-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Ccbh7jN4pcletYwwGN+ZUEUjqguVWLBoOJT8FqiuOdPuoqGujtfpLJsP19JwjVu9 QIaJsfbHb8UiRDW5vc9LvA== 0000950152-02-008909.txt : 20021126 0000950152-02-008909.hdr.sgml : 20021126 20021126165532 ACCESSION NUMBER: 0000950152-02-008909 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 20021031 FILED AS OF DATE: 20021126 FILER: COMPANY DATA: COMPANY CONFORMED NAME: JLG INDUSTRIES INC CENTRAL INDEX KEY: 0000216275 STANDARD INDUSTRIAL CLASSIFICATION: CONSTRUCTION MACHINERY & EQUIP [3531] IRS NUMBER: 251199382 STATE OF INCORPORATION: PA FISCAL YEAR END: 0731 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-12123 FILM NUMBER: 02841358 BUSINESS ADDRESS: STREET 1: 1 JLG DR CITY: MCCONNELLSBURG STATE: PA ZIP: 17233 BUSINESS PHONE: 7174855161 10-Q 1 j9745801e10vq.txt JLG INDUSTRIES, INC. * FORM 10-Q 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 EX-12 3 j9745801exv12.txt EX-12 COMPUTATION OF RATIOS
Exhibit 12 CALCULATION OF RATIO OF EARNINGS TO FIXED CHARGES (IN THOUSANDS) THREE MONTHS ENDED YEAR ENDED JULY 31, OCTOBER 31, ----------------------------------------------------------- ---------------------- 1998 1999 2000 2001 2002 2001 2002 --------- --------- --------- --------- --------- -------- --------- EARNINGS Income before cumulative effect of change in accounting principle $ 46,510 $ 61,271 $ 60,507 $ 34,206 $ 12,878 $ 2,366 $ 329 Income tax provision 23,960 29,745 35,536 20,091 6,343 1,165 155 --------- --------- --------- --------- --------- --------- --------- Earnings 70,470 91,016 96,043 54,297 19,221 3,531 484 --------- --------- --------- --------- --------- --------- --------- FIXED CHARGES Interest expense 254 1,772 21,169 22,195 16,255 4,338 5,504 Portion of rental expense representative of interest factor 701 705 1,113 2,082 3,030 787 657 --------- --------- --------- --------- --------- --------- --------- Fixed charges 955 2,477 22,282 24,277 19,285 5,125 6,161 --------- --------- --------- --------- --------- --------- --------- CAPITALIZED INTEREST -- -- (580) -- -- -- -- --------- --------- --------- --------- --------- --------- --------- EARNINGS BEFORE INCOME TAX PROVISION AND FIXED CHARGES $ 71,425 $ 93,493 $ 117,745 $ 78,574 $ 38,506 $ 8,656 $ 6,645 ========= ========= ========= ========= ========= ========= ========= RATIO OF EARNINGS TO FIXED CHARGES 74.8X 37.7X 5.3X 3.2X 2.0X 1.7X 1.1X ========= ========= ========= ========= ========= ========= =========
EX-15 4 j9745801exv15.txt EX-15 LETTER FROM E & Y Exhibit 15 The Board of Directors JLG Industries, Inc. McConnellsburg, PA 17233 We are aware of the incorporation by reference in the Registration Statements (Form S-8, No. 33-60366; Form S-8, No. 33-61333; Form S-8, No. 33-75746; Form S-8, No. 333-71428; Form S-8, No. 333-71430; and Form S-8, No. 333-71432) of JLG Industries, Inc. of our report dated November 13, 2002, relating to the unaudited condensed consolidated interim financial statements of JLG Industries, Inc. which are included in its Form 10-Q for the quarter ended October 31, 2002. /s/ Ernst & Young LLP Baltimore, Maryland November 21, 2002 EX-99.1 5 j9745801exv99w1.txt EX-99.1 CAUTIONARY STATEMENTS Exhibit 99.1 CAUTIONARY STATEMENTS PURSUANT TO THE SECURITIES LITIGATION REFORM ACT OF 1995 We wish to inform our investors of the following 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 materially from those expressed in any forward looking statements made by us or on our behalf. Disclosure of these factors is intended to permit us to take advantage of the "safe harbor" provisions of the Private Securities Litigation Reform Act of 1995. We have discussed many of these factors in prior SEC filings. Though we have attempted to list comprehensively these important cautionary factors, we wish to caution investors that other factors may in the future prove to be important in affecting our results of operations. Our business is highly seasonal and cyclical. The demand for our products depends upon the general economic conditions of the markets in which we compete, including, particularly, the construction and industrial sectors of the North American and European economies. Downward economic cycles in construction and industrial activities result in reductions in sales and pricing of our products, which may reduce our profits and cash flow. In addition, our business is highly seasonal with the majority of our sales occurring in the spring and summer months which constitute the traditional construction season. The cyclical and seasonal nature of our business could at times adversely affect our liquidity and ability to borrow under our credit facilities. Our customer base is consolidated and a relatively small number of customers account for a majority of our sales. Our principal customers are equipment rental companies that purchase our equipment and rent it to end-users. In recent years, there has been substantial consolidation in ownership among rental companies, particularly in North America, which is our largest market. A limited number of these companies accounts for a substantial majority of our sales. Some of these large customers also are burdened by substantial debt and have limited liquidity, which has recently constrained their ability to purchase additional equipment. Any substantial change in purchasing decisions by one or more of our major customers, whether due to actions by our competitors, customer financial constraints or otherwise, could have an adverse effect on our business. In addition, the reduction of the number of customers has increased competition, in particular on the basis of pricing. Our customers need financing to purchase our products, and we increasingly must provide financing to our customers, which exposes us to additional credit risk. Availability and cost of financing are significant factors that affect demand for our products. Many of our customers can purchase equipment only when financing is available to them at a reasonable cost. Some of our customers are unable to obtain all of the financing needed to fully fund their entire demand of our equipment from banks or other third-party credit providers. We offer a variety of financing programs and terms to our customers. These include installment sales, finance leases, and guarantees or other credit enhancements of financing provided to our customers by third parties. As of October 31, 2002, approximately 14% of our trade receivables and 54% of our finance receivables were due from two customers. In addition, one customer accounted for approximately 36% of our finance receivables. Our financing transactions expose us to credit risk, including the risk of default by customers and any disparity between the cost and maturity of our funding sources and the yield and maturity of financing that we provide to our customers. We believe that our customers are most likely to seek financing from us in down economic cycles, which increases our risk in providing this financing. We may not realize cash flow from our financial services operations. Our Access Financial Solutions segment, which includes leases, loans and guarantees, is new and has grown rapidly. Although we recognize revenues from sales in which we provide financing, providing financing to our customers requires us to use cash from operations or borrowings. We may not realize positive cash flow from these activities, which could adversely affect our results of operations and liquidity. We may not be able to fund all credit requests by our customers. Due to restrictions contained in our senior credit facilities and our otherwise limited capital, we may not be able to fund all credit requests by our customers, which could adversely affect our future sales. Our ability to continue to meet customer credit needs depends largely on our ability to generate funds by syndicating or securitizing finance receivables, either by selling them to a third party or by getting a loan from a third party secured by such finance receivables. Factors that may affect our prospects for completing such monetization transactions include the credit quality and customer concentration of our existing and future portfolios of finance receivables and market availability for such transactions. Included among factors that may affect the marketability for such monetization transactions are current preliminary proposals that characterize the monetizations in such a way as to possibly affect the accounting treatment of off-balance sheet financing transactions. In some securitizations and sales of finance receivables, we expect the third party to have limited recourse to us. If we are unable to generate funds through these or other types of monetization transactions, we may be unable to sustain our future business plan. We operate in a highly competitive industry. We compete in a highly competitive industry. To compete successfully, our products must excel in terms of quality, price, breadth of product line, efficiency of use, safety and comfort, and we must also provide excellent customer service. The greater financial resources of certain of our competitors and their ability to provide additional customer financing or pricing discounts may put us at a competitive disadvantage. Certain competitors also may have the ability to develop product or service innovations that could put us at a disadvantage. If we are unable to compete successfully against other manufacturers of access equipment, we could lose customers and our revenues may decline. There can also be no assurance that customers will continue to regard our products favorably, that we will be able to develop new products that appeal to customers, or that we will be able to continue to compete successfully in the access equipment segment. Our products involve risks of personal injury and property damage, which exposes us to potential 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 and excess insurance coverage. We monitor claims and potential claims of which we become aware and establish accrued liability reserves for the self-insurance amounts based on our liability estimates for such claims. We cannot give any assurance that existing or future claims will not exceed our estimates for self-insurance or the amount of our excess insurance coverage. In addition, we cannot give any assurance that insurance will continue to be available to us on economically reasonable terms or that our insurers would not require us to increase our self-insurance amounts. Our manufacturing operations are dependent upon third-party suppliers, making us vulnerable to supply shortages. We obtain raw materials and certain manufactured components from third-party suppliers. To reduce material costs and inventories, we rely on supplier partnership arrangements with preferred vendors as a sole source for "just-in-time" delivery of many raw materials and manufactured components. Because we maintain limited raw material inventories, even brief unanticipated delays in delivery by suppliers, including those due to capacity constraints, labor disputes, impaired financial condition of suppliers, weather emergencies or other natural disasters, may adversely affect our ability to satisfy our customers on a timely basis and thereby affect our financial performance. This risk increases as we continue to change our manufacturing model to correlate production more closely with customer orders. We face risks with respect to our introduction of new products and services. Our business strategy includes the introduction of new products and services. Some of these products or services may be introduced to compete with existing offerings of competing businesses, while others may target new and unproven markets. We must make substantial expenditures in order to introduce new products and services or to enter new markets. We cannot give any assurance that our introduction of new products or services or entry into new markets will be profitable or otherwise generate sufficient incremental revenues to recover the expenditures necessary to launch such initiatives. Such initiatives also may expose us to other types of regulation or liabilities than those to which our business is currently exposed. We may face limitations on our ability to finance future acquisitions and integrate acquired businesses. We intend to continue our strategy of identifying and acquiring businesses with complementary products and services, which we believe will enhance our operations and profitability. We may pay for future acquisitions from internally generated funds, bank borrowings, public offerings, private sales of stock or bonds, or some combination of these methods. However, we cannot give any assurance that we will be able to find suitable businesses to purchase or that we will be able to raise the money necessary to complete future acquisitions. In addition, we cannot guarantee that we will be able to successfully integrate any business we purchase into our existing business or that any acquired businesses will be profitable. The successful integration of new businesses depends on our ability to manage these new businesses and cut excess costs. If we are unable to complete the integration of new businesses in a timely manner, it could have a materially adverse effect on our results of operations and financial condition. We are subject to currency fluctuations from our international sales. Our products are sold in many countries around the world. Thus, a portion of our revenues is generated in foreign currencies, including principally the Euro, the British Pound Sterling, and the Australian Dollar, while costs incurred to generate those revenues are only partly incurred in the same currencies. Since our financial statements are denominated in U.S. dollars, changes in currency exchange rates between the U.S. dollar and other currencies have had, and will continue to have, an impact on our earnings. To reduce this currency exchange risk, we may buy protecting or offsetting positions (known as "hedges") in certain currencies to reduce the risk of an adverse currency exchange movement. Currency fluctuations may impact our financial performance in the future. Our international operations are subject to a variety of potential risks. Our international operations are also subject to a number of potential risks. Such risks include, among others, currency exchange controls, labor unrest, differing labor regulations, differing protection of intellectual property, regional economic uncertainty, political instability, restrictions on the transfer of funds into or out of a country, export duties and quotas, domestic and foreign customs and tariffs, current and changing regulatory environments, difficulty in obtaining distribution support, difficulty in staffing and managing widespread operations, differences in the availability and terms of financing, and potentially adverse tax consequences. These factors may have an adverse effect on our international operations, or on the ability of our international operations to repatriate earnings to us, in the future. Compliance with environmental and other governmental regulations could be costly and require us to make significant expenditures. We generate hazardous and non-hazardous wastes in the normal course of our manufacturing and service operations. As a result, we are subject to a wide range of federal, state, local and foreign environmental laws and regulations. These laws and regulations govern actions that may have adverse environmental effects and also require compliance with certain practices when handling and disposing of hazardous and non-hazardous wastes. These laws and regulations also impose liability for the cost of, and damages resulting from, cleaning up sites, past spills, disposals and other releases of hazardous substances. Compliance with these or any other current or future environmental laws and regulations requires us to make expenditures. Despite these compliance efforts, risk of environmental liability is part of the nature of our business. We cannot give any assurance that environmental liabilities, including compliance and remediation costs, will not have a material adverse effect on us in the future. In addition, future events may lead to additional compliance or other costs that could have a material adverse effect on our business. We rely on key management and our ability to attract successor management personnel. We rely on the management and leadership skills of our senior management team led by William M. Lasky, Chairman of the Board, President and Chief Executive Officer. The loss of his services or the services of other key personnel could have a significant, negative impact on our business. Similarly, any difficulty in attracting, assimilating and retaining other key management employees in the future could adversely affect our business. Acts of terrorism or war may adversely affect our business. Acts of terrorism, acts of war and other unforeseen events may cause damage or disruption to our properties, business, employees, suppliers, distributors and customers which could have an adverse effect on our business, financial condition and operating results. Such events may also result in an economic slowdown in the United States or elsewhere, which could adversely affect our business, financial condition and operating results. EX-99.2 6 j9745801exv99w2.txt EX-99.2 CERTIFICATION OF CEO Exhibit 99.2 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Quarterly Report of JLG Industries, Inc. (the "Company") on Form 10-Q for the period ended October 31, 2002 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, William M. Lasky, Chairman, President and Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. ss. 1350, as adopted pursuant to ss. 906 of the Sarbanes-Oxley Act of 2002, that to my knowledge: (1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company. /s/ William M. Lasky William M. Lasky Chairman, President and Chief Executive Officer November 26, 2002 EX-99.3 7 j9745801exv99w3.txt EX-99.3 CERTIFICATION OF CFO Exhibit 99.3 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Quarterly Report of JLG Industries, Inc. (the "Company") on Form 10-Q for the period ended October 31, 2002 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, James H. Woodward, Jr., Executive Vice President and Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. ss. 1350, as adopted pursuant to ss. 906 of the Sarbanes-Oxley Act of 2002, that to my knowledge: (1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company. /s/ James H. Woodward, Jr. James H. Woodward, Jr. Executive Vice President and Chief Financial Officer November 26, 2002 -----END PRIVACY-ENHANCED MESSAGE-----