UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
(Mark One)
[X] Quarterly Report Pursuant to Section 13 or 15 (d) of the Securities Exchange
Act of 1934 For the quarterly period ended October 31, 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 November 22, 2002 was
42,970,960.
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................................... 17
Item 3. Quantitative and Qualitative Disclosures about
Market Risk........................................................... 24
Item 4. Controls and Procedures.................................................. 25
Independent Accountants' Review Report.............................................. 26
PART II
Item 4. Submission of Matters to a Vote of Security Holders...................... 27
Item 6. Exhibits and Reports on Form 8-K......................................... 27
Signatures ......................................................................... 28
PART I FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
JLG INDUSTRIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except per share data) October 31, July 31,
2002 2002
----------- ---------
(Unaudited)
ASSETS
Current assets
Cash and cash equivalents $ 10,181 $ 6,205
Accounts receivable - net 200,329 227,809
Finance receivables - net 18,276 27,529
Pledged finance receivables 35,391 34,985
Inventories 178,016 165,536
Other current assets 31,675 31,042
--------- ---------
Total current assets 473,868 493,106
Property, plant and equipment - net 82,057 84,370
Equipment held for rental - net 21,552 20,979
Finance receivables, less current portion 81,490 45,412
Pledged finance receivables, less current portion 51,309 53,703
Goodwill - net 28,791 28,791
Other assets 55,870 51,880
--------- ---------
$ 794,937 $ 778,241
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Short-term debt $ 25,375 $ 14,427
Current portion of limited recourse debt 33,862 34,850
Accounts payable 96,283 129,317
Accrued expenses 74,755 83,309
--------- ---------
Total current liabilities 230,275 261,903
Long-term debt, less current portion 228,563 177,331
Limited recourse debt, less current portion 49,326 52,721
Accrued post-retirement benefits 25,411 24,989
Other long-term liabilities 11,150 10,807
Provisions for contingencies 14,315 14,448
Shareholders' equity
Capital stock:
Authorized shares: 100,000 at $.20 par
Issued and outstanding shares: 42,971; fiscal 2002 - 42,728 8,594 8,546
Additional paid-in capital 20,594 18,846
Retained earnings 217,072 216,957
Unearned compensation (3,157) (1,649)
Accumulated other comprehensive income (7,206) (6,658)
--------- ---------
Total shareholders' equity 235,897 236,042
--------- ---------
$ 794,937 $ 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
October 31,
2002 2001
--------- ---------
Revenues
Net sales $ 154,388 $ 150,206
Financial products 4,390 3,149
Rentals 1,709 2,807
--------- ---------
160,487 156,162
Cost of sales 131,371 126,102
--------- ---------
Gross profit 29,116 30,060
Selling and administrative expenses 17,485 19,105
Product development expenses 3,901 4,003
--------- ---------
Income from operations 7,730 6,952
Interest expense (5,504) (4,338)
Miscellaneous, net (1,742) 917
--------- ---------
Income before taxes and cumulative effect of change in
accounting principle 484 3,531
Income tax provision 155 1,165
--------- ---------
Income before cumulative effect of change in
accounting principle 329 2,366
Cumulative effect of change in accounting principle -- (114,470)
--------- ---------
Net income (loss) $ 329 $(112,104)
========= =========
Earnings (loss) per common share:
Earnings per common share before cumulative effect
of change in accounting principle $ .01 $ .06
Cumulative effect of change in accounting principle -- (2.74)
--------- ---------
Earnings (loss) per common share $ .01 $ (2.68)
========= =========
Earnings (loss) per common share - assuming dilution:
Earnings per common share - assuming dilution before
cumulative effect of change in accounting principle
$ .01 $ .06
Cumulative effect of change in accounting principle -- (2.70)
--------- ---------
Earnings (loss) per common share - assuming dilution
$ .01 $ (2.64)
========= =========
Cash dividends per share $ .005 $ .01
========= =========
Weighted average shares outstanding 42,541 41,814
========= =========
Weighted average shares outstanding - assuming dilution
42,853 42,413
========= =========
The accompanying notes are an integral part of these financial statements.
2
JLG INDUSTRIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(Unaudited)
Three Months Ended
October 31,
2002 2001
--------- ---------
OPERATIONS
Net income (loss) $ 329 $(112,104)
Adjustments to reconcile net income to cash flow from
operating activities:
Loss (gain) on sale of property, plant and equipment 3 (18)
Gain on sale of equipment held for rental (697) (1,409)
Non-cash charges and credits:
Cumulative effect of change in accounting principle -- 114,470
Depreciation and amortization 5,268 5,096
Other 2,599 1,871
Changes in selected working capital items:
Accounts receivable 27,274 38,634
Inventories (12,266) 6,612
Accounts payable (33,010) 6,832
Other operating assets and liabilities (9,692) (7,583)
Changes in finance receivables (27,352) 3,468
Changes in pledged finance receivables (2,395) --
Changes in other assets and liabilities (3,592) (1,110)
--------- ---------
Cash flow from operating activities (53,531) 54,759
INVESTMENTS
Purchases of property, plant and equipment (1,650) (3,293)
Proceeds from the sale of property, plant and equipment 3 111
Purchases of equipment held for rental (3,624) (10,402)
Proceeds from the sale of equipment held for rental 2,505 2,513
Other (57) --
--------- ---------
Cash flow from investing activities (2,823) (11,071)
FINANCING
Net increase (decrease) in short-term debt 11,024 (20,374)
Issuance of long-term debt 93,000 110,000
Repayment of long-term debt (43,202) (133,578)
Payment of dividends (214) (421)
Exercise of stock options and issuance of restricted awards 275 249
--------- ---------
Cash flow from financing activities 60,883 (44,124)
CURRENCY ADJUSTMENTS
Effect of exchange rate changes on cash (553) 391
--------- ---------
CASH
Net change in cash and cash equivalents 3,976 (45)
Beginning balance 6,205 9,254
--------- ---------
Ending balance $ 10,181 $ 9,209
========= =========
The accompanying notes are an integral part of these financial statements.
3
JLG INDUSTRIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS OCTOBER 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 three-month period ended October 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 the consolidated financial
statements and notes thereto included in our annual report on Form 10-K for the
fiscal year ended July 31, 2002.
RECLASSIFICATIONS
Where appropriate, we have reclassified certain amounts in fiscal 2002 to
conform to the fiscal 2003 presentation.
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
an 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.
In July 2002, the FASB issued 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. We do not expect
adoption of this standard 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 October 31, 2002, must
necessarily be based on our estimate of expected fiscal year-end inventory
levels and costs.
Inventories consist of the following:
October 31, July 31,
2002 2002
-------- --------
Finished goods $116,137 $104,680
Raw materials and work in process 66,989 65,579
-------- --------
183,126 170,259
Less LIFO provision 5,110 4,723
-------- --------
$178,016 $165,536
======== ========
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:
October 31, July 31,
2002 2002
--------- ---------
Gross finance receivables $ 180,498 $ 155,786
Estimated residual value 48,869 44,608
--------- ---------
229,367 200,394
Unearned income (39,994) (36,384)
--------- ---------
Net finance receivables 189,373 164,010
Provision for losses (2,907) (2,381)
--------- ---------
$ 186,466 $ 161,629
========= =========
Of the finance receivables balance at October 31, 2002, $86.7 million are
pledged receivables resulting from the sale of finance receivables through
limited recourse and non-recourse monetization transactions during fiscal 2002.
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 Consolidated Balance Sheets. Under terms of the
limited recourse agreements, the purchaser may seek recourse from us if a
finance receivable contract remains unpaid for 60 days or more. We are obligated
to either make payments in the customer's place, substitute for the contract, or
buy back the contract. However, the underlying collateral mitigates a
significant portion of the risk associated with these transactions. The maximum
loss exposure associated with these limited recourse agreements is $6.0 million
as of October 31, 2002. Based on our estimates, we believe that no losses are
probable and have not recorded any reserves.
5
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 October 31:
2003 $ 39,927
2004 38,336
2005 37,270
2006 34,838
2007 22,510
Thereafter 7,617
Residual value in equipment at lease end 48,869
Less: unearned finance income (39,994)
---------
Net investment in leases $ 189,373
=========
Provisions for losses on finance receivables are charged to income in amounts
sufficient to maintain the allowance at a level considered adequate to cover
losses in the existing receivable portfolio.
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.
There was no change in the carrying amount of goodwill during the three months
ended October 31, 2002.
6
BASIC AND DILUTED EARNINGS PER SHARE
This table presents our computation of basic and diluted earnings per share for
the three months ended October 31:
2002 2001
------- -----------
Income before cumulative effect of change in accounting principle $ 329 $ 2,366
Cumulative effect of change in accounting principle -- (114,470)
------- -----------
Net income (loss) $ 329 $ (112,104)
======= ===========
Denominator for basic earnings per share --
weighted average shares 42,541 41,814
Effect of dilutive securities - employee stock options and
unvested restricted shares 312 599
------- -----------
Denominator for diluted earnings per share --
weighted average shares adjusted for
dilutive securities 42,853 42,413
======= ===========
Earnings per common share before cumulative effect of change in
accounting principle $ .01 $ .06
Cumulative effect of change in accounting principle -- (2.74)
------- -----------
Earnings (loss) per common share $ .01 $ (2.68)
======= ===========
Earnings per common share - assuming dilution before cumulative effect
of change in accounting principle $ .01 $ .06
Cumulative effect of change in accounting principle -- (2.70)
------- -----------
Earnings (loss) per common share - assuming dilution $ .01 $ (2.64)
======= ===========
During the quarter ended October 31, 2002, options to purchase 4.0 million
shares of capital stock at a range of $8.93 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 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, including the
operations of our wholly owned subsidiary, Access Financial Solutions, Inc. We
evaluate performance of the Machinery and Equipment Services segments and
allocate resources based on operating profit before interest, miscellaneous
income/expense and income taxes. We evaluate performance of the Access Financial
Solutions segment and allocate resources based on its operating profit less
interest expense. Intersegment sales and transfers are not significant. The
accounting policies of the reportable segments are the same as those described
in the summary of significant accounting policies.
7
Our business segment information consisted of the following for the three months
ended October 31:
2002 2001
--------- ---------
Revenues:
Machinery $ 124,546 $ 129,038
Equipment Services 31,371 23,467
Access Financial Solutions 4,570 3,657
--------- ---------
$ 160,487 $ 156,162
========= =========
Segment profit (loss):
Machinery $ 4,979 $ 3,021
Equipment Services 5,254 7,710
Access Financial Solutions 1,098 1,420
General corporate (5,736) (6,300)
--------- ---------
$ 5,595 $ 5,851
========= =========
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 the
three months ended October 31:
2002 2001
-------- --------
United States $117,350 $107,422
Europe 31,248 39,086
Other 11,889 9,654
-------- --------
$160,487 $156,162
======== ========
8
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 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
For the Three Months Ended October 31:
2002 2001
--------- ---------
Revenues:
Net sales $ 154,388 $ 150,206
Rentals 1,529 2,299
--------- ---------
155,917 152,505
Costs of sales 131,194 125,839
--------- ---------
Gross profit 24,723 26,666
Selling, administrative and product development expenses 20,225 22,235
--------- ---------
Income from operations 4,498 4,431
Interest expense (3,370) (3,237)
Miscellaneous, net (1,742) 917
--------- ---------
(Loss) income before taxes and cumulative effect of change in
accounting principle (614) 2,111
Income tax provision 196 (696)
Equity in income of Access Financial Solutions 747 951
--------- ---------
Income before cumulative effect of change in accounting principle 329 2,366
Cumulative effect of change in accounting principle -- (114,470)
--------- ---------
Net income (loss) $ 329 $(112,104)
========= =========
9
CONDENSED STATEMENTS OF INCOME
Financial Services
Access Financial Solutions
For the Three Months Ended October 31:
2002 2001
------ ------
Revenues:
Financial products $4,390 $3,149
Rentals 180 508
------ ------
4,570 3,657
Operating expenses:
Administrative and other expenses 1,338 1,136
Interest expense 2,134 1,101
------ ------
Total operating expenses 3,472 2,237
------ ------
Income from operations 1,098 1,420
Income tax provision 351 469
------ ------
Net income $ 747 $ 951
====== ======
CONDENSED BALANCE SHEETS
Equipment Operations with Access Financial Solutions on the Equity Basis
October 31, July 31,
2002 2002
-------- --------
ASSETS
Current Assets
Cash and cash equivalents $ 10,181 $ 6,205
Accounts receivable, net 173,166 204,779
Inventories 178,016 165,536
Other current assets 31,675 31,042
-------- --------
Total current assets 393,038 407,562
Property, plant and equipment, net 82,052 84,354
Equipment held for rental, net 18,362 17,576
Goodwill, net 28,791 28,791
Investment in Access Financial Solutions 34,150 33,403
Receivable from Access Financial Solutions 97,698 64,106
Other assets 55,870 52,805
-------- --------
$709,961 $688,597
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Short-term debt $ 25,375 $ 14,427
Accounts payable 96,283 129,317
Accrued expenses 72,967 81,236
-------- --------
Total current liabilities 194,625 224,980
Long-term debt 228,563 177,331
Accrued post-retirement benefit 25,411 24,989
Other long-term liabilities 11,150 10,807
Provisions for contingencies 14,315 14,448
Shareholders' equity 235,897 236,042
-------- --------
$709,961 $688,597
======== ========
10
CONDENSED BALANCE SHEETS
Financial Services
Access Financial Solutions
October 31, July 31,
2002 2002
-------- --------
ASSETS
Current Assets
Accounts receivable, net $ 27,163 $ 23,030
Finance receivables, net 18,276 27,529
Pledged finance receivables 35,391 34,985
-------- --------
Total current assets 80,830 85,544
Property, plant and equipment, net 5 16
Finance receivables, less current portion 81,490 45,412
Pledged finance receivables, less current portion 51,309 53,703
Other assets 3,190 2,478
-------- --------
$216,824 $187,153
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Current portion of limited recourse debt $ 33,862 $ 34,850
Accrued expenses 1,788 2,073
-------- --------
Total current liabilities 35,650 36,923
Limited recourse debt, less current portion 49,326 52,721
Payable to JLG Industries, Inc. 97,698 64,106
Shareholders' equity 34,150 33,403
-------- --------
$216,824 $187,153
======== ========
CONDENSED STATEMENTS OF CASH FLOWS
Equipment Operations with Access Financial Solutions on the Equity Basis
For the Three Months Ended October 31:
2002 2001
-------- --------
Cash flow from operating activities $(19,201) $ 57,291
Cash flow from investing activities (3,561) (10,779)
Cash flow from financing activities 27,291 (46,948)
Effect of exchange rate changes on cash (553) 391
-------- --------
Net change in cash and cash equivalents 3,976 (45)
Beginning balance 6,205 9,254
-------- --------
Ending balance $ 10,181 $ 9,209
======== ========
11
CONDENSED STATEMENTS OF CASH FLOWS
Financial Services
Access Financial Solutions
For the Three Months Ended October 31:
2002 2001
-------- --------
Cash flow from operating activities $(33,583) $ (1,581)
Cash flow from investing activities (9) (1,243)
Cash flow from financing activities 33,592 2,824
-------- --------
Net change in cash and cash equivalents -- --
Beginning balance -- --
-------- --------
Ending balance $ -- $ --
======== ========
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 the three
months ended October 31:
2002 2001
--------- ---------
Net income (loss) $ 329 $(112,104)
Aggregate translation adjustment (548) 96
--------- ---------
$ (219) $(112,008)
========= =========
RESTRUCTURING COSTS
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 and the closure will result in a
reduction of approximately 170 people. As a result, we anticipated incurring a
pre-tax charge of $7.7 million, consisting of $6.1 million in restructuring
costs associated with 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
McConnellsburg.
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:
12
Other Restructuring
Employee Termination Impairment Restructuring Related
Reductions Benefits of Assets Costs Total Charges
---------- ----------- ---------- ------------- ------- -------------
Total restructuring charge 170 $ 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)
Fiscal 2002 employees terminated
132 -- -- -- -- --
------- ------- ------- ------- ------- -------
Balance at July 31, 2002 38 985 -- 272 1,257 1,034
Fiscal 2003 utilization of
reserves - cash -- (668) -- 40 (628) (163)
Fiscal 2003 employees terminated
21 -- -- -- -- --
------- ------- ------- ------- ------- -------
Balance at October 31, 2002 17 $ 317 $ -- $ 312 $ 629 $ 871
======= ======= ======= ======= ======= =======
At October 31, 2002, 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.
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 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 $18.1 million and $18.8 million at October
31, 2002 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 October 31, 2002 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 October 31, 2002, we are a party to multiple agreements whereby we guarantee
$100.2 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 October 31, 2002, we had a $2.8 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.
13
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 October 31, 2002
Guarantor Non-Guarantor Other and Consolidated
Parent Subsidiaries Subsidiaries Eliminations Total
--------- ------------ ------------- ------------ ------------
ASSETS
Accounts receivable - net $ 162,062 $ 22,110 $ 37,065 $ (20,908) $ 200,329
Finance receivables - net -- 97,153 -- 2,613 99,766
Pledged finance receivables -- 86,700 -- -- 86,700
Inventories 124,095 56,232 50,678 (52,989) 178,016
Property, plant and equipment - net 27,921 44,876 9,700 (440) 82,057
Equipment held for rental - net 1,337 16,935 3,280 -- 21,552
Investment in subsidiaries 248,114 -- 2,674 (250,788) --
Other assets 75,252 36,343 13,809 1,113 126,517
--------- --------- --------- --------- ---------
$ 638,781 $ 360,349 $ 117,206 $(321,399) $ 794,937
========= ========= ========= ========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Accounts payable and accrued expenses $ 117,892 $ 24,648 $ 33,681 $ (5,183) $ 171,038
Long-term debt, less current portion 228,552 11 -- -- 228,563
Limited recourse debt,
less current portion -- 49,326 -- -- 49,326
Other liabilities (165,464) 291,320 41,774 (57,517) 110,113
--------- --------- --------- --------- ---------
Total liabilities 180,980 365,305 75,455 (62,700) 559,040
--------- --------- --------- --------- ---------
Shareholders' equity 457,801 (4,956) 41,751 (258,699) 235,897
--------- --------- --------- --------- ---------
$ 638,781 $ 360,349 $ 117,206 $(321,399) $ 794,937
========= ========= ========= ========= =========
14
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 Three Months Ended October 31, 2002
Guarantor Non-Guarantor Other and Consolidated
Parent Subsidiaries Subsidiaries Eliminations Total
--------- ------------ ------------- ------------ ------------
Revenues $138,255 $ 27,940 $ 22,305 $(28,013) $160,487
Gross profit (loss) 38,145 (4,167) (552) (4,310) 29,116
Other expenses (income) 21,688 5,020 669 1,410 28,787
Net income (loss) $ 16,457 $ (9,187) $ (1,221) $ (5,720) $ 329
15
CONDENSED CONSOLIDATED STATEMENT OF INCOME
For the Three Months Ended October 31, 2001
Guarantor Non-Guarantor Other and Consolidated
Parent Subsidiaries Subsidiaries Eliminations Total
--------- ------------ ------------- ------------ ------------
Revenues $ 111,974 $ 42,051 $ 14,878 $ (12,741) $ 156,162
Gross profit (loss) 29,435 (575) 1,275 (75) 30,060
Other expenses (income) 25,469 114,795 1,779 121 142,164
Net income (loss) $ 3,966 $(115,370) $ (504) $ (196) $(112,104)
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
For the Three Months Ended October 31, 2002
Guarantor Non-Guarantor Other and Consolidated
Parent Subsidiaries Subsidiaries Eliminations Total
--------- ------------ ------------- ------------ ------------
Cash flow from operating activities $(75,772) $ 20,685 $ 768 $ 788 $(53,531)
Cash flow from investing activities (986) (1,052) (667) (118) (2,823)
Cash flow from financing activities 60,936 (53) 15 (15) 60,883
Effect of exchange rate changes on cash (311) -- (443) 201 (553)
-------- -------- -------- -------- --------
Net change in cash and cash equivalents (16,133) 19,580 (327) 856 3,976
Beginning balance 22,949 (19,545) 3,093 (292) 6,205
-------- -------- -------- -------- --------
Ending balance $ 6,816 $ 35 $ 2,766 $ 564 $ 10,181
======== ======== ======== ======== ========
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
For the Three Months Ended October 31, 2001
Guarantor Non-Guarantor Other and Consolidated
Parent Subsidiaries Subsidiaries Eliminations Total
--------- ------------ ------------- ------------ ------------
Cash flow from operating activities $ 81,322 $(29,349) $ 3,566 $ (780) $ 54,759
Cash flow from investing activities (31,321) (9,216) (433) 29,899 (11,071)
Cash flow from financing activities (42,804) 29,923 (1,243) (30,000) (44,124)
Effect of exchange rate changes on cash 26 -- 413 (48) 391
-------- -------- -------- -------- --------
Net change in cash and cash equivalents 7,223 (8,642) 2,303 (929) (45)
Beginning balance 6,034 (1,714) 4,636 298 9,254
-------- -------- -------- -------- --------
Ending balance $ 13,257 $(10,356) $ 6,939 $ (631) $ 9,209
======== ======== ======== ======== ========
16
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
We reported net income of $0.3 million, or $.01 per share on a diluted basis,
for the first quarter of fiscal 2003, compared to net income, excluding 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 $2.4 million, or $.06 per share on a diluted basis,
for the first quarter of fiscal 2002.
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 FIRST QUARTERS OF FISCAL 2003 AND 2002
Our revenues for the first quarter of fiscal 2003 were $160.5 million, up 3%
from the $156.2 million in the comparable year-ago period. The following tables
outline our revenues by segment, products and geography (in thousands) for the
three months ended:
October 31,
2002 2001
-------- --------
Segment:
Machinery $124,546 $129,038
Equipment Services 31,371 23,467
Access Financial Solutions (a) 4,570 3,657
-------- --------
$160,487 $156,162
======== ========
Product:
Aerial work platforms $ 91,313 $102,367
Telehandlers 27,602 14,104
Excavators 5,631 12,567
After-sales service and support, including parts sales, and used and
reconditioned equipment sales 29,842 21,168
Financial products (a) 4,390 3,149
Rentals 1,709 2,807
-------- --------
$160,487 $156,162
======== ========
Geographic:
United States $117,350 $107,422
Europe 31,248 39,086
Other 11,889 9,654
-------- --------
$160,487 $156,162
======== ========
(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 $129.0 million to $124.5
million, or 4%, 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. 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
Machinery segment revenues was partially offset by increased telehandler sales
reflecting share gains
17
from new products, particularly the all-wheel steer and European-design product
offerings and stronger aerial work platform sales in other international
regions. The increase in Equipment Services segment revenues from $23.5 million
to $31.4 million, or 34%, was principally attributable to increased sales of
used equipment and parts. The increase in Access Financial Solutions segment
revenues from $3.7 million to $4.6 million, or 25%, was principally attributable
to income received on pledged finance receivables and passed on to syndication
partners in the form of interest expense on limited recourse debt.
Our domestic revenues for the first quarter of fiscal 2003 were $117.4 million,
up 9% from the comparable year-ago period revenues of $107.4 million. The
increase in our domestic revenues is primarily attributable to higher
telehandler sales reflecting share gains from new products. Revenues generated
from sales outside the United States for the first quarter of fiscal 2003 were
$43.1 million, down 11% from the comparable year-ago period revenues of $48.7
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 other international regions and
increased telehandler sales in Europe.
Our gross profit margin was 18.1% for the first quarter of fiscal 2003 compared
to the prior year quarter's 19.2%. The decline was primarily attributable to
lower margins in our Equipment Services segment offset in part by higher margins
in our Machinery and Access Financial Solutions segments. The gross profit
margin of our Machinery segment was 14.9% for the first quarter of fiscal 2003
compared to 13.8% for the first quarter of fiscal 2002. The increase is
principally due to a more profitable product mix mainly as a result of new
product introductions 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 plant and the
transfer of the telehandler product line to our McConnellsburg facility. These
variances were generated during the fourth quarter of fiscal 2002 and are
currently flowing through cost of sales as we sell the inventory produced during
that quarter. The gross profit margin of our Equipment Services segment was
19.8% for the first quarter of fiscal 2003 compared to 37.8% for the
corresponding period in the prior year. The decrease is primarily attributable
to higher used equipment sales, primarily trade-ins of older non-JLG brand
machines, which have lower margins and the deferred profit recognized during the
first quarter of fiscal 2002 from a one-time rental fleet sale-leaseback
transaction. The gross profit margin of our Access Financial Solutions segment
was 96.1% for the first quarter of fiscal 2003 compared to 92.8% for the
corresponding period in the prior year. The increase is primarily because of
increased financial product revenues during the first 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 13.3% for the current year first quarter compared to 14.8% for the
prior year first quarter. In dollar terms, these expenses were $1.7 million
lower in the first quarter of fiscal 2003 than in the first quarter of fiscal
2002. Our Machinery segment's selling, administrative and product development
expenses decreased $1.2 million due primarily to our cost reduction initiatives,
which was partially offset by increased bad debt provisions for specific
reserves related to certain customers. Our Equipment Services segment's selling
and administrative expenses decreased $0.2 million due primarily to lower
payroll and related costs, which was partially offset by an increase in contract
services. Our Access Financial Solutions segment's selling and administrative
expenses increased $0.3 million due primarily to an increase in bad debt
provisions reflecting higher levels of investment in finance receivables. Our
general corporate selling, administrative and product development expenses
decreased $0.6 million primarily due to reductions in bad debt provisions,
computer hardware and software costs, and depreciation expense, which was
partially offset by an increase in rent expense.
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, and the closure will result in a
reduction of approximately 170 people. As a result, we anticipated incurring a
pre-tax charge of $7.7 million, consisting of $6.1 million in
18
restructuring costs associated with 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
McConnellsburg.
Through the first quarter of fiscal 2003, we incurred $6.9 million of the
pre-tax charge discussed above, 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. We reported $6.1 million in restructuring costs
and $0.6 million in cost of sales during the third and fourth quarters of fiscal
2002 and $0.2 million in cost of sales during the first quarter of fiscal 2003.
During the first quarter of fiscal 2003, we paid and charged $0.6 million of
termination benefits and lease termination costs against the accrued liability.
The increase in interest expense of $1.2 million for the first 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 offset by lower debt levels and short-term rates.
Our miscellaneous income (deductions) category included currency losses of $2.4
million in the first quarter of fiscal 2003 compared to losses of $0.3 million
in the corresponding prior year period. The increase in currency losses is
primarily attributable to the strengthening of the U.S. dollar against the Euro
during the first quarter of fiscal 2003 compared to the weakening of the U.S.
dollar against the Euro and Australian dollar during the first quarter of fiscal
2002.
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 have identified the following accounting policies as critical to our business
operation and the understanding of our results of operations and financial
position.
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
19
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.
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.
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.
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 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 quarter of fiscal 2003, approximately 1% 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
20
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 $53.5 million for the first quarter
of fiscal 2003 compared to cash generated of $54.8 million for the first quarter
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 59 days at October 31, 2002 compared to 67 days at July
31, 2002 and increased inventory because sales for the quarter came in lower
than we anticipated. Also contributing to the decrease in cash generated during
the first quarter of fiscal 2003, were increased finance receivables. No
monetization transactions were completed during the first quarter; however,
these activities continue to be on track for completion in subsequent quarters.
Investing activities during the first quarter of fiscal 2003 used $2.8 million
of cash compared to $11.1 million used for last year's first quarter. The
decrease in cash usage was principally due to higher expenditures for equipment
held for rental for the prior year first quarter.
Financing activities provided cash of $60.9 million for the first quarter of
fiscal 2003 compared to $44.1 million used for the first quarter 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.
The following table provides a summary of our contractual obligations (in
thousands) at October 31, 2002:
Payments Due by Period
------------------------------------------------
Less than After 5
Total 1 Year 1-3 Years 4-5 Years Years
-------- -------- --------- --------- --------
Short and long-term debt (a) $253,938 $ 25,375 $ 50,299 $ 278 $177,986
Limited recourse debt 83,188 33,862 29,339 14,635 5,352
Operating leases (b) 29,959 5,873 10,780 10,609 2,697
-------- -------- -------- -------- --------
Total contractual obligations $367,085 $ 65,110 $ 90,418 $ 25,522 $186,035
======== ======== ======== ======== ========
(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.
21
The following table provides a summary of our other commercial commitments (in
thousands) at October 31, 2002:
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 $ 4,527 $ 4,527 $ -- $ -- $ --
Guarantees (a) 100,168 459 20,053 56,941 22,715
-------- -------- -------- -------- --------
Total commercial commitments $104,695 $ 4,986 $ 20,053 $ 56,941 $ 22,715
======== ======== ======== ======== ========
(a) We discuss our guarantee agreements in the note entitled "Commitments and
Contingencies" to the 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, accounts receivables securitizations 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:
October 31, July 31,
2002 2002
-------- --------
Total debt $337,126 $279,329
Accounts receivable securitization -- --
Rental fleet sale/leaseback 4,506 5,582
Equipment sale/leaseback 7,364 7,749
-------- --------
Gross debt 348,996 292,660
Less cash 10,181 6,205
Less limited and non-recourse debt 83,188 87,571
-------- --------
Net debt $255,627 $198,884
======== ========
As of October 31, 2002, we had unused credit lines totaling $200 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.
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. 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 fiscal
2002, we monetized $101.9 million 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.
22
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 three months of fiscal 2003, we had negative free cash flow of
$54.4 million compared to free cash flow of $56.6 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 three months ended:
October 31,
2002 2001
-------- --------
Cash flow from operating activities $(53,531) $ 54,759
Cash flow from investing activities (2,823) (11,071)
Unrealized currency (gains) losses 2,509 48
Changes in accounts receivable securitization, pledged
receivables monetization and off-balance sheet debt (a) (527) 12,816
-------- --------
Free cash flow $(54,372) $ 56,552
======== ========
(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.
As discussed in the note entitled "Commitments and Contingencies" to the Notes
to Condensed Consolidated Financial Statements of this report, we are a party to
multiple agreements whereby we guarantee $100.2 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.
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.
United States economic activity in the manufacturing sector declined in October
for the second consecutive month, as the overall economy grew for the 12th
consecutive month. Low manufacturing capacity utilizations, weak corporate
profits and continued economic uncertainty suggest that a full economic recovery
in capital spending will
23
take time to materialize. Terrorism and potential military action continue to
add to economic uncertainty. The September data for non-residential construction
spending remains negative and declined almost 17% from year-ago levels.
Additionally, the United States economic climate continues to impact demand in
other geographic regions, primarily in Europe. Several major global economies
lack domestic momentum and are themselves waiting on a United States-led
recovery to fuel demand. Trade disputes between the United States and the
European Union may have adverse implications for our product costs.
With few positive signs of recovery on the horizon, we now expect full year
sales to be similar to last year. Overall, we expect weaker aerial work platform
sales offset by higher sales of telehandler products, service and support, and
used equipment.
End-user demand for access equipment continues to be strong. Rental companies
report that their access business remains one of their most profitable segments,
with utilization rates trending at seasonally normal levels, however, at low
rental rates due to the reduced level of non-residential construction. As we
continue to position ourselves for the eventual upturn in the industry, our key
strategic initiatives are to improve operations, to capitalize on growth
opportunities, and to manage for cash. We are continuing to focus on improving
manufacturing margins by aggressive reductions in product costs and additional
changes in our manufacturing operations.
As the first quarter results show, with our expanded product lines telehandlers
offer a strong growth opportunity, both in North America and in Europe. And, as
the average age of aerial equipment in rental fleets rises, so too does the
opportunity for fleet refreshment. We will continue to look for opportunistic
acquisitions to grow or complement our access products or to divest non-core
products.
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 October 31, 2002 consisted of $172.3 million in variable-rate
borrowing and $164.8 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.
24
ITEM 4. CONTROLS AND PROCEDURES
DISCLOSURE CONTROLS AND PROCEDURES
Our Chief Executive Officer and Chief Financial Officer have evaluated our
disclosure controls and procedures, as defined in the rules of the Securities
and Exchange Commission, within 90 days of the filing date of this report and
have determined that such controls and procedures were effective in ensuring
that material information relating to us and our consolidated subsidiaries was
made known to them during the period covered by this report.
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.
25
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 October 31, 2002, and the related condensed consolidated
statements of income and cash flows for the three-month periods ended October
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, 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
November 13, 2002
26
PART II OTHER INFORMATION
ITEMS 1 - 3 AND 5
None/not applicable.
ITEM 4
We held our Annual Meeting of Shareholders on November 21, 2002. We solicited
proxies for the election of eight directors and for ratification of the
appointment of Ernst & Young LLP as our independent auditors for the 2003 fiscal
year. Of the 42,916,960 shares of capital stock outstanding on the record date,
38,396,420, or 89.4%, were voted in person or by proxy at the meeting date.
The tabulated results are set forth below:
Election of directors
For Against
--- -------
R. V. Armes 36,675,019 1,721,401
G. R. Kempton 36,703,020 1,693,400
W. M. Lasky 37,511,391 885,029
J. A. Mezera 36,664,389 1,732,031
S. Rabinowitz 36,682,000 1,714,420
R. C. Stark 36,675,301 1,721,119
T. C. Wajnert 37,750,187 646,233
C. O. Wood, III 36,634,398 1,762,022
Ratification of the appointment of Ernst & Young LLP as independent auditors for
the 2003 fiscal year.
For Against Abstain
--- ------- -------
36,569,339 1,765,983 61,098
ITEM 6 -- EXHIBITS AND REPORTS ON FORM 8-K
(a) The following exhibits are included herein:
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 September 23, 2002, which included
our Press Release dated September 23, 2002. The items reported on such Form
8-K were Item 5. (Other Events) and Item 7. (Financial Statements and
Exhibits).
27
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: November 26, 2002 /s/ James H. Woodward, Jr.
--------------------------------------------
James H. Woodward, Jr.
Executive Vice President and
Chief Financial Officer
(Principal Financial Officer)
Date: November 26, 2002 /s/ John W. Cook
--------------------------------------------
John W. Cook
Chief Accounting Officer
(Chief Accounting Officer)
28
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: November 26, 2002
/s/ William M. Lasky
--------------------
William M. Lasky
Chairman, President and Chief Executive Officer
29
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: November 26, 2002
/s/ James H. Woodward, Jr.
--------------------------
James H. Woodward, Jr.
Executive Vice President and Chief Financial Officer
30