comparable prior six-month period. The decrease in the gross
profit margin of our Machinery segment was mainly due to the same factors as
discussed above in the second quarter comparison. The gross profit margin of our
Services segment was 38.4% for first six months of fiscal 2002 compared to
12
26.4% for the comparable prior six-month period. The increase in the gross
profit margin of our Services segment was mainly due to the same factors as
discussed above in the second quarter comparison.
Our selling, administrative and product development expenses as a percent of
sales were 13.6% for the first six months of fiscal 2002 compared to 11.7% for
the comparable prior six month period. However, these expenses were actually
$11.5 million less in the first six months of fiscal 2002 than in the
corresponding period of the previous year. Our Machinery segment's selling,
administrative and product development expenses decreased $6.0 million due
primarily to lower bad debt provisions, the elimination of our discretionary
profit sharing contribution related to selling and administrative personnel for
calendar year 2001, a reduction in the use of outside contractors and
consultants, and lower bonus costs partially offset by an increase in research
and development expenses. Our Services segment's selling, administrative and
product development expenses increased $804 thousand due primarily to higher
personnel and related costs associated with our subsidiary Access Financial
Solutions, Inc. partially offset by a reduction in the use of outside
contractors and consultants and the elimination of our discretionary profit
sharing contribution. Our general corporate selling, administrative and product
development expenses decreased $6.3 million primarily due to lower pension
charges, advertising expenses, bad debt provisions and personnel and related
costs and the elimination of our discretionary profit sharing contribution.
As discussed in the second quarter comparison, we were affected by the early
adoption of SFAS No. 142. As a result, our goodwill amortization decreased $3.0
million during the first six months of fiscal 2002 compared to the corresponding
period of the prior year.
Our miscellaneous income (deductions) category included currency gains of $455
thousand in the first six months of fiscal 2002 compared to currency losses of
$258 thousand in the corresponding prior year period. The increase in currency
gains is primarily attributable to the weakening of the U.S. dollar against the
Australian dollar and euro during the first six months of fiscal 2002 compared
to the corresponding period of the prior year. We note that in the first quarter
of fiscal 2001, we gained $1.0 million from the sale of our interest in a
Brazilian joint venture, which was included in the miscellaneous income
(deductions) category.
Our effective tax rate for the first six months of fiscal 2002 was 33% as
compared to 37% for the comparable period of fiscal 2001. The decrease in our
effective tax rate is primarily due to the elimination of the amortization of
goodwill as discussed in the second quarter comparison.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
Our accounting policies are more fully described in the Summary of Significant
Accounting Policies note included in our annual report on Form 10-K for the
fiscal year ended July 31, 2001. As disclosed in the Significant Accounting
Policies note, the preparation of financial statements in conformity with
generally accepted accounting principles 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 judgement. Actual results inevitably will
differ from those estimates, and such differences may be material to the
financial statements.
We believe the most significant accounting estimates inherent in the preparation
of our financial statements include estimates associated with the evaluation of
potential impairment of goodwill as well as those used in the determination of
liabilities related to product liability, warranty activity, taxation,
guarantees, environmental matters and other contingencies. In addition,
significant estimates form the basis for the residual value of our finance
receivables and the fair market value of our used equipment as well as our
reserves with respect to sales and volume-related customer incentives,
collectibility of accounts and finance receivables, inventory valuations, lower
of cost or market of used equipment, pension benefits, postretirement benefits
and certain benefits provided to current employees. The process of determining
significant estimates is fact specific and takes into account
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factors such as historical experience, current and expected economic
conditions, product mix, and in some cases, actuarial techniques and independent
third party studies. We regularly re-evaluate these significant factors and make
adjustments where facts and circumstances dictate.
FINANCIAL CONDITION
Cash flow from operating activities was $60.3 million for the first six months
of fiscal 2002 versus cash used of $130.7 million in the comparable period of
fiscal 2001. The increase in cash flow from operating activities in the first
six months of fiscal 2002 was primarily driven by a decrease in our inventory
investment due to the use of selected production adjustments and manpower
reductions, a decrease in receivables reflecting our lower sales volume and a
reduced investment in finance receivables compared to the prior six-month
period. Partially offsetting these benefits was a reduction in accounts payable
due to lower production levels and lower accrued expenses primarily reflecting
the elimination of the accruals related to the volume-related customer
incentives and the discretionary profit sharing contribution.
During the first six months of fiscal 2002, we used a net of $16.5 million of
cash for investing activities compared to cash provided from investing
activities of $4.9 million for last year's comparable period. Our increase in
cash usage was principally due to the rental fleet sale-leaseback transaction
and the sale of our interest in our Brazilian joint venture that occurred during
the first six months of fiscal 2001. We did not have any comparable transactions
during the first six months of fiscal 2002.
We used a net of $49.9 million of cash for financing activities for the first
six months of fiscal 2002 compared to cash received of $115.7 million for the
first six months of fiscal 2001. The decrease in cash provided from financing
activities largely resulted from lower borrowings under the Company's credit
facilities due to the working capital reductions discussed above. The financing
activities figure for the first six months of fiscal 2001 includes expenditures
incurred to repurchase 1.7 million shares of our capital stock at an aggregate
cost of $22.2 million. We did not repurchase any of our stock in the first six
months of fiscal 2002.
The following table provides a summary of our contractual obligations (in
thousands) at January 31, 2002:
Payments Due by Period
------------------------------------------------------------
Less than 1-3 4-5 After 5
Total 1 Year Years Years Years
-------- -------- -------- -------- -------
Long-term debt (a) (b) $226,675 $ 382 $223,244 $ 2,233 $ 816
Accounts receivable
securitization (b) (c) 18,100 18,100 -- -- --
Operating leases (c) 33,632 5,772 11,028 15,727 1,105
-------- -------- -------- -------- -------
Total contractual obligations $278,407 $ 24,254 $234,272 $ 17,960 $ 1,921
======== ======== ======== ======== =======
(a) Included in long-term debt are our two separate credit facilities with a
group of financial institutions that provide for an unsecured revolving
credit facility with an aggregate commitment of $350 million. 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 technical default of these covenants, the financial institutions
could call the loans. Depending on the size of the potential goodwill
impairment, we may need to negotiate adjustments to certain covenants.
(b) During February 2002, we terminated our accounts receivables securitization
and borrowed additional funds under our senior facilities to repurchase the
undivided interest in our pool of accounts receivable that had been sold to
the purchasers totaling $18.1 million.
(c) Off-balance sheet items.
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The following table provides a summary of our other commercial commitments (in
thousands) at January 31, 2002:
Amount of Commitment Expiration Per Period
------------------------------------------------
Total
Amounts Less than 1-3 4-5 Over 5
Committed 1 Year Years Years Years
---------- -------- -------- -------- --------
Lines of credit (a) $ 22,629 $ 22,629 $ -- $ -- $ --
Standby letters of credit 2,904 2,667 237 -- --
Guarantees (b) 89,753 4,379 2,420 69,524 13,430
-------- -------- -------- -------- --------
Total commercial commitments $115,286 $ 29,675 $ 2,657 $ 69,524 $ 13,430
======== ======== ======== ======== ========
(a) We have a $25 million secured bank revolving line of credit with a term of
one year, renewable annually. We also have $2.5 million in loan facilities
with a term of one year, renewable annually.
(b) We discuss our guarantee agreements in the note entitled Commitments and
Contingencies of the Notes to Condensed Consolidated Financial Statements
of this report.
As of January 31, 2002, we had unused credit lines totaling $132.4 million. In
order to meet our future cash requirements, we intend to use internally
generated funds and to borrow under our credit facilities. Although our senior
credit facilities do not mature until 2004, certain covenants in these
facilities require that customer financing activities conducted in our Services
segment be funded through other sources commencing on and after August 1, 2002.
Alternative sources may include syndications and/or securitizations of financial
assets originated and held by our subsidiary Access Financial Solutions, Inc. We
are currently examining financing alternatives for our Services segment as well
as possible amendments to our senior credit facilities and expect satisfactory
arrangements to be concluded during our third and fourth fiscal quarters.
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 generally accepted accounting principles. We modified our
definition of free cash flow during the first quarter of fiscal 2002 to include
changes in accounts receivable securitization and off-balance sheet debt.
We define free cash flow, a measure commonly employed by the financial
community, as:
(1) cash flow from operating activities less capital expenditures
including equipment held for rental, plus
(2) (a) proceeds from the disposal of assets, (b) unrealized currency
gains or losses and (c) changes in accounts receivable securitization
and off-balance sheet debt.
During the first six months of fiscal 2002, we had free cash flow of $85.9
million compared to negative free cash flow of $133.4 million for the
corresponding period in fiscal 2001. The change in free cash flow was
attributable principally to the same factors impacting cash flow described
above.
OUTLOOK
This Outlook section and other parts of this Management's Discussion and
Analysis contain forward-looking statements within the meaning of the federal
securities laws which are intended to be covered by the safe harbors created
thereby. Forward-looking statements are those statements that are based upon our
current plans and expectations as opposed to historical and current facts and
are often identified herein by use of words including but not limited to "may,"
"believe," "will," "project," "expect," "estimate," "anticipate," and "plan."
These statements are based upon estimates and assumptions made by our management
that, although
15
believed to be reasonable, are subject to numerous factors, risks and
uncertainties that could cause actual outcomes and results to be materially
different from those projected. Certain important factors that in some cases
have affected, and in the future could affect, our results of operations and
that could cause such future results of operations to differ are described
in "Cautionary Statements Pursuant to the Securities Litigation Reform Act"
which is an exhibit to this report. You are cautioned not to rely on such
forward-looking statements when evaluating the information contained in this
report. We undertake no obligation to publicly update or revise any
forward-looking statements.
Over the past several years, we have made progress in improving our
manufacturing processes and throughput capability, a by-product of which has
been the significant addition of capacity. When combined with our focus on core
activities and start-up of European assembly operations in our new Belgium
facility, these process improvements enable us to reduce our overhead without
sacrificing our ability to satisfy customer demands. As part of our ongoing
capacity rationalization plan, on February 22, 2002, we announced the closure of
our facility in Orrville, Ohio. Operations at this 338,740-square-foot facility
will be integrated into our McConnellsburg, Pennsylvania facility.
This capacity adjustment involves an estimated one-time pre-tax charge of $7.7
million to be taken in the fiscal third quarter with an expected payback period
of just over one year. Of the $7.7 million, cash charges of approximately $4.5
million are associated with the personnel reductions and plant closing, and
non-cash charges of $3.2 million reflect the write-down of idle facilities
associated with the closure. The estimated impact on third quarter earnings is
expected to be $.12 per diluted share.
In addition, we have modified our manufacturing model to correlate production
more closely with customer orders, thereby reducing our inventory requirements.
Based on this revised model, the economy remaining relatively stable and the
improving visibility of spring season orders, we expect positive cash flow in
the range of $125 to $150 million for the full fiscal year through a continued
focus on free cash flow and inventory reductions. Based on these same factors,
we expect revenues for the balance of the year to be relatively flat compared to
the second half of fiscal 2001 and diluted earnings per share for the full year
in a range of $.65 to $.75, excluding restructuring charges and goodwill
impairment.
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.
While we are exposed to changes in interest rates as a result of our outstanding
debt, we do not currently utilize any derivative financial instruments related
to our interest rate exposure. Total interest bearing liabilities at January 31,
2002 consisted of $244.9 million in variable rate borrowing, $18.1 million in
accounts receivable securitization and $4.4 million in fixed rate borrowing. At
the current level of variable rate borrowing, a hypothetical 10% increase in
interest rates would decrease pre-tax current year earnings by approximately
$1.0 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, 2001.
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INDEPENDENT ACCOUNTANTS' REVIEW REPORT
The Board of Directors
JLG Industries, Inc.
We have reviewed the accompanying condensed consolidated balance sheet of JLG
Industries, Inc. as of January 31, 2002, and the related condensed consolidated
statements of income and cash flows for the three- month and six-month periods
ended January 31, 2002 and 2001. 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, 2001, 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 10, 2001, except for the note
entitled "Bank Credit Lines and Long-term Debt" as to which the date is October
8, 2001, 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, 2001, 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 14, 2002
17
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:
10.1 JLG Industries, Inc. Executive Deferred Compensation Plan amended
and restated as of January 1, 2002
15 Letter re: Unaudited Interim Financial Information
99 Cautionary Statements Pursuant to the Securities Litigation
Reform Act
(b) We filed a Current Report on Form 8-K on November 16, 2001, which included
our Press Release dated as of November 15, 2001. The items reported on such
Form 8-K were Item 5. (Other Events) and Item 7. (Financial Statements and
Exhibits).
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized who is also signing in his capacity as
principal financial officer.
JLG INDUSTRIES, INC.
(Registrant)
/s/ James H. Woodward, Jr.
--------------------------------
James H. Woodward, Jr.
Senior Vice President and
Chief Financial Officer
18