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Filed Pursuant to Rule 424(b)(3)
Registration No. 333-47931
PROSPECTUS
OFFER TO EXCHANGE
ALL OUTSTANDING
8 3/4% SENIOR SUBORDINATED NOTES DUE 2008
($100,000,000 PRINCIPAL AMOUNT OUTSTANDING)
FOR
NEW 8 3/4% SENIOR SUBORDINATED NOTES DUE 2008
($100,000,000 PRINCIPAL AMOUNT)
OF
OSHKOSH TRUCK CORPORATION
THE EXCHANGE OFFER WILL EXPIRE AT 12:00 MIDNIGHT, NEW YORK TIME, ON
JUNE 9, 1998, UNLESS EXTENDED
Oshkosh Truck Corporation, a Wisconsin corporation (the "Company"), hereby
offers (the "Exchange Offer"), upon the terms and subject to the conditions set
forth in this Prospectus and the accompanying Letter of Transmittal (the "Letter
of Transmittal"), to exchange up to an aggregate principal amount of
$100,000,000 of its new 8 3/4% Senior Subordinated Notes due 2008 (the "New
Senior Subordinated Notes" or "New Notes") for an equal principal amount of its
outstanding 8 3/4% Senior Subordinated Notes due 2008 (the "Senior Subordinated
Notes" or the "Notes"), in integral multiples of $1,000. The New Notes will be
fully and unconditionally guaranteed (the "New Note Guarantees") on a senior
subordinated basis by, and will be joint and several obligations of, Pierce
Manufacturing Inc., a Wisconsin corporation and a subsidiary of the Company,
Summit Performance Systems, Inc., a Wisconsin corporation and a subsidiary of
the Company, McNeilus Companies, Inc., a Minnesota corporation and a subsidiary
of the Company, McNeilus Truck & Manufacturing, Inc., a Minnesota corporation
and a subsidiary of the Company, Iowa Contract Fabricators, Inc., an Iowa
corporation and a subsidiary of the Company, McIntire Fabricators, Inc., an Iowa
corporation and a subsidiary of the Company, Kensett Fabricators, Inc., an Iowa
corporation and a subsidiary of the Company, and McNeilus Financial, Inc., a
Texas corporation and a subsidiary of the Company (collectively, the "Subsidiary
Guarantors"). The New Notes will be senior subordinated unsecured obligations of
the Company and are substantially identical (including principal amount,
interest rate, maturity and redemption rights) to the Notes for which they may
be exchanged pursuant to this offer, except that (i) the offering and sale of
the New Notes will have been registered under the Securities Act of 1933, as
amended (the "Securities Act"), and (ii) holders of New Notes will not be
entitled to certain rights of holders under a Registration Rights Agreement of
the Company and the Subsidiary Guarantors dated as of February 26, 1998 (the
"Registration Rights Agreement"). The Senior Subordinated Notes have been, and
the New Senior Subordinated Notes will be, issued under an Indenture dated as of
February 26, 1998 (the "Senior Subordinated Note Indenture" or the "Indenture"),
among the Company, the Subsidiary Guarantors and Firstar Trust Company, as
trustee (the "Trustee"). See "Description of the New Notes." There will be no
proceeds to the Company from this offering; however, pursuant to the
Registration Rights Agreement, the Company will bear certain offering expenses.
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SEE "RISK FACTORS," COMMENCING ON PAGE 16, FOR A DISCUSSION OF CERTAIN
FACTORS THAT SHOULD BE CONSIDERED BY HOLDERS WHO TENDER NOTES IN THE EXCHANGE
OFFER.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE
------------------------
THE DATE OF THIS PROSPECTUS IS MAY 6, 1998.
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The Company will accept for exchange any and all validly tendered Notes on
or prior to 12:00 midnight New York City time, on June 9, 1998, unless the
Exchange Offer is extended (the "Expiration Date"). Tenders of Notes may be
withdrawn at any time prior to 12:00 midnight, New York City time, on the
Expiration Date; otherwise such tenders are irrevocable. Firstar Trust Company
will act as Exchange Agent with respect to the Senior Subordinated Notes (in
such capacity, the "Exchange Agent") in connection with the Exchange Offer. The
Exchange Offer is not conditioned upon any minimum principal amount of Notes
being tendered for exchange, but is otherwise subject to certain customary
conditions.
The Notes were sold by the Company on February 26, 1998 in a transaction
not registered under the Securities Act in reliance upon the exemption provided
in Section 4(2) of the Securities Act. The Notes were subsequently resold to
qualified institutional buyers in reliance upon Rule 144A under the Securities
Act or to persons outside the United States in reliance on Regulation S under
the Securities Act. Based on information provided by the Initial Purchaser (as
defined), the Company believes no Notes were resold to institutional accredited
investors in a manner exempt from registration under the Securities Act.
Accordingly, the Notes may not be reoffered, resold or otherwise transferred in
the United States unless registered under the Securities Act or unless an
applicable exemption from the registration requirements of the Securities Act is
available. The New Notes are being offered hereunder in order to satisfy certain
obligations of the Company under the Registration Rights Agreement. See "The
Exchange Offer."
The New Senior Subordinated Notes will bear interest from February 26,
1998, the date of issuance of the Senior Subordinated Notes that are tendered in
exchange for the New Senior Subordinated Notes (or the most recent date to which
interest on such Notes has been paid) at a rate equal to 8 3/4% per annum.
Interest on the New Notes will be payable semiannually on March 1 and September
1 of each year (each an "Interest Payment Date"), commencing September 1, 1998.
The New Notes will mature on March 1, 2008, unless previously redeemed. The
Company will not be required to make any mandatory redemption or sinking fund
payment on the New Notes prior to maturity. The New Notes are redeemable at the
option of the Company, in whole or in part, at any time on or after March 1,
2003, at the redemption prices set forth herein, plus accrued and unpaid
interest, and Liquidated Damages (as defined), if any, to the date of
redemption. Prior to March 1, 2001, up to 35% of the initially outstanding
aggregate principal amount of New Senior Subordinated Notes may be redeemable at
the option of the Company, on one or more occasions, from the net proceeds of
public offerings of common stock of the Company, at a price of 108.75% of the
principal amount of the New Senior Subordinated Notes, together with accrued and
unpaid interest, and Liquidated Damages, if any, to the date of redemption;
provided that New Senior Subordinated Notes of an aggregate principle amount of
at least 65% of the initially outstanding aggregate principal amount of Senior
Subordinated Notes remains outstanding immediately after such redemption. See
"Description of the New Notes -- Optional Redemption."
Upon the occurrence of a Change of Control (as defined), each Holder (as
defined) of New Notes may require the Company to repurchase all or a portion of
such Holder's New Notes at 101% of the aggregate principal amount of the New
Senior Subordinated Notes, together with accrued and unpaid interest, and
Liquidated Damages, if any, to the date of repurchase. The Senior Credit
Facility (as defined) prohibits the Company from purchasing any of the New Notes
prior to their maturity. Therefore, prior to effecting the repurchase described
above, the Company must either repay all amounts borrowed under and terminate
the Senior Credit Facility or obtain a consent to such repurchase from the
lenders under the Senior Credit Facility. There can be no assurance that upon a
Change in Control the Company would have sufficient assets to satisfy its
obligations to repurchase the New Notes. See "Description of the New
Notes -- Repurchase at the Option of Holders -- Change of Control."
The New Notes will be general, unsecured obligations of the Company,
subordinated in right of payment to all present and future Senior Debt (as
defined) of the Company, including the Company's obligations under the Senior
Credit Facility. The New Notes will rank senior or pari passu in right of
payment to any future senior subordinated indebtedness of the Company and any
other subordinated indebtedness of the Company. The New Notes will be
unconditionally guaranteed, on a senior subordinated basis, by all of the
Company's domestic Restricted Subsidiaries (as defined) other than McNeilus
Financial Services, Inc. ("MFSI"). Each
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Subsidiary Guarantee (as defined) will be a general unsecured obligation of each
Subsidiary Guarantor, subordinated in right of payment to all present and future
senior indebtedness of such Subsidiary Guarantor ("Subsidiary Guarantor Senior
Debt"). As of December 31, 1997, on a pro forma basis, after giving effect to
the Transactions (as defined), the Company would have had approximately $263.4
million of Senior Debt outstanding and the Subsidiary Guarantors would have had
approximately $2.9 million of Subsidiary Guarantor Senior Debt outstanding
(excluding guarantees of the Senior Credit Facility). On a pro forma basis, as
of December 31, 1997, the Company's total Indebtedness constituted approximately
75% of the Company's total capitalization. The Indenture generally permits the
incurrence of additional Senior Debt provided certain financial covenants are
met. See "Capitalization," "Description of Indebtedness -- Senior Credit
Facility" and "Description of the New Notes."
Based on interpretations by the staff of the Securities and Exchange
Commission (the "Commission") set forth in no-action letters issued to third
parties, the Company believes that New Notes issued pursuant to the Exchange
Offer in exchange for Notes may be offered for resale, resold and otherwise
transferred by any holder thereof (other than any such holder which is an
"affiliate" of the Company within the meaning of Rule 405 under the Securities
Act) without compliance with the registration and prospectus delivery provisions
of the Securities Act, provided that such New Notes are acquired in the ordinary
course of such holder's business and that such holder does not intend to
participate in a distribution of such New Notes.
Each broker-dealer that receives New Notes for its own account pursuant to
the Exchange Offer must acknowledge that it will deliver a prospectus in
connection with the initial resale of such New Notes. The Letter of Transmittal
delivered with this Prospectus states that by so acknowledging and by delivering
a prospectus, a broker-dealer will not be deemed to admit that it is an
"underwriter" within the meaning of the Securities Act. This Prospectus, as it
may be amended or supplemented from time to time, may be used by a broker-dealer
in connection with resales of New Notes received in exchange for Notes where
such Notes were acquired by such broker-dealer as a result of market-making
activities or other trading activities. The Company will make this Prospectus
available to any broker-dealer for use in connection with any such resale in
accordance with the terms of the Registration Rights Agreement.
Any Holder who tenders in the Exchange Offer with the intention to
participate, or for purpose of participating, in a distribution of the New Notes
cannot rely on the position of the staff of the Commission enunciated in Exxon
Capital Holdings Corporation (available April 13, 1989), or Morgan Stanley &
Co., Inc. (available June 5, 1991) or similar no-action letters and, in the
absence of an exemption therefrom, must comply with the registration and
prospectus delivery requirements of the Securities Act in connection with the
resale of the New Notes. Failure to comply with such requirements in such
instance may result in such Holder incurring liability under the Securities Act
for which the Holder is not indemnified by the Company.
The Company does not intend to list the New Notes on any securities
exchange, or to seek admission thereof to trading in the National Association of
Securities Dealers Automated Quotation System. BancAmerica Robertson Stephens
(the "Initial Purchaser") has advised the Company that it intends to make a
market in the New Notes; however, it is not obligated to do so and any
market-making may be discontinued at any time. As a result, the Company cannot
determine whether an active public market will develop for the New Notes.
ANY NOTES NOT TENDERED AND ACCEPTED IN THE EXCHANGE OFFER WILL REMAIN
OUTSTANDING. TO THE EXTENT ANY NOTES ARE TENDERED AND ACCEPTED IN THE EXCHANGE
OFFER, A HOLDER'S ABILITY TO SELL UNTENDERED NOTES COULD BE ADVERSELY AFFECTED.
FOLLOWING CONSUMMATION OF THE EXCHANGE OFFER, THE HOLDERS OF NOTES WILL CONTINUE
TO BE SUBJECT TO THE EXISTING RESTRICTIONS UPON TRANSFER THEREOF AND THE COMPANY
WILL HAVE FULFILLED ONE OF ITS OBLIGATIONS UNDER THE REGISTRATION RIGHTS
AGREEMENT. HOLDERS OF NOTES WHO DO NOT TENDER THEIR NOTES GENERALLY WILL NOT
HAVE ANY FURTHER REGISTRATION RIGHTS UNDER THE REGISTRATION RIGHTS AGREEMENT OR
OTHERWISE. SEE "THE EXCHANGE OFFER -- CONSEQUENCES OF FAILURE TO EXCHANGE."
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The New Notes issued pursuant to this Exchange Offer generally will be
issued in the form of Global New Notes (as defined), which will be deposited
with, or on behalf of, The Depository Trust Company (the "Depository" or "DTC")
and registered in its name or in the name of Cede & Co., its nominee. Beneficial
interests in the Global New Notes representing the New Notes will be shown on,
and transfers thereof will be effected through, records maintained by the
Depository and its participants. Notwithstanding the foregoing, Notes held in
certificated form will be issued in exchange for the Global New Notes only on
the terms set forth in the Indenture. See "Description of the New
Notes -- Book-Entry, Delivery and Form."
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THIS PROSPECTUS INCORPORATES DOCUMENTS BY REFERENCE WHICH ARE NOT PRESENTED
HEREIN OR DELIVERED HEREWITH. THESE DOCUMENTS ARE AVAILABLE UPON REQUEST FROM
OSHKOSH TRUCK CORPORATION, P.O. BOX 2566, OSHKOSH, WISCONSIN 54903-2566, (920)
235-9151. IN ORDER TO ENSURE TIMELY DELIVERY OF THE DOCUMENTS, ANY REQUEST
SHOULD BE MADE BY JUNE 2, 1998.
DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS
THIS PROSPECTUS INCLUDES "FORWARD-LOOKING STATEMENTS" WITHIN THE MEANING OF
SECTION 27A OF THE SECURITIES ACT AND SECTION 21E OF THE SECURITIES EXCHANGE ACT
OF 1934, AS AMENDED (THE "EXCHANGE ACT"). ALL STATEMENTS OTHER THAN STATEMENTS
OF HISTORICAL FACT INCLUDED IN THIS PROSPECTUS, INCLUDING, WITHOUT LIMITATION,
STATEMENTS REGARDING THE COMPANY'S FUTURE FINANCIAL POSITION, BUSINESS STRATEGY,
BUDGETS, PROJECTED COSTS AND PLANS AND OBJECTIVES OF MANAGEMENT FOR FUTURE
OPERATIONS, ARE FORWARD-LOOKING STATEMENTS. IN ADDITION, FORWARD-LOOKING
STATEMENTS GENERALLY CAN BE IDENTIFIED BY THE USE OF FORWARD-LOOKING TERMINOLOGY
SUCH AS "MAY," "WILL," "EXPECT," "INTEND," "ESTIMATES," "ANTICIPATE," "BELIEVE,"
"SHOULD," "PLANS" OR "CONTINUE" OR THE NEGATIVE THEREOF OR VARIATIONS THEREON OR
SIMILAR TERMINOLOGY. WITHOUT LIMITING THE FOREGOING, FORWARD-LOOKING STATEMENTS
ARE SET FORTH HEREIN UNDER THE CAPTIONS "PROSPECTUS SUMMARY," "MANAGEMENT'S
DISCUSSION AND ANALYSIS OF CONSOLIDATED FINANCIAL CONDITION AND RESULTS OF
OPERATIONS" AND "BUSINESS." ALTHOUGH THE COMPANY BELIEVES THAT THE EXPECTATIONS
REFLECTED IN SUCH FORWARD-LOOKING STATEMENTS ARE REASONABLE, IT CAN GIVE NO
ASSURANCE THAT SUCH EXPECTATIONS WILL PROVE TO HAVE BEEN CORRECT. IMPORTANT
FACTORS THAT COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM THE COMPANY'S
EXPECTATIONS ("CAUTIONARY STATEMENTS") ARE DISCLOSED UNDER "RISK FACTORS" AND
ELSEWHERE IN THIS PROSPECTUS, INCLUDING, WITHOUT LIMITATION, THE FOLLOWING: (I)
THE CONSEQUENCES OF FINANCIAL LEVERAGE; (II) THE CYCLICAL NATURE OF THE
CONSTRUCTION INDUSTRY; (III) THE RISKS RELATED TO REDUCTIONS OR CHANGES IN
GOVERNMENT EXPENDITURES; (IV) THE UNCERTAINTY INHERENT IN GOVERNMENT CONTRACTS;
(V) THE CHALLENGES OF INTEGRATION OF ACQUIRED BUSINESSES; (VI) COMPETITION;
(VII) DISRUPTIONS IN THE SUPPLY OF PARTS OR COMPONENTS FROM SOLE SOURCE
SUPPLIERS AND SUBCONTRACTORS; (VIII) PRODUCT LIABILITY AND WARRANTY CLAIMS; AND
(IX) LABOR RELATIONS AND MARKET CONDITIONS. ALL SUBSEQUENT WRITTEN AND ORAL
FORWARD-LOOKING STATEMENTS ATTRIBUTABLE TO THE COMPANY, OR PERSONS ACTING ON ITS
BEHALF, ARE EXPRESSLY QUALIFIED IN THEIR ENTIRETY BY THE CAUTIONARY STATEMENTS.
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PROSPECTUS SUMMARY
The following summary is qualified in its entirety by, and should be read
in conjunction with, the more detailed information and consolidated financial
statements and pro forma financial statements (including the notes thereto)
appearing elsewhere in this Prospectus. Unless otherwise indicated, all
references in this Prospectus to the Company's business and pro forma data give
effect to the Transactions (as defined). See "-- The Transactions." As used
herein, the "Company" refers to Oshkosh Truck Corporation, including Pierce
Manufacturing Inc. ("Pierce") and its other wholly-owned subsidiaries and, after
the Acquisition (as defined), McNeilus Companies, Inc. ("McNeilus"), and
"Oshkosh" refers to Oshkosh Truck Corporation and its wholly-owned subsidiaries
prior to the Acquisition.
THE COMPANY
OVERVIEW
The Company is a leading designer, manufacturer and marketer of a broad
range of fire apparatus and specialty commercial and military trucks under the
"Oshkosh," "Pierce," "McNeilus" and "MTM" trademarks. The Company's custom and
commercial fire apparatus include pumpers, aerial and ladder trucks, tankers,
heavy-duty rescue vehicles, wildland rough terrain response vehicles and
aircraft rescue and firefighting ("ARFF") vehicles. The Company's commercial
truck lines include refuse truck bodies, rear- and forward-discharge concrete
mixers and snow removal vehicles. As the leading manufacturer of severe-duty
heavy tactical trucks for the United States Department of Defense (the "DoD"),
the Company manufactures vehicles that perform a variety of demanding tasks,
such as hauling tanks, missile systems, ammunition, fuel and cargo for combat
units. For the twelve months ended December 31, 1997, on a pro forma basis, the
Company generated net sales of $1,011.3 million and EBITDA (as defined) of $79.4
million.
The Company is focused on four principal markets:
Fire Apparatus. The Company, through Pierce, is among the leading domestic
manufacturers of custom and commercial fire apparatus. The Company primarily
serves domestic governmental markets, but also sells fire apparatus to airports,
universities and large industrial companies. In addition, the Company sells fire
apparatus in international markets. Pierce's history of research and development
in consultation with firefighters has resulted in a broad product line that
features a wide range of innovative, high-quality custom and commercial
firefighting equipment with advanced fire suppression capabilities. The
Company's engineering expertise also allows it to design its vehicles to meet
stringent government regulations for safety and effectiveness.
Refuse Truck Bodies. Management believes the Company, through McNeilus, is
a leading domestic manufacturer of refuse truck bodies for the waste services
industry. The Company manufactures a wide range of automated rear, front, side
and top loading refuse truck bodies, which the Company mounts on commercial
chassis. The Company sells its refuse vehicles primarily to commercial waste
management companies. Management believes the Company's refuse vehicles have a
reputation for efficient, cost-effective, dependable operation that supports the
Company's continued expansion into municipal and international markets.
Concrete Mixers and Snow Removal Vehicles. Management believes the Company
is a leading domestic manufacturer of rear- and forward-discharge concrete
mixers. The Company sells rear- and forward-discharge concrete mixers and
portable concrete mixer plants to construction companies throughout the United
States and internationally. Management believes the Company is one of the only
domestic concrete mixer manufacturers that markets both rear- and
forward-discharge concrete mixers.
The Company is also among the leading domestic manufacturers of snow
removal vehicles for airports. The Company's specially designed airport snow
removal vehicles can cast up to 4,000 tons of snow per hour and are used by some
of the largest airports in the United States, such as Denver International
Airport, LaGuardia International Airport, Minneapolis-St. Paul International
Airport and O'Hare International Airport. Management believes the reliability of
the Company's high performance snow removal vehicles contribute to its strong
market position.
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Defense Trucks. The Company has sold products to the DoD for over 70 years
and is the leading manufacturer of a broad line of severe-duty heavy tactical
trucks for the DoD. The Company's proprietary military all-wheel drive product
line includes: (i) the Palletized Load System ("PLS"), a highly mobile self-
contained truck and trailer system that loads and unloads a wide range of cargo
in a short period of time; (ii) the Heavy Expanded Mobility Tactical Truck
("HEMTT"), a cross-country cargo and supply carrier that, among other tasks, is
used for direct rearming of the Multiple Launch Rocket System, transport of
Patriot erector/launchers, resupply of field artillery ammunition and refueling
of tanks, trucks and helicopters in forward areas; (iii) the Heavy Equipment
Transporter ("HET"), the primary hauler of the M1A1 main battle tank and also a
hauler of other tanks, fighting and recovery vehicles, self-propelled howitzers
and construction equipment; and (iv) the Logistic Vehicle System ("LVS"), a
highly mobile cargo carrier with a maximum payload capacity of 20 tons. The
Company also exports its severe-duty heavy tactical trucks to approved foreign
customers.
COMPETITIVE STRENGTHS
The following competitive strengths support the Company's business
strategy:
Strong Market Positions. The Company has developed strong market positions
in each of its core businesses, which management attributes to the Company's
reputation for innovation, vehicle performance, reliability and customer
service. The Company has the leading share of the severe-duty heavy tactical
truck segment of the domestic defense truck market, and also believes it has a
leading share in: (i) custom and commercial fire apparatus, including pumpers,
aerial and ladder trucks, tankers, heavy duty rescue, wildland rough terrain
response vehicles and ARFF vehicles for the domestic fire apparatus market; (ii)
the domestic refuse truck body market; (iii) the domestic rear- and
forward-discharge concrete mixer markets; and (iv) the domestic airport snow
removal vehicle market. The Company intends to continue to strengthen its market
share by capitalizing on its strong reputation, introducing innovative products
and services and leveraging its extensive distribution capabilities.
Extensive Distribution Capabilities. With the addition of the commercial
and municipal distribution capabilities of Pierce and McNeilus, the Company has
established an extensive domestic and international distribution system for
specialty trucks and truck bodies covering over 70 countries. In addition to its
network of dealers and distributors, the Company employs over 100 in-house sales
and service representatives. Management believes the Company's broad
distribution system has enabled the Company to: (i) maximize sales of new
products and technologies; (ii) become a benchmark for government customers
establishing their bid specifications; (iii) provide customer service on a
national and international scale; and (iv) reduce distribution expenses through
significant economies of scale.
Flexible and Efficient Manufacturing. The Company believes it has
competitive advantages over larger truck manufacturers in its specialty truck
markets due to its manufacturing flexibility and custom fabrication
capabilities. For example, the Company has successfully configured its defense
truck and fire apparatus manufacturing plants for the simultaneous manufacture
of many different types and models of vehicles on the same assembly line at the
same time. In addition, the Company believes it has a competitive advantage over
smaller competitors due to its: (i) manufacturing in relatively higher volumes;
(ii) purchasing power across its product lines; and (iii) investing in fixturing
and robotics to improve efficiency and reduce costs.
Quality Products and Customer Service. Oshkosh, Pierce and McNeilus have
each developed strong brand recognition based on their commitments to meet the
stringent product quality and reliability requirements of their customers and
the specialty truck markets they serve. The Company's commitment to product
quality is exemplified by the ISO 9001 certification of Oshkosh. Pierce is
targeting achievement of ISO 9001 certification in 1998. The Company also
achieves high quality customer service through its extensive service and parts
support program, which is available to domestic customers 365 days a year in all
product lines throughout the Company's distribution systems.
Proprietary Components. The Company's advanced design and engineering
capabilities have contributed to the development of proprietary, severe-duty
components which enhance truck performance, reduce manufacturing costs and
strengthen customer relationships. These proprietary components include front
drive
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and steer axles, transfer cases, cabs, the ALL-STEER electronic all-wheel
steering system, central tire inflation, independent suspension, the Sky-Arm
articulating aerial ladder and the McNeilus Auto Reach Arm. Management believes
these proprietary components provide the Company a competitive advantage by
increasing its vehicles' durability, operating efficiency and effectiveness. The
integration of many of these components across various product lines also
reduces the Company's costs to manufacture its products compared to
manufacturers who simply assemble purchased components.
BUSINESS STRATEGY
The Company is focused on increasing its net sales, profitability and cash
flow by capitalizing on its competitive strengths. Key elements of the Company's
business strategy include:
Focusing on Specialized Truck Markets. The Company plans to continue its
focus on those specialized truck and truck body markets where it has strong
market positions and where the Company can leverage synergies in purchasing,
manufacturing, technology and distribution. The Company's objective is to
achieve and maintain market leadership through internal growth and strategic
acquisitions. Management believes the higher sales volumes associated with
market leadership would allow the Company to continue to enhance productivity in
manufacturing operations, fund innovative product development and invest in
further expansion.
Expanding Distribution and International Sales. The Company plans to add
new distribution capabilities for the municipal segment of the refuse truck body
market and in targeted geographic areas in the domestic fire apparatus market.
The Company intends to increase international sales beyond the $58.9 million pro
forma volume achieved in the twelve months ended December 31, 1997 by
introducing McNeilus refuse truck bodies, rear-discharge concrete mixers and
ready-mix batch plants to international markets and by continuing the expansion
of Pierce's international customer base through the Company's expanding
international distribution capabilities.
Reducing Costs While Maintaining Quality. The Company actively benchmarks
its competitors' costs and best industry practices, and continuously seeks to
implement process improvements to increase cash flow and improve profitability.
With each of its acquisitions, the Company has established cost reduction
targets. At Pierce, the Company exceeded its first-year cost reduction target of
$3.4 million in fiscal 1997 as a result of consolidating facilities,
reengineering the manufacturing process and leveraging increased purchasing
power. The Company is planning for additional cost savings at Pierce in fiscal
1998. The Company intends to improve efficiencies after the acquisition of
McNeilus by taking advantage of the Company's greater purchasing power and by
developing additional manufacturing synergies across product lines.
Introducing New Products. The Company has increased its emphasis on new
product development in recent years, and seeks to expand sales by introducing
new or improved products in its core markets, either through internal
development or strategic acquisition. For example, in December 1997, the Company
purchased the aerial fire apparatus product line of Nova Quintech, a division of
Nova Bus Corporation. This acquisition broadened Pierce's aerial product line
and is expected to provide Pierce with three new products in the first half of
calendar 1998.
Diversifying DoD Contracts. The Company is seeking to diversify its
business with the DoD beyond its traditional contracts relating to the
manufacture of severe-duty heavy tactical trucks. Management believes the
Company has a reputation within the DoD for advanced engineering, quality
manufacturing and vehicle performance that will assist the Company in obtaining
contracts to provide other types of vehicles to the DoD. For example, the
Company was one of two manufacturers selected to participate in a DoD program to
produce upgraded medium-duty prototype vehicles for the Medium Tactical Truck
Remanufacture ("MTTR") program. The Company expects the testing and validation
phase for the MTTR program to conclude in the first half of 1998 and the initial
production contract to be awarded to the Company or the competing bidder in the
fourth quarter of 1998. The Company is also one of two manufacturers competing
for the DoD's Family of Medium Tactical Vehicles ("FMTV") contract. The Company
and the other participating manufacturer are currently preparing prototype FMTV
trucks for testing by the DoD.
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Increasing Aftermarket Sales and Service. The Company is focused on
increasing its aftermarket sales and service revenues. In the fire apparatus and
commercial truck markets, the Company has expanded and plans to continue to
expand its refurbishment facilities and parts distribution capabilities. In the
defense truck market, the Company plans to continue to pursue parts and
maintenance contracts for upgrading and reconditioning trucks at both domestic
and international U.S. military bases.
Pursuing Strategic Acquisitions. Following the integration of McNeilus, the
Company intends to selectively pursue additional strategic acquisitions, both
domestically and internationally, in order to enhance its product line and
expand its international presence in specialized truck markets. The Company
intends to focus its acquisition strategy in specialty truck and truck body
markets where it can enhance its strong market positions and achieve significant
acquisition synergies.
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THE TRANSACTIONS
THE ACQUISITION
On December 8, 1997, Oshkosh entered into a definitive agreement (the
"Stock Purchase Agreement") pursuant to which, on February 26, 1998, it acquired
all of the outstanding capital stock of McNeilus and entered into related
non-compete and ancillary agreements for an aggregate acquisition price of
$250.0 million (the "Acquisition"). At November 30, 1997, McNeilus had
unrestricted cash of $17.7 million ($20.2 million less an estimated $2.5 million
required for capital and surplus at McNeilus' captive insurance subsidiary). The
Stock Purchase Agreement required, among other things, that the selling
stockholders of McNeilus prepay certain notes and purchase selected assets of
McNeilus, which provided net proceeds to Oshkosh of approximately $16.1 million.
As a result, management estimates that the effective cost to the Company in
connection with the Acquisition was approximately $216.2 million. Concurrently
with the consummation of the Acquisition, the Company consummated the Note
Offering (as defined), established the Senior Credit Facility, applied the net
proceeds from the Note Offering and the Senior Credit Facility to consummate the
Acquisition, refinanced existing Oshkosh indebtedness, paid fees and expenses
and established the Lease Financing Facility (as defined) (collectively, the
"Transactions").
THE SENIOR CREDIT FACILITY
The Senior Credit Facility is comprised of a multi-tranche Term Loan
Facility (as defined) aggregating $225.0 million and a $100.0 million Revolving
Credit Facility (as defined). The Senior Credit Facility is guaranteed by all of
the Company's domestic Restricted Subsidiaries (other than MFSI). See
"Description of Indebtedness -- Senior Credit Facility."
THE LEASE FINANCING FACILITY
Oshkosh/McNeilus Financial Services, Inc. (the "Leasing Partner"), a
subsidiary of MFSI, entered into a general partnership (the "Leasing
Partnership"), effective February 26, 1998, which offers lease financing to
customers of the Company and administers existing leases contributed to the
Leasing Partnership (the "Lease Financing Facility"). Indebtedness under the
Lease Financing Facility is secured by the underlying leases and assets of, and
is recourse to, the Leasing Partnership; such indebtedness is off-balance sheet
and non-recourse to the Company. See "Description of Indebtedness -- Lease
Financing Facility."
SOURCES AND USES OF FUNDS
<TABLE>
<CAPTION>
SOURCES
<S> <C>
Senior Credit Facility:
Revolving Credit Facility(1)...... $ 13.0
Term Loan Facility................ 225.0
Notes offered hereby................ 100.0
------
Total Sources.................. $338.0
======
</TABLE>
<TABLE>
<CAPTION>
USES
<S> <C>
McNeilus Acquisition, net........... $216.2
Refinance Oshkosh debt.............. 102.8
Estimated fees and expenses......... 15.4
Taxes related to lease
financing(2)...................... 3.6
------
Total Uses..................... $338.0
======
</TABLE>
- -------------------------
(1) The Revolving Credit Facility provides maximum borrowing availability
(including letters of credit) of $100.0 million, subject to certain
borrowing conditions. See "Capitalization" and "Description of Indebtedness
-- Senior Credit Facility."
(2) The Company incurred taxes payable as a result of the transfer of MFSI's
current lease portfolio to the Leasing Partnership.
------------------
The Company is a Wisconsin corporation with its executive offices located
at 2307 Oregon Street, Oshkosh, Wisconsin 54903-2566, and its telephone number
is (920) 235-9151.
7
<PAGE> 11
THE NOTE OFFERING
THE NOTES..................... The Notes were sold by the Company on February
26, 1998 and were subsequently resold either to
qualified institutional buyers pursuant to
Rule 144A under the Securities Act or to
persons in transactions outside the United
States in reliance on Regulation S under the
Securities Act; based on information supplied
by the Initial Purchaser, the Company believes
no sales were made to institutional investors
that are accredited investors in a manner
exempt from registration under the Securities
Act (the "Note Offering").
Registration Rights
Agreement..................... In connection with the Note Offering, the
Company entered into the Registration Rights
Agreement, which grants Holders of the Notes
certain exchange and registration rights, which
generally terminate upon the consummation of
the Exchange Offer.
THE EXCHANGE OFFER
Securities Offered............ $100,000,000 in aggregate principal amount of
the Company's new 8 3/4% Senior Subordinated
Notes due 2008.
The Exchange Offer............ $1,000 principal amount of New Notes in
exchange for each $1,000 principal amount of
the Notes. As of the date hereof, $100,000,000
aggregate principal amount of Senior
Subordinated Notes are outstanding. The Company
will issue the New Notes to Holders on or
promptly after the Expiration Date.
Expiration Date............... 12:00 midnight, New York City time on June 9,
1998, unless the Exchange Offer is extended, in
which case the term "Expiration Date" means the
latest date and time to which the Exchange
Offer is extended.
Interest on the New Notes
and the Notes................. The New Notes will bear interest from February
26, 1998, the date of issuance of the Notes
that are tendered in exchange for the New Notes
(or the most recent date to which interest on
such Notes has been paid). Accordingly, Holders
of Notes that are accepted for exchange will
not receive interest on the Notes that is
accrued but unpaid at the time of tender, but
such interest will be payable on the first
March 1 or September 1, as the case may be,
after the Expiration Date.
Conditions to the Exchange
Offer......................... The Exchange Offer is subject to certain
customary conditions, which may be waived by
the Company. See "The Exchange Offer --
Conditions."
Procedures for Tendering
Notes......................... Each Holder of Notes wishing to accept the
Exchange Offer must complete, sign and date the
relevant accompanying Letter of Transmittal, or
a facsimile thereof, in accordance with the
instructions contained herein and therein, and
mail or otherwise deliver such Letter of
Transmittal, or such facsimile, together with
the Notes and any other required documentation
to the relevant Exchange Agent at the address
set forth in the Letter of Transmittal. The
Letter of Transmittal should be used to tender
Notes. By executing the Letter of Transmittal,
each Holder will represent to
8
<PAGE> 12
the Company that, among other things, the
Holder or the person receiving such new Notes,
whether or not such person is the Holder, is
acquiring the New Notes in the ordinary course
of business and that neither the Holder nor any
such other person has any arrangement or
understanding with any person to participate in
a distribution of such New Notes. In lieu of
physical delivery of the certificates
representing Notes, tendering Holders may
transfer Notes pursuant to the procedure for
book-entry transfer as set forth under "The
Exchange Offer -- Procedures for Tendering."
Special Procedures for
Beneficial Owners............. Any beneficial owner whose Notes are registered
in the name of a broker, dealer, commercial
bank, trust company or other nominee and who
wishes to tender should contact such registered
Holder promptly and instruct such registered
Holder to tender on such beneficial owner's
behalf. If such beneficial owner wishes to
tender on such beneficial owner's own behalf,
such beneficial owner must, prior to completing
and executing the Letter of Transmittal and
delivering its Notes, either make appropriate
arrangements to register ownership of the Notes
in such beneficial owner's name or obtain a
properly completed bond power from the
registered Holder. The transfer of registered
ownership may take considerable time.
Guaranteed Delivery
Procedures.................... Holders of Notes who wish to tender their Notes
and whose Notes are not immediately available
or who cannot deliver their Notes, the Letter
of Transmittal or any other documents required
by the Letter of Transmittal to the Exchange
Agent (or comply with the procedures for
book-entry transfer) prior to the Expiration
Date must tender their Notes according to the
guaranteed delivery procedures set forth in
"The Exchange Offer -- Guaranteed Delivery
Procedures."
Withdrawal Rights............. Tenders may be withdrawn at any time prior to
12:00 midnight, New York City time, on the
Expiration Date pursuant to the procedures
described under "The Exchange Offer -- Terms of
the Exchange Offer."
Acceptance of Notes and
Delivery of New Notes......... The Company will accept for exchange any and
all Notes that are properly tendered in the
Exchange Offer prior to 12:00 midnight, New
York City time, on the Expiration Date. The New
Notes issued pursuant to the Exchange Offer
will be delivered promptly following the
Expiration Date. See "The Exchange Offer --
Terms of the Exchange Offer."
Federal Income Tax
Consequences.................. The issuance of the New Notes to Holders of the
Notes pursuant to the terms set forth in this
Prospectus will not constitute an exchange for
federal income tax purposes. Consequently, no
gain or loss would be recognized by Holders of
the Notes upon receipt of the New Notes. See
"The Exchange Offer -- Certain Federal Income
Tax Consequences of the Exchange Offer."
Use of Proceeds............... There will be no proceeds to the Company from
the exchange of Notes pursuant to the Exchange
Offer.
9
<PAGE> 13
Effect on Holders of Notes.... As a result of the making of this Exchange
Offer, the Company will have fulfilled certain
of its obligations under the Registration
Rights Agreement, and Holders of Notes who do
not tender their Notes will generally not have
any further registration rights under the
Registration Rights Agreement or otherwise.
Such Holders will continue to hold the
untendered notes and will be entitled to all
the rights and subject to all the limitations
applicable thereto under the Indenture, except
to the extent such rights or limitations, by
their terms, terminate or cease to have further
effectiveness as a result of the Exchange
Offer. All untendered Notes will continue to be
subject to certain restrictions on transfer.
Accordingly, if any Notes are tendered and
accepted in the Exchange Offer, the trading
market for the untendered Notes could be
adversely affected.
Exchange Agent................ Firstar Trust Company is serving as Exchange
Agent in connection with the Exchange Offer.
See "The Exchange Offer -- Exchange Agent."
SUMMARY OF TERMS OF NEW NOTES
The form and terms of the New Notes are the same as the form and terms of
the Notes (which they will replace) except that (i) the New Notes have been
registered under the Securities Act and, therefore, will not bear legends
restricting the transfer thereof and (ii) the Holders of New Notes generally
will not be entitled to further registration rights under the Registration
Rights Agreement, which rights generally will be satisfied when the Exchange
Offer is consummated. The New Notes will evidence the same debt as the Notes and
will be entitled to the benefits of the Indenture. See "Description of the New
Notes."
Issuer........................ Oshkosh Truck Corporation.
Securities Offered............ $100,000,000 principal amount of new 8 3/4%
Senior Subordinated Notes due 2008.
Maturity Date................. March 1, 2008.
Interest Payment Dates........ March 1 and September 1, commencing September
1, 1998.
Mandatory Sinking Fund or
Redemption.................. None.
Optional Redemption........... The New Notes may be redeemed, in whole or in
part, at any time on or after March 1, 2003 at
the option of the Company, at the redemption
prices set forth herein, plus, in each case,
accrued and unpaid interest and Liquidated
Damages, if any, to the date of redemption. In
addition, at any time prior to March 1, 2001,
the Company may, at its option, redeem up to
35% of the initially outstanding aggregate
principal amount of the New Notes issued under
the Indenture at a redemption price of 108.75%
of the principal amount thereof, plus accrued
and unpaid interest and Liquidated Damages, if
any, to the date of redemption, with the net
cash proceeds of one or more public offerings
of common stock of the Company, provided that
New Notes of an aggregate principal amount of
at least 65% of the initially outstanding
aggregate principal amount of Notes remains
outstanding immediately after the occurrence of
such redemption.
Change of Control............. In the event of a Change of Control, each
Holder of the New Notes will have the right to
require the Company to make an offer
10
<PAGE> 14
to repurchase such Holder's New Notes, in whole
or in part, at a price of 101% of the aggregate
principal amount thereof, plus accrued and
unpaid interest and Liquidated Damages, if any,
to the date of repurchase.
Ranking....................... The New Notes will be general unsecured
obligations of the Company, subordinated in
right of payment to all present and future
Senior Debt of the Company, including the
Company's obligations under the Senior Credit
Facility. The New Notes will rank pari passu
with any future senior subordinated
indebtedness of the Company and will rank
senior to any other subordinated indebtedness
of the Company. As of December 31, 1997, on a
pro forma basis, the Company would have had
approximately $263.4 million of Senior Debt
outstanding and the Subsidiary Guarantors would
have had approximately $2.9 million of
Subsidiary Guarantor Senior Debt outstanding
(excluding guarantees of the Senior Credit
Facility).
Subsidiary Guarantees......... The New Notes will be unconditionally
guaranteed on a senior subordinated basis as to
the payment of principal and interest and
Liquidated Damages, if any, by the Subsidiary
Guarantors. Each Subsidiary Guarantee will be a
general unsecured obligation of such Subsidiary
Guarantor, subordinated in right of payment to
all Subsidiary Guarantor Senior Debt of such
Subsidiary Guarantor.
Certain Covenants............. The Indenture pursuant to which the New Notes
will be issued will, among other things, limit
the ability of the Company and its Restricted
Subsidiaries to: (i) incur additional
indebtedness or issue preferred stock; (ii)
make certain Restricted Payments; (iii) grant
Liens on assets; (iv) merge, consolidate or
transfer substantially all of their assets; (v)
enter into transactions with Affiliates; (vi)
sell assets; (vii) sell capital stock of
Subsidiaries; (viii) enter into certain sale
and leaseback transactions; (ix) impose
restrictions on any Restricted Subsidiary's
ability to pay dividends to the Company; (x)
incur other senior subordinated indebtedness;
and (xi) enter into certain lines of business.
Exchange Offer;
Registration Rights......... Under certain circumstances, the Company will
file and use its best efforts to cause to
become effective under the Securities Act a
Shelf Registration Statement (as defined) with
respect to the resale of the Notes and keep
such Shelf Registration Statement effective
generally until two years after the effective
date thereof. In the event the foregoing
registration requirements are not met, a
Registration Default (as defined) shall be
deemed to have occurred and specified
Liquidated Damages will become payable with
respect to the Notes until such Registration
Default has been cured. See "Description of the
New Notes -- Exchange Offer; Registration
Rights."
Risk Factors.................. See "Risk Factors" for a discussion of certain
factors that should be considered by
prospective purchasers of the New Notes,
including factors affecting forward-looking
statements.
A description of the terms of the New Notes, including definitions of terms
which are capitalized above, is set forth herein under "Description of the New
Notes."
11
<PAGE> 15
SUMMARY UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL DATA
The following table sets forth summary unaudited pro forma condensed
consolidated balance sheet data of the Company as of December 31, 1997 and
summary unaudited pro forma condensed consolidated income statement data of the
Company for the fiscal year ended September 30, 1997, for the three months ended
December 31, 1997 and for the twelve months ended December 31, 1997. Oshkosh's
fiscal year ends on September 30, while McNeilus' fiscal year ends on the last
day of February. The pro forma condensed consolidated balance sheet data as of
December 31, 1997 give effect to the Transactions as if they had occurred on
December 31, 1997. The pro forma condensed consolidated income statement data
and other data for the fiscal year ended September 30, 1997, for the three
months ended December 31, 1997 and for the twelve months ended December 31, 1997
gives effect to the Transactions as if they had occurred at the beginning of the
period presented. Such pro forma data are not necessarily indicative of the
future results of operations of the Company or the results of operations that
would have been realized had the Transactions occurred as of the dates or for
the periods presented. The following information should be read in conjunction
with "Management's Discussion and Analysis of Consolidated Financial Condition
and Results of Operations" and the historical consolidated financial statements
of Oshkosh, the unaudited pro forma condensed consolidated financial statements
of the Company and the historical consolidated financial statements of McNeilus
and the related notes thereto included elsewhere herein.
<TABLE>
<CAPTION>
THREE TWELVE
FISCAL YEAR MONTHS MONTHS
ENDED ENDED ENDED
SEPTEMBER 30, DECEMBER 31, DECEMBER 31,
1997 1997 1997
------------- ------------ ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
INCOME STATEMENT DATA:
Net sales................................................... $1,009,786 $219,096 $1,011,267
Cost of sales............................................... 863,330 185,105 862,087
---------- -------- ----------
Gross income............................................ 146,456 33,991 149,180
Operating expenses:
Selling, general and administrative....................... 74,521 18,883 76,172
Engineering, research and development..................... 8,546 2,257 8,696
Amortization of goodwill and other intangibles............ 11,112 2,786 11,106
---------- -------- ----------
Total operating expenses................................ 94,179 23,926 95,974
---------- -------- ----------
Income from operations...................................... 52,277 10,065 53,206
Interest expense............................................ 30,697 7,555 30,693
Other income, net........................................... 646 414 686
---------- -------- ----------
Income from operations before income taxes and equity in
income of unconsolidated partnership...................... 22,226 2,924 23,199
Provision for income taxes.................................. 9,049 1,250 9,147
---------- -------- ----------
13,177 1,674 14,052
Equity in income of unconsolidated partnership.............. 1,918 451 1,918
---------- -------- ----------
Income from continuing operations........................... $ 15,095 $ 2,125 $ 15,970
========== ======== ==========
OTHER FINANCIAL DATA:
EBITDA(1)................................................... $ 78,774 $ 16,574 $ 79,432
EBITDA margin % (1)......................................... 7.8% 7.6% 7.9%
Depreciation and amortization............................... 25,907 6,240 25,636
Capital expenditures........................................ 9,311 2,956 9,666
Ratio of earnings to fixed charges(2)....................... 1.6x 1.4x 1.6x
Ratio of EBITDA to cash interest expense(3).................................................. 2.7x
Ratio of long-term debt to EBITDA............................................................ 4.3x
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
1997
------------
<S> <C>
BALANCE SHEET DATA:
Cash and cash equivalents................................... $ 2,698
Working capital............................................. 77,835
Total assets................................................ 696,990
Long-term debt, including current portion................... 340,932
Shareholders' equity........................................ 122,992
</TABLE>
12
<PAGE> 16
- -------------------------
(1) EBITDA represents income from operations plus depreciation and amortization.
EBITDA also reflects the reduction of certain operating expenses that were
incurred at the direction of former stockholders of McNeilus. Information
concerning EBITDA has been included because management believes that EBITDA
is generally accepted as providing useful information regarding a company's
ability to service and/or incur debt. EBITDA should not be considered in
isolation or as a substitute for net income, cash flows or other income or
cash flow data prepared in accordance with generally accepted accounting
principles or as a measure of a company's profitability or liquidity. The
Company understands that, while EBITDA is frequently used by securities
analysts in the evaluation of companies, EBITDA, as used herein, is not
necessarily comparable to other similarly titled captions of other companies
due to potential inconsistencies in the method of calculation. EBITDA is not
intended as an alternative to cash flow from operating activities as a
measure of liquidity, an alternative to net income as an indicator of
operating performance or an alternative to any other measure of performance
in conformity with generally accepted accounting principles. EBITDA margin
percentage is calculated by dividing EBITDA by net sales.
The calculation of pro forma EBITDA is set forth below (dollars in
thousands):
<TABLE>
<CAPTION>
FISCAL YEAR THREE MONTHS TWELVE MONTHS
ENDED ENDED ENDED
SEPTEMBER 30, 1997 DECEMBER 31, 1997 DECEMBER 31, 1997
------------------ ----------------- -----------------
<S> <C> <C> <C>
Income from operations................... $52,277 $10,065 $53,206
Depreciation and amortization, excluding
amortization of debt issue costs....... 24,681 5,933 24,410
Operating expense adjustment............. 1,816 576 1,816
------- ------- -------
EBITDA................................. $78,774 $16,574 $79,432
======= ======= =======
</TABLE>
(2) For purposes of the computation, the ratio of earnings to fixed charges has
been calculated by dividing (i) income from continuing operations before
income taxes and equity in leasing partnership pre-tax income plus fixed
charges by (ii) fixed charges. Fixed charges are equal to interest expense
plus the portion of the rent expense (one-third) estimated to represent
interest expense.
(3) Cash interest expense represents total interest expense as reduced for
interest expense relating to the amortization of deferred debt issuance
costs. Amortization of deferred debt issuance costs equalled $1,226, $307
and $1,226 for the fiscal year ended September 30, 1997, the three months
ended December 31, 1997 and the twelve months ended December 31, 1997,
respectively.
13
<PAGE> 17
SUMMARY HISTORICAL CONSOLIDATED FINANCIAL DATA FOR OSHKOSH
The following table presents summary historical consolidated financial and
other data of Oshkosh as of and for the fiscal years ending September 30, 1997,
1996 and 1995, which have been derived from the audited consolidated financial
statements of Oshkosh, and as of and for the three months ended December 31,
1997 and 1996, which have been derived from the unaudited interim financial
statements of Oshkosh. The consolidated financial statements of Oshkosh for the
fiscal years 1997, 1996 and 1995 were audited by Ernst & Young LLP, independent
auditors. In the opinion of management, the interim consolidated financial
statements reflect all adjustments (consisting only of normal and recurring
adjustments) necessary to fairly present the information presented for such
periods. The results of operations for the three months ended December 31, 1997
are not necessarily indicative of the results of operations to be expected for
the full fiscal year. The following information should be read in conjunction
with "Management's Discussion and Analysis of Consolidated Financial Condition
and Results of Operations" and the historical consolidated financial statements
of Oshkosh and the related notes thereto included elsewhere herein.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED THREE MONTHS ENDED
SEPTEMBER 30, DECEMBER 31,
------------------------------ -------------------
1997 1996(1) 1995 1997 1996
-------- -------- -------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net sales................................. $683,234 $413,455 $438,557 $151,801 $150,320
Gross income.............................. 88,844 35,079 53,978 22,307 19,583
Total operating expenses.................. 60,059 38,680 34,685 14,945 13,150
Income (loss) from operations............. 28,785 (3,601) 19,293 7,362 6,433
OTHER FINANCIAL DATA:
EBITDA(2)................................. $ 42,637 $ 9,316 $ 27,702 $ 10,591 $ 9,934
EBITDA margin %(2)........................ 6.2% 2.3% 6.3% 7.0% 6.6%
Depreciation and amortization............. 14,070 8,798 8,409 3,283 3,556
Capital expenditures...................... 6,263 5,355 5,347 1,697 1,342
</TABLE>
- -------------------------
(1) On September 18, 1996, Oshkosh acquired for $156,926 in cash all of the
issued and outstanding stock of Pierce, a manufacturer and marketer of fire
trucks and other fire apparatus. The acquisition was accounted for using the
purchase method of accounting and accordingly, the income statement data
includes the operating results of Pierce since the date of acquisition.
(2) EBITDA represents income (loss) from operations plus depreciation and
amortization. EBITDA also includes the add-back of the non-cash write-off of
certain Oshkosh investments of $4.1 million in the fiscal year ended
September 30, 1996. Information concerning EBITDA has been included because
management believes that EBITDA is generally accepted as providing useful
information regarding a company's ability to service and/or incur debt.
EBITDA should not be considered in isolation or as a substitute for net
income, cash flows or other income or cash flow data prepared in accordance
with generally accepted accounting principles or as a measure of a company's
profitability or liquidity. The Company understands that, while EBITDA is
frequently used by securities analysts in the evaluation of companies,
EBITDA, as used herein, is not necessarily comparable to other similarly
titled captions of other companies due to potential inconsistencies in the
method of calculation. EBITDA is not intended as an alternative to cash flow
from operating activities as a measure of liquidity, an alternative to net
income as an indicator of operating performance or an alternative to any
other measure of performance in conformity with generally accepted
accounting principles. EBITDA margin percentage is calculated by dividing
EBITDA by net sales.
14
<PAGE> 18
SUMMARY HISTORICAL CONSOLIDATED FINANCIAL DATA FOR MCNEILUS
The following table presents summary historical consolidated financial and
other data of McNeilus as of and for the fiscal years ending February 28, 1997,
February 29, 1996 and February 28, 1995, which have been derived from the
audited consolidated financial statements of McNeilus, and as of and for the
nine months ended November 30, 1997 and 1996, which have been derived from the
unaudited interim consolidated financial statements of McNeilus. The
consolidated financial statements of McNeilus for the fiscal years 1997, 1996
and 1995 were audited by Larson, Allen, Weishair and Co., LLP, independent
auditors. In the opinion of management, the interim consolidated financial
statements reflect all adjustments (consisting only of normal and recurring
adjustments) necessary to fairly present the information presented for such
periods. The results of operations for the nine months ended November 30, 1997
are not necessarily indicative of the results of operations to be expected for
the full fiscal year. The following information should be read in conjunction
with "Management's Discussion and Analysis of Consolidated Financial Condition
and Results of Operations" and the historical financial statements of McNeilus
and related notes thereto included elsewhere herein.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED NINE MONTHS ENDED
------------------------------------------ NOVEMBER 30,
FEBRUARY 28, FEBRUARY 29, FEBRUARY 28, -------------------
1997 1996 1995 1997 1996
------------ ------------ ------------ -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net sales -- manufactured products..... $312,999 $331,359 $305,730 $246,774 $233,221
Interest income -- leasing............. 12,474 10,492 7,594 9,229 9,321
Total costs and expenses............... 296,158 317,488 294,284 236,890 224,196
Income from operations................. 29,315 24,363 19,040 19,113 18,346
OTHER FINANCIAL DATA:
EBITDA(1).............................. $ 31,587 $ 27,597 $ 21,445 $ 21,200 $ 20,541
EBITDA margin %(1)..................... 10.1% 8.3% 7.0% 8.6% 8.8%
Depreciation and amortization.......... 4,077 4,286 3,399 2,812 3,005
Capital expenditures................... 2,922 5,427 9,977 2,621 2,495
</TABLE>
- -------------------------
(1) EBITDA represents income from operations plus depreciation and amortization.
Information concerning EBITDA has been included because management believes
that EBITDA is generally accepted as providing useful information regarding
a company's ability to service and/or incur debt. EBITDA should not be
considered in isolation or as a substitute for net income, cash flows or
other income or cash flow data prepared in accordance with generally
accepted accounting principles or as a measure of a company's profitability
or liquidity. The Company understands that, while EBITDA is frequently used
by securities analysts in the evaluation of companies, EBITDA, as used
herein, is not necessarily comparable to other similarly titled captions of
other companies due to potential inconsistencies in the method of
calculation. EBITDA is not intended as an alternative to cash flow from
operating activities as a measure of liquidity, an alternative to net income
as an indicator of operating performance or an alternative to any other
measure of performance in conformity with generally accepted accounting
principles. EBITDA margin percentage is calculated by dividing EBITDA by net
sales.
15
<PAGE> 19
RISK FACTORS
Holders of Notes should carefully consider the Risk Factors set forth below
prior to making a decision to tender into the Exchange Offer. This Prospectus
includes Forward-Looking Statements. Although the Company believes that its
plans, intentions and expectations reflected in such forward-looking statements
are reasonable, it can give no assurance that such plans, intentions or
expectations will be achieved. Important factors that could cause actual results
to differ materially from those included in or suggested by any Forward-Looking
Statements are set forth below and elsewhere in this Prospectus. All
Forward-Looking Statements attributable to the Company or persons acting on its
behalf are expressly qualified in their entirety by the Risk Factors set forth
below. See "Disclosure Regarding Forward-Looking Statements."
LEVERAGE AND DEBT SERVICE REQUIREMENTS
The Company is and will continue to be highly leveraged as a result of the
substantial indebtedness it incurred in connection with the Transactions. On
December 31, 1997, on a pro forma basis, the Company would have had total
Indebtedness (as defined) of approximately $366.3 million and shareholders'
equity of approximately $123.0 million, and the Company's pro forma ratio of
earnings to fixed charges for the twelve months ended December 31, 1997 would
have been 1.6 to 1. Thus, on a pro forma basis, the Company's total Indebtedness
constituted approximately 75% of the Company's total capitalization. The Company
will be permitted to incur additional indebtedness in the future subject to
certain limitations. See "Capitalization," "Description of Indebtedness --
Senior Credit Facility" and "Description of the New Notes."
The Company's ability to make scheduled payments of principal of, or to pay
the interest or Liquidated Damages, if any, on, or to refinance, its
indebtedness (including the New Notes) or to fund planned capital expenditures
will depend on its future performance, which, to a certain extent, is subject to
general economic, financial, competitive, legislative, regulatory and other
factors that are beyond its control. Based upon the current level of operations
of the Company, management believes that cash flow from operations and available
cash, together with available borrowings under the Senior Credit Facility, will
be adequate to meet the Company's future liquidity needs until the scheduled
expiration of the Senior Credit Facility, at which time the Company would expect
to replace the Senior Credit Facility. There can be no assurance, however, that
the Company's business will generate sufficient cash flow from operations, that
anticipated growth opportunities and operating improvements will be realized or
that future borrowings will be available under the Senior Credit Facility in an
amount sufficient to enable the Company to service its indebtedness, including
the New Notes, or to fund its other liquidity needs. The Senior Credit Facility
and the term loans thereunder mature prior to the maturity of the New Notes, and
there can be no assurance that the Company will be able to replace the Senior
Credit Facility, or refinance any other Indebtedness, on commercially reasonable
terms or at all. See "Management's Discussion and Analysis of Consolidated
Financial Condition and Results of Operations -- Liquidity and Capital
Resources."
The degree to which the Company is and will continue to be leveraged as a
result of the Transactions could have important consequences to Holders of the
New Notes, including, but not limited to: (i) making it more difficult for the
Company to satisfy its obligations with respect to the New Notes; (ii)
increasing the Company's vulnerability to general adverse economic and industry
conditions; (iii) limiting the Company's ability to obtain additional financing
to fund future working capital, capital expenditures and other general corporate
requirements, or to fund future acquisitions; (iv) requiring the dedication of a
substantial portion of the Company's cash flow from operations to the payment of
principal of, and interest on, its indebtedness, thereby reducing the
availability of such cash flow to fund working capital, capital expenditures,
research and development or other general corporate purposes; (v) limiting the
Company's flexibility in planning for, or reacting to, changes in its business
and the industries it serves; and (vi) placing the Company at a competitive
disadvantage compared to less leveraged competitors. In addition, the Indenture
and the Senior Credit Facility contain financial and other restrictive covenants
that limit the ability of the Company to, among other things, borrow additional
funds. Failure by the Company to comply with such covenants could result in an
event of default which, if not cured or waived, could have a material adverse
effect on the Company's financial condition, results of operations and debt
service capability. See "Description of Indebtedness -- Senior Credit Facility"
and "Description of the New Notes."
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SUBORDINATION AND RANKING OF THE NEW NOTES AND SUBSIDIARY GUARANTEES
The New Notes will be subordinated in right of payment to all current and
future Senior Debt of the Company, and the Subsidiary Guarantees will be
subordinated in right of payment to all current and future Subsidiary Guarantor
Senior Debt. Upon any distribution to creditors of the Company or any Subsidiary
Guarantor in a liquidation or dissolution of the Company or any Subsidiary
Guarantor or in a bankruptcy, reorganization, insolvency, receivership or
similar proceeding relating to the Company or such Subsidiary Guarantor or its
property, the holders of Senior Debt of the Company or Subsidiary Guarantor
Senior Debt, respectively, will be entitled to be paid in full before any
payment may be made with respect to the New Notes or any of the Subsidiary
Guarantees. The Company's obligations under the Senior Credit Facility are
secured by substantially all of the Company's assets and the stock of its
Restricted Subsidiaries, and the Indenture permits future Senior Debt to be
secured. In addition, the subordination provisions of the Indenture provide that
payments with respect to the New Notes and the Subsidiary Guarantees will be
blocked for an indefinite period so long as a payment default on Designated
Senior Debt (as defined) has occurred and is continuing and may be blocked for
up to 179 days each year in the event of certain non-payment defaults on
Designated Senior Debt. In the event of a bankruptcy, liquidation or
reorganization of the Company, Holders of the New Notes will participate ratably
with all holders of subordinated indebtedness of the Company that is deemed to
be of the same class as the New Notes, and potentially with all general
creditors of the Company other than holders of Senior Debt, based upon the
respective amounts owed to each holder or creditor, in the remaining assets of
the Company. In any of the foregoing events, there can be no assurance that
there would be sufficient assets in the Company or the Subsidiary Guarantors to
pay amounts due on the New Notes. As a result of the foregoing, Holders of the
New Notes may receive less, ratably, than the holders of Senior Debt. See
"Description of the New Notes -- Subordination."
As of December 31, 1997, on a pro forma basis, the aggregate Senior Debt of
the Company (including borrowings under the Senior Credit Facility) would have
been approximately $263.4 million and the aggregate Subsidiary Guarantor Senior
Debt of the Subsidiary Guarantors would have been approximately $2.9 million
(excluding guarantees of the Senior Credit Facility), and approximately $78.8
million would have been available for additional borrowing under the terms of
the Senior Credit Facility. The Indenture permits the incurrence of additional
indebtedness, including Senior Debt, by the Company and its Subsidiaries in the
future, subject to certain limitations. See "Description of Indebtedness --
Senior Credit Facility," "Description of the New Notes -- Incurrence of
Indebtedness and Issuance of Preferred Stock."
UNCERTAINTY INHERENT IN U.S. GOVERNMENT CONTRACTS
Approximately 29% of the Company's pro forma net sales for the twelve
months ended December 31, 1997 were made to the U.S. government under long-term
contracts and programs in the defense truck, fire apparatus and airport snow
removal markets. Companies engaged in supplying defense-related and other
equipment and services to U.S. government agencies are subject to certain
peculiar business risks. These risks include the ability of the U.S. government
to unilaterally suspend its contractors from receiving new contracts in the
event of certain violations of law or regulations. The Company has not faced any
such suspension, but it has been involved in U.S. government investigations of
various matters in the past, and although there are currently no ongoing
investigations involving the Company, there can be no assurance that the U.S.
government will not pursue matters previously investigated or that additional
investigations will not occur. The U.S. government also has the right to
terminate contracts either for its convenience or the default of the contractor.
In addition, certain costs and expenses are not allowable charges under U.S.
government contracts. The Company, as a U.S. government contractor, is subject
to financial audits and other reviews by the U.S. government of performance of,
and the accounting and general practices relating to, U.S. government contracts,
and like most large government contractors, the Company is audited and reviewed
on a continual basis. Costs and prices under such contracts may be subject to
adjustment based upon the results of such audits and reviews and the Company has
been required to pay adjustments in the past and is subject to a pending audit
seeking adjustments. There can be no assurance that the effects of audits,
reviews or governmental investigations will not have a material adverse effect
on the Company's financial condition, results of operations or debt service
capability. See "Business -- Government Contracts."
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Congress usually appropriates funds for a given program on an annual basis
even though contract performance may take more than one year. Consequently, at
the outset of a major program, the contract is usually partially funded, and
additional monies are normally committed to the contract by the procuring agency
only as appropriations are made by Congress for future government fiscal years.
Failure of Congress to appropriate expected funding for the Company's programs
could have a material adverse effect on the Company's financial condition,
results of operations and debt service capability.
Trends in DoD procurement are difficult to predict and subject to change,
and therefore there are substantial uncertainties and risks associated with the
Company's efforts to diversify its offerings to meet the possible future demands
of the DoD. The loss or significant curtailment of the Company's material U.S.
military contracts (including without limitation those identified in "Business
- -- Products and Markets"), or the failure to renew or replace material contracts
upon expiration or completion as a result of budget cuts or for other reasons,
could materially adversely affect the Company's financial condition, results of
operations and debt service capability.
Substantially all of the Company's net sales to the DoD for the twelve
months ended December 31, 1997 were derived from fixed-price contracts. Although
the Company regularly fixes the supply costs of its contracts over the life of
the contract, inherent in such contracts is the risk that if a bid is submitted
and a contract is subsequently awarded, actual performance costs may exceed the
projected costs on which the fixed contract prices were based. To the extent
that actual costs exceed such projected costs, the Company's financial
condition, results of operations and debt service capability could be materially
adversely affected. See "Business -- Customers and Backlog" and "Business --
Government Contracts."
The Company's existing contracts with the DoD for the PLS, HEMTT, HET and
LVS and for DoD vehicle parts expire in fiscal years 1999 and 2000, prior to the
maturity of the Notes. There can be no assurance such contracts will be extended
or renewed, or replaced with new contracts with the DoD. The Company is
currently competing for the MTTR program and FMTV contracts. There can be no
assurance that the Company will be awarded these or other new contracts with the
DoD, or that the Company will accurately project the costs of such contracts or
be able to fulfill such contracts at a profit to the Company. The Company's
failure to obtain these or other new contracts or to extend or replace those
expiring in fiscal years 1999 and 2000, or to accurately project costs on any
new contracts awarded by DoD, could have a material adverse effect on the
Company's financial condition, results of operations and debt service
capability.
DEPENDENCE ON KEY CUSTOMER; RISKS OF FURTHER REDUCTIONS OR CHANGES IN GOVERNMENT
EXPENDITURES
Sales under contracts with the DoD, including U.S. government Foreign
Military Sales ("FMS") or under subcontracts that identified the DoD as the
ultimate purchaser, represented $290.8 million of the Company's pro forma net
sales for the twelve months ended December 31, 1997, down from $423.8 million in
Oshkosh's fiscal 1994. The Company expects fiscal 1998 sales to the DoD to
decrease an additional $20.0 to $30.0 million from fiscal 1997 levels. The U.S.
defense budget has declined significantly in recent years, resulting in a
slowing of new program starts, program delays and program cancellations. The
reduction in these budgets has caused many government contractors to experience
declining net sales, increased pressure on operating margins and, in some cases,
net losses. There can be no assurance the U.S. government defense budget or
programs for which the Company sells products or competes will not be further
reduced or that any such further reductions will not have a material adverse
effect on the Company's financial condition, results of operations or debt
service capability.
CYCLICAL NATURE OF CONSTRUCTION INDUSTRY
The ready-mix concrete market served by the Company is highly cyclical and,
in large part, impacted by the strength of the economy generally, by prevailing
interest rates and by other factors which may have an effect on the level of
construction activity, either regionally or nationally. The U.S. construction
industry has generally been expanding in recent years, but has experienced
significant downturns in the past. Such downturns have materially and adversely
affected the net sales, profitability and cash flow of suppliers to the
construction industry, including the Company, and there can be no assurance that
such industry will not
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experience similar downturns in the future. An economic recession may impact
substantially leveraged companies, such as the Company, more than similarly
situated companies with less leverage. A cyclical decline in overall customer
demand for concrete mixers could have a material adverse effect on the Company's
financial condition, results of operations and debt service capability.
CHALLENGES OF BUSINESS INTEGRATION; ACQUISITION STRATEGY
Realization of the benefits of the business combination of Oshkosh with
McNeilus will require the integration of each company's sales and marketing,
distribution, manufacturing, engineering, finance and administrative
organizations. The successful integration of the companies will require
substantial attention from the companies' management teams. The diversion of
management attention, as well as any other difficulties which may be encountered
in the transaction and integration processes, could have an adverse impact on
the financial condition, results of operations or debt service capabilities of
the Company. Integrating the companies could, for example, result in a loss of
McNeilus or Oshkosh customers. There can be no assurance that Oshkosh will be
able to integrate the operations of Oshkosh and McNeilus successfully or that
the McNeilus business will continue to operate as profitably after the
Acquisition.
In addition, there can be no assurance that the Company will be able to
identify additional acquisition candidates, obtain financing for future
acquisitions or consummate future acquisitions. If any such future acquisitions
are consummated, there can be no assurance that the Company will be able to
successfully integrate the acquired businesses or operate them profitably.
COMPETITION
The Company operates in highly competitive industries. The Company competes
in the highly competitive fire apparatus and defense truck markets principally
on the basis of the lowest qualified bid. To submit a qualified bid, it must be
demonstrated that the fire apparatus or defense truck meets stringent
specifications, and for most defense truck contracts, passes extensive testing.
In addition, decreases in the DoD budget have resulted in a reduction in the
number and size of contracts, which has intensified the competition for
remaining available contracts. Substantial efforts are continually undertaken by
the Company and its competitors in order to maintain existing levels of defense
business and to succeed in bid competitions for available contracts. In the
refuse truck body and concrete mixer markets, the Company also faces intense
competition on the basis of price, innovation, quality, service and product
performance capabilities. As the Company seeks to expand its sales of refuse
truck bodies to municipal customers, the principal basis of competition for such
business will be lowest qualified bid. Several of the Company's competitors have
greater financial, marketing, manufacturing and distribution resources than the
Company. There can be no assurance that the Company's products will continue to
compete successfully with the products of competitors or that the Company will
be able to retain its customer base or to improve or maintain its profit margins
on sales to its customers, all of which could materially adversely affect the
Company's financial condition, results of operations and debt service
capability. See "Business -- Competition."
INTELLECTUAL PROPERTY MATTERS
The Company's patents and licenses are important in the operation of its
business. Although the Company intends to protect its intellectual property
rights vigorously, there can be no assurance that it will be successful in doing
so. The Company has received, and may in the future receive, communications from
third parties claiming that one or more of the Company's products infringe upon
such party's intellectual property. If a third party were to make a valid claim,
the Company would likely need to obtain a license from such third party on
commercial terms, which would likely increase the Company's costs. Litigation,
which could result in substantial cost to, and diversion of resources of, the
Company could be necessary to enforce patents or other intellectual property
rights of the Company or to defend the Company against claimed infringement of
the rights of others. Infringement cases are brought against the Company from
time to time, and certain cases are presently pending. Although the Company
believes that its products do not infringe upon a valid claim of any patent and
that it has meritorious defenses to each presently pending lawsuit, it is not
possible to predict the outcomes of any of these lawsuits. The failure to obtain
necessary licenses or an adverse outcome in any
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pending or future litigation relating to patent infringement or other
intellectual property matters could have a material adverse effect on the
Company's financial condition, results of operations and debt service
capability.
LABOR RELATIONS AND LABOR MARKET CONDITIONS
Certain of the hourly employees at the Company's manufacturing facilities
in Oshkosh, Wisconsin, representing approximately 23% of the Company's employees
in the United States at December 31, 1997, are represented by the United Auto
Workers. None of the employees at any of the Company's other facilities are
represented by unions. A dispute between the Company and its employees could
result in a work stoppage that could have a material adverse effect on the
Company's financial condition, results of operations and debt service
capability. In addition, sustained economic growth in the United States has
resulted in lower unemployment and higher demand for labor in many locations,
including certain locations in which the Company operates. There can be no
assurance that future labor disputes, contract renegotiations or market
conditions will not materially impact the Company's operations or costs in the
future.
PRODUCT LIABILITY AND WARRANTY CLAIMS
The Company's businesses expose it to potential product liability risks
that are inherent in the design, manufacture and sale of its products. While the
Company currently maintains what it believes to be suitable product liability
insurance, there can be no assurance that it will be able to maintain such
insurance on acceptable terms or that any such insurance will provide adequate
protection against potential liabilities. In the event of a claim against the
Company, a lack of sufficient insurance coverage could have a material adverse
effect on the Company and its business, financial condition, results of
operations and debt service capability. Moreover, even if the Company maintains
adequate insurance, any successful claim could materially and adversely affect
the reputation of the Company and its business, financial condition, results of
operations and debt service capability.
The design, manufacture and marketing of the Company's products, as well as
the inclusion of parts from other suppliers in the Company's products,
necessarily entails an inherent risk of product warranty claims. For example,
Oshkosh recorded charges of $9.7 million in fiscal 1997 and $7.7 million in
fiscal 1996 relating to warranty claims from continuing operations. There can be
no assurance that the provisions currently maintained by the Company for such
claims will be adequate to protect it in the event a significant warranty claim
is successfully asserted against the Company beyond the scope of its historical
experience, and such a claim could have a material adverse effect on the
Company's business, financial condition, results of operations and debt service
capability. See "Business -- Legal Proceedings."
ENVIRONMENTAL MATTERS
The Company is subject to various federal, state, and local environmental
laws and regulations. The Company believes its operations are in material
compliance with such laws and regulations. However, there can be no assurance
that violations will not occur or be identified, or that environmental laws and
regulations will not change in the future, in a manner that could materially and
adversely affect the Company.
Under certain circumstances, such environmental laws and regulations also
may impose joint and several liability for investigation and remediation of
contamination at locations owned or operated by the Company or its predecessors,
or at locations at which wastes or other contamination attributable to the
Company or its predecessors have come to be located. The Company can give no
assurance that such liability at facilities the Company currently owns or
operates, or at other locations, will not arise or be asserted against the
Company or entities for which it may be responsible. Such other locations could
include, for example, facilities formerly owned or operated by the Company (or
an entity or business that the Company has acquired), or locations to which
wastes generated by the Company (or an entity or business that the Company has
acquired) have been sent. Pierce has been identified as a potentially
responsible party under the federal Comprehensive Environmental Response,
Compensation and Liability Act of 1980, as amended ("CERCLA"), for investigation
and remediation costs at a site neither owned nor operated by the Company. In
addition, groundwater contamination has been identified at and about the
Company's Oshkosh, Wisconsin facility. At either of these
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locations the Company could become subject to liability that, except under
certain circumstances, is joint and several for the total cost of investigating
and remediating the site. See "Business -- Environmental Matters" for additional
information relating to these locations. Such liability, or liability at
locations yet to be identified, could have a material adverse effect on the
Company's financial condition, results of operations and debt service
capability.
DEPENDENCE ON LIMITED OR SOLE SOURCE SUPPLIERS AND SUBCONTRACTORS
The Company requires specific types of engines, transmissions, pumps,
flatracks and other parts for the manufacture of its products. The Company
obtains certain of these materials from limited or single source suppliers and
subcontractors with whom the Company has no long-term guaranteed supply
agreements. The Company has experienced problems with suppliers and
subcontractors and has incurred costs and expenses related to such problems. For
example, the Company has experienced production delays associated with its IPF
(as defined) subcontract with Steeltech (as defined), as discussed under the
caption "Management's Discussion and Analysis of Consolidated Financial
Condition and Results of Operations." The only sole source supplier of a
material part or component of the Company's products is the Allison Transmission
division of General Motors Corporation, which supplies the Company with
automatic transmissions used across the Company's product lines. There can be no
assurance that in the future significant disruption or termination of the supply
of these transmissions or other parts or components or a significant increase in
the cost of these transmissions or other parts or components will not occur and
result in a material adverse effect on the Company's financial condition,
results of operations or debt service capability.
INTERNATIONAL BUSINESS
For the twelve months ended December 31, 1997, on a pro forma basis,
approximately 6% of the Company's net sales were attributable to products sold
outside of the United States, and expanded international sales are part of the
Company's growth strategy. Foreign sales are subject to various risks, including
exposure to currency fluctuations, political, religious and economic
instability, local labor market conditions, the imposition of foreign tariffs
and other trade barriers, and changes in governmental policies. The Company may
incur increased costs and experience delays or disruptions in product deliveries
and payments in connection with its foreign sales that could cause loss of
revenue. There can be no assurance that any such developments would not have a
material adverse effect on the Company's business, financial condition, results
of operations and debt service capability.
EXPOSURE TO INCREASES IN INTEREST RATES
Amounts to be drawn under the Senior Credit Facility bear interest at
variable rates, and the Company has no present plan to enter into any hedging
arrangements that would have the effect of fixing its interest rates. A
substantial increase in interest rates could materially increase the interest
paid by the Company under the Senior Credit Facility and such increase could
have a material adverse effect on the Company's business, financial condition,
results of operation, and debt service. See Note (f) of Notes to Unaudited Pro
Forma Condensed Consolidated Financial Statements.
POSSIBLE INABILITY TO REPURCHASE NEW NOTES UPON A CHANGE OF CONTROL OFFER
Upon a Change of Control, the Company will be required to offer to
repurchase all outstanding New Notes at 101% of the principal amount thereof
plus accrued and unpaid interest and Liquidated Damages, if any, to the date of
repurchase. However, there can be no assurance that sufficient funds will be
available at the time of any Change of Control to make any required repurchases
of New Notes tendered or that lenders under the Senior Credit Facility will
allow the Company to make such required repurchases, which are prohibited by the
terms of the Senior Credit Facility. Notwithstanding these provisions, subject
to certain limitations, the Company could enter into certain transactions,
including certain recapitalizations, that would not constitute a Change of
Control but would increase the amount of debt outstanding at such time. See
"Description of the New Notes -- Repurchase at the Option of Holders -- Change
of Control."
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RESTRICTIONS IMPOSED BY TERMS OF THE COMPANY'S INDEBTEDNESS
The Indenture restricts, among other things, the Company's and the
Subsidiary Guarantors' ability to incur additional indebtedness, create liens,
pay dividends or make other restricted payments, consummate certain asset sales,
enter into certain transactions with affiliates, incur indebtedness that is
subordinate in right of payment to any Senior Debt and senior in right of
payment to the New Notes or the Subsidiary Guarantees, as the case may be,
impose restrictions on the ability of a Restricted Subsidiary to pay dividends
or make certain payments to the Company, merge or consolidate with any other
person or sell, assign, transfer, lease, convey or otherwise dispose of all or
substantially all of the assets of the Company. In addition, the Senior Credit
Facility contains other and more restrictive covenants and prohibits the Company
from prepaying its other indebtedness (including the New Notes). See
"Description of Indebtedness -- Senior Credit Facility" and "Description of the
New Notes -- Certain Covenants." The Senior Credit Facility also requires the
Company to maintain specified financial ratios and satisfy certain financial
condition tests. The Company's ability to meet those financial ratios and tests
can be affected by events beyond its control, and there can be no assurance that
the Company will meet those tests. A breach of any of the foregoing covenants
could result in a default under the Senior Credit Facility and/or the Indenture.
Upon the occurrence of an event of default under the Senior Credit Facility, the
lenders thereunder could elect to declare all amounts outstanding under the
Senior Credit Facility, together with accrued and unpaid interest, to be
immediately due and payable, which would, in turn, result in an event of default
under the Indenture.
ABSENCE OF A PUBLIC MARKET; RESTRICTIONS ON TRANSFER
The Notes are currently owned by a relatively small number of beneficial
owners. The Notes have not been registered under the Exchange Act and will be
subject to restrictions on transferability to the extent that they are not
exchanged for the New Notes. The New Notes will constitute a new issue of
securities with no established trading market. Although the New Notes will
generally be permitted to be resold or otherwise transferred by Holders who are
not affiliates of the Company without compliance with the registration
requirements under the Securities Act, the Company does not intend to list the
New Notes on any securities exchange or to seek admission thereof to trading in
the National Association of Securities Dealers Automated Quotation System.
Although BancAmerica Robertson Stephens has advised the Company that it
currently intends to make a market in the New Notes, it is not obligated to do
so and may discontinue such market making at any time without notice. If a
trading market does not develop or is not maintained, holders of the New Notes
may experience difficulty in reselling the New Notes or may be unable to sell
them at all. If a market for the New Notes develops, any such market may be
discontinued at any time. In addition, such market making activity will be
subject to the limits imposed by the Exchange Act. See "Description of the New
Notes -- Exchange Offer; Registration Rights." Accordingly, there can be no
assurance as to the development or liquidity of any market for the New Notes.
COMPLIANCE WITH EXCHANGE OFFER PROCEDURES; RESTRICTIONS ON RESALES
Issuance of the New Notes in exchange for Notes pursuant to the Exchange
Offer will be made only after a timely receipt by the Exchange Agent of such
Notes, a properly completed and duly executed Letter of Transmittal and all
other required documents. Therefore, Holders of the Notes desiring to tender
such Notes in exchange for New Notes should allow sufficient time to ensure
timely delivery. The Company is under no duty to give notification of defects or
irregularities with respect to the tenders of Notes for exchange. Notes that are
tendered but not accepted will, following the consummation of the Exchange
Offer, continue to be subject to the existing restrictions upon transfer
thereof. In addition, any Holder of Notes who tenders in the Exchange Offer for
the purpose of participating in a distribution of the New Notes may be deemed to
have received restricted securities and, if so, will be required to comply with
the registration and prospectus delivery requirements of the Securities Act in
connection with any resale. Each broker-dealer that receives New Notes for its
own account in exchange for Notes, where such Notes were acquired by such
broker-dealer as a result of market-making activities or other trading
activities must acknowledge that it will deliver a prospectus in connection with
the initial resale of such New Notes. To the extent that Notes are tendered and
accepted in
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the Exchange Offer, the trading market for untendered and tendered but
unaccepted Notes could be adversely affected. See "The Exchange Offer."
FAILURE TO EXCHANGE NOTES FOR NEW NOTES
Upon the consummation of the Exchange Offer, the Company will have
fulfilled one of its obligations under the Registration Rights Agreement, and
Holders of Notes who do not tender their Notes generally will not have any
further registration rights under the Registration Rights Agreement or
otherwise. Accordingly, any Holder of Notes that does not exchange his or her
Notes for New Notes will continue to hold the untendered Notes, which will
remain "restricted" securities under the Securities Act.
FRAUDULENT CONVEYANCE
Under applicable provisions of federal bankruptcy law or comparable
provisions of state fraudulent transfer law, if, among other things, the Company
or any Subsidiary Guarantor, at the time it incurred the indebtedness evidenced
by the New Notes or its Subsidiary Guarantees, (i) (a) was or is insolvent or
rendered insolvent by reason of such incurrence or (b) was or is engaged in a
business or transaction for which the assets remaining with the Company or such
Subsidiary Guarantor constituted unreasonably small capital or (c) intended or
intends to incur, or believed or believes that it would incur, debts beyond its
ability to pay such debts as they mature; and (ii) the Company, or such
Subsidiary Guarantor received or receives less than reasonably equivalent value
or fair consideration for the incurrence of such indebtedness, then the New
Notes and the Subsidiary Guarantees, and any pledge or other security interest
securing such indebtedness, could be voided, or claims in respect of the New
Notes or the Subsidiary Guarantees could be subordinated to all other debts of
the Company or such Subsidiary Guarantor, as the case may be. In addition, the
payment of interest and principal by the Company pursuant to the New Notes or
the payments of amounts by a Subsidiary Guarantor pursuant to a Subsidiary
Guarantee could be voided and required to be returned to the person making such
payment, or to a fund for the benefit of the creditors of the Company or such
Subsidiary Guarantor, as the case may be.
The measures of insolvency for purposes of the foregoing considerations
will vary depending upon the law applied in any proceeding with respect to the
foregoing. Generally, however, the Company or a Subsidiary Guarantor would be
considered insolvent if: (i) the sum of its debts, including contingent
liabilities, were greater than the saleable value of all of its assets at a fair
valuation or if the present fair saleable value of its assets were less than the
amount that would be required to pay its probable liability on its existing
debts, including contingent liabilities, as they become absolute and mature; or
(ii) it could not pay its debts as they become due.
On the basis of historical financial information, recent operating history
and other factors, the Company and each Subsidiary Guarantor believes that,
after giving effect to the Indebtedness incurred in connection with the
Transactions, it will not be insolvent, will not have unreasonably small capital
for the business in which it is engaged and will not incur debts beyond its
ability to pay such debts as they mature. There can be no assurance, however, as
to what standard a court would apply in making such determinations or that a
court would agree with the Company's or the Subsidiary Guarantors' conclusions
in this regard.
CONTROL BY CERTAIN SHAREHOLDERS
The Company has two classes of common equity: Common Stock and Class A
Common Stock. The voting rights of the Common Stock are limited to the election
of 25% of the Company's Board of Directors and such other voting rights required
by law. The Class A Common Stock has the right to elect 75% of the Company's
Board of Directors and to vote on any other matter brought to a vote of the
Company's shareholders. Therefore, effective control of the Company is vested in
the holders of the Class A Common Stock, which is closely held. See "Principal
Shareholders."
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THE EXCHANGE OFFER
The following discussion sets forth or summarizes the material terms of the
Exchange Offer, including those set forth in the Letter of Transmittal
distributed with this Prospectus. This summary is qualified in its entirety by
reference to the full text of the documents underlying the Exchange Offer,
copies of which are filed as exhibits to the Registration Statement of which
this Prospectus is a part and are incorporated by reference herein.
PURPOSE AND EFFECT OF THE EXCHANGE OFFER
The Notes were sold by the Company to the Initial Purchaser on February 26,
1998, and were subsequently resold to either qualified institutional buyers
pursuant to Rule 144A under the Securities Act or to persons in transactions
outside the United States in reliance on Regulation S under the Securities Act.
In connection with the Note Offering, the Company entered into the Registration
Rights Agreement, which requires, among other things, that promptly following
the completion of the Note Offering, the Company and the Subsidiary Guarantors
(i) file with the Commission a registration statement under the Securities Act
with respect to an issue of new Notes of the Company identical in all material
respects to the Notes, (ii) use their best efforts to cause such registration
statement to become effective under the Securities Act and (iii) upon the
effectiveness of that registration statement, offer to the Holders of the Notes
the opportunity to exchange their Notes for a like principal amount of new
Notes, which would be issued without a restrictive legend and generally may be
reoffered and resold by the holder without restrictions or limitations under the
Securities Act (other than any such holder that is an "affiliate" of the Company
within the meaning of Rule 405 under the Securities Act). A copy of the
Registration Rights Agreement has been filed as an exhibit to the Registration
Statement of which this Prospectus is a part. This Prospectus, the Registration
Statement of which it is a part and the Exchange Offer are made pursuant to and
as required by the Registration Rights Agreement. The term "Holder" with respect
to the Exchange Offer means any person in whose name the Notes are registered on
the books of the Company or any other person who has obtained a properly
completed bond power from the registered holder.
Because the Exchange Offer is for any and all Notes, the number of Notes
tendered and exchanged in the Exchange Offer will reduce the principal amount of
Notes outstanding. Following the consummation of the Exchange Offer, Holders of
the Notes who did not tender their Notes generally will not have any further
registration rights under the Registration Rights Agreement, and such Notes will
continue to be subject to certain restrictions on transfer. Accordingly, the
liquidity of the market for such Notes could be adversely affected. The Notes
are currently eligible for sale pursuant to Rule 144A through the PORTAL System
of the National Association of Securities Dealers, Inc. Because the Company
anticipates that most holders of Notes will elect to exchange such Notes for New
Notes due to the absence of restrictions on the resale of New Notes under the
Securities Act, the Company anticipates that the liquidity of the market for any
Notes remaining after the consummation of the Exchange Offer may be
substantially limited.
TERMS OF THE EXCHANGE OFFER
Upon the terms and subject to the conditions set forth in this Prospectus
and in the Letter of Transmittal, the Company will accept any and all Notes
validly tendered and not withdrawn prior to 12:00 midnight, New York City time,
on the Expiration Date. The Company will issue $1,000 principal amount of New
Senior Subordinated Notes in exchange for each $1,000 principal amount of
outstanding Senior Subordinated Notes accepted in the Exchange Offer. Holders
may tender some or all of their Notes pursuant to the Exchange Offer. However,
Notes may be tendered only in integral multiples of $1,000.
The form and terms of the New Notes are the same as the form and terms of
the Notes except that (i) the New Notes have been registered under the
Securities Act and hence will not bear legends restricting the transfer thereof
and (ii) the holders of the New Notes generally will not be entitled to certain
rights under the Registration Rights Agreement, which rights generally will
terminate upon consummation of the Exchange Offer. The New Notes will evidence
the same debt as the Notes and will be entitled to the benefits of the
Indenture.
24
<PAGE> 28
Holders of Notes do not have any appraisal or dissenters' rights under the
Wisconsin Business Corporation Law or the Indenture in connection with the
Exchange Offer. The Company intends to conduct the Exchange Offer in accordance
with the applicable requirements of the Exchange Act and the rules and
regulations of the Commission thereunder, including Rule 14e-1 thereunder.
The Company shall be deemed to have accepted validly tendered Notes when,
as and if the Company has given oral or written notice thereof to the Exchange
Agent. The Exchange Agent will act as agent for the tendering Holders for the
purpose of receiving the New Notes from the Company.
If any tendered Notes are not accepted for exchange because of an invalid
tender, the occurrence of certain other events set forth herein or otherwise,
the certificates for any such unaccepted Notes will be returned, without
expense, to the tendering Holder thereof as promptly as practicable after the
Expiration Date.
Holders who tender Notes in the Exchange Offer will not be required to pay
brokerage commissions or fees or, subject to the instructions in the Letter of
Transmittal, transfer taxes with respect to the exchange of Notes pursuant to
the Exchange Offer. The Company will pay all charges and expenses, other than
transfer taxes in certain circumstances, in connection with the Exchange Offer.
See "-- Fees and Expenses."
EXPIRATION DATE; EXTENSIONS; AMENDMENTS
The term "Expiration Date" shall mean 12:00 midnight, New York City time,
on June 9, 1998, unless the Company, in its sole discretion, extends the
Exchange Offer, in which case the term "Expiration Date" shall mean the latest
date and time to which the Exchange Offer is extended.
To extend the Exchange Offer, the Company will notify the Exchange Agent of
any extension by oral or written notice, followed by a public announcement
thereof no later than 9:00 a.m., New York City time, on the next business day
after the previously scheduled expiration date.
The Company reserves the right, in its reasonable judgment, (i) to delay
accepting any Notes, to extend the Exchange Offer or to terminate the Exchange
Offer if any of the conditions set forth below under "-- Conditions" shall not
have been satisfied, by giving oral or written notice of such delay, extension
or termination to the Exchange Agent or (ii) to amend the terms of the Exchange
Offer in any manner. Any such delay in acceptance, extension, termination or
amendment will be followed as promptly as practicable by a public announcement
thereof. If the Exchange Offer is amended in a manner determined by the Company
to constitute a material change, the Company will promptly disclose such
amendment by means of a prospectus supplement that will be distributed to the
registered Holders, and, depending upon the significance of the amendment and
the manner of disclosure to the registered Holders, the Company will extend the
Exchange Offer for five to ten business days if the Exchange Offer would
otherwise expire during such five to ten business-day period.
If the Company does not consummate the Exchange Offer, or, in lieu thereof,
the Company does not file and cause to become effective a resale shelf
registration for the Notes within the time periods set forth therein, Liquidated
Damages will accrue and be payable on the Notes either temporarily or
permanently. See "Description of the New Notes -- Exchange Offer; Registration
Rights."
INTEREST ON NEW NOTES
The New Senior Subordinated Notes will bear interest from February 26,
1998, the date of issuance of the Notes that are tendered in exchange for the
New Notes (or the most recent date to which interest on such Notes has been
paid). Accordingly, Holders of Notes that are accepted for exchange will not
receive interest that is accrued but unpaid on the Notes at the time of tender,
but such interest will be payable on the first March 1 or September 1, as the
case may be, after the Expiration Date. Interest on the New Notes will be
payable semiannually on each March 1 and September 1, commencing on September 1,
1998.
25
<PAGE> 29
PROCEDURES FOR TENDERING
Only a holder of Notes may tender such Notes in the Exchange Offer. To
tender in the Exchange Offer, a Holder must complete, sign and date the relevant
Letter of Transmittal, or a facsimile thereof, have the signatures thereon
guaranteed if required by the Letter of Transmittal, and mail or otherwise
deliver such Letter of Transmittal or such facsimile, together with the Notes
and any other required documents, to the Exchange Agent so as to be received by
the Exchange Agent at the address set forth below prior to 12:00 midnight, New
York City time, on the Expiration Date. The Letter of Transmittal must be used
to tender Notes. Delivery of the Notes may be made by book-entry transfer in
accordance with the procedures described below. Confirmation of such book-entry
transfer must be received by the Exchange Agent prior to the Expiration Date.
By executing the Letter of Transmittal, each Holder will make to the
Company the representation set forth below in the second paragraph under the
heading "-- Resale of New Notes."
The tender by a Holder and the acceptance thereof by the Company will
constitute an agreement between such Holder and the Company in accordance with
the terms and subject to the conditions set forth herein and in the Letter of
Transmittal.
THE METHOD OF DELIVERY OF NOTES AND THE LETTER OF TRANSMITTAL AND ALL OTHER
REQUIRED DOCUMENTS TO THE EXCHANGE AGENT IS AT THE ELECTION AND RISK OF THE
HOLDER. INSTEAD OF DELIVERY BY MAIL, IT IS RECOMMENDED THAT HOLDERS USE AN
OVERNIGHT OR HAND DELIVERY SERVICE. IF DELIVERY BY MAIL IS NEVERTHELESS USED,
REGISTERED MAIL IS RECOMMENDED. IN ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED
TO ASSURE DELIVERY TO THE EXCHANGE AGENT BEFORE THE EXPIRATION DATE. NO LETTER
OF TRANSMITTAL OR NOTES SHOULD BE SENT TO THE COMPANY. HOLDERS MAY REQUEST THEIR
RESPECTIVE BROKERS, DEALERS, COMMERCIAL BANKS, TRUST COMPANIES OR NOMINEES TO
EFFECT THE ABOVE TRANSACTIONS FOR SUCH HOLDERS.
Any beneficial owner whose Notes are registered in the name of a broker,
dealer, commercial bank, trust company or other nominee and who wishes to tender
should contact the registered Holder promptly and instruct such registered
Holder to tender on such beneficial owner's behalf.
Signatures on the Letter of Transmittal or a notice of withdrawal, as the
case may be, must be guaranteed by an Eligible Institution (as defined) unless
the Notes tendered pursuant thereto are tendered (i) by a registered Holder who
has not completed the box entitled "Special Registration Instructions" or
"Special Delivery Instructions" on the Letter of Transmittal or (ii) for the
account of an Eligible Institution. In the event that signatures on a Letter of
Transmittal or a notice of withdrawal, as the case may be, are required to be
guaranteed, such guarantee must be by a member firm of a registered national
securities exchange or of the National Association of Securities Dealers, Inc.,
a commercial bank or trust company having an office or correspondent in the
United States or an "eligible guarantor institution" within the meaning of Rule
17Ad-15 under the Exchange Act (an "Eligible Institution").
If the Letter of Transmittal is signed by a person other than the
registered Holder of any Notes listed therein, such Notes must be endorsed or
accompanied by a properly completed bond power, signed by such registered Holder
as such registered Holder's name appears on such Notes with the signature
thereon guaranteed by an Eligible Institution.
If the Letter of Transmittal or any Notes or bond powers are signed by
trustees, executors, administrators, guardians, attorneys-in-fact, officers of
corporations or others acting in a fiduciary or representative capacity, such
persons should so indicate when signing, and unless waived by the Company,
evidence satisfactory to the Company of their authority to so act must be
submitted with the Letter of Transmittal.
The Company understands that the Exchange Agent will make a request
promptly after the date of this Prospectus to establish accounts with respect to
the Notes at the Depository for the purpose of facilitating the Exchange Offer,
and subject to the establishment thereof, any financial institution that is a
participant in the
26
<PAGE> 30
Depository's system may make book-entry delivery of the Notes by causing the
Depository to transfer such Notes into the Exchange Agent's account with respect
to the Notes in accordance with the Depository's procedures for such transfer.
Although delivery of the Notes may be effected through book-entry transfer into
the Exchange Agent's account at the Depository, an appropriate Letter of
Transmittal properly completed and duly executed with any required signature
guarantee and all other required documents must in each case be transmitted to
and received or confirmed by the Exchange Agent at its address set forth below
on or prior to the Expiration Date, or, if the guaranteed delivery procedures
described below are complied with, within the time period provided under such
procedures. Delivery of documents to the Depository does not constitute delivery
to the Exchange Agent.
All questions as to the validity, form, eligibility (including time of
receipt), acceptance of tendered Notes and withdrawal of tendered Notes will be
determined by the Company in its sole discretion, which determination will be
final and binding. The Company reserves the absolute right to reject any and all
Notes not properly tendered or any Notes the Company's acceptance of which
would, in the opinion of counsel for the Company, be unlawful. The Company also
reserves the right to waive any defects, irregularities or conditions of tender
as to particular Notes. The Company's interpretation of the terms and conditions
of the Exchange Offer (including the instructions in the Letter of Transmittal)
will be final and binding on all parties. Unless waived, any defects or
irregularities in connection with tenders of Notes must be cured within such
time as the Company shall determine. Although the Company intends to notify
Holders of defects or irregularities with respect to tenders of Notes, none of
the Company, the Exchange Agent or any other person shall incur any liability
for failure to give such notification. Tenders of Notes will not be deemed to
have been made until such defects or irregularities have been cured or waived.
Any Notes received by the Exchange Agent that are not properly tendered and as
to which the defects or irregularities have not been cured or waived will be
returned by the Exchange Agent to the tendering Holders, unless otherwise
provided in the Letter of Transmittal, as soon as practicable following the
Expiration Date.
GUARANTEED DELIVERY PROCEDURES
Holders who wish to tender their Notes and (i) whose New Notes are not
immediately available, (ii) who cannot deliver their Notes, the Letter of
Transmittal or any other required documents to the relevant Exchange Agent or
(iii) who cannot complete the procedures for book-entry transfer, prior to the
Expiration Date, may effect a tender if:
(a) the tender is made through an Eligible Institution;
(b) prior to the Expiration Date, the Exchange Agent receives from
such Eligible Institution a properly completed and duly executed Notice of
Guaranteed Delivery (by facsimile transmission, mail or hand delivery)
setting forth the name and address of the Holder, the certificate number(s)
of such Notes and the principal amount of Notes tendered, stating that the
tender is being made thereby and guaranteeing that, within three New York
Stock Exchange trading days after the Expiration Date, the Letter of
Transmittal (or facsimile thereof), together with the certificate(s)
representing the Notes (or a confirmation of book-entry transfer of such
Notes into the Exchange Agent's account at the Depository) and any other
documents required by the Letter of Transmittal, will be deposited by the
Eligible Institution with the Exchange Agent; and
(c) such properly completed and executed Letter of Transmittal (or
facsimile thereof), as well as the certificate(s) representing all tendered
Notes in proper form for transfer (or a confirmation of book-entry transfer
of such Notes into the Exchange Agent's account at the Depository) and all
other documents required by the Letter of Transmittal, are received by the
Exchange Agent within three New York Stock Exchange trading days after the
Expiration Date.
Upon request to the Exchange Agent, a Notice of Guaranteed Delivery will be
sent to Holders who wish to tender their Notes according to the guaranteed
delivery procedures set forth above.
27
<PAGE> 31
WITHDRAWALS OF TENDERS
Except as otherwise provided herein, tenders of Notes may be withdrawn at
any time prior to 12:00 midnight New York City time, on the Expiration Date.
To withdraw a tender of Notes in the Exchange Offer, a written or facsimile
transmission notice of withdrawal must be received by the Exchange Agent at its
address set forth herein prior to 12:00 midnight New York City time, on the
Expiration Date. Any such notice of withdrawal must (i) specify the name of the
person having deposited the Notes to be withdrawn (the "Depositor"), (ii)
identify the Notes to be withdrawn (including the certificate number(s) and
principal amount of such Notes, or, in the case of Notes transferred by
book-entry transfer, the name and number of the account at the Depository to be
credited), (iii) be signed by the Holder in the same manner as the original
signature on the Letter of Transmittal by which such Notes were tendered
(including any required signature guarantees) or be accompanied by documents of
transfer sufficient to have the Trustee with respect to the Notes register the
transfer of such Notes into the name of the person withdrawing the tender, and
(iv) specify the name in which any such Notes are to be registered, if different
from that of the Depositor. All questions as to the validity, form and
eligibility (including time or receipt) of such notices will be determined by
the Company, whose determination shall be final and binding on all parties. Any
Notes so withdrawn will be deemed not to have been validly tendered for purposes
of the Exchange Offer and no New Notes will be issued with respect thereto
unless the Notes so withdrawn are validly retendered. Any Notes which have been
tendered but which are not accepted for exchange will be returned to the Holder
thereof without cost to such Holder as soon as practicable after withdrawal,
rejection of tender or termination of the Exchange Offer. Properly withdrawn
Notes may be retendered by following one of the procedures described above under
"-- Procedures for Tendering" at any time prior to the Expiration Date.
CONDITIONS
Notwithstanding any other term of the Exchange Offer, the Company shall not
be required to accept for exchange, or to exchange New Notes for, any Notes, and
may terminate or amend the Exchange Offer as provided herein before the
acceptance of such Notes, if any law, statute, rule, regulation or
interpretation by the staff of the Commission is proposed, adopted or enacted,
which, in the reasonable judgment of the Company, might materially impair the
ability of the Company to proceed with the Exchange Offer or materially impair
the contemplated benefits of the Exchange Offer to the Company.
If the Company determines in its reasonable judgment that any of the
conditions are not satisfied, the Company may (i) refuse to accept any Notes and
return all tendered Notes to the tendering Holders, (ii) extend the Exchange
Offer and retain all Notes tendered prior to the expiration of the Exchange
Offer, subject, however, to the rights of Holders to withdraw such Notes (see
"Withdrawals of Tenders") or (iii) waive such unsatisfied conditions with
respect to the Exchange Offer and accept all properly tendered Notes which have
not been withdrawn. If such waiver constitutes a material change to the Exchange
Offer, the Company will promptly disclose such waiver by means of a prospectus
supplement that will be distributed to the registered holders, and, depending
upon the significance of the waiver and the manner of disclosure to the
registered Holders, the Company will extend the Exchange Offer for a period of
five to ten business days if the Exchange Offer would otherwise expire during
such five to ten business-day period.
EXCHANGE AGENT
Firstar Trust Company will act as Exchange Agent for the Exchange Offer
with respect to the Notes (the "Exchange Agent").
28
<PAGE> 32
Questions and requests for assistance, requests for additional copies of
this Prospectus or of the Letter of Transmittal for the Notes and requests for
copies of Notice of Guaranteed Delivery should be directed to the Exchange
Agent, addressed as follows:
By Registered or Certified Mail, Overnight Mail or Courier Service or in
Person By Hand:
Firstar Trust Company
1555 North River Center Drive
Suite 301
Milwaukee, Wisconsin 53212
Attention: Pamela Warner
By Facsimile:
(414) 905-5049
FEES AND EXPENSES
The expenses of soliciting tenders will be borne by the Company. The
principal solicitation is being made by mail; however, additional solicitation
may be made by telegraph, telephone, facsimile or in person by officers and
regular employees of the Company and its affiliates.
The Company has not retained any dealer-manager in connection with the
Exchange Offer and will not make any payments to brokers or other persons
soliciting acceptances of the Exchange Offer. The Company, however, will pay the
Exchange Agent reasonable and customary fees for its services and will reimburse
it for its reasonable out-of-pocket expenses in connection therewith and pay
other registration expenses, including fees and expenses of the Trustee, filing
fees, blue sky fees and printing and distribution expenses.
The Company will pay all transfer taxes, if any, applicable to the exchange
of the Notes pursuant to the Exchange Offer. If, however, certificates
representing the New Notes or the Notes for principal amounts not tendered or
accepted for exchange are to be delivered to, or are to be issued in the name
of, any person other than the registered Holder of the Notes tendered, or if
tendered Notes are registered in the name of any person other than the person
signing the Letter of Transmittal, or if a transfer tax is imposed for any
reason other than the exchange of the Notes pursuant to the Exchange Offer, then
the amount of any such transfer taxes (whether imposed on the registered Holder
or any other person) will be payable by the tendering Holder.
ACCOUNTING TREATMENT
The New Notes will be recorded at the same carrying value as the Notes,
which is the aggregate principal amount of the Notes, as reflected in the
Company's accounting records on the date of exchange. Accordingly, no gain or
loss for accounting purposes will be recognized in connection with the Exchange
Offer. The expenses of the Exchange Offer will be amortized over the term of the
New Notes.
RESALE OF NEW NOTES
Based on interpretations by the staff of the Commission set forth in
no-action letters issued to third parties, the Company believes that New Notes
issued pursuant to the Exchange Offer in exchange for Notes may be offered for
resale, resold and otherwise transferred by any Holder of such New Notes (other
than any such Holder which is an "affiliate" of the Company within the meaning
of Rule 405 under the Securities Act) without compliance with the registration
and prospectus delivery provisions of the Securities Act, provided that such New
Notes are acquired in the ordinary course of such Holder's business and such
Holder does not intend to participate, and has no arrangement or understanding
with any person to participate, in a distribution of such New Notes. Any Holder
who tenders in the Exchange Offer with the intention to participate, or for the
purpose of participating, in a distribution of the New Notes may not rely on the
position of the staff of the Commission enunciated in Exxon Capital Holdings
Corporation (available April 13, 1989) and Morgan Stanley & Co., Incorporated
(available June 5, 1991), or similar no-action letters, but rather must comply
with the registration and prospectus delivery requirements of the Securities Act
in connection with any resale
29
<PAGE> 33
transaction. In addition, any such resale transaction should be covered by an
effective registration statement containing the selling security holder's
information required by Item 507 or 508 of Regulation S-K of the Securities Act,
as applicable. Each broker-dealer that receives New Notes for its own account in
exchange for Notes, where such Notes were acquired by such broker-dealer as a
result of market-making activities or other trading activities, may be a
statutory underwriter and must acknowledge that it will deliver a prospectus in
connection with any resale of such New Notes.
By tendering in the Exchange Offer, each Holder will represent to the
Company that, among other things, (i) the New Notes acquired pursuant to the
Exchange Offer are being obtained in the ordinary course of business of the
person receiving such New Notes, whether or not such person is a Holder, (ii)
neither the Holder nor any such other person has an arrangement or understanding
with any person to participate in a distribution of such New Notes and (iii) the
Holder and such other person acknowledge that if they participate in the
Exchange Offer for the purpose of distributing the New Notes (a) they must, in
the absence of an exemption therefrom, comply with the registration and
prospectus delivery requirements of the Securities Act in connection with any
resale of the New Notes and cannot rely on the no-action letters referenced
above and (b) failure to comply with such requirements in such instance could
result in such Holder incurring liability under the Securities Act for which
such Holder is not indemnified by the Company. Further, by tendering in the
Exchange Offer, each Holder that may be deemed an "affiliate" (as defined under
Rule 405 of the Securities Act) of the Company will represent to the Company
that such Holder understands and acknowledges that the New Notes may not be
offered for resale, resold or otherwise transferred by that Holder without
registration under the Securities Act or an exemption therefrom.
CONSEQUENCES OF FAILURE TO EXCHANGE
As a result of the making of this Exchange Offer, the Company will have
fulfilled one of its obligations under the Registration Rights Agreement, and
Holders of Notes who do not tender their Notes generally will not have any
further registration rights under the Registration Rights Agreement or
otherwise. Accordingly, any Holder of Notes that does not exchange that Holder's
Notes for New Notes will continue to hold the untendered Notes and will be
entitled to all the rights and limitations applicable thereto under the
Indenture, except to the extent that such rights or limitations, by their terms,
terminate or cease to have further effectiveness as a result of the Exchange
Offer.
The Notes that are not exchanged for New Notes pursuant to the Exchange
Offer will remain restricted securities. Accordingly, such Notes may be resold
only (i) to the Company (upon redemption thereof or otherwise), (ii) pursuant to
an effective registration statement under the Securities Act, (iii) so long as
the Notes are eligible for resale pursuant to Rule 144A, to a qualified
institutional buyer within the meaning of Rule 144A under the Securities Act in
a transaction meeting the requirements of Rule 144A, (iv) outside the United
States to a foreign person pursuant to the exemption from the registration
requirements of the Securities Act provided by Regulation S thereunder, (v)
pursuant to an exemption from registration under the Securities Act provided by
Rule 144 thereunder (if available), or (vi) to an institutional accredited
investor in a transaction exempt from the registration requirements of the
Securities Act, in each case in accordance with any applicable securities laws
of any state of the United States. See "Risk Factors -- Failure to Exchange
Notes for New Notes."
OTHER
Participation in the Exchange Offer is voluntary and Holders should
carefully consider whether to accept. Holders of the Notes are urged to consult
their financial and tax advisors in making their own decision on what action to
take.
The Company may in the future seek to acquire untendered Notes in open
market or privately negotiated transactions, through subsequent exchange offers
or otherwise. The Company has no present plans to acquire any Notes that are not
tendered in the Exchange Offer or to file a registration statement to permit
resales of any untendered Notes.
30
<PAGE> 34
THE TRANSACTIONS
THE ACQUISITION
On December 8, 1997, Oshkosh entered into the Stock Purchase Agreement
pursuant to which, on February 26, 1998, it acquired all of the outstanding
capital stock of McNeilus and entered into related non-compete and ancillary
agreements for an aggregate acquisition price of $250.0 million. At November 30,
1997, McNeilus had unrestricted cash of $17.7 million ($20.2 million less an
estimated $2.5 million required for capital and surplus at McNeilus' captive
insurance subsidiary). The Stock Purchase Agreement required, among other
things, that the selling stockholders of McNeilus prepay certain notes and
purchase selected assets of McNeilus, which provided net proceeds to Oshkosh of
approximately $16.1 million. As a result, management estimates that the
effective cost to the Company in connection with the Acquisition was
approximately $216.2 million. Concurrently with the consummation of the
Acquisition, the Company consummated the Note Offering, established the Senior
Credit Facility, applied the net proceeds from the Note Offering and the Senior
Credit Facility to consummate the Acquisition, refinanced existing Oshkosh
indebtedness, paid fees and expenses and established the Lease Financing
Facility.
The Stock Purchase Agreement contained customary representations and
warranties from McNeilus and the majority shareholders of McNeilus with respect
to McNeilus and the stock of McNeilus. The majority shareholders of McNeilus
have agreed to indemnify Oshkosh, its affiliates and McNeilus for any loss
resulting from: (i) any breach of any such representation or warranty; (ii) the
failure of McNeilus or the shareholders of McNeilus to comply with covenants
contained in the Stock Purchase Agreement; or (iii) any taxes imposed on
McNeilus or Oshkosh in connection with the disposition of certain assets of
McNeilus prior to closing of the Acquisition (the "Closing"); provided, however,
that such indemnity is limited to cover only losses in excess of $4.0 million in
the aggregate and less than $24.0 million in the aggregate. Such indemnification
obligations of the majority shareholders of McNeilus generally expire eighteen
months after the Closing. Oshkosh has agreed to indemnify the shareholders of
McNeilus for any loss resulting from: (i) any breach of any representation or
warranty made by Oshkosh pursuant to the Stock Purchase Agreement; (ii) the
failure of Oshkosh to comply with covenants contained in the Stock Purchase
Agreement; (iii) the operation of McNeilus after the Closing; or (iv) certain of
Oshkosh's actions in seeking financing for Oshkosh.
THE SENIOR CREDIT FACILITY
The Senior Credit Facility is comprised of a multi-tranche Term Loan
Facility aggregating $225.0 million and a $100.0 million Revolving Credit
Facility entered into with Bank of America National Trust and Savings
Association ("Bank of America"), as agent and a lender, and certain other
financial institutions. The Senior Credit Facility is guaranteed by all of the
Company's domestic Restricted Subsidiaries (other than MFSI). See "Description
of Indebtedness -- Senior Credit Facility."
THE LEASE FINANCING FACILITY
The Leasing Partner entered into a general partnership with BA Leasing &
Capital Corporation ("BALCAP"), an affiliate of the Initial Purchaser and Bank
of America, effective February 26, 1998. The Leasing Partnership offers lease
financing to customers of the Company and administers existing leases
contributed to the Leasing Partnership. Indebtedness under the Lease Financing
Facility is secured by the underlying leases and assets of, and is recourse to,
the Leasing Partnership; such indebtedness is off-balance sheet and non-recourse
to the Company. See "Description of Indebtedness -- Lease Financing Facility."
31
<PAGE> 35
SOURCES AND USES OF FUNDS
The following table sets forth the estimated sources and uses of funds
assuming the Transactions were consummated as of December 31, 1997 (in
millions):
<TABLE>
<S> <C>
SOURCES
Senior Credit Facility:
Revolving Credit Facility(1)...... $ 13.0
Term Loan Facility................ 225.0
Notes offered hereby................ 100.0
------
Total Sources.................. $338.0
======
USES
McNeilus Acquisition, net........... $216.2
Refinance Oshkosh debt.............. 102.8
Estimated fees and expenses......... 15.4
Taxes related to lease
financing(2)...................... 3.6
------
Total Uses..................... $338.0
======
</TABLE>
- -------------------------
(1) The Revolving Credit Facility provides maximum borrowing availability
(including letters of credit) of $100.0 million, subject to certain
borrowing conditions. See "Capitalization" and "Description of Indebtedness
-- Senior Credit Facility."
(2) The Company incurred taxes payable as a result of the transfer of MFSI's
current lease portfolio to the Leasing Partnership.
32
<PAGE> 36
USE OF PROCEEDS
The gross proceeds of $100.0 million from the sale of the Notes, together
with borrowings under the Senior Credit Facility of $238.0 million, were or will
be used by the Company to: (i) fund the approximately $216.2 million net cash
purchase price payable in connection with the Acquisition; (ii) repay in full
approximately $102.8 million of existing indebtedness of Oshkosh; (iii) pay
estimated fees and expenses of $15.4 million in connection with the
Transactions; and (iv) pay $3.6 million in deferred income taxes related to the
establishment of the Lease Financing Facility. The existing indebtedness of
Oshkosh repaid in connection with the Transactions was comprised entirely of
borrowings under the Existing Bank Credit Agreement (as defined) (which bore
interest at a blended rate of approximately 7.78% at December 31, 1997 and which
would have matured beginning on September 30, 1999). See "The Transactions."
CAPITALIZATION
The following table sets forth: (i) Oshkosh's actual unaudited consolidated
capitalization as of December 31, 1997; and (ii) the Company's unaudited
consolidated capitalization, on a pro forma basis to give effect to the
Transactions, as if they had occurred on December 31, 1997. This table should be
read in conjunction with the information contained herein under the captions
"The Transactions," "Use of Proceeds," "Management's Discussion and Analysis of
Consolidated Financial Condition and Results of Operations," the unaudited
historical consolidated and unaudited pro forma condensed consolidated financial
statements of the Company, including the related notes thereto, and the
unaudited consolidated historical financial statements of McNeilus, including
the related notes thereto, included elsewhere in this Offering Memorandum.
<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1997
----------------------------
PRO FORMA FOR
ACTUAL THE TRANSACTIONS
------ ----------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Cash and marketable securities........................ $ 198 $ 2,698
======== ========
Long-term debt, including current maturities:
Existing Bank Credit Agreement...................... $102,820 $ --
McNeilus notes payable.............................. -- 2,884
Senior Credit Facility:
Revolving Credit Facility(1)..................... -- 13,048
Term Loan Facility............................... -- 225,000
Notes............................................... -- 100,000
-------- --------
Total long-term debt(2)..................... 102,820 340,932
Shareholders' equity.................................. 123,747 122,992
-------- --------
Total capitalization........................ $226,567 $463,924
======== ========
</TABLE>
- -------------------------
(1) At the Closing, the following amounts were drawn under the Senior Credit
Facility: (i) $100.0 million on Term Loan A, which matures in six years;
(ii) $62.5 million on Term Loan B, which matures in seven years; (iii) $62.5
million on Term Loan C, which matures in eight years; and (iv) on a pro
forma basis at December 31, 1997, approximately $13.0 million on the $100.0
million Revolving Credit Facility, which matures in six years. The undrawn
amount under the Revolving Credit Facility is available for working capital
and general corporate purposes, including the issuance of letters of credit,
which were approximately $8 million. After giving effect to the
Transactions, the Company had approximately $79 million of availability
under the terms of the Revolving Credit Facility on a pro forma basis. See
"Description of Indebtedness -- Senior Credit Facility."
(2) Does not include off-balance sheet indebtedness under the Lease Financing
Facility. Such indebtedness is secured by the underlying leases and other
assets of, and is recourse to, the Leasing Partnership; such indebtedness is
non-recourse to the Company.
33
<PAGE> 37
SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA FOR OSHKOSH
The following table presents selected historical consolidated financial and
other data of Oshkosh as of and for the fiscal years ended September 30, 1997,
1996, 1995, 1994 and 1993, which have been derived from the audited consolidated
financial statements of Oshkosh, and as of and for the three months ended
December 31, 1997 and 1996, which have been derived from the unaudited interim
consolidated financial statements of Oshkosh. The consolidated financial
statements of Oshkosh for the fiscal years 1997, 1996, 1995, 1994 and 1993 were
audited by Ernst & Young LLP, independent auditors. The interim consolidated
financial statements of Oshkosh as of and for the three months ended December
31, 1997 and 1996 have been derived from, and should be read in conjunction
with, the unaudited consolidated financial statements of Oshkosh and the related
notes thereto, included elsewhere herein. In the opinion of management, such
interim consolidated financial statements reflect all adjustments (consisting
only of normal and recurring adjustments) necessary to fairly present the
information presented for such periods. The results of operations for the three
months ended December 31, 1997 are not necessarily indicative of the results of
operations to be expected for the full fiscal year. The selected historical
consolidated financial and other data set forth below should be read in
conjunction with "Management's Discussion and Analysis of Consolidated Financial
Condition and Results of Operations" and the historical consolidated financial
statements of Oshkosh and the related notes thereto included elsewhere herein.
<TABLE>
<CAPTION>
THREE MONTHS
FISCAL YEAR ENDED ENDED
SEPTEMBER 30, DECEMBER 31,
---------------------------------------------------- -------------------
1997 1996(1) 1995 1994 1993 1997 1996
---- ------- ---- ---- ---- ---- ----
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net sales..................................... $683,234 $413,455 $438,557 $581,275 $537,065 $151,801 $150,320
Cost of sales................................. 594,390 378,376 384,579 513,204 483,082 129,494 130,737
-------- -------- -------- -------- -------- -------- --------
Gross income.......................... 88,844 35,079 53,978 68,071 53,983 22,307 19,583
Operating expenses:
Selling, general and administrative....... 47,742 32,205 29,242 38,404 33,076 11,676 10,025
Engineering, research and development..... 7,847 6,304 5,443 6,597 8,973 2,143 1,993
Amortization of goodwill and other
intangibles............................. 4,470 171 -- -- -- 1,126 1,132
-------- -------- -------- -------- -------- -------- --------
Total operating expenses.............. 60,059 38,680 34,685 45,001 42,049 14,945 13,150
-------- -------- -------- -------- -------- -------- --------
Income (loss) from operations................. 28,785 (3,601) 19,293 23,070 11,934 7,362 6,433
Other income (expense), net................... (12,283) 1,619 (371) (968) (3,349) (2,267) (3,361)
Income (loss) from continuing operations
before income taxes......................... 16,502 (1,982) 18,922 22,102 8,585 5,095 3,072
Provision (credit) for income taxes........... 6,496 (1,741) 7,285 8,544 2,901 1,955 1,448
-------- -------- -------- -------- -------- -------- --------
Income (loss) from continuing operations...... 10,006 (241) 11,637 13,558 5,684 3,140 1,624
Cumulative effect of change in accounting for
post-retirement benefits, net............... -- -- -- -- (4,088) -- --
Loss from discontinued operations, net (2).... -- (2,859) (2,421) (504) (533) -- --
-------- -------- -------- -------- -------- -------- --------
Net income (loss)............................. $ 10,006 $ (3,100) $ 9,216 $ 13,054 $ 1,063 $ 3,140 $ 1,624
======== ======== ======== ======== ======== ======== ========
Earnings (loss) per share:
Income (loss) from continuing
operations.............................. $ 1.18 $ (.03) $ 1.32 $ 1.56 $ .65 $ .38 $ .19
Net income (loss)......................... 1.18 (.35) 1.04 1.50 .12 .38 .19
Earnings (loss) per share assuming dilution:
Income (loss) from continuing
operations.............................. $ 1.17 $ (.03) $ 1.31 $ 1.56 $ .65 $ .37 $ .19
Net income (loss)......................... 1.17 (.35) 1.04 1.50 .12 .37 .19
Dividends per share:
Class A Common Stock...................... $ 0.435 $ .0435 $ 0.435 $ 0.435 $ 0.435 $0.10875 $0.10875
Common Stock.............................. 0.500 0.500 0.500 0.500 0.500 0.12500 0.12500
OTHER FINANCIAL DATA:
EBITDA(3)..................................... $ 42,637 $ 9,316 $ 27,702 $ 32,348 $ 20,226 $ 10,591 $ 9,934
EBITDA margin %(3)............................ 6.2% 2.3% 6.3% 5.6% 3.8% 7.0% 6.6%
Depreciation and amortization................. 14,070 8,798 8,409 9,278 8,292 3,283 3,556
Capital expenditures.......................... 6,263 5,355 5,347 5,178 7,697 1,697 1,342
Net cash provided by (used in):
Continuing operating activities........... 65,782 (16,237) 6,166 67,423 35,544 16,779 25,142
Discontinued operating activities......... (1,658) 4,743 10,482 (2,851) 702 (491) (326)
Investing activities...................... (7,400) (166,231) (6,170) (6,136) (11,692) (6,097) (1,227)
Financing activities...................... (33,632) 148,136 3,402 (43,192) (24,183) (33,212) (18,871)
Ratio of earnings to fixed charges(4)......... 2.3x N/A 19.7x 16.8x 3.0x 3.0x 1.9x
BALANCE SHEET DATA:
Cash and cash equivalents..................... $ 23,219 $ 127 $ 29,716 $ 15,836 $ 592 $ 198 $ 4,845
Working capital(5)............................ 50,113 67,469 91,777 82,010 100,967 29,252 62,045
Total assets.................................. 420,394 435,161 200,916 198,678 235,386 381,458 402,244
Long-term debt, including current portion..... 135,000 157,882 -- 610 40,338 102,820 140,000
Shareholders' equity.......................... 120,900 121,602 133,413 121,558 112,004 123,747 122,237
</TABLE>
34
<PAGE> 38
- -------------------------
(1) On September 18, 1996, Oshkosh acquired for $156,926 in cash all of the
issued and outstanding stock of Pierce, a manufacturer and marketer of fire
trucks and other fire apparatus. The acquisition was accounted for using the
purchase method of accounting and accordingly, the income statement data
includes the operating results of Pierce since the date of acquisition.
(2) On June 2, 1995, Oshkosh sold certain assets associated with its motor home,
bus and van chassis business. The consideration included cash of $23,815 and
the assumption by the buyer of certain liabilities. The disposition of the
chassis business has been accounted for as a discontinued operation and
accordingly, the income statement data for 1995, 1994 and 1993 reflect the
chassis business as a discontinued operation.
(3) EBITDA represents income (loss) from operations plus depreciation and
amortization. EBITDA also includes the add-back of the non-cash write-off of
certain Oshkosh investments of $4.1 million in the fiscal year ended
September 30, 1996. Information concerning EBITDA has been included because
management believes that EBITDA is generally accepted as providing useful
information regarding a company's ability to service and/or incur debt.
EBITDA should not be considered in isolation or as a substitute for net
income, cash flows or other income or cash flow data prepared in accordance
with generally accepted accounting principles or as a measure of a company's
profitability or liquidity. The Company understands that, while EBITDA is
frequently used by securities analysts in the evaluation of companies,
EBITDA, as used herein, is not necessarily comparable to other similarly
titled captions of other companies due to potential inconsistencies in the
method of calculation. EBITDA is not intended as an alternative to cash flow
from operating activities as a measure of liquidity, an alternative to net
income as an indicator of operating performance or an alternative to any
other measure of performance in conformity with generally accepted
accounting principles. EBITDA margin percentage is calculated by dividing
EBITDA by net sales.
(4) For purposes of the computation, the ratio of earnings to fixed charges has
been calculated by dividing (i) income from continuing operations before
income taxes plus fixed charges by (ii) fixed charges. Fixed charges are
equal to interest expense plus the portion of the rent expense (one-third)
estimated to represent interest expense. Earnings were inadequate to cover
fixed charges in 1996 resulting in a deficiency of $1,982.
(5) Working capital represents total current assets less total current
liabilities. Working capital at September 30, 1997, 1996, 1995, 1994 and
1993 includes net current assets (liabilities) related to discontinued
operations of ($1,536), ($1,975), $3,273, $15,882 and $12,084, respectively.
Working capital at December 31, 1997 and 1996 includes net current
(liabilities) related to discontinued operations of $(1,376) and $(1,801),
respectively.
35
<PAGE> 39
SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA FOR MCNEILUS
The following table presents selected historical consolidated financial and
other data of McNeilus as of and for the fiscal years ended February 28, 1997,
1995, 1994 and 1993, and the fiscal year ended February 29, 1996, which have
been derived from the audited consolidated financial statements of McNeilus, and
as of and for the nine months ended November 30, 1997 and 1996, which have been
derived from the unaudited interim consolidated financial statements of
McNeilus. The consolidated financial statements of McNeilus for the fiscal years
1997, 1996, 1995, 1994 and 1993 were audited by Larson, Allen, Weishair and Co.,
LLP, independent auditors. The interim consolidated financial statements of
McNeilus as of and for the nine months ended November 30, 1997 and 1996 have
been derived from, and should be read in conjunction with, the unaudited
consolidated financial statements of McNeilus and the related notes thereto,
included elsewhere herein. In the opinion of management, such interim
consolidated financial statements reflect all adjustments (consisting only of
normal and recurring adjustments) necessary to fairly present the information
presented for such periods. The results of operations for the nine months ended
November 30, 1997 are not necessarily indicative of the results of operations to
be expected for the full fiscal year. The historical consolidated selected
financial and other data set forth below should be read in conjunction with
"Management's Discussion and Analysis of Consolidated Financial Condition and
Results of Operations" and the historical consolidated financial statements of
McNeilus and the related notes thereto included elsewhere herein.
<TABLE>
<CAPTION>
NINE MONTHS
FISCAL YEAR ENDED ENDED
------------------------------------------------------------------------ NOVEMBER 30,
FEBRUARY 28, FEBRUARY 29, FEBRUARY 28, FEBRUARY 28, FEBRUARY 28, -------------------
1997 1996 1995 1994 1993 1997 1996
------------ ------------ ------------ ------------ ------------ -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net sales -- manufactured
products...................... $312,999 $331,359 $305,730 $211,010 $131,632 $246,774 $233,221
Interest income -- leasing...... 12,474 10,492 7,594 5,526 5,012 9,229 9,321
-------- -------- -------- -------- -------- -------- --------
Total net sales and
revenues.................. 325,473 341,851 313,324 216,536 136,644 256,003 242,542
-------- -------- -------- -------- -------- -------- --------
Costs and expenses:
Cost of sales -- manufactured
products.................... 257,163 281,790 259,437 175,021 109,011 203,690 191,930
Interest expense -- leasing... 9,903 8,241 5,528 3,834 3,401 7,356 7,413
Selling....................... 12,286 10,823 9,339 8,743 6,668 9,868 9,804
General and administrative.... 16,806 16,634 19,980 15,065 10,843 15,976 15,049
-------- -------- -------- -------- -------- -------- --------
Total costs and expenses.... 296,158 317,488 294,284 202,663 129,923 236,890 224,196
-------- -------- -------- -------- -------- -------- --------
Income from operations.......... 29,315 24,363 19,040 13,873 6,721 19,113 18,346
-------- -------- -------- -------- -------- -------- --------
Other income (expense), net..... (447) 698 (67) 1,084 1,517 1,164 (148)
Income from continuing
operations before income
taxes......................... 28,868 25,061 18,973 14,957 8,238 20,277 18,198
Provision for income taxes...... 10,920 9,503 8,923 6,152 2,934 7,423 7,013
-------- -------- -------- -------- -------- -------- --------
Income from continuing
operations.................... 17,948 15,558 10,050 8,805 5,304 12,854 11,185
Income from discontinued
operations, net(1)............ 117 271 849 604 473 602 421
-------- -------- -------- -------- -------- -------- --------
Net income...................... $ 18,065 $ 15,829 $ 10,899 $ 9,409 $ 5,777 $ 13,456 $ 11,606
======== ======== ======== ======== ======== ======== ========
OTHER FINANCIAL DATA:
EBITDA(2)....................... $ 31,587 $ 27,597 $ 21,445 $ 16,491 $ 8,857 $ 21,200 $ 20,541
EBITDA margin %(2).............. 10.1% 8.3% 7.0% 7.8% 6.7% 8.6% 8.8%
Depreciation and amortization... 4,077 4,286 3,399 2,740 2,165 2,812 3,005
Capital expenditures............ 2,922 5,427 9,977 8,795 2,839 2,621 2,495
Net cash provided by (used in):
Continuing operating
activities.................. 25,981 17,323 9,802 11,713 (2,231) 10,846 15,191
Discontinued operating
activities.................. 117 271 849 502 473 602 421
Investing activities.......... (17,799) (38,353) (32,704) (32,078) (1,802) 2,697 (20,365)
Financing activities.......... 556 26,001 22,241 28,512 (2,084) (18,127) 486
BALANCE SHEET DATA:
Cash and cash equivalents....... $ 24,743 $ 16,005 $ 11,034 $ 11,695 $ 3,548 $ 20,159 $ 11,317
Working capital(3).............. 52,052 38,786 29,547 32,542 14,915 57,830 43,980
Total assets(1)................. 304,220 293,395 231,460 176,378 116,451 274,720 291,744
Long-term debt-leasing,
including current portion..... 121,570 107,664 77,478 58,774 33,534 113,639 120,315
Other long-term debt, including
current portion............... 7,741 13,469 10,458 13,878 282 2,884 11,480
Stockholders' equity............ 77,102 61,659 54,582 45,189 39,857 90,558 73,261
</TABLE>
36
<PAGE> 40
- -------------------------
(1) In December 1997, McNeilus entered into agreements to sell its ready-mix,
credit life insurance and travel operations. The dispositions of these
businesses have been accounted for as discontinued operations and
accordingly, the financial statement data as of and for fiscal years ended
February 28, 1997, 1995, 1994, 1993 and February 29, 1996, and for the nine
months periods ended November 30, 1997 and 1996, has been restated to
reflect these businesses as discontinued operations.
(2) EBITDA represents income from operations plus depreciation and amortization.
Information concerning EBITDA has been included because management believes
that EBITDA is generally accepted as providing useful information regarding
a company's ability to service and/or incur debt. EBITDA should not be
considered in isolation or as a substitute for net income, cash flows or
other income or cash flow data prepared in accordance with generally
accepted accounting principles or as a measure of a company's profitability
or liquidity. The Company understands that, while EBITDA, is frequently used
by securities analysts in the evaluation of companies, EBITDA, as used
herein, is not necessarily comparable to other similarly titled captions of
other companies due to potential inconsistencies in the method of
calculation. EBITDA is not intended as an alternative to cash flow from
operating activities as a measure of liquidity, an alternative to net income
as an indicator of operating performance or an alternative to any other
measure of performance in conformity with generally accepted accounting
principles. EBITDA margin percentage is calculated by dividing EBITDA by net
sales.
(3) Working capital represents total current assets less total current
liabilities. Working capital at February 28, 1997, 1995, 1994 and 1993, and
February 29, 1996, and November 30, 1997 and 1996, includes no net assets
(liabilities) related to discontinued operations.
37
<PAGE> 41
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
CONSOLIDATED FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following contains Forward-Looking Statements. These statements are
subject to risks, uncertainties and other factors that could cause actual
results to differ materially from those described in or suggested by any such
statement. See "Disclosure Regarding Forward-Looking Statements."
HISTORICAL RESULTS OF OPERATIONS -- OSHKOSH
The following discussion provides additional information regarding the
financial condition and results of operations of Oshkosh for the three-month
periods ended December 31, 1997 and 1996 and for each of the fiscal years ended
September 30, 1997, 1996 and 1995. The discussion should be read in conjunction
with "Selected Historical Consolidated Financial Data for Oshkosh" and Oshkosh's
historical consolidated financial statements and the notes thereto appearing
elsewhere in this Offering Memorandum.
On December 8, 1997, Oshkosh entered into the Stock Purchase Agreement
pursuant to which, on February 26, 1998, it acquired all of the outstanding
capital stock of McNeilus and entered into related non-compete and ancillary
agreements for an aggregate acquisition price of $250.0 million. At November 30,
1997, McNeilus had unrestricted cash of $17.7 million ($20.2 million less an
estimated $2.5 million required capital and surplus at McNeilus' captive
insurance subsidiary). The Stock Purchase Agreement required, among other
things, that the selling stockholders of McNeilus prepay certain notes and
purchase selected assets of McNeilus, which provided net proceeds to Oshkosh of
approximately $16.1 million. As a result, management estimates that the
effective cost to the Company in connection with the Acquisition was
approximately $216.2 million. Concurrently with the consummation of the
Acquisition, the Company consummated the Note Offering, established the Senior
Credit Facility, applied the net proceeds from the Note Offering and the Senior
Credit Facility to consummate the Acquisition, refinanced existing Oshkosh
indebtedness, paid fees and expenses and established the Lease Financing
Facility. The Acquisition has been recorded using the purchase method of
accounting and McNeilus is being operated as a subsidiary of Oshkosh.
Accordingly, the discussion and analysis of historical periods does not reflect
the significant impact the Acquisition has had and will have on Oshkosh. See
"The Transactions," "Business -- The Acquisition" and "Unaudited Pro Forma
Condensed Consolidated Financial Statements."
Three Months Ended December 31, 1997 Compared to Three Months Ended December 31,
1996
Oshkosh reported net income of $3.1 million, or $0.38 per share, on sales
of $151.8 million for the first quarter of fiscal 1998, compared to net income
of $1.6 million, or $0.19 per share, on sales of $150.3 million for the first
quarter of fiscal 1997.
Sales of commercial products decreased slightly in the first quarter of
fiscal 1998 compared to the first quarter of fiscal 1997 while sales of defense
products increased slightly. Commercial sales in the first quarter of fiscal
1998 decreased $2.7 million or 3.3% from the first quarter of fiscal 1997 to
$80.5 million. A $5.8 million increase in sales of fire trucks and other fire
apparatus was more than offset by an $8.6 million decrease in sales of refuse
vehicles and the elimination of sales of commercial van trailers as Oshkosh
substantially exited this line of business. Sales of defense products totaled
$71.3 million in the first quarter of fiscal 1998, an increase of $4.2 million
or 6.3% as compared to the first quarter of fiscal 1997. The increase in defense
sales principally results from sales of LVS vehicles to the U.S. government.
Management does not expect the increase in defense product sales to continue
through the remainder of fiscal 1998.
Gross income in the first quarter of fiscal 1998 totaled $22.3 million or
14.7% of sales compared to $19.6 million or 13.0% in the first quarter of fiscal
1997. Fiscal 1997 first quarter margins were adversely affected by increased
warranty and other costs related to refuse vehicle sales.
Operating expenses totaled $14.9 million or 9.8% of sales in the first
quarter of fiscal 1998 compared to $13.2 million or 8.7% of sales in the first
quarter of fiscal 1997. The increase in operating expenses in the first quarter
of fiscal 1998 relates principally to increased operating expenses of Pierce of
$0.8 million associated with its growth in fire apparatus sales with the
remainder related to increases at Oshkosh's other operating units.
38
<PAGE> 42
Interest expense decreased to $2.5 million in the first quarter of fiscal
1998 compared to $3.6 million in the first quarter of fiscal 1997 due to
accelerated payments against the term loan used to finance the acquisition of
Pierce.
The effective income tax rate for combined federal and state income taxes
for the first quarter of fiscal 1998 was 38.4% compared to 47.1% for the first
quarter of fiscal 1997. Fiscal 1998 benefitted from the reversal of $0.3 million
of income tax provisions recognized in earlier periods.
Additional Acquisition
In addition to the Acquisition, on December 19, 1997, Oshkosh through its
wholly-owned subsidiary, Pierce, acquired certain inventory, machinery and
equipment, and intangible assets of Nova Quintech, a manufacturer of aerial
ladders, with available cash of $3.5 million.
Fiscal Year Ended September 30, 1997 Compared to Fiscal Year Ended September 30,
1996
Oshkosh reported net income of $10.0 million, or $1.18 per share, on sales
of $683.2 million for the year ended September 30, 1997, compared to a net loss
of $3.1 million, or $0.35 per share, on sales of $413.5 million for the year
ended September 30, 1996. The fiscal 1997 results include a full year of sales
and earnings of Pierce, a leading manufacturer and marketer of fire trucks and
other fire apparatus in the U.S., which was acquired on September 18, 1996 (see
"-- Acquisitions"). The fiscal 1996 results were adversely affected by after-tax
charges of $11.3 million, including $3.2 million related to a defense
subcontract to Steeltech Manufacturing, Inc. ("Steeltech"), $3.5 million
associated with Oshkosh's Mexican bus affiliates, and warranty and other related
costs of $4.6 million. In fiscal 1996, Oshkosh also recognized after-tax
benefits of $2.0 million on the reversal of income tax provisions and related
accrued interest.
Sales of both commercial and defense products increased in fiscal 1997
compared to fiscal 1996. Commercial sales in fiscal 1997 were $394.6 million, an
increase of $232.6 million, or 143.6% from 1996, principally due to inclusion of
a full year of Pierce sales in fiscal 1997. Commercial export sales totaled
$20.7 million and $20.4 million, respectively, in fiscal 1997 and fiscal 1996.
Sales of defense products totaled $288.6 million in fiscal 1997, an increase of
$37.2 million, or 14.8% compared to fiscal 1996. The increase in defense sales
was primarily due to an increase in sales of ISO-Compatible Palletized Flatracks
("IPF"), which were produced by Steeltech (which increased from $8.7 million in
fiscal 1996 to $41.4 million in fiscal 1997). Defense export sales also
increased to $16.6 million in fiscal 1997 compared to $2.1 million in fiscal
1996.
Gross income in fiscal 1997 totaled $88.8 million, or 13.0% of sales,
compared to $35.1 million, or 8.5% of sales, in fiscal 1996. The increase in
gross income in fiscal 1997 was principally due to increased sales volume as a
result of the acquisition of Pierce. In addition, fiscal 1996 gross income was
reduced by pre-tax charges of $5.1 million related to production delays and cost
overruns associated with the IPF subcontract to Steeltech and increased warranty
and other related costs of $5.5 million (pre-tax).
Operating expenses totaled $60.1 million, or 8.8% of sales, in fiscal 1997
compared to $38.7 million, or 9.4% of sales, in fiscal 1996. The increase in
operating expenses in fiscal 1997 related principally to the operating expenses
of Pierce and amortization of goodwill and other intangible assets associated
with the acquisition of Pierce. Oshkosh recognized pre-tax charges of $3.2
million in fiscal 1996 to write off its investment in Steeltech and to write off
its remaining investments and advances associated with its Mexican bus
affiliates due to prolonged weakness in the Mexican economy and continuing high
losses and high leverage reported by the Mexican affiliates.
Interest expense increased to $12.7 million in fiscal 1997 compared to $0.9
million in fiscal 1996 as a result of the financing for the Pierce acquisition
(see "-- Liquidity and Capital Resources").
Miscellaneous expense was $0.3 million in fiscal 1997 compared to
miscellaneous income of $1.5 million in fiscal 1996. The miscellaneous income in
fiscal 1996 arose primarily from the reversal of accrued interest related to
income taxes.
39
<PAGE> 43
The provision for income taxes in fiscal 1997 was $6.5 million, or 39.4% of
pre-tax income, compared to a credit for income taxes of $1.7 million in fiscal
1996. Fiscal 1997 and fiscal 1996 benefitted from the reversal of $0.9 million
and $1.0 million, respectively, of income tax provisions recognized in earlier
periods. In addition, the effective income tax rate in fiscal 1997 was adversely
affected by non-deductible goodwill of $2.6 million arising from the Pierce
acquisition.
The $2.9 million after-tax loss from discontinued operations ($4.7 million
pre-tax) in fiscal 1996 resulted from the write-off of receivables of $2.6
million (pre-tax) related to the company's Mexican bus affiliates and from a
$2.1 million pre-tax charge for additional warranty and other related costs with
respect to Oshkosh's former U.S. chassis business which was sold in June 1995.
Fiscal Year Ended September 30, 1996 Compared to Fiscal Year Ended September 30,
1995
Oshkosh reported a net loss of $3.1 million, or $0.35 per share, on sales
of $413.5 million for the year ended September 30, 1996, compared to net income
of $9.2 million, or $1.04 per share, on sales of $438.6 million for the year
ended September 30, 1995. The fiscal 1996 results were adversely affected by
after-tax charges of $11.3 million, including $3.2 million related to Steeltech,
$3.5 million associated with the company's Mexican bus affiliates, and warranty
and other related costs of $4.6 million. Oshkosh also recognized after-tax
benefits of $2.0 million on the reversal of income tax provisions and related
accrued interest in fiscal 1996. During the third quarter of fiscal 1995,
Oshkosh sold its chassis manufacturing business in the U.S. and its interest in
a joint venture in Mexico producing chassis for the Mexican market to
Freightliner Corporation ("Freightliner"). The activities of these businesses
are reported as discontinued operations and resulted in a charge to income in
fiscal 1995. In fiscal 1996, further after-tax charges of $1.3 million were
reported with respect to warranty and other related costs of the discontinued
operations. The results of Pierce from the date of acquisition to September 30,
1996, which were not material, have been included in the consolidated results of
Oshkosh.
Sales of both commercial and defense products declined in fiscal 1996
compared to fiscal 1995. Commercial sales in fiscal 1996 decreased $14.8
million, or 8.4%, from fiscal 1995 to $162.0 million, primarily due to a decline
in sales of commercial van trailers of $31.7 million as Oshkosh substantially
exited this line of business. Sales of all other commercial product lines
increased in fiscal 1996. Commercial export sales totaled $20.4 million and
$17.5 million, respectively, in fiscal 1996 and fiscal 1995. Sales of defense
products totaled $251.5 million in fiscal 1996, a decrease of $10.3 million, or
3.9%, compared to fiscal 1995. The decrease in defense sales was a result of
delays in production of IPFs. Defense export sales were $2.1 million in fiscal
1996 compared to $1.6 million in fiscal 1995.
Gross income in fiscal 1996 totaled $35.1 million, or 8.5% of sales,
compared to $54.0 million, or 12.3% of sales, in fiscal 1995. Fiscal 1996
margins were reduced by pre-tax charges of $5.1 million ($3.1 million in the
third quarter and $2.0 million in the fourth quarter) related to production
delays and cost overruns associated with a subcontract to Steeltech (see below),
increased warranty and other related costs of $5.5 million (pre-tax) of which
$2.1 million was recorded in the fourth quarter, and lower volume.
Oshkosh subcontracted production under an $85 million IPF contract for the
U.S. Army to Steeltech, a minority-owned firm, pursuant to Department of Defense
regulations under the IPF contract. Due to financial difficulties encountered by
Steeltech, Oshkosh advanced working capital requirements to Steeltech in fiscal
1995 and 1996. As a result of delays in the start-up of full-scale production
under the IPF contract, Oshkosh wrote off advances of $3.1 million and its
investment in Steeltech of $.2 million in the third quarter of fiscal 1996 based
on projections of Steeltech's cash flows through completion of the IPF
subcontract.
At June 30, 1996, Oshkosh believed that it was not necessary to write-off
its 50% interest in a joint venture that leased equipment to Steeltech nor
provide for its guarantee of the joint venture's debt, because Steeltech was
current with respect to its lease payments, and Oshkosh believed the equipment
could be sold at a value which would permit Oshkosh to recover its investment in
the joint venture. However, by September 30, 1996, Oshkosh concluded that
Steeltech would not likely achieve and sustain adequate cash flow to satisfy the
lease payments. Additionally, after further investigation, Oshkosh determined
that the equipment could not likely be sold at a value adequate to recover
Oshkosh's investment and satisfy the joint venture's
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debt. Accordingly, Oshkosh wrote-off its investment in the joint venture and
accrued its guarantee at September 30, 1996 in an aggregate amount of $2.0
million.
Operating expenses totaled $38.7 million, or 9.4% of sales, in fiscal 1996
compared to $34.7 million, or 7.9% of sales, in fiscal 1995. The company
recognized pre-tax charges of $3.2 million in fiscal 1996 to write off its
investment in Steeltech of $.2 million (see above) and to write off its
remaining investments and advances associated with its Mexican bus affiliates of
$3.0 million.
Miscellaneous income increased to $1.5 million in fiscal 1996 compared to
miscellaneous expense of $0.5 million in fiscal 1995 as a result of the reversal
of accrued interest related to income taxes in fiscal 1996.
The credit for income taxes totaled $1.7 million in fiscal 1996, benefiting
from the reversal of $1.0 million in income tax provisions recognized in earlier
periods, compared to a provision for income taxes of $7.3 million in fiscal
1995.
The $2.9 million after-tax loss from discontinued operations ($4.7 million
pre-tax) in fiscal 1996 resulted from the write-off of receivables of $2.6
million (pre-tax) related to Oshkosh's Mexican bus affiliates and from a $2.1
million pre-tax charge for additional warranty and other related costs with
respect to Oshkosh's former U.S. chassis business which was sold in June 1995.
The $2.4 million after-tax loss from discontinued operations in fiscal 1995
reflects losses on the sale of Oshkosh's former U.S. chassis business and from
the sale of an interest in a former Mexican bus affiliate.
Acquisitions
On September 18, 1996, Oshkosh acquired for cash all of the issued and
outstanding stock of Pierce, a leading manufacturer and marketer of fire trucks
and other fire apparatus in the U.S. The acquisition price of $156.9 million,
including acquisition costs and net of cash acquired, was financed from
borrowings under a bank credit facility. On November 9, 1995, Oshkosh through
its wholly-owned subsidiary, Summit Performance Systems, Inc., acquired the
inventory, land, buildings, machinery and equipment, and technology of Friesz
Manufacturing Company ("Friesz"), a manufacturer of concrete mixer systems and
related aftermarket replacement parts, from available cash for $3.9 million.
HISTORICAL RESULTS OF OPERATIONS -- MCNEILUS
The following discussion provides additional information regarding the
results of operations of McNeilus for the nine-month periods ended November 30,
1997 and 1996 and for each of the fiscal years ended February 28, 1997, February
29, 1996 and February 28, 1995. The discussion should be read in conjunction
with "Selected Historical Consolidated Financial Data for McNeilus" and
McNeilus' historical consolidated financial statements and the notes thereto
appearing elsewhere in this Offering Memorandum.
McNeilus sells concrete mixers mounted on truck chassis ("mixers") and
concrete mixers only ("mixer only"). McNeilus also sells refuse packer units
mounted on truck chassis ("packers") and packer units only ("packer only").
McNeilus' product lines also include ready-mix concrete mixer plants, as well as
replacement parts for all of McNeilus' products. McNeilus sells its products to
third parties and its lease financing subsidiary, MFSI.
On December 8, 1997, the shareholders of McNeilus executed a definitive
agreement pursuant to which, on February 26, 1998, they sold all of the
outstanding capital stock of McNeilus to Oshkosh. The Stock Purchase Agreement
provided for the sale of certain of McNeilus' operating subsidiaries prior to
the consummation of the transaction with Oshkosh. As a result, McNeilus has
accounted for the subsidiaries being sold as discontinued operations and,
accordingly, prior period financial statements of McNeilus have been
reclassified to reflect the discontinuation of these operations. Other than this
reclassification, the discussion and analysis of historical periods does not
reflect the significant impact the Acquisition is expected to have on McNeilus.
See "Unaudited Pro Forma Condensed Consolidated Financial Statements."
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Nine Months Ended November 30, 1997 Compared to Nine Months Ended November 30,
1996
McNeilus reported net income of $13.5 million for the nine months ended
November 30, 1997 compared to net income of $11.6 million for the nine month
period ended November 30, 1996.
Net sales for the nine months ended November 30, 1997 increased by $13.6
million or 5.8% over the prior year period to $246.8 million. Total unit volume
was comparable between periods, and the impact on net sales from significant
increases in packer only volume and increases in mixer and packer unit volumes
was offset by decreases in mixer only sales.
Gross profit for the nine months ended November 30, 1997 totaled $43.1
million or 17.5% of net sales compared to $41.3 million or 17.7% of net sales
for the nine months ended November 30, 1996. The gross margin decrease was
principally as a result of the sale of a relatively lower proportion of higher
margin mixer only sales.
Net interest income from leasing activities for the nine months ended
November 30, 1997 remained level at $1.9 million as compared to the prior
period.
Selling and general and administrative expenses for the nine months ended
November 30, 1997 increased to $25.8 million or 10.5% of net sales compared to
$24.9 million or 10.7% of net sales for the nine months ended November 30, 1996,
generally reflecting the higher sales volume.
Net other income increased to $1.2 million for the nine months ended
November 30, 1997 from $(0.2) million for the nine months ended November 30,
1996, primarily because interest expense decreased due to lower average
borrowings outstanding.
Fiscal Year Ended February 28, 1997 Compared to Fiscal Year Ended February 29,
1996
McNeilus reported net income of $18.1 million in fiscal 1997 compared to
net income of $15.8 million in fiscal 1996.
Net sales in fiscal 1997 decreased $18.4 million or 5.5% from fiscal 1996
to $313.0 million. The decrease resulted primarily from a substantial decrease
in packer and packer only sales as certain of McNeilus' largest commercial
customers curtailed capital spending. Mixer and mixer only sales in the
aggregate decreased 2.6% due to a shift in unit volume from mixer sales, which
include the price of the truck chassis, to mixer only sales, which are sold
without the truck chassis.
Gross profit for fiscal 1997 totaled $55.8 million or 17.8% of net sales
compared to $49.6 million or 15.0% of net sales for fiscal 1996. Gross profit
increased due to the relatively higher proportion of mixer and mixer only sales,
which have higher overall margins compared to packer and packer only sales.
Improvements in manufacturing efficiencies and lower warranty expense also
helped improve gross profit.
Net interest income from leasing activities in fiscal 1997 increased $0.3
million or 14.2% from fiscal 1996 to $2.6 million, generally reflecting higher
leasing volume.
Selling and general and administrative expenses for fiscal 1997 increased
to $29.1 million or 9.3% of net sales compared to $27.5 million or 8.3% of net
sales for fiscal 1996, primarily due to increased advertising and bonuses.
Net other income (expense) for fiscal 1997 decreased to $(0.5) million from
$0.7 million in fiscal 1996 because interest expense increased due to higher
average borrowings.
Fiscal Year Ended February 29, 1996 Compared to Fiscal Year Ended February 28,
1995
McNeilus reported net income of $15.8 million in fiscal 1996 compared to
net income of $10.9 million in fiscal 1995.
Net sales in fiscal 1996 increased $25.7 million or 8.4% from fiscal 1995
to $331.4 million. Mixer and mixer only sales were down slightly, while packer
and packer only sales were up substantially in fiscal 1996 compared to fiscal
1995. The increase in packer and packer only sales was primarily due to the
continued
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expansion of the McNeilus packer product line which permitted increased sales to
large commercial customers.
Gross profit for fiscal 1996 totaled $49.6 million or 15.0% of net sales
compared to $46.3 million or 15.1% of net sales for fiscal 1995. Gross profit
increased primarily as a result of higher sales volume, as gross margin
decreased slightly because of the shift in mix toward lower margin packer
product sales.
Net interest income from leasing activities in fiscal 1996 increased $0.2
million or 8.4% from fiscal 1995 to $2.3 million, generally reflecting higher
leasing volume.
Selling and general and administrative expenses for fiscal 1996 decreased
to $27.5 million or 8.3% of net sales compared to $29.3 million or 9.5% of net
sales for fiscal 1995, principally due to a decrease in charitable contribution
expense.
Net other income for fiscal 1996 increased $0.8 million from fiscal 1995 to
$0.7 million primarily as a result of increased interest income.
FINANCIAL CONDITION
Three Months Ended December 31, 1997
During the three months ended December 31, 1997, cash decreased $23.0
million. Cash of $23.0 million and cash provided from operating activities of
$16.8 million was used primarily to fund $32.2 million of long-term debt
repayments, the acquisition of Nova Quintech for $3.5 million, capital additions
of $1.7 million and dividends of $1.0 million.
Three Months Ended December 31, 1996
During the three months ended December 31, 1996, cash increased $4.7
million. Cash provided from operations of $25.1 million exceeded cash
requirements for the repayment of long-term debt of $17.9 million, capital
additions of $1.3 million and dividends of $1.1 million.
Year Ended September 30, 1997
During fiscal 1997, cash increased $23.1 million. Cash provided from
operating activities of $65.8 million was used primarily to fund $6.3 million of
capital additions, $1.7 million of payments related to discontinued operations,
$22.9 million of long-term debt payments, $6.5 million of purchases of common
stock and common stock warrants (net of stock option exercise proceeds) and $4.2
million of dividends.
Year Ended September 30, 1996
During fiscal 1996, cash decreased $29.6 million. The acquisitions of
Pierce and Friesz for $160.8 million, cash used for operating activities of
$16.2 million, capital additions of $5.4 million, stock repurchases of $5.4
million and dividends of $4.4 million were funded principally from long-term
borrowings of $157.9 million, from available cash and from cash provided from
discontinued operations of $4.7 million. Cash was used for operating activities
in fiscal 1996 due to higher working capital requirements associated with sales
in the fourth quarter of fiscal 1996 and first quarter of fiscal 1997.
LIQUIDITY AND CAPITAL RESOURCES
Pro Forma
Assuming consummation of the Transactions as of December 31, 1997, the
Company would have had pro forma Indebtedness of approximately $366.3 million
(including the Notes, but excluding additional borrowings available under the
revolving credit portion of the Senior Credit Facility). At the Closing, the
following amounts were drawn under the Senior Credit Facility: (i) $100.0
million on Term Loan A, which matures in six years; (ii) $62.5 million on Term
Loan B, which matures in seven years; (iii) $62.5 million on Term Loan C, which
matures in eight years; and (iv) on a pro forma basis at December 31, 1997,
approximately $13.0 million on the $100.0 million Revolving Credit Facility,
which matures in six years. The undrawn amount under the Revolving Credit
Facility is available for working capital and general corporate purposes,
including the issuance of letters of credit, which were approximately $8
million. After giving effect to the Transactions, the Company had approximately
$79 million of availability under the terms of the Revolving
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Credit Facility on a pro forma basis. The Company's primary cash requirements
include working capital, interest and principal payments on indebtedness,
capital expenditures, dividends and potentially future acquisitions. The primary
sources of cash are cash flow from operations and borrowings under the Senior
Credit Facility. Based upon current and anticipated future operations, the
Company believes that capital resources will be adequate to meet future working
capital, debt service and other capital requirements. There can be no assurance,
however, that the Company's business will generate cash flow that, together with
the other sources of capital, will enable the Company to meet those
requirements.
The Company's cash flow from operations has, and will likely continue to,
fluctuate significantly from period to period as the Company uses working
capital when producing orders and generates working capital when shipping those
orders. For example, the Company's use ($16.2 million) of cash in operations in
1996 and generation of $65.8 million in cash in 1997 resulted in significant
part from a substantial increase in inventories in 1996 and a corresponding
decrease in inventories in 1997, as certain large orders produced during 1996
were shipped during the first quarter of fiscal 1997. Similarly, if received, an
award of the MTTR or any other major DoD contract would likely entail increases
in the Company's working capital needs as it uses working capital to produce
vehicles or other equipment for shipment.
The Leasing Partner entered into the Leasing Partnership effective February
26, 1998. The Leasing Partnership provides capital lease financing to customers
of the Company. MFSI had historically provided lease financing to customers of
McNeilus and, at the Closing, assigned its lease portfolio to the Leasing
Partner, which contributed the portfolio to the Leasing Partnership. Under the
terms of the Lease Partnership agreement, the Leasing Partner may be required to
make future equity contributions to the Lease Partnership based upon its pro
rata ownership interest and growth of the Leasing Partnership.
The Senior Credit Facility and the Indenture, and other instruments of the
Company may, pose various restrictions and covenants on the Company that could
potentially limit the Company's ability to respond to market conditions, to
provide for unanticipated capital investments, to raise additional debt or
equity capital or to take advantage of business opportunities. See "Description
of Indebtedness -- Senior Credit Facility" and "Description of the New Notes --
Certain Covenants."
The Senior Credit Facility accrues interest at variable rates. The Company
presently has no plans to enter into interest rate swap arrangements to limit
its exposure to future increases in interest rates.
The Company's capital expenditures for fiscal years 1998 through 2000 are
expected to be approximately $12.0 to $15.0 million annually.
The Company expects to continue to pay regular quarterly dividends of
$.10875 per share of Class A Common Stock and $.125 per share for Common Stock,
although the Company's ability to do so may be limited by the covenants
concerning restricted payments in the Indenture and the Senior Credit Facility.
Historical
On September 18, 1996, Oshkosh entered into a bank credit agreement (the
"Existing Bank Credit Agreement") to finance the acquisition of Pierce and to
refinance a previous revolving credit facility. The Existing Bank Credit
Agreement initially consisted of a $150 million term loan which required annual
principal payments of $15 million through fiscal 2002 and a final payment of $60
million on September 30, 2003, and a $50 million revolving credit facility for
working capital purposes which would have expired on September 30, 1999. Through
December 31, 1997, Oshkosh made the $15 million principal payments due in
September 1997 and 1998, and paid another $25 million which was prorated against
the principal payments required in fiscal 1999 through fiscal 2003. At December
31, 1997, Oshkosh had borrowings under the revolving credit facility of $7.8
million and $8.2 million of standby letters of credit which reduced available
capacity under the revolving credit facility to $34.0 million. The total of all
term loan and revolving credit facility borrowings, excluding letters of credit,
would have been required to be reduced to or below $145.0 million and $130.0
million for 60 consecutive days in fiscal 1998 and 1999, respectively.
On May 2, 1997, Oshkosh and Freightliner formally terminated a strategic
alliance formed on June 2, 1995. Oshkosh repurchased from Freightliner 350,000
shares of its Common Stock and 1,250,000 warrants for the purchase of additional
shares of Common Stock for a total of $6.8 million. Oshkosh and Freightliner
will continue to supply each other with parts and components.
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STOCK BUYBACK
In July 1995, Oshkosh's Board of Directors authorized the repurchase of up
to 1,000,000 shares of Common Stock. As of December 31, 1997, Oshkosh had
purchased 461,535 shares under this program at a cost of $6.6 million. The
Indenture and the Senior Credit Facility will contain covenants which will limit
such repurchases after the consummation of the Transactions.
YEAR 2000
Certain of the Company's older computer programs were written using two
digits rather than four to define the applicable year. As a result, those
computer programs may misinterpret a date using "00" as the year 1900 rather
than the year 2000. This could cause a system failure, miscalculations or other
disruptions in the business.
Oshkosh maintains two primary computer systems at its Oshkosh operations
and one at its Pierce operations. Oshkosh is planning to install upgrades to its
present computer systems at Oshkosh by December 31, 1998. At Pierce, Oshkosh has
commenced a project, with outside consultants, to install new hardware and
software by February 1, 1999, to replace an obsolete hardware and software
system. The total cost of these projects during fiscal 1998 and 1999 is
estimated at approximately $6.6 million which includes $6.3 million for the
purchase of new hardware and software that will be capitalized and $0.3 million
that will be expensed as incurred. Oshkosh believes that following the
completion of these projects, the year 2000 issue will not pose significant
disruptions to its business; however, if such projects are not completed on a
timely basis, the year 2000 could have a material impact on the operations of
Oshkosh.
McNeilus has entered into an agreement with an outside consultant to
upgrade its present computer systems by August 1998. The total cost of this
upgrade, which is intended to, among other things, prevent any disruptions
related to year 2000 issues, is estimated at approximately $400,000 and will be
expensed. The Company believes that following the conclusion of this upgrade,
the year 2000 issue will not pose significant disruptions to McNeilus' business;
however, if such upgrades are not completed on a timely basis, the year 2000
could have a material impact on the operations of McNeilus.
NEW ACCOUNTING STANDARDS
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 130, "Reporting Comprehensive
Income." SFAS No. 130 establishes the standards for reporting and displaying
comprehensive income and its components (revenues, expenses, gains, and losses)
as part of a full set of financial statements. This statement requires that all
elements of comprehensive income be reported in a financial statement that is
displayed with the same prominence as other financial statements. The statement
is effective for fiscal years beginning after December 15, 1997. Since this
statement applies only to the presentation of comprehensive income, it will not
have any impact on the Company's results of operations, financial position or
cash flows.
In June 1997, the Financial Accounting Standards Board also issued SFAS No.
131, "Disclosures about Segments of an Enterprise and Related Information." SFAS
No. 131 establishes the standards for the manner in which public enterprises are
required to report financial and descriptive information about their operating
segments. The statement defines operating segments as components of an
enterprise for which separate financial information is available and evaluated
regularly as a means for assessing segment performance and allocating resources
to segments. A measure of profit or loss, total assets and other related
information are required to be disclosed for each operating segment. In
addition, this statement requires the annual disclosure of information
concerning revenues derived from the enterprise's products or services,
countries in which it earns revenue or holds assets, and major customers. The
statement is also effective for fiscal years beginning after December 15, 1997.
The adoption of SFAS No. 131 will not affect the Company's results of operations
or financial position, but will affect the disclosure of segment information.
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BUSINESS
THE COMPANY
The Company is a leading designer, manufacturer and marketer of a broad
range of fire apparatus and specialty commercial and military trucks under the
"Oshkosh," "Pierce," "McNeilus" and "MTM" trademarks. The Company's custom and
commercial fire apparatus include pumpers, aerial and ladder trucks, tankers,
heavy-duty rescue vehicles, wildland rough terrain response vehicles and ARFF
vehicles. The Company's commercial truck lines include refuse truck bodies,
rear- and forward-discharge concrete mixers and snow removal vehicles. As the
leading manufacturer of severe-duty heavy tactical trucks for the DoD, the
Company manufactures vehicles that perform a variety of demanding tasks such as
hauling tanks, missile systems, ammunition, fuel and cargo for combat units. For
the twelve months ended December 31, 1997, on a pro forma basis, the Company
generated net sales of $1,011.3 million and EBITDA of $79.4 million.
The Company's objective is to continue to enhance market positions by
providing innovative design, sophisticated engineering, efficient, low-cost
manufacturing, extensive distribution and superior customer service to its
commercial, municipal and military customers within its core markets.
COMPETITIVE STRENGTHS
The following competitive strengths support the Company's business
strategy:
Strong Market Positions. The Company has developed strong market positions
in each of its core businesses, which management attributes to the Company's
reputation for innovation, vehicle performance, reliability and customer
service. The Company has the leading share of the severe-duty heavy tactical
truck segment of the domestic defense truck market, and also believes it has a
leading share in: (i) custom and commercial fire apparatus, including pumpers,
aerial and ladder trucks, tankers, heavy duty rescue, wildland rough terrain
response vehicles and ARFF vehicles for the domestic fire apparatus market; (ii)
the domestic refuse truck body market; (iii) the domestic rear- and
forward-discharge concrete mixer markets; and (iv) the domestic airport snow
removal vehicle market. The Company intends to continue to strengthen its market
share by capitalizing on its strong reputation, introducing innovative products
and services and leveraging its extensive distribution capabilities.
Extensive Distribution Capabilities. With the addition of the commercial
and municipal distribution capabilities of Pierce and McNeilus, the Company has
established an extensive domestic and international distribution system for
specialty trucks and truck bodies covering over 70 countries. In addition to its
network of dealers and distributors, the Company employs over 100 in-house sales
and service representatives. Management believes the Company's broad
distribution system has enabled the Company to: (i) maximize sales of new
products and technologies: (ii) become a benchmark for government customers in
establishing their bid specifications; (iii) provide customer service on a
national and international scale; and (iv) reduce distribution expenses through
significant economies of scale.
Flexible and Efficient Manufacturing. The Company believes it has
competitive advantages over larger truck manufacturers in its specialty truck
markets due to its manufacturing flexibility and custom fabrication
capabilities. For example, the Company has successfully configured its defense
truck and fire apparatus manufacturing plants for the simultaneous manufacture
of many different types and models of vehicles on the same assembly line. In
addition, the Company believes it has a competitive advantage over smaller
competitors due to its: (i) manufacturing in relatively higher volumes; (ii)
purchasing power across its product lines; and (iii) investing in fixturing and
robotics to improve efficiency and reduce costs.
Quality Products and Customer Service. Oshkosh, Pierce and McNeilus have
each developed strong brand recognition based on their commitments to meet the
stringent product quality and reliability requirements of their customers and
the specialty truck markets they serve. The Company's commitment to product
quality is exemplified by the ISO 9001 certification of Oshkosh. Pierce is
targeting achievement of ISO 9001 certification in 1998. The Company also
achieves high quality customer service through its
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extensive service and parts support program, which is available to domestic
customers 365 days a year in all product lines throughout the Company's
distribution systems.
Proprietary Components. The Company's advanced design and engineering
capabilities have contributed to the development of proprietary, severe-duty
components which enhance truck performance, reduce manufacturing costs and
strengthen customer relationships. These proprietary components include front
drive and steer axles, transfer cases, cabs, the ALL-STEER electronic all-wheel
steering system, central tire inflation, independent suspension, the Sky-Arm
articulating aerial ladder and the McNeilus Auto Reach Arm. Management believes
these proprietary components provide the Company a competitive advantage by
increasing its vehicles' durability, operating efficiency and vehicle
effectiveness. The integration of many of these components across various
certain product lines also reduces the Company's costs to manufacture its
products compared to manufacturers who simply assemble purchased components.
BUSINESS STRATEGY
The Company is focused on increasing its net sales, profitability and cash
flow by capitalizing on its competitive strengths. Key elements of the Company's
business strategy include:
Focusing on Specialized Truck Markets. The Company plans to continue its
focus on those specialized truck and truck body markets where it has strong
market positions and where the Company can leverage synergies in purchasing,
manufacturing, technology and distribution. The Company's objective is to
achieve and maintain market leadership through internal growth and strategic
acquisitions. Management believes the higher sales volumes associated with
market leadership would allow the Company to continue to enhance productivity in
manufacturing operations, fund innovative product development and invest in
further expansion.
Expanding Distribution and International Sales. The Company plans to add
new distribution capabilities for the municipal segment of the refuse truck body
market and in targeted geographic areas in the domestic fire apparatus market.
The Company intends to increase international sales beyond the $58.9 million pro
forma volume achieved in the twelve months ended December 31, 1997 by
introducing McNeilus refuse truck bodies, rear-discharge concrete mixers and
ready-mix batch plants to international markets and by continuing the expansion
of Pierce's international customer base through the Company's expanding
international distribution capabilities.
Reducing Costs While Maintaining Quality. The Company actively benchmarks
its competitors' costs and best industry practices, and continuously seeks to
implement process improvements to increase cash flow and improve profitability.
With each of its acquisitions, the Company has established cost reduction
targets. At Pierce, the Company exceeded its first-year cost reduction target of
$3.4 million in fiscal 1997 as a result of consolidating facilities,
reengineering the manufacturing process and leveraging increased purchasing
power. The Company is planning for additional cost savings at Pierce in fiscal
1998. The Company intends to improve efficiencies after the acquisition of
McNeilus by taking advantage of the Company's greater purchasing power and by
developing additional manufacturing synergies across product lines.
Introducing New Products. The Company has increased its emphasis on new
product development in recent years, and seeks to expand sales by introducing
new or improved products in its core markets, either through internal
development or strategic acquisition. For example, in December 1997, the Company
purchased the aerial fire apparatus product line of Nova Quintech, a division of
Nova Bus Corporation. This acquisition broadened Pierce's aerial product line
and is expected to provide Pierce with three new products in the first half of
calendar 1998.
Diversifying DoD Contracts. The Company is seeking to diversify its
business with the DoD beyond its traditional contracts relating to the
manufacture of severe-duty heavy tactical trucks. Management believes the
Company has a reputation within the DoD for advanced engineering, quality
manufacturing and vehicle performance that will assist the Company in obtaining
contracts to provide other types of vehicles to the DoD. For example, the
Company was one of two manufacturers selected to participate in a DoD program to
produce upgraded medium-duty prototype vehicles for the MTTR program. The
Company expects the testing and
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validation phase for the MTTR program to conclude in the first half of 1998 and
the initial production contract to be awarded to the Company or the competing
bidder in the fourth quarter of 1998. The Company is also one of two
manufacturers competing for the DoD's FMTV contract. The Company and the other
participating manufacturer are currently preparing prototype FMTV trucks for
testing by the DoD.
Increasing Aftermarket Sales and Service. The Company is focused on
increasing its aftermarket sales and service revenues. In the fire apparatus and
commercial truck markets, the Company has expanded and plans to continue to
expand its refurbishment facilities and parts distribution capabilities. In the
defense truck market, the Company plans to continue to pursue parts and
maintenance contracts for upgrading and reconditioning trucks at both domestic
and international U.S. military bases.
Pursuing Strategic Acquisitions. Following the integration of McNeilus, the
Company intends to selectively pursue additional strategic acquisitions, both
domestically and internationally, in order to enhance its product line and
expand its international presence in specialized truck markets. The Company
intends to focus its acquisition strategy in specialty truck and truck body
markets where it can enhance its strong market positions and achieve significant
acquisition synergies.
THE ACQUISITION
On December 8, 1997, Oshkosh entered into the Stock Purchase Agreement
pursuant to which, on February 26, 1998, it acquired all of the outstanding
capital stock of McNeilus and entered into related non-compete and ancillary
agreements for an aggregate acquisition price of $250.0 million. At November 30,
1997, McNeilus had unrestricted cash of $17.7 million ($20.2 million less an
estimated $2.5 million required for capital and surplus at McNeilus' captive
insurance subsidiary). The Stock Purchase Agreement required, among other
things, that the selling stockholders of McNeilus prepay certain notes and
purchase selected assets of McNeilus, which provided net proceeds to Oshkosh of
approximately $16.1 million. As a result, management estimates that the
effective cost to the Company in connection with the Acquisition was
approximately $216.2 million. Concurrently with the consummation of the
Acquisition, the Company consummated the Note Offering, established the Senior
Credit Facility, applied the net proceeds from the Note Offering and the Senior
Credit Facility to consummate the Acquisition, refinanced existing Oshkosh
indebtedness, paid fees and expenses and established the Lease Financing
Facility.
PRODUCTS AND MARKETS
Following the Pierce and McNeilus acquisitions, the Company is focused on
the following core specialty truck and truck body markets:
Fire Apparatus. The Company, through Pierce, is among the leading domestic
manufacturers of custom and commercial fire apparatus. The Company primarily
serves domestic governmental markets, but also sells fire apparatus to airports,
universities and large industrial companies. In addition, the Company sells fire
apparatus in international markets. Pierce's history of research and development
in consultation with firefighters has resulted in a broad product line that
features a wide range of innovative, high-quality custom and commercial
firefighting equipment with advanced fire suppression capabilities. The
Company's engineering expertise also allows it to design its vehicles to meet
stringent government regulations for safety and effectiveness.
Refuse Truck Bodies. Management believes the Company, through McNeilus, is
a leading domestic manufacturer of refuse truck bodies for the waste services
industry. The Company manufactures a wide range of automated rear, front, side
and top loading refuse truck bodies, which the Company mounts on commercial
chassis. The Company sells its refuse vehicles primarily to commercial waste
management companies. Management believes the Company's refuse vehicles have a
reputation for efficient, cost-effective, dependable operation that supports the
Company's continued expansion into municipal and international markets.
Concrete Mixers and Snow Removal Vehicles. Management believes the Company
is a leading domestic manufacturer of rear- and forward-discharge concrete
mixers. The Company sells rear- and forward-discharge concrete mixers and
portable concrete mixer plants to construction companies throughout the United
States
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and internationally. Management believes the Company is one of the only domestic
concrete mixer manufacturers that markets both rear- and forward-discharge
concrete mixers.
The Company is also among the leading domestic manufacturers of snow
removal vehicles for airports. The Company's specially designed airport snow
removal vehicles can cast up to 4,000 tons of snow per hour and are used by some
of the largest airports in the United States, such as Denver International
Airport, LaGuardia International Airport, Minneapolis-St. Paul International
Airport and O'Hare International Airport. Management believes the reliability of
the Company's high performance snow removal vehicles contribute to its strong
market position.
Defense Trucks. The Company has sold products to the DoD for over 70 years
and is the leading manufacturer of a broad line of severe-duty heavy tactical
trucks for the DoD. The Company's proprietary military all-wheel drive product
line includes: (i) the PLS, a highly mobile self-contained truck and trailer
system that loads and unloads a wide range of cargo in a short period of time;
(ii) the HEMTT, a cross-country cargo and supply carrier that, among other
tasks, is used for direct rearming of the Multiple Launch Rocket System,
transport of Patriot erector/launchers, resupply of field artillery ammunition
and refueling of tanks, trucks and helicopters in forward areas; (iii) the HET,
the primary hauler of the M1A1 main battle tank and also a hauler of other
tanks, fighting and recovery vehicles, self-propelled howitzers and construction
equipment; and (iv) the LVS, a highly mobile cargo carrier with a maximum
payload capacity of 20 tons. The Company also exports its severe-duty heavy
tactical trucks to approved foreign customers.
The Company has developed a strong relationship with the DoD that has
resulted in the Company operating under "family contracts" with the DoD for the
PLS, HEMTT, HET and LVS and for DoD vehicle parts. Under the vehicle family
contracts, the DoD orders a specified range of volume of trucks at fixed prices,
which allows the Company to predict and plan its products and delivery schedules
for vehicles. These family contracts were established in 1996 and 1997 and
expire in fiscal years 1999 and 2000.
<TABLE>
<CAPTION>
MARKETS AND PRODUCTS DESCRIPTION
-------------------- -----------
<S> <C>
Fire Apparatus Market
Custom Pumpers....................... Firefighting apparatus that are equipped with a water tank,
water pump, and foam system (optional). The Pierce line of
custom pumpers is available on each of these custom chassis:
- Quantum -- Flagship of the Pierce line. Features advanced
ergonomics, unique styling, enhanced maneuverability, and
a cab that seats up to 10 personnel.
- Lance -- Features a split-tilt cab. High gross vehicle
weight rating enables this truck to support aerial devices.
- Dash 2000 -- Custom tilt cab, designed for comfort, space
and maneuverability.
- Saber -- Value-priced chassis featuring a tilt-cab, select
options, and seating for up to 8 personnel.
- Arrow -- Cab-forward design.
Commercial Pumpers................... Firefighting apparatus that are equipped with a water tank,
water pump and foam system (optional). Commercial pumpers
have the firefighting bodies mounted on customer-specified
commercial truck chassis.
</TABLE>
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<TABLE>
<CAPTION>
MARKETS AND PRODUCTS DESCRIPTION
-------------------- -----------
<S> <C>
Aerial Apparatus..................... Firefighting apparatus with an aerial device mounted on the
body for access and rescues in elevated locations. These
devices are available on the Pierce line of custom chassis.
Products include:
- 105' and 85' aerial platforms.
- 75' and 105' heavy-duty ladders.
- 105' super heavy-duty ladder.
- 105' aerial tiller -- Tractor-drawn trailer has an aerial
ladder mounted on the trailer and steering capability for
the rear axle.
- Sky Arm -- Four-section, 100-foot aerial ladder with an
articulating platform.
- Sky Five -- Five-section aerial ladder that is available
in rear- and mid-mount configurations. The Company believes
that, at rest, this is the shortest 100-foot aerial ladder
available.
- Sky Boom -- Elevated water tower boom with an attached
ladder. Available in 55' and 60' lengths.
Rescue Vehicles...................... These units are designed to carry personnel and large
quantities of equipment. Pierce rescue vehicles are used for
extrication, water rescue, hazardous materials response,
fire fighting, command center, and lighting operations.
Mini-Pumper.......................... This initial response vehicle is a fast, lightweight,
scaled-down version of full-sized pumper.
Elliptical Tanker.................... Elliptical tankers are used to transport large amounts of
water to fire scenes and can be equipped with a variety of
pumping packages so the vehicles can also be used as a front
line of attack. Water capacity ranges from 1,500 to 5,000
gallons.
Hawk Wildland Rapid Response
Vehicle............................ Four-wheel-drive vehicle takes firefighters into off-road
terrain that can be difficult or even unpassable for larger,
two-wheel-drive pumpers. Designed specifically as a
first-strike vehicle, the Hawk features a water tank, water
pump, and a compressed air foam system.
Refuse Truck Body Market
Front Loader......................... Refuse is loaded into a container at the front of the
vehicle; the container is lifted by large arms and dumped
into the body. The front loader can carry 40 to 43 cubic
yards of refuse and is available on a selection of
commercial chassis. A self-leveling system for keeping the
container level during dumping cycle is optional.
Rear Loader.......................... McNeilus offers three different models of rear-loading
refuse bodies. Refuse is loaded into the rear of the vehicle
and compacted toward the front of the refuse body. McNeilus
rear loaders can carry from 17 to 32 cubic yards of refuse.
Autoreach Automated Side Loader...... This refuse body features a boomless arm for loading large
containers of refuse from the side of the vehicle. The
side-loading arm is designed to articulate left to right and
dump from any angle. The driver can keep the vehicle in one
position after stopping for a pick-up rather than having to
move the vehicle to put the arm in the proper position for
lifting the next refuse container. The McNeilus Autoreach is
available in 28-, 33- and 36-yard capacities and features a
continuous packing cycle.
</TABLE>
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<TABLE>
<CAPTION>
MARKETS AND PRODUCTS DESCRIPTION
-------------------- -----------
<S> <C>
Manual Side Loader................... Designed for one-person refuse collection operations and can
carry up to 33 cubic yards. The body can be loaded from
either side and is typically mounted on a low-entry chassis.
Concrete Mixer and Snow Removal
Vehicle Market
F-Series............................. Designed for a variety of severe-duty all-wheel drive
applications, including rear-discharge concrete mixers,
concrete block trucks, dry wall haulers, wall form trucks,
digger derricks, aerial buckets and oil field service.
S-Series............................. A forward-discharge concrete mixer that allows the driver to
approach a job with greater visibility, improved placement
and greater safety. The two-speed transfer case and front
driving gear gives extra power to maneuver into tighter
spots in any kind of terrain.
H-Series............................. An airport snow removal vehicle that can clear 4,000 tons of
snow per hour. Optional sweepers, blowers and plows are
available.
P-Series............................. A super heavy-duty frame vehicle that can break through
heavily drifted snow. The vehicle also has the added
flexibility of being durable enough to meet the demands of
off-road applications.
Bridgemaster III..................... Rear-discharge mixer featuring a trailing axle. This mixer
lineup can carry from 9 to 11.5 cubic yards of concrete. The
Bridgemaster IIIs are available on a variety of commercial
truck chassis.
Standard Rear Discharge Mixer........ Rear-discharge concrete mixer that can handle from 4 to 11
cubic yards and are available with a variety of axle
configurations including tag axles. Options include remote
pendant controls for controlling discharge near the rear of
the vehicle.
Sliding Mixer System................. Mounted on a trailer that can be extended up to 13 feet
depending on the size of the mixer selected. It is designed
for transport and large pours. It typically can carry 11 to
13 yards of concrete.
Defense Truck Market
Heavy Expanded Mobility Tactical
Truck ("HEMTT").................... Cross-country cargo and supply carrier with maximum payload
capacity of 11 tons. The HEMTT is used for direct rearming
of the Multiple Launch Rocket System, transport of Patriot
erector/launchers and resupply of field artillery ammunition
and refueling of tanks, trucks and helicopters in forward
areas.
Heavy Equipment Transporter
("HET")............................ Primary hauler of the M1A1 main battle tank and also
transports other tanks, fighting and recovery vehicles,
self-propelled howitzers and construction equipment.
Palletized Load System ('PLS")....... Cargo hauler with maximum payload capacity of 33 tons. The
truck and trailer system hauls a variety of cargo and can
load or unload in a short period of time.
Logistic Vehicle System ("LVS")...... Highly mobile cargo carriers with a maximum payload capacity
of 20 tons. The LVS can carry military vehicles and supply
containers over rough terrain and steep grades due to its
separating chassis module design.
</TABLE>
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SALES AND DISTRIBUTION
The Company believes it differentiates itself from many of its larger
competitors by tailoring its distribution to the needs of its specialized truck
markets and from its smaller competitors with its national and global sales and
service capabilities. Distribution personnel use demonstration trucks to show
customers how to properly use the Company's trucks and truck bodies, compared to
the showroom sales approach of the typical dealers of large truck manufacturers.
The Company backs all products by same-day parts shipment, and its service
technicians are available in person or by telephone to domestic customers 365
days a year. The Company believes that its dedication to keeping its trucks
in-service in demanding conditions worldwide has contributed to customer
loyalty.
The Company provides its salespeople, representatives and distributors with
product and sales training on the operation and specifications of its products.
The Company's engineers, along with its product managers, develop operating
manuals and provide field support at truck delivery for certain markets.
Distributors, where used, enter into agreements with the Company that allow
for termination by either party generally upon 90 days' notice. Distributors are
not permitted to market and sell competitive products.
Fire Apparatus Market. The Company believes that the geographical breadth,
size and quality of its fire apparatus sales and service organization are
competitive advantages in a market characterized by a few large manufacturers
and numerous small, regional competitors. Pierce's fire apparatus are sold
through 38 sales and service organizations with more than 260 sales
representatives nationwide, which combine broad geographical reach with
frequency of contact with fire departments and municipal government officials.
Management believes that frequency of contact and local presence are important
to cultivate major, and typically infrequent, purchases involving the city or
town council and fire department, purchasing, finance, and mayoral offices,
among others, that may participate in a fire truck bid and selection. After the
sale, Pierce's nationwide local parts and service capability is available to
help municipalities maintain peak readiness for this vital municipal service.
Pierce primarily focused its sales efforts in rural and small suburban
domestic markets prior to its acquisition by Oshkosh. Due to its expertise and
long-standing relationships in numerous large urban markets, the Company has
extended Pierce's sales focus into several key metropolitan areas. As a direct
result of a targeted approach to major urban markets, Pierce was awarded the two
largest U.S. fire truck contracts in its history in fiscal 1997.
Pierce substantially strengthened its competitive position overseas in
fiscal 1997. Pierce's worldwide distribution network was expanded to include 43
international representatives. This network has delivered several new orders
including the award in December 1997 of a $35 million contract for 130 custom
fire trucks for Saudi Arabia to be delivered from November 1998 through October
1999.
The Company has invested in the development of sales tools for its
representatives which it believes creates a competitive advantage in the sale of
fire apparatus. For example, Pierce's Pride II PC-based sales tool can be used
by its sales representatives to develop the detail specifications, price the
base truck and options and draw the configured truck on the customer's premises.
The quote, if accepted, is directly interfaced into Pierce's sales order
systems.
Refuse Truck Body, Concrete Mixer and Snow Removal Vehicle Markets. Oshkosh
maintains four distribution centers with 26 in-house sales and service
representatives in the U.S. to sell and service its forward- and rear-discharge
concrete mixers. All of the Oshkosh facilities provide full service, mounting
and parts distribution to customers in their geographic regions, while two also
have paint facilities. In addition, Oshkosh utilizes three independent
distributors in this market. Oshkosh also maintains 22 full sales and service
dealers focused on the sale of snow removal vehicles, principally to airports,
but also to municipalities, counties and other governmental entities.
McNeilus operates eight distribution centers with 83 in-house sales and
service representatives in the U.S. to sell and service its refuse truck bodies,
rear-discharge concrete mixers and ready-mix batch plants. Six of such
distribution centers provide full service, mounting and parts distribution to
customers in their
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geographic regions while the remainder are primarily sales offices with limited
parts and service capabilities. Five of the McNeilus distribution centers also
have paint facilities and provide significant additional paint and mounting
services during peak demand periods.
With respect to McNeilus, the Company plans to:
- Combine the McNeilus and Oshkosh distribution capabilities. Because there
is little geographic overlap between the rear-discharge markets of
McNeilus and the forward-discharge markets of Oshkosh, management
presently intends to maintain all existing distribution centers of both
companies. The Company believes that the combined network will represent
one of the largest refuse truck body and concrete mixer distribution
networks in the U.S.
- Apply Oshkosh's and Pierce's sales and marketing expertise in municipal
markets to increase sales of McNeilus refuse truck bodies to municipal
customers. Virtually all McNeilus refuse truck body sales have been to
commercial customers, which the Company believes represent a majority of
the refuse truck body market. However, many municipalities purchase their
own refuse trucks, and the Company believes that it is positioned to
create an effective municipal distribution in the refuse truck body market
by building upon its present base of municipal distributors.
- Offer McNeilus refuse truck bodies, rear-discharge concrete mixers and
ready-mix batch plants to Oshkosh's 43 international dealers for sales and
service worldwide. McNeilus' international sales have historically been
limited because McNeilus has focused on the domestic market. However,
management believes that refuse body exports are a significant percentage
of certain competitors' sales, and represents a meaningful opportunity for
the Company. The Company believes that its international Oshkosh and
Pierce dealers are capable of effectively selling and servicing the
McNeilus product line and plans to use its experience at Pierce to develop
sales of McNeilus products.
Defense Truck Market. Substantially all domestic defense products are sold
direct to principal branches of the DoD. The Company maintains a liaison office
in Washington, D.C. to represent its interests with the Pentagon, Congress and
the Office of the President. The Company also sells and services defense
products to foreign governments directly through four Company-owned
international sales offices, through agents, consultants and representatives,
and through the United States FMS program. The DoD has begun to rely on industry
for support and sustainability of its vehicles which has opened up new
opportunities for maintenance, service and contract support to the U.S. Army and
U.S. Marine Corps.
In addition to marketing its current truck offerings and competing for new
contracts in the medium- and light-duty segments, the Company actively works
with the Armed Services to develop new applications for its vehicles. For
example, the Company is:
- Developing new applications for its PLS vehicle beyond its traditional
ammunition transportation role. A contract for construction models has
already been awarded, and several other models of the PLS are currently
under evaluation.
- Modifying its HEMTT vehicle for alternate uses. The Company has
integrated a foam proportioning fire fighting package on a HEMTT for use
by the U.S. military and other governmental agencies in the extinguishment
of wildland fires. The HEMTT has also been modified to include a load
handling system to meet lower payload requirements.
- Upgrading existing products such as the HEMTT, PLS and HET in order to
achieve better performance and new technology. As an example, the Company
has separate development contracts for each product with the U.S. Army to
develop a new HEMTT, HET and PLS with new engines, transmissions, transfer
cases and numerous other components that increase reliability and
performance at reduced costs.
COMPETITION
The Company operates in highly competitive industries. The Company competes
in the fire apparatus and defense truck markets principally on the basis of
lowest qualified bid. To submit a qualified bid, the bidder
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must demonstrate that the fire apparatus or defense truck meets stringent
specifications, and for most defense truck contracts, passes extensive testing.
In addition, decreases in the DoD budget have resulted in a reduction in the
number and size of contracts, which has intensified the competition for
remaining available contracts. The Company and its competitors continually
undertake substantial efforts in order to maintain existing levels of defense
business and to succeed in bid competitions for available contracts. In the
refuse truck body and concrete mixer markets, the Company also faces intense
competition on the basis of price, innovation, quality, service and product
performance capabilities. As the Company seeks to expand its sales of refuse
truck bodies to municipal customers, management believes the principal basis of
competition for such business will be lowest qualified bid.
In all of the Company's markets, competitors include smaller, specialized
manufacturers as well as large, mass producers. The Company believes that, in
its specialized truck markets, it has been able to effectively compete against
large, mass producers due to its manufacturing flexibility and specialized
distribution systems. The Company believes that its competitive cost structure,
engineering expertise and global distribution systems have enabled it to
effectively compete with other specialized manufacturers.
Pierce's principal competitors in the fire apparatus market include
Emergency One, Inc. (a subsidiary of Federal Signal Corporation), FWD
Corporation (a subsidiary of Corsta Corporation), Kovatch Mobile Equipment
Corp., and numerous small, regional manufacturers. Principal competitors of
McNeilus, in the refuse truck body market, include The Heil Company (a
subsidiary of Dover Corporation), Leach Company, McClain E-Z Pack, Inc. and
Pak-Mor Manufacturing Company. Principal competitors of McNeilus and Oshkosh in
concrete mixer markets include Advance Mixer, Inc., London Machinery, Inc., Mack
Trucks, Inc., Maxim Truck Company, Inc., Rexworks, Inc., and T.L. Smith Machine
Co., Inc. Oshkosh's principal competitors in snow removal markets include Monroe
Truck Equipment, Inc. and Stewart & Stevenson Services, Inc. Oshkosh's principal
competitors for DoD contracts include AM General Corporation and Stewart &
Stevenson Services, Inc. The Company also faces competition from its competitors
for acquisition opportunities.
Several of the Company's competitors have greater financial, marketing,
manufacturing and distribution resources than the Company. There can be no
assurance that the Company's products will continue to compete successfully with
the products of competitors or that the Company will be able to retain its
customer base or to improve or maintain its profit margins on sales to its
customers, all of which could materially adversely affect the Company's
financial condition, results of operations and debt service capability.
CUSTOMERS AND BACKLOG
Sales to the DoD comprised approximately 29% of the Company's pro forma net
sales for the twelve months ended December 31, 1997. No other single customer
accounted for more than 2% of the Company's pro forma sales for this period. A
substantial majority of the Company's net sales are derived from customer orders
prior to commencing production.
The Company's pro forma backlog at December 31, 1997 was $438.3 million.
The backlog at December 31, 1997 includes $147.5 million related to DoD
contracts, $159.0 million related to fire apparatus and $131.8 million related
to other commercial products. Substantially all of the Company's backlog
pertains to fiscal 1998 business.
The Company's historical backlog, excluding McNeilus, was $377.9 million at
December 31, 1997 compared to $398.2 million at December 31, 1996. The $20.3
million decrease in backlog from December 31, 1996 to December 31, 1997 is due
to a $77.4 million decrease related to DoD contracts, partially offset by
increases of $37.2 million related to fire apparatus and $19.9 million related
to other commercial products. Backlog information for McNeilus was unavailable
at December 31, 1996.
Reported backlog excludes purchase options and announced orders for which
definitive contracts have not been executed. Additionally, backlog excludes
unfunded portions of DoD long-term family contracts. Backlog information and
comparisons thereof as of different dates may not be accurate indicators of
future sales or the ratio of the Company's future sales to the DoD versus its
sales to other customers.
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GOVERNMENT CONTRACTS
Approximately 29% of the Company's pro forma net sales for the twelve
months ended December 31, 1997 were made to the U.S. government under long-term
contracts and programs, substantially all of which were in the defense truck
market. Accordingly, a significant portion of the Company's sales are subject to
inherent risks, including uncertainty of economic conditions, changes in
government policies and requirements that may reflect rapidly changing military
and political developments and the availability of funds.
The Company's sales into defense truck markets are substantially dependent
upon periodic awards of new contracts and the purchase of base vehicle
quantities and the exercise of options under existing contracts. The Company's
existing contracts with the DoD may be terminated at any time for the
convenience of the government. Upon such termination, the Company would
generally be entitled to reimbursement of its incurred costs and, in general, to
payment of a reasonable profit for work actually performed.
In November 1996, the U.S. Army Tank Automotive and Armaments Command
awarded the Company and one other defense contractor $6.9 million prototype
contracts for Phase I competition of the MTTR program. The MTTR program was
initiated to update and modernize the 5-ton tactical vehicle fleet of the U.S.
Marine Corps and the U.S. Army. The goal of the U.S. Marine Corps portion of the
program is to remanufacture the current configuration to carry a much greater
payload with substantially increased cross-country mobility. The U.S. Army
portion of the program is designed to increase the useful life and decrease
operation and support costs of a portion of the U.S. Army's existing fleet.
Phase I covers the design, development, and production of five prototype test
vehicles for the U.S. Marine Corps and five additional prototype test vehicles
for the U.S. Army. Testing of the ten prototype test vehicles commenced August
1997 and will be concluded in April 1998. Phase II of the program is currently
expected to include the production of up to 11,500 U.S. Marine Corps and U.S.
Army units at a value that could exceed $1.0 billion over a period of years.
Competition for the Phase II production contract is intense between the two
Phase I contractors. Phase I testing along with the Phase II proposal will
determine the single supplier of any production contract awarded. No assurance
can be given that the DoD will award a Phase II Contract or that federal budgets
will provide future funding for a Phase II contract, as further discussed under
"Risk Factors -- Uncertainty Inherent in U.S. Government Contracts" and "--
Risks of Further Reductions or Changes in Government Expenditures."
The U.S. Army has announced a competition to add a second supplier to build
FMTV trucks. Up to three contractors will build several trucks for testing by
the DoD pursuant to a request for proposal currently under development by the
DoD. The Company currently has received two existing vehicles for intense study
in preparation for the competition. Based on current plans announced by the DoD,
the winner of the competition would be awarded an initial production contract
for approximately 3,000 vehicles. Upon completion of this production contract
and the current supplier's present contract, the U.S. Army is expected to
conduct a competition between these two manufacturers for the production of
approximately 50,000 FMTV trucks. No assurance can be given that the DoD will
award the FMTV contract or that federal budgets will provide future funding for
the FMTV contract, as further discussed under "Risk Factors -- Uncertainty
Inherent in U.S. Government Contracts" and "-- Risks of Further Reductions or
Changes in Government Expenditures."
Under firm fixed-price contracts with the government, the price paid to the
Company is generally not subject to adjustment to reflect the Company's actual
costs, except costs incurred as a result of contract changes ordered by the
government. The Company generally attempts to negotiate with the government the
amount of increased compensation to which the Company is entitled for
government-ordered changes which result in higher costs. In the event that the
Company is unable to negotiate a satisfactory agreement to provide such
increased compensation, the Company may file an appeal with the Armed Services
Board of Contract Appeals or the U.S. Claims Court. The Company has no such
appeals pending.
The Company, as a U.S. government contractor, is subject to financial
audits and other reviews by the U.S. government of performance of, and the
accounting and general practices relating to, U.S. government contracts, and
like most large government contractors, the Company is audited and reviewed on a
continual
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basis. Costs and prices under such contracts may be subject to adjustment based
upon the results of such audits and reviews. Additionally, such audits and
reviews can and have led to civil, criminal or administrative proceedings. Such
proceedings could involve claims by the government for fines, penalties,
compensatory and treble damages, restitution and/or forfeitures. Under
government regulations, a company or one or more of its subsidiaries can also be
suspended or debarred from government contracts, or lose its export privileges
based on the results of such proceedings. Additional information is included
under the caption "Risk Factors -- Uncertainty Inherent in U.S. Government
Contracts." The Company believes, based on all available information, that the
outcome of all such audits, reviews and proceedings will not have a material
adverse effect on its consolidated financial condition or results of operations.
SUPPLIERS
The Company is highly dependent on its suppliers and subcontractors in
order to meet commitments to its customers, and many major components are
procured or subcontracted on a sole-source basis with a number of domestic and
foreign companies. Through its reliance on this supply network for the purchase
of certain components, the Company is able to avoid many of the preproduction
and fixed costs associated with the manufacture of those components. The Company
maintains an extensive qualification and performance measurement system to
control risks associated with such reliance on suppliers. The Company
occasionally experiences problems with supplier and subcontractor performance
and must identify alternate sources of supply and/or address related warranty
claims from customers.
While the Company purchases many costly components such as engines,
transmissions and axles, it manufactures certain proprietary components that are
deemed material to the Company's business. These components include front drive
and steer axles, transfer cases, cabs, the ALL-STEER electronic all-wheel
steering system, central tire inflation, independent suspension, the Sky-Arm
articulating aerial ladder, the McNeilus Auto Reach Arm, body structures and
many smaller parts which add uniqueness and value to the Company's products.
Some of these proprietary components are marketed to other manufacturers.
ENGINEERING, RESEARCH AND DEVELOPMENT
The Company maintains three facilities for new product development and
testing with a staff of 46 engineers and technicians who are responsible for
improving existing products and development and testing of new trucks, truck
bodies and components. The Company prepares annual new product development and
improvement plans for each of its markets and measures progress against those
plans.
Virtually all of the Company's sales of fire apparatus require some custom
engineering to meet the customer's specifications. Engineering is also a
critical factor in defense truck markets due to the severe operating conditions
under which the Company's trucks are utilized, new customer requirements and
stringent government documentation requirements. In the refuse truck body,
concrete mixer and snow equipment markets, product innovation is highly
important to meet customers' changing requirements. Accordingly, the Company
maintains a permanent staff of over 240 engineers and engineering technicians,
and it regularly outsources significant engineering activities in connection
with major DoD bids and proposals.
For fiscal years 1997, 1996 and 1995, Oshkosh incurred engineering,
research and development expenditures of $7.8 million, $6.3 million and $5.4
million, respectively, portions of which were recoverable from customers,
principally the U.S. government.
INTELLECTUAL PROPERTY
Patents and licenses are important in the operation of the Company's
business, as one of management's key objectives is developing proprietary
components in order to provide the Company's customers with advanced
technological solutions at attractive prices. The Company holds in excess of 50
active domestic patents. Management believes patents for all-wheel steer and
independent suspension systems, which have
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remaining lives of 9 to 19 years, provide the Company with a competitive
advantage in the fire apparatus business and the sale of ARFF and snow removal
vehicles. The independent suspension system was also added to the U.S. Marine
Corps portion of the MTTR program, which the Company believes should be a
competitive advantage in the competition for the Phase II production contract.
Management believes that none of the Company's other patents individually are
significant to the business.
The Company holds trademarks for "Oshkosh," "Pierce," "McNeilus" and "MTM."
These trademarks are considered to be important to the future success of the
Company's business.
QUALITY MANAGEMENT
In 1994, Oshkosh commenced a program to educate and train all employees at
its Oshkosh facilities in quality principles and to seek ISO 9001 certification
to improve the Company's competitiveness in its global markets. Employees at all
levels of the Company are encouraged to understand customer and supplier
requirements, measure performance, develop systems and procedures to prevent
nonconformance with requirements and produce continuous improvement in all work
processes. In 1995, Oshkosh achieved ISO 9001 certification and Pierce is
targeting achievement of ISO 9001 certification in 1998. The Company is
evaluating whether to pursue ISO 9001 certification for McNeilus. Although
management does not consider such certification essential for McNeilus' domestic
markets, the Company may conclude it is valuable in marketing to certain
international customers.
EMPLOYEES
As of December 31, 1997, on a pro forma basis, the Company had
approximately 3,500 employees, of which approximately 1,300, 1250 and 600
employees are located at its principal facilities in Oshkosh, Wisconsin,
Appleton, Wisconsin and Dodge Center, Minnesota, respectively. Production
workers totaling approximately 800 employees at the Company's Oshkosh facilities
are represented by the United Auto Workers union. The Company's five-year
contract with the United Auto Workers union extends through September 30, 2001.
The Company believes its relationship with employees is satisfactory.
MANUFACTURING
The Company manufactures trucks and truck bodies at ten manufacturing
facilities. Employee involvement is encouraged to improve production processes
and product quality. In order to reduce production costs, the Company maintains
a continuing emphasis on the development of proprietary components,
self-sufficiency in fabrication, just-in-time inventory management, improvement
in production flows, interchangeability and simplification of components among
product lines, creation of jigs and fixtures to ensure repeatability of quality
processes, utilization of robotics, and performance measurement to assure
progress toward cost reduction targets.
With the Acquisition, the Company intends to continue to upgrade its
manufacturing capabilities by adopting best practices across its manufacturing
facilities, relocating manufacturing activities to the most efficient facility,
investing in further fixturing and robotics, re-engineering manufacturing
processes and adopting lean manufacturing management practices across all
facilities.
The Company plans to draw upon its recent experience with the Pierce
acquisition in integrating the McNeilus manufacturing facilities. Within the
first year following the Pierce acquisition, the Company consolidated three
Pierce manufacturing facilities down to two while increasing Pierce's capacity
by improving product flow. In addition, among other things, the Company reduced
the number of operating shifts at the Pierce paint plant from three to one to
substantially reduce utility costs, implemented indexing of production lines and
relocated chassis frame build-up to Oshkosh to improve production efficiencies,
and eliminated storage rooms to relocate inventory to point of use thereby
eliminating duplicate material handling.
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<PAGE> 61
PROPERTIES
Management believes the Company's equipment and buildings are modern,
well-maintained and adequate for its present and anticipated needs. As of
December 31, 1997, on a pro forma basis, the Company operated in ten
manufacturing plants. In addition, the Company maintains twelve distribution
centers throughout the United States and four sales offices internationally. The
Company's manufacturing plants include:
<TABLE>
<CAPTION>
APPROXIMATE
SQUARE FOOTAGE
----------------- PRINCIPAL
LOCATION (# OF FACILITIES) OWNED LEASED PRODUCTS MANUFACTURED
-------------------------- ----- ------ ---------------------
<S> <C> <C> <C>
Oshkosh, Wisconsin(3)................ 636,000 52,000 Defense Trucks; Front-Discharge Mixers; Snow
Removal Vehicles; ARFF Vehicles
Appleton, Wisconsin(2)............... 589,000 19,000 Fire Apparatus
Dodge Center, Minnesota(1)........... 604,000 Rear-Discharge Mixers; Refuse Truck Bodies
Bradenton, Florida(1)................ 287,000 Defense Trucks; Rear-Discharge Mixers
Riceville, Iowa(1)................... 108,000 Components for Rear-Discharge Mixers and
Refuse Truck Bodies
Kensett, Iowa(1)..................... 65,000 Not currently in use
McIntire, Iowa(1).................... 28,000 Components for Rear-Discharge Mixers and
Refuse Truck Bodies
Weyauwega, Wisconsin(1).............. 28,000 Rear-Discharge Mixers
</TABLE>
The Company's facilities are pledged as collateral under the terms of the
Senior Credit Facility.
The Company's manufacturing facilities generally operate five days per week
on one shift, except for one week shutdowns in July and December. Management
believes the Company's manufacturing capacity could be approximately doubled
with limited capital spending by working an additional shift at each facility.
ENVIRONMENTAL MATTERS
As part of its routine business operations, the Company disposes of and
recycles or reclaims certain industrial waste materials, chemicals and solvents
at third party disposal and recycling facilities which are licensed by
appropriate governmental agencies. In some instances, these facilities have been
and may be designated by the United States Environmental Protection Agency
("EPA") or a state environmental agency for remediation. Under CERCLA and
similar state laws, each potentially responsible party ("PRP") that contributed
hazardous substances may be jointly and severally liable for the costs
associated with cleaning up the site. Typically, PRPs negotiate a resolution
with the EPA and/or the state environmental agencies. PRPs also negotiate with
each other regarding allocation of the cleanup cost.
At the Seaboard Chemical site located in Jamestown, North Carolina, Pierce
is one of 414 PRPs participating in the costs of addressing the site and has
been assigned an allocation share of approximately 0.04%. Currently a remedial
investigation/feasibility study is being completed, and as such, an estimate for
the total cost of the remediation of this site has not been made to date.
However, based on estimates and the assigned allocations, the Company believes
its liability at the site will not be material and its share is adequately
covered through reserves established by the Company at September 30, 1997.
Actual liability could vary based on results of the study, the resources of
other PRPs and the Company's final share of liability.
The Company is addressing a regional trichloroethylene ("TCE") groundwater
plume on the south side of Oshkosh, Wisconsin. The Company believes there may be
multiple sources in the area. TCE was detected at the Company's North Plant
facility with recent testing showing the highest concentrations in a monitoring
well located on the upgradient property line. Because the investigation process
is still ongoing, it is not possible for the Company to estimate its long-term
total liability associated with this issue at this time. Also, as part of the
regional TCE groundwater investigation, the Company conducted a groundwater
investigation of a former landfill located on Company property. The landfill,
acquired by the Company in 1972, is approximately 2.0 acres in size and is
believed to have been used for the disposal of household waste. Based on the
investigation,
58
<PAGE> 62
the Company does not believe the landfill is one of the sources of the TCE
contamination. Based upon current knowledge, the Company believes its liability
associated with the TCE issue will not be material and is adequately covered
through reserves established by the Company at September 30, 1997. However, this
may change as investigations proceed by the Company, other unrelated property
owners, and government entities.
The Company is subject to other environmental matters which arise in the
ordinary course of business. Although the final results of all such matters
cannot be predicted with certainty, management believes that the ultimate
resolution of all such matters, after taking into account the liabilities
accrued with respect to such matters, will not have a material adverse effect on
the Company's financial condition or results of operations. Actual results could
vary, among other things, due to the uncertainties involved in environmental
investigations and remediation.
LEGAL PROCEEDINGS
The Company is engaged in litigation against Super Steel Products
Corporation ("SSPC"), the Company's former supplier of mixer systems for
forward-discharge concrete mixer trucks under a long-term supply contract. SSPC
sued the Company in state court claiming the Company breached the contract. The
Company counterclaimed for repudiation of contract. On July 26, 1996, a jury
returned a verdict for SSPC awarding damages totaling $4.5 million. On October
10, 1996, the state court judge overturned the verdict against the Company,
granted judgment for the Company on its counterclaim, and ordered a new trial
for damages on the Company's counterclaim. Both SSPC and the Company have
appealed the state court judge's decision. The Wisconsin Court of Appeals has
agreed to hear the case and both the Company and SSPC have filed briefs in this
matter.
The Company currently is engaged in the arbitration of certain disputes
between the Oshkosh Florida Division and O.V. Containers, Inc. ("OV"), which
arose out of the performance of a contract to deliver 690 skeletal container
chassis. The dispute involves a warranty claim originally filed in an
arbitration forum by OV against the Company in 1992. The Company settled the
arbitration, but subsequently obtained information that the failed chassis at
the heart of the dispute were subject to misuse and abuse and that certain
information requested at the time of the arbitration was improperly withheld.
The Company filed a lawsuit in the U.S. District Court for the Middle District
of Florida seeking damages of approximately $1.6 million. OV filed a demand for
arbitration of the matters underlying the Company's lawsuit, and successfully
stayed the Company's lawsuit pending the arbitration. OV has also asserted a
counterclaim in the arbitration for alleged breach of warranty and are seeking
damages of approximately $9.0 million. The arbitration is being conducted before
a three-member panel under the commercial dispute rules of the American
Arbitration Association, and is not expected to conclude before May 1998. The
Company is vigorously contesting warranty and other claims made against it, and
has asserted substantial claims against OV. The outcome of these matters cannot
be predicted at the present time.
The Company is subject to other legal proceedings and claims, including
patent, antitrust and state dealership regulation compliance proceedings.
Although the final results of all such claims cannot be predicted with
certainty, management believes that the ultimate resolution of all claims, after
taking into account the liabilities accrued with respect to such claims, will
not have a material adverse effect on the Company's financial condition or
results of operations. Actual results could vary, among other things, due to the
uncertainties involved in litigation.
59
<PAGE> 63
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The following table sets forth certain information as of January 15, 1998
concerning the Company's executive officers and directors. All of the Company's
officers serve terms of one year and until their successors are elected and
qualified. Each of the Company's directors are elected each year to serve for a
term of one year and until his or her successor is elected and qualified.
<TABLE>
<CAPTION>
NAME AGE TITLE
---- --- -----
<S> <C> <C>
Robert G. Bohn................. 44 President, Chief Executive Officer and Director
Timothy M. Dempsey............. 57 Vice President, General Counsel and Secretary
Paul C. Hollowell.............. 56 Executive Vice President and General Manager, Defense
Business
Charles L. Szews............... 41 Executive Vice President and Chief Financial Officer
Matthew J. Zolnowski........... 44 Vice President, Administration
J. David Brantingham........... 40 Vice President, Information Systems
Fred C. Fielding............... 63 Vice President, Government Operations, Washington D.C.
Office
Dan J. Lanzdorf................ 49 Vice President and General Manager, Commercial Business
Mark A. Meaders................ 39 Vice President, Corporate Purchasing and Logistics
John W. Randjelovic............ 53 Vice President and General Manager, Pierce Manufacturing,
Inc.
Donald H. Verhoff.............. 51 Vice President, Technology
J. William Andersen............ 59 Director
Daniel T. Carroll.............. 71 Director
Gen. Frederick M. Franks, 61 Director
Jr...........................
Michael W. Grebe............... 57 Director
Kathleen J. Hempel............. 47 Director
Stephen P. Mosling............. 51 Director
J. Peter Mosling, Jr........... 53 Director
Richard G. Sim................. 53 Director
</TABLE>
Robert G. Bohn. Mr. Bohn joined the Company in 1992 as Vice
President-Operations. He was appointed President and Chief Operating Officer in
1994. He was appointed President and Chief Executive Officer in October 1997.
Prior to joining the Company, Mr. Bohn was Director-European Operations for
Johnson Controls, Inc., Milwaukee, Wisconsin, which manufactures, among other
things, automotive products. He worked for Johnson Controls from 1984 until
1992. He was elected a Director of the Company in June 1995.
Timothy M. Dempsey.Mr. Dempsey joined the Company in October 1995 as Vice
President, General Counsel and Secretary. Mr. Dempsey has been and continues to
be a partner in the law firm of Dempsey, Magnusen, Williamson and Lampe in
Oshkosh, Wisconsin.
Paul C. Hollowell. Mr. Hollowell joined the Company in April 1989 as Vice
President-Defense Products and assumed his present position in February 1994.
Charles L. Szews. Mr. Szews joined the Company in March 1996 as Vice
President and Chief Financial Officer and assumed his present position in
October 1997. Mr. Szews was previously employed by Fort Howard Corporation, a
manufacturer of tissue products, from June 1988 until March 1996 in various
positions, including Vice President and Controller from September 1994 until
March 1996.
Matthew J. Zolnowski. Mr. Zolnowski joined the Company as Vice
President-Human Resources in January 1992 and assumed his present position in
February 1994.
J. David Brantingham. Mr. Brantingham joined the Company in April 1995 as
Manager of Technical Services and assumed his present position in November 1997.
Mr. Brantingham was previously employed by Western Publishing, Inc., a printer
and publisher of children's books and a manufacturer of adult games, in various
positions including Director of Technical Services from May 1989 through April
1995.
Fred C. Fielding. Mr. Fielding joined the Company in October 1989 and
assumed his present position in January 1991.
60
<PAGE> 64
Dan J. Lanzdorf. Mr. Lanzdorf joined the Company in 1973 as a design
engineer and has served in various assignments including Chief Engineer --
Defense, Director of Defense Engineering, Director of the Defense Business unit,
and Vice President of Manufacturing prior to assuming his current position in
November 1997.
Mark A. Meaders. Mr. Meaders joined the Company as Director of Purchasing
for Pierce in September 1996 and assumed his present position as Vice
President-Corporate Purchasing and Logistics in November 1997. Prior to joining
the Company, Mr. Meaders was Vice President-Purchasing for the CA Short Co.,
Inc., a provider of premium incentives, from 1995 until joining Pierce. Mr.
Meaders began his career at the Company's former Chassis Division as the plant
manager from 1993-1995. He previously served 13 years in the U.S. Army and
departed after attaining the rank of Major.
John W. Randjelovic. Mr. Randjelovic joined the Company in October 1992 as
Vice President and General Manager in charge of the Bradenton, Florida Division.
In September 1996, he was appointed Vice President of Manufacturing, Purchasing,
and Materials for Pierce and assumed his present position in October 1997. Prior
to joining the Company, Mr. Randjelovic worked as a consultant for Workplace
Transformation.
Donald H. Verhoff. Mr. Verhoff joined the Company in May 1973 as a
development engineer. He has held positions as Manager of the Test Lab, and
Director of New Product Development prior to assuming his present position in
November 1997.
J. William Andersen. Mr. Andersen has served as a Director of the Company
since 1976 and had been the Executive Director of Development, University of
Wisconsin-Oshkosh from 1980 through his retirement in 1994.
Daniel T. Carroll. Mr. Carroll has served as a Director of the Company
since 1991. Effective October 1997, he was elected Chairman of the Board of
Directors. He is Chairman of The Carroll Group, a management consulting firm
located in Avon, Colorado. Mr. Carroll is also a director of Wolverine Worldwide
Inc.; Comshare, Inc.; Aon Corp.; Diebold Incorporated; A.M. Castle & Company;
American Woodmark Corporation; Woodhead Industries, Inc.; Holmes Protection
Group, Inc.; and Diversa Inc.
Gen. Frederick M. Franks, Jr. Gen. Franks has served as a Director of the
Company since May 1997. He was the Commander of the U.S. Army Training and
Doctrine Command from 1991 to 1994 and commanded the U.S. Army VII Corps during
Operation Desert Storm. He retired from the Army in 1994.
Michael W. Grebe. Mr. Grebe has served as a Director of the Company since
1990. He has been a partner in the law firm of Foley & Lardner in Milwaukee
since 1977. The Company retained Mr. Grebe's firm for legal services in 1997 and
is similarly doing so in 1998.
Kathleen J. Hempel. Ms. Hempel was elected as a Director of the Company in
December 1997. She was Vice Chairman and Chief Financial Officer of Fort Howard
Corporation, a manufacturer of paper and paper products, from 1992 until its
merger into Fort James Corporation in 1997. She is a director of Whirlpool
Corporation.
J. Peter Mosling, Jr. Mr. Mosling has served as a Director of the Company
since 1976 having joined the Company in 1969. He had served in various senior
executive capacities since joining the Company through his retirement in 1994.
Stephen P. Mosling. Mr. Mosling has served as a Director of the Company
since 1976, having joined the Company in 1971. He had served in various senior
executive capacities since joining the Company through his retirement in 1994.
Richard G. Sim. Mr. Sim has served as a Director of the Company since March
1997. He is Chairman, President and Chief Executive Officer of Applied Power,
Inc., Milwaukee, Wisconsin, which manufactures hydraulic equipment and
electrical consumables.
Stephen P. Mosling and J. Peter Mosling are brothers. Other than as noted,
none of the Company's executive officers or directors has any family
relationship with any other executive officer or Director.
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<PAGE> 65
PRINCIPAL SHAREHOLDERS
The following table sets forth certain information regarding beneficial
ownership of each class of the Company's stock by each director, each person
known by the Company to own beneficially more than 5.0% of either the Company's
Class A Common Stock or the Company's Common Stock, the Company's current and
former chief executive officer, the four other most highly compensated executive
officers of the Company in fiscal 1997, and all directors and executive officers
as a group as of January 15, 1998. Except as indicated, persons listed have sole
voting and investment power over the shares beneficially owned.
<TABLE>
<CAPTION>
CLASS A COMMON STOCK COMMON STOCK
--------------------- -----------------------
PERCENT OF PERCENT OF
SHARES CLASS SHARES CLASS
------ ---------- ------ ----------
<S> <C> <C> <C> <C>
J. Peter Mosling, Jr.(1)(2)(3)..................... 226,508 55.8% 236,532 3.0%
P.O. Box 2566, Oshkosh, WI 54903
Stephen P. Mosling(1)(2)(3)(4)..................... 156,458 38.5% 362,052 4.5%
P.O. Box 2566, Oshkosh, WI 54903
Cadence Company(1)................................. 106,695 26.3% 39,242 *
C/O J. Peter Mosling, Jr.
P.O. Box 3146, Oshkosh, WI 54903
J. William Andersen(3)(5).......................... 1,890 * 3,000 *
Robert G. Bohn(3)(7)............................... 0 * 64,888 *
Daniel T. Carroll(3)............................... 0 * 4,000 *
Timothy M. Dempsey(3)(6)(7)........................ 1,980 * 46,620 *
Gen. Frederick M. Franks, Jr....................... 0 * 200 *
Kathleen J. Hempel................................. 0 * 0 *
R. Eugene Goodson(3)(7)(8)......................... 0 * 172,904 2.2%
Michael W. Grebe(3)................................ 0 * 4,000 *
Paul C. Hollowell(3)(7)............................ 0 * 75,156 *
Richard G. Sim..................................... 0 * 1,000 *
Charles L. Szews(3)(7)............................. 0 * 10,647 *
All Directors and executive officers as a group (19
persons)(3)...................................... 351,270 86.5% 1,049,030 13.1%
Franklin Resources, Inc.(9)........................ 0 * 826,800 10.3%
Quest Advisory Corp.(10)........................... 0 * 577,200 7.2%
</TABLE>
- -------------------------
* The amount shown is less than 1% of the outstanding shares of such class.
(1) Cadence Company is a partnership, of which Stephen P. Mosling, J. Peter
Mosling, Jr. and a trust of which Stephen P. Mosling is trustee each are
one-sixth partners. Amounts shown for Stephen P. Mosling reflect beneficial
ownership of one-third of the amounts set forth for Cadence company. As
managing partner of Cadence Company, J. Peter Mosling, Jr. has voting and
dispositive power and is a beneficial owner of all shares owned by the
partnership; amounts shown for J. Peter Mosling, Jr. include 106,695 shares
of Class A Common Stock and 39,242 shares of Common Stock owned
beneficially through Cadence Company.
(2) J. Peter Mosling, Jr. and Stephen P. Mosling are parties to an agreement
relating to Class A Common Stock. Under the agreement, Messrs. Mosling each
have agreed with the Company that, in the event of their deaths or earlier
incapacities, together their shares of Class A Common Stock then will be
exchanged for a like number of shares of Common Stock. Were that to occur,
a consequence would be the automatic conversion, pursuant to the Company's
Articles of Incorporation as restated and amended at the 1997 Annual
Shareholders Meeting, of all outstanding shares of Class A Common Stock on
a share for share basis for shares of Common Stock.
(3) Amounts shown include 3,000 shares each of Common Stock for J. Peter
Mosling, Stephen P. Mosling, J. William Andersen, Daniel T. Carroll and
Michael W. Grebe, 56,167 shares of Common Stock for Robert G. Bohn, 38,917
shares of Common Stock for Paul C. Hollowell, 6,666 shares of Common Stock
62
<PAGE> 66
for Timothy M. Dempsey, 2,833 shares of Common Stock for Charles L. Szews
and 181,082 shares of Common Stock for Directors and executive officers as
a group represented by stock options exercisable within 60 days of January
15, 1998.
(4) Amounts shown include 102,912 shares of Common Stock held by Stephen P.
Mosling as trustee under a trust.
(5) Amounts shown do not include 90 shares of Class A Common Stock owned by
Dulce W. Andersen, Mr. Andersen's wife, as to which he disclaims beneficial
ownership.
(6) Amounts shown include 1,125 shares of Common Stock held by Linda D.
Dempsey, Mr. Dempsey's wife, as Wisconsin Marital Property and 7,170 shares
of Common Stock held by Mr. Dempsey as trustee of trusts for unrelated
parties.
(7) Amounts shown include restricted shares of Common Stock awarded as of
October 31, 1997, as 1997 bonus compensation. Restrictions are against
resale, and are eliminated ratably after one, two and three years.
(8) Mr. Goodson resigned as Chairman of the Board and Chief Executive Officer
of the Company in October 1997.
(9) Amount shown is as described in Schedule 13(g) filing with the Securities
and Exchange Commission on November 10, 1997. Percent of class shown is
without inclusion of options exercisable as depicted in footnote (3),
above. Franklin Resources, Inc. is located at 777 Mariner's Blvd., San
Mateo, California 94403, and manages closed-end investment companies and
other managed investment accounts.
(10) Amount shown is as described in Schedule 13(g) filing with the Securities
and Exchange Commission on February 6, 1997. Percent of class shown is
without inclusion of options exercisable as depicted in footnote (3),
above. Quest Advisory Corp. is located at 1414 Avenue of the Americas, New
York, New York 10019, and manages investment accounts.
CERTAIN TRANSACTIONS
During fiscal year 1997, and continuing through 1999, Oshkosh incurred and
will continue to incur rental expense of $128,400 per year under a lease between
Oshkosh and Cadence Company, a partnership of which Stephen P. Mosling and J.
Peter Mosling, Jr., together with their four sisters, are equal partners. The
lease relates to property and a building used by Oshkosh as a new product
development center. The lease will expire on July 31, 1999. Management believes
that the terms of the lease are at least as favorable as could be obtained in an
arm's length transaction with an unrelated third party.
The Compensation Committee of Oshkosh's Board of Directors extended the
time for exercise of certain stock options held by Stephen P. Mosling and J.
Peter Mosling, Jr. to February 10, 1998. All of such options were exercised on
January 14, 1998.
On April 10, 1997, in conjunction with the termination of the Strategic
Alliance Agreement entered into on June 5, 1995, with Freightliner, Oshkosh
repurchased for the sum of $6,750,000, 350,000 shares of Common Stock and
Warrants for the further purchase of 1,250,000 shares of Common Stock which had
been purchased by Freightliner on June 5, 1995, for the sum of $9,437,500.
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<PAGE> 67
DESCRIPTION OF INDEBTEDNESS
The following sets forth information concerning the Company's indebtedness,
other than the Notes, outstanding immediately following the consummation of the
Transactions.
SENIOR CREDIT FACILITY
The Company has entered into the Senior Credit Facility, pursuant to which
the Company has available a revolving credit facility (the "Revolving Credit
Facility"), and three term loan facilities ("Term Loan A," "Term Loan B" and
"Term Loan C" and, collectively, the "Term Loan Facility"). At the Closing, an
aggregate of $225.0 million under the Term Loan Facility was drawn under the
Senior Credit Facility, consisting of: (a) Term Loan A in the principal amount
$100.0 million, which matures on March 31, 2004; (b) Term Loan B in the
principal amount $62.5 million, which matures on March 31, 2005; and (c) Term
Loan C in the aggregate principal amount $62.5 million, which matures on March
31, 2006. The $100.0 million Revolving Credit Facility, which matures in
approximately six years, is available for working capital and general corporate
purposes, including the issuance of letters of credit, subject to compliance
with certain conditions. At the Closing, on a pro forma basis at December 31,
1997, approximately $13.0 million was drawn and an aggregate of approximately $8
million of letters of credit were issued and outstanding under the Revolving
Credit Facility.
Term Loan A will amortize by $5.0 million in fiscal 1998, $11.0 million in
fiscal 1999, $13.5 million in fiscal 2000, $15.0 million in fiscal 2001, $19.5
million in fiscal 2002 and $24.0 million in fiscal 2003, with the remaining
outstanding balance due in fiscal 2004. Term Loan B and Term Loan C will each
have amortization of $156,250 per quarter, through March 31, 2004 for Term Loan
B and March 31, 2005 for Term Loan C, with the remaining outstanding balance of
Term Loan B and Term Loan C due in quarterly installments through March 31, 2005
and March 31, 2006, respectively.
The initial interest rates applicable to the loans under the Senior Credit
Facility are equal to the Base Rate or, at the Company's election, the IBOR Rate
plus the Applicable Margins. As of the Closing, the Applicable Margins were as
follows:
<TABLE>
<CAPTION>
APPLICABLE MARGINS
---------------------
TYPE OF LOAN BASE RATE IBOR RATE
- ------------ --------- ---------
<S> <C> <C>
Revolving Loan 0.75% 2.00%
Term Loan A 0.75% 2.00%
Term Loan B 1.00% 2.25%
Term Loan C 1.25% 2.50%
</TABLE>
The initial rates for borrowings under the Revolving Credit Facility and
the Term Loan Facility remain in effect until the third business day following
delivery to the Administrative Agent of the Company's financial statements for
the quarter ending June 30, 1998, following which they may be increased or
reduced according to a pricing grid. The Company may elect interest periods of
one, two, three or six months for IBOR borrowings. For IBOR loans, interest is
calculated on the basis of actual days elapsed in a 360-day year and for Base
Rate loans calculated based on the reference rate, interest is calculated on the
number of days elapsed in a 365- or 366-day year, as applicable. Interest on
IBOR loans is payable at the end of each interest period, but not less
frequently than once every three months; interest on Base Rate loans is payable
on the last day of March, June, September and December of each year. The "IBOR
Rate" is the Administrative Agent's inter-bank offered rate for U.S. dollars in
off-shore markets. The "Base Rate" is higher of the Administrative Agent's
reference rate and the federal funds rate plus 0.5%.
All domestic Restricted Subsidiaries of the Company other than MFSI
guarantee the Company's indebtedness under the Senior Credit Facility. All
extensions of credit under the Senior Credit Facility to the Company and the
guarantees of the Subsidiary Guarantors are secured by all existing and
after-acquired personal property of the Company and the Subsidiary Guarantors,
including all outstanding capital stock of the Company's domestic Restricted
Subsidiaries (other than, at the outset of the Transactions, MFSI) and 65% of
the outstanding capital stock of the Company's foreign Restricted Subsidiaries,
and any intercompany
64
<PAGE> 68
debt obligations, and subject to exceptions agreed upon, all existing and
after-acquired real property fee and leasehold interests. With certain
exceptions agreed upon, the Company and its Restricted Subsidiaries (other than
MFSI) are prohibited from pledging any of their assets other than under the
Senior Credit Facility.
Under the Senior Credit Facility, the letter of credit fee is equal to the
applicable IBOR margin for the Revolving Credit Facility, plus customary issuing
fees.
Indebtedness under the Senior Credit Facility may be prepaid in whole or in
part without premium or penalty (subject in some cases to related IBOR breakage
costs) and the Lenders' commitments relative thereto reduced or terminated upon
such notice and in such amounts as may be agreed upon. Voluntary prepayments of
the Term Loan Facility will be applied to the Term Loan or Term Loans designated
by the Company to scheduled installments in order of maturity in the 12 months
following the date of such prepayment, with any excess applied pro rata to
scheduled installments of the designated Term Loans.
The Company is required to make mandatory prepayments with respect to
excess cash flow (defined in the Senior Credit Facility), in an amount equal to
50.0% of such excess cash flow, payable on each January 15, beginning January
15, 1999.
The Company is required to make mandatory prepayments with respect to all
proceeds of asset sales to the extent not applied to buy certain other fixed
assets.
The Senior Credit Facility contains customary and appropriate
representations and warranties, including without limitation those relating to
due organization and authorization, no conflicts, financial condition, no
material adverse changes, title to properties, liens, litigation, payment of
taxes, compliance with laws, environmental liabilities and full disclosure.
The conditions to all borrowings and issuances of letters of credit include
requirements relating to prior written notice of borrowing or issuance, the
accuracy of representations and warranties, and the absence of any default or
potential event of default, and will otherwise be customary and appropriate for
financings of this type.
The Senior Credit Facility also contains customary affirmative and negative
covenants (including, where appropriate, certain exceptions and baskets mutually
agreed upon), including but not limited to furnishing information and
limitations on other indebtedness, liens, investments, guarantees, restricted
payments, mergers and acquisitions, sales of assets, capital expenditures,
leases, and affiliate transactions. The Senior Credit Facility also contains the
following financial covenants: minimum net worth; minimum fixed charge coverage
ratio; and maximum ratio of total debt to EBITDA.
Events of default under the Senior Credit Facility are usual and customary,
including without limitation, those relating to: (i) non-payment of interest,
principal, fees or letter of credit obligations payable under the Senior Credit
Facility; (ii) non-performance of certain covenants; (iii) cross-default or
cross-acceleration to other material debt of the Company and its subsidiaries;
(iv) bankruptcy or insolvency; (v) unsatisfied judgments in excess of specified
amounts; (vi) impairment of security interests in collateral; (vii) invalidity
of guarantees; and (viii) materially inaccurate or false representations or
warranties.
LEASE FINANCING FACILITY
The Leasing Partner entered into a general partnership with BALCAP, an
affiliate of the Initial Purchaser and Bank of America, effective February 26,
1998. The Leasing Partnership offers lease financing to customers of the Company
and administers existing lease transactions contributed to the partnership by
both partners. MFSI assigned to the Leasing Partner, which then contributed to
the Leasing Partnership, all of its current lease asset investments, which as of
November 30, 1997 had an aggregate total equipment value of approximately $122
million and associated liabilities of approximately $114 million. BALCAP has
contributed approximately $4.1 million of unencumbered lease assets to the
Leasing Partnership. BALCAP's initial net equity interest in the Leasing
Partnership therefore totals approximately 30.0% while the Leasing Partner's
interest is approximately 70.0%. Both the Leasing Partner and BALCAP are general
partners and the only partners of the Leasing Partnership. BALCAP acts as
managing partner of the Leasing Partnership. The
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Leasing Partner acts as the tax matters partner of the Leasing Partnership and
also acts as the portfolio partner of the Leasing Partnership. The portfolio
partner services the Lease Assets conveyed by the Leasing Partner to the Leasing
Partnership and also services new Lease Assets originated by the Leasing
Partnership.
The Leasing Partner has certain partnership obligations to BALCAP,
including the Company's obligation to offer future Lease Transactions to the
Leasing Partnership during the term of the Leasing Partnership. The Company will
indemnify the Leasing Partnership against losses relating to breaches of certain
representations and warranties made in connection with the conveyance of Lease
Assets to the Leasing Partnership by the Leasing Partner, as well as losses
relating to the performance of the Leasing Partner's obligations as the tax
matters partner and as portfolio partner.
The Leasing Partnership manages the contributed assets and liabilities and
engages in new vendor lease business providing financing to customers of the
Company. The partners finance purchases of trucks to be leased to user-customers
by investing equity in an amount equal to approximately 11.0% to 14.0% of the
cost of the trucks. Banks and other lenders lend to the Leasing Partnership the
remaining percentage, with recourse solely to the Leasing Partnership, secured
by a pledge of the user-leases. Each partner funds one-half of the equity needed
to finance the new truck purchases, and each partner is allocated its
proportionate share of Leasing Partnership cash flow and taxable income.
Indebtedness under the Lease Financing Facility is secured by the underlying
leases and assets of, and is recourse to, the Leasing Partnership; such
indebtedness is off-balance sheet and non-recourse to the Company.
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DESCRIPTION OF THE NEW NOTES
GENERAL
The New Notes will be issued pursuant to the same Indenture (the
"Indenture") among the Company, the Subsidiary Guarantors and Firstar Trust
Company, as trustee (the "Trustee"), under which the Notes were issued. The
terms of the New Notes include those stated in the Indenture and those made part
of the Indenture by reference to the Trust Indenture Act of 1939 (the "Trust
Indenture Act"). The New Notes are subject to all such terms, and Holders of New
Notes are referred to the Indenture and the Trust Indenture Act for a statement
thereof. The following summary of the material provisions of the Indenture does
not purport to be complete and is qualified by reference to the Indenture,
including the definitions therein of certain terms used below. Copies of the
Indenture and Registration Rights Agreement are available as set forth below
under "-- Additional Information". The definitions of certain terms used in the
following summary are set forth below under "-- Certain Definitions." For
purposes of this summary, the term "Company" refers only to Oshkosh Truck
Corporation and not to any of its Subsidiaries.
The New Notes will rank senior in right of payment to all subordinated
Indebtedness of the Company issued in the future, if any. The New Notes will be
general unsecured obligations of the Company and will be subordinated in right
of payment to all current and future Senior Debt. As of December 31, 1997, on a
pro forma basis giving effect to the Transactions, the Company would have had
Senior Debt of approximately $263.4 million. The Indenture permits the
incurrence of additional Senior Debt in the future.
The operations of the Company are conducted in part through its
Subsidiaries, and the Company may, therefore, be dependent upon the cash flow of
its Subsidiaries to meet its debt obligations, including its obligations under
the New Notes. As of the date of this Prospectus, Nations Casualty Insurance,
Inc., a captive insurance company, and Oshkosh/McNeilus Financial Services,
Inc., a newly established Leasing Subsidiary, are the Company's only
Unrestricted Subsidiaries. MFSI, the Company's existing Leasing Subsidiary, is a
Restricted Subsidiary as of the date of this Prospectus, but is treated as if it
were an Unrestricted Subsidiary for purposes of certain of the restrictive
covenants set forth in the Indenture. Unrestricted Subsidiaries are subject to
many of the restrictive covenants set forth in the Indenture. Under certain
circumstances, the Company will be able to designate current or future
Subsidiaries, including MFSI, as Unrestricted Subsidiaries.
PRINCIPAL, MATURITY AND INTEREST
The New Notes will be issued in an aggregate principal amount of up to
$100.0 million on or about the Expiration Date, and the Company may, subject to
the provisions of the Indenture, issue up to $50.0 million of additional New
Notes from time to time in the future. The New Notes will mature on March 1,
2008. Interest on the New Notes will accrue at the rate of 8 3/4% per annum and
will be payable semi-annually in arrears on March 1 and September 1, commencing
on September 1, 1998, to Holders of record on the immediately preceding February
15 and August 15. Interest on the New Notes will accrue from the most recent
date to which interest has been paid or, if no interest has been paid, from
February 26, 1998. Interest will be computed on the basis of a 360-day year
comprised of twelve 30-day months. Principal, premium, Liquidated Damages, if
any, and interest on the New Notes will be payable at the office or agency of
the Company maintained for such purpose within the City and State of New York
or, at the option of the Company, payment of interest and Liquidated Damages may
be made by check mailed to the Holders of the New Notes at their respective
addresses set forth in the register of Holders of New Notes; provided that all
payments of principal, premium, interest and Liquidated Damages with respect to
Holders of New Global Notes and New Notes the Holders of which have given wire
transfer instructions to the Company will be required to be made by wire
transfer of immediately available funds to the accounts specified by the Holders
thereof. Until otherwise designated by the Company, the Company's office or
agency in New York will be the office of the Trustee maintained for such
purpose. The New Notes will be issued in denominations of $1,000 and integral
multiples thereof.
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SUBSIDIARY GUARANTEES
The Company's payment obligations under the New Notes will be jointly and
severally guaranteed (the "Subsidiary Guarantees") by the Subsidiary Guarantors.
The Subsidiary Guarantee of each Subsidiary Guarantor will be subordinated to
the prior payment in full in cash or Cash Equivalents of all Senior Debt of such
Subsidiary Guarantor, which would include approximately $2.9 million of Senior
Debt outstanding as of December 31, 1997, and the amounts for which the
Subsidiary Guarantors are liable under the guarantees issued from time to time
with respect to Senior Debt. The obligations of each Subsidiary Guarantor under
its Subsidiary Guarantee are limited with the intention that such Subsidiary
Guarantee not constitute a fraudulent conveyance under applicable law. See,
however, "Risk Factors -- Fraudulent Conveyance Matters."
The Indenture provides that no Subsidiary Guarantor may consolidate with or
merge with or into (whether or not such Subsidiary Guarantor is the surviving
Person) another corporation, Person or entity, whether or not affiliated with
such Subsidiary Guarantor unless: (i) subject to the provisions of the following
paragraph, the Person formed by or surviving any such consolidation or merger
(if other than such Subsidiary Guarantor) assumes all the obligations of such
Subsidiary Guarantor, pursuant to a supplemental indenture in form and substance
reasonably satisfactory to the Trustee, under the New Notes, the Indenture, the
Registration Rights Agreement and the Subsidiary Guarantees; (ii) immediately
after giving effect to such transaction, no Default or Event of Default exists;
and (iii) the Company would be permitted by virtue of the Company's pro forma
Fixed Charge Coverage Ratio, immediately after giving effect to such
transaction, to incur at least $1.00 of additional Indebtedness pursuant to the
Fixed Charge Coverage Ratio test set forth in the covenant described below under
the caption "Certain Covenants -- Incurrence of Indebtedness and Issuance of
Preferred Stock."
The Indenture provides that in the event of a sale or other disposition of
all of the assets of any Subsidiary Guarantor, by way of merger, consolidation
or otherwise, or a sale or other disposition of all of the capital stock of any
Subsidiary Guarantor, then such Subsidiary Guarantor (in the event of a sale or
other disposition, by way of such a merger, consolidation or otherwise, of all
of the capital stock of such Subsidiary Guarantor) or the corporation acquiring
the property (in the event of a sale or other disposition of all of the assets
of such Subsidiary Guarantor) will be released and relieved of any obligations
under its Subsidiary Guarantee; provided that the Net Proceeds of such sale or
other disposition are applied in accordance with the applicable provisions of
the Indenture. See "Redemption or Repurchase at Option of Holders -- Asset
Sales."
SUBORDINATION
The payment of principal of, premium, Liquidated Damages, if any, and
interest and other Obligations on the New Notes will be subordinated in right of
payment, as set forth in the Indenture, to the prior payment in full in cash or
Cash Equivalents of all Senior Debt, whether outstanding on the date of the
Indenture or thereafter incurred.
Upon any distribution to creditors of the Company in a liquidation or
dissolution of the Company or in a bankruptcy, reorganization, insolvency,
receivership or similar proceeding relating to the Company or its property, an
assignment for the benefit of creditors or any marshaling of the Company's
assets and liabilities, the holders of Senior Debt will be entitled to receive
payment in full in cash or Cash Equivalents of all Obligations in respect of
such Senior Debt (including interest after the commencement of any such
proceeding at the rate specified in the applicable Senior Debt) before the
Holders of the New Notes will be entitled to receive any payment of cash,
properties or securities, with respect to the New Notes, and until all
Obligations with respect to Senior Debt are paid in full in cash or Cash
Equivalents, any distribution to which the Holders of the New Notes would be
entitled shall be made to the holders of Senior Debt (except that Holders of the
New Notes may receive and retain Permitted Junior Securities and payments made
from the trust described under the caption "-- Legal Defeasance and Covenant
Defeasance").
The Company also may not directly or indirectly, (x) make any payment of
cash, properties or securities, upon or in respect of the New Notes (except in
Permitted Junior Securities or from the trust described under the caption "--
Legal Defeasance and Covenant Defeasance") or (y) acquire any of the New Notes
(except
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in exchange for Permitted Junior Securities) if: (i) a default in the payment of
the principal of, premium, if any, interest or other Obligations on Significant
Senior Debt occurs and is continuing or (ii) any other default occurs and is
continuing with respect to Designated Senior Debt that permits holders of the
Designated Senior Debt as to which such other default relates to accelerate its
maturity and the Trustee receives a notice of such default (a "Payment Blockage
Notice") from the holders (or their Representative, if applicable) of any
Designated Senior Debt. Payments on the New Notes may and shall be resumed: (a)
in the case of a payment default, upon the date on which such default is cured
or waived and (b) in case of a nonpayment default, the earlier of the date on
which such nonpayment default is cured or waived or 179 days after the date on
which the applicable Payment Blockage Notice is received, unless the maturity of
any Designated Senior Debt has been accelerated in which case (a) above shall
become applicable. No new period of payment blockage may be commenced pursuant
to (ii) above unless and until: (i) 360 days have elapsed since the initial
effectiveness of the immediately prior Payment Blockage Notice and (ii) all
scheduled payments of principal, premium and Liquidated Damages, if any, and
interest on the New Notes that have come due have been paid in full in cash. No
nonpayment default that existed or was continuing on the date of delivery of any
Payment Blockage Notice to the Trustee shall be, or be made, the basis for a
subsequent Payment Blockage Notice unless such default shall have been cured or
waived for a period of not less than 180 days.
The Indenture further requires that the Company promptly notify holders of
Senior Debt if payment of the New Notes is accelerated because of an Event of
Default.
As a result of the subordination provisions described above, in the event
of a liquidation or insolvency, Holders of the New Notes may recover less
ratably than other creditors of the Company, including holders of Senior Debt.
See "Risk Factors -- Subordination." The Indenture limits, subject to certain
financial tests, the amount of additional Indebtedness, including Senior Debt,
that the Company and its subsidiaries can incur. See "-- Certain
Covenants -- Incurrence of Indebtedness and Issuance of Preferred Stock."
OPTIONAL REDEMPTION
The New Notes will not be redeemable at the Company's option prior to March
1, 2003. Thereafter, the New Notes will be subject to redemption at any time at
the option of the Company, in whole or in part, upon not less than 30 nor more
than 60 days' notice, at the redemption prices (expressed as percentages of
principal amount) set forth below plus accrued and unpaid interest and
Liquidated Damages thereon, if any, to the applicable redemption date, if
redeemed during the twelve-month period beginning on March 1 of the years
indicated below:
<TABLE>
<CAPTION>
YEAR PERCENTAGE
---- ----------
<S> <C>
2003........................................................ 104.375%
2004........................................................ 102.917%
2005........................................................ 101.458%
2006 and thereafter......................................... 100.000%
</TABLE>
Notwithstanding the foregoing, at any time prior to March 1, 2001, the
Company may on any one or more occasions redeem up to 35% of the aggregate
principal amount of New Notes originally issued under the Indenture at a
redemption price of 108.750% of the principal amount thereof, plus accrued and
unpaid interest and Liquidated Damages thereon, if any, to the redemption date,
with the net cash proceeds of one or more public offerings of common stock of
the Company; provided that New Notes of an aggregate principal amount of at
least 65% of the aggregate principal amount of Notes issued on the date of the
Indenture remain outstanding immediately after the occurrence of such redemption
(excluding New Notes held by the Company and its Subsidiaries); and provided,
further, that such redemption shall occur within 45 days of the date of the
closing of such public offering.
SELECTION AND NOTICE
If less than all of the New Notes are to be redeemed at any time, selection
of New Notes for redemption will be made by the Trustee in compliance with the
requirements of the principal national securities exchange,
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if any, on which the New Notes are listed, or, if the New Notes are not so
listed, on a pro rata basis, by lot or by such method as the Trustee shall deem
fair and appropriate; provided that no New Notes of $1,000 or less shall be
redeemed in part. Notices of redemption shall be mailed by first class mail at
least 30 but not more than 60 days before the redemption date to each Holder of
New Notes to be redeemed at its registered address. Notices of redemption may
not be conditional. If any New Note is to be redeemed in part only, the notice
of redemption that relates to such New Note shall state the portion of the
principal amount thereof to be redeemed. A new New Note in principal amount
equal to the unredeemed portion thereof will be issued in the name of the Holder
thereof upon cancellation of the original New Note. New Notes called for
redemption become due on the date fixed for redemption. On and after the
redemption date, interest ceases to accrue on New Notes or portions of them
called for redemption.
REPURCHASE AT THE OPTION OF HOLDERS
CHANGE OF CONTROL
Upon the occurrence of a Change of Control, each Holder of New Notes will
have the right to require the Company to repurchase all or any part (equal to
$1,000 or an integral multiple thereof) of such Holder's New Notes pursuant to
the offer described below (the "Change of Control Offer") at an offer price in
cash equal to 101% of the aggregate principal amount thereof plus accrued and
unpaid interest and Liquidated Damages thereon, if any, to the date of purchase
(the "Change of Control Payment"). Within 30 days following any Change of
Control, the Company will mail a notice to each Holder describing the
transaction or transactions that constitute the Change of Control and offering
to repurchase New Notes on the date specified in such notice, which date shall
be no earlier than 30 days and no later than 60 days from the date such notice
is mailed (the "Change of Control Payment Date"), pursuant to the procedures
required by the Indenture and described in such notice. The Company will comply
with the requirements of Rule 14e-1 under the Exchange Act and any other
securities laws and regulations thereunder to the extent such laws and
regulations are applicable in connection with the repurchase of the New Notes as
a result of a Change of Control.
On the Change of Control Payment Date, the Company will, to the extent
lawful: (i) accept for payment all New Notes or portions thereof properly
tendered pursuant to the Change of Control Offer; (ii) deposit with the Paying
Agent an amount equal to the Change of Control Payment in respect of all New
Notes or portions thereof so tendered; and (iii) deliver or cause to be
delivered to the Trustee the New Notes so accepted together with an Officers'
Certificate stating the aggregate principal amount of New Notes or portions
thereof being purchased by the Company. The Paying Agent will promptly mail to
each Holder of New Notes so tendered the Change of Control Payment for such New
Notes, and the Trustee will promptly authenticate and mail (or cause to be
transferred by book entry) to each Holder a new New Note equal in principal
amount to any unpurchased portion of the New Notes surrendered, if any; provided
that each such new New Note will be in a principal amount of $1,000 or an
integral multiple thereof. The Company will publicly announce the results of the
Change of Control Offer on or as soon as practicable after the Change of Control
Payment Date.
The Change of Control provisions described above will be applicable whether
or not any other provisions of the Indenture are applicable. Except as described
above with respect to a Change of Control, the Indenture does not contain
provisions that permit the Holders of the New Notes to require that the Company
repurchase or redeem the New Notes in the event of a takeover, recapitalization
or similar transaction.
The Senior Credit Agreement prohibits the Company from purchasing any New
Notes prior to their maturity and also provides that certain change of control
events with respect to the Company would constitute a default thereunder. Any
future credit agreements or other agreements relating to Senior Debt to which
the Company becomes a party may contain similar restrictions and provisions. The
Indenture provides that, prior to complying with the provisions of this
covenant, but in any event within 90 days following a Change of Control, the
Company will either repay all outstanding Senior Debt or obtain the requisite
consents, if any, under all agreements governing outstanding Senior Debt to
permit the repurchase of New Notes required by this covenant. If the Company
does not obtain such a consent or repay such borrowings, the Company will remain
prohibited from purchasing New Notes. In such case, the Company's failure to
purchase tendered New Notes would constitute an Event of Default under the
Indenture which would, in turn, constitute a
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default under the Senior Credit Agreement. In such circumstances, the
subordination provisions in the Indenture would likely restrict payments to the
Holders of New Notes. There can be no assurance that upon a Change in Control
the Company would have sufficient assets to satisfy its obligation to purchase
all of the New Notes that might be delivered by Holders seeking to exercise
their repurchase right and any repurchase obligation under any Senior Debt then
outstanding.
The Company will not be required to make a Change of Control Offer upon a
Change of Control if a third party makes the Change of Control Offer in the
manner, at the times and otherwise in compliance with the requirements set forth
in the Indenture applicable to a Change of Control Offer made by the Company and
purchases all New Notes validly tendered and not withdrawn under such Change of
Control Offer.
The definition of Change of Control includes a phrase relating to the sale,
lease, transfer, conveyance or other disposition of "all or substantially all"
of the assets of the Company and its Subsidiaries taken as a whole. Although
there is a developing body of case law interpreting the phrase "substantially
all," there is no precise established definition of the phrase under applicable
law. Accordingly, the ability of a Holder of New Notes to require the Company to
repurchase such New Notes as a result of a sale, lease, transfer, conveyance or
other disposition of less than all of the assets of the Company and its
Subsidiaries taken as a whole to another Person or group may be uncertain.
ASSET SALES
The Indenture provides that the Company will not, and will not permit any
of its Restricted Subsidiaries to, consummate an Asset Sale unless: (i) the
Company (or the Restricted Subsidiary, as the case may be) receives
consideration at the time of such Asset Sale at least equal to the fair market
value (evidenced by a resolution of the Board of Directors set forth in an
Officers' Certificate delivered to the Trustee) of the assets or Equity
Interests issued or sold or otherwise disposed of and (ii) at least 75% of the
consideration therefor received by the Company or such Subsidiary is in the form
of cash; provided that the amount of (x) any liabilities (as shown on the
Company's or such Restricted Subsidiary's most recent balance sheet), of the
Company or any Restricted Subsidiary (other than contingent liabilities and
liabilities that are by their terms subordinated to the New Notes or any
guarantee thereof) that are assumed by the transferee of any such assets
pursuant to a customary novation agreement that releases the Company or such
Restricted Subsidiary from further liability and (y) any securities, notes or
other obligations received by the Company or any such Subsidiary from such
transferee that are contemporaneously (subject to ordinary settlement periods)
converted by the Company or such Restricted Subsidiary into cash (to the extent
of the cash received), shall be deemed to be cash for purposes of this
provision.
Within 360 days after the receipt of any Net Proceeds from an Asset Sale,
the Company may apply such Net Proceeds, at its option, (a) to permanently
reduce Senior Debt (or, if such Senior Debt is revolving Indebtedness under a
Credit Facility, to permanently reduce any related commitments of lenders under
the Senior Debt (provided that such reductions shall have no effect on the
amount of Indebtedness permitted to be incurred pursuant to clause (ii)(b) of
the second paragraph of the covenant described under the caption "-- Certain
Covenants -- Incurrence of Indebtedness and Issuance of Preferred Stock")), or
(b) to the acquisition of a majority of the assets of, or a majority of the
Voting Stock of, another Permitted Business, the making of a capital expenditure
or the acquisition of other assets that are not classified as current assets
under GAAP and are used or useful in a Permitted Business. Pending the final
application of any such Net Proceeds, the Company may temporarily reduce
revolving credit borrowings or otherwise invest such Net Proceeds in any manner
that is not prohibited by the Indenture. Any Net Proceeds from Asset Sales that
are not applied or invested as provided in the first sentence of this paragraph
will be deemed to constitute "Excess Proceeds." When the aggregate amount of
Excess Proceeds exceeds $10.0 million, the Company will be required to make an
offer (pro rata in proportion to the principal amount (or accreted value, if
applicable) outstanding in respect of any asset sale offer required by the terms
of any pari passu Indebtedness incurred in accordance with the Indenture) to all
Holders of New Notes (an "Asset Sale Offer") to purchase the maximum principal
amount of New Notes that may be purchased out of the Excess Proceeds, at an
offer price in cash in an amount equal to 100% of the principal amount thereof
plus accrued and unpaid interest and Liquidated Damages thereon, if any, to the
date of purchase, in accordance with the procedures set forth in the Indenture.
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To the extent that any Excess Proceeds remain after consummation of an Asset
Sale Offer, the Company may use such Excess Proceeds for any purpose not
otherwise prohibited by the Indenture. If the aggregate principal amount of New
Notes tendered into such Asset Sale Offer surrendered by Holders thereof (and
any pari passu Indebtedness, as aforesaid) exceeds the amount of Excess
Proceeds, the Trustee shall select the New Notes to be purchased on a pro rata
basis. Upon completion of such offer to purchase, the amount of Excess Proceeds
shall be reset at zero.
CERTAIN COVENANTS
INCURRENCE OF INDEBTEDNESS AND ISSUANCE OF PREFERRED STOCK
The Indenture provides that the Company will not, and will not permit any
of its Restricted Subsidiaries to, directly or indirectly, create, incur, issue,
assume, guarantee or otherwise become directly or indirectly liable,
contingently or otherwise, with respect to (collectively, "incur") any
Indebtedness (including Acquired Debt) and that the Company will not issue any
Disqualified Stock and will not permit any of its Restricted Subsidiaries to
issue any shares of preferred stock; provided, however, that the Company may
incur Indebtedness (including Acquired Debt) or issue shares of Disqualified
Stock and any Subsidiary Guarantor may incur Indebtedness or issue preferred
stock if the Fixed Charge Coverage Ratio for the Company's most recently ended
four full fiscal quarters for which internal financial statements are available
immediately preceding the date on which such additional Indebtedness is incurred
or such Disqualified Stock or preferred stock is issued would have been at least
2.0 to 1, determined on a pro forma basis (including a pro forma application of
the net proceeds therefrom), as if the additional Indebtedness had been
incurred, or the Disqualified Stock or preferred stock had been issued, as the
case may be, at the beginning of such four-quarter period.
The provisions of the first paragraph of this covenant will not apply to
the incurrence of any of the following items of Indebtedness (collectively,
"Permitted Debt"):
(i) the incurrence by the Company and the Subsidiary Guarantors of
term Indebtedness under the Senior Credit Agreement (or, if the Senior
Credit Agreement has matured or been terminated or repaid in whole or in
part, any other Credit Facility); provided that the aggregate principal
amount of all term Indebtedness outstanding under the Credit Facilities
after giving effect to such incurrence does not exceed the greater of (a)
the aggregate amount of term Indebtedness borrowed under the Senior Credit
Agreement on the date of the Indenture less the aggregate amount of all
repayments, optional or mandatory, of the principal of any term
Indebtedness under the Senior Credit Agreement (other than payments that
are immediately reborrowed) that have been made since the date of the
Indenture and (b) $30.0 million;
(ii) (a) the incurrence by the Company and the Subsidiary Guarantors
of revolving Indebtedness and letters of credit pursuant to the Senior
Credit Agreement; provided that the aggregate principal amount of all
revolving Indebtedness (with letters of credit being deemed to have a
principal amount equal to the maximum potential liability of the Company
and its Restricted Subsidiaries thereunder) at any time outstanding under
the Senior Credit Agreement pursuant to this subsection (ii)(a) after
giving effect to such incurrence does not exceed $100.0 million, less the
aggregate amount of all Net Proceeds of Asset Sales applied to permanently
reduce revolving commitments with respect to the Senior Credit Agreement
pursuant to the covenant described above under the caption "-- Asset
Sales"; (b) the incurrence by the Company and the Subsidiary Guarantors of
additional revolving Indebtedness and letters of credit pursuant to the
Credit Facilities; provided that the aggregate principal amount of all such
additional revolving Indebtedness (with letters of credit being deemed to
have a principal amount equal to the maximum potential liability of the
Company and its Subsidiary Guarantors thereunder) at any time outstanding
under all Credit Facilities after giving effect to each incurrence does not
exceed (i) the Borrowing Base minus (ii) $100.0 million (or such lesser
amount as may then be the maximum aggregate commitments under the Senior
Credit Agreement); and (c) the incurrence by Foreign Subsidiaries of
revolving Indebtedness and letters of credit pursuant to Credit Facilities;
provided that the aggregate principal amount of all revolving Indebtedness
(with letters of credit being deemed to have a
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principal amount equal to the maximum potential liability of the Foreign
Subsidiaries thereunder) at any \time outstanding to Foreign Subsidiaries
under all Credit Facilities after giving effect to such incurrence does not
exceed the greater of (i) $15.0 million and (ii) the Foreign Borrowing
Base;
(iii) the incurrence by the Company and the Subsidiary Guarantors of
Indebtedness under any Floor Plan Financing Facility; provided that the
aggregate principal amount of all Indebtedness at any time outstanding
under all Floor Plan Financing Facilities after giving effect to such
incurrence does not exceed the total cost of the vehicles and equipment
securing such Indebtedness;
(iv) the incurrence by the Company or any of its Restricted
Subsidiaries of the Existing Indebtedness;
(v) the incurrence by the Company of Indebtedness represented by the
New Notes and the incurrence by the Subsidiary Guarantors of the Subsidiary
Guarantees;
(vi) the incurrence by the Company or any of its Restricted
Subsidiaries of Indebtedness represented by Capital Lease Obligations,
mortgage financings or purchase money obligations, in each case incurred
for the purpose of financing all or any part of the purchase price or cost
of construction or improvement of property, plant or equipment used in the
business of the Company or a Subsidiary Guarantor, in an aggregate
principal amount not to exceed $25.0 million at any time outstanding;
(vii) the incurrence by the Company or any of its Restricted
Subsidiaries of Permitted Refinancing Indebtedness in exchange for, or the
net proceeds of which are used to refund, refinance or replace Indebtedness
(other than intercompany Indebtedness) that was permitted by the Indenture
to be incurred pursuant to the preceding paragraph or clause (iv) or (v) of
this paragraph;
(viii) the incurrence by the Company or any of the Subsidiary
Guarantors of intercompany Indebtedness between or among the Company and
any of the Subsidiary Guarantors or the incurrence by Wholly Owned
Restricted Subsidiaries of intercompany Indebtedness between or among
Wholly Owned Restricted Subsidiaries; provided, however, that: (i) if the
Company is the obligor on such Indebtedness, such Indebtedness is expressly
subordinated to the prior payment in full in cash of all Obligations with
respect to the Senior Debt and the New Notes; and (ii)(A) any subsequent
issuance or transfer of Equity Interests that results in any such
Indebtedness being held by a Person other than the Company or a Subsidiary
Guarantor and (B) any sale or other transfer of any such Indebtedness to a
Person that is not either the Company or a Subsidiary Guarantor shall be
deemed, in each case, to constitute an incurrence of such Indebtedness by
the Company or such Subsidiary Guarantor, as the case may be, that was not
permitted by this clause (viii);
(ix) the incurrence by the Company or any of its Restricted
Subsidiaries of Hedging Obligations that are incurred for the purpose of
fixing or hedging: (i) interest rate risk with respect to any floating rate
Indebtedness that is permitted by the terms of this Indenture to be
outstanding; (ii) the value of foreign currencies purchased or received by
the Company in the ordinary course of business, or (iii) commodities
purchased in the ordinary course of business for use in a Permitted
Business and not for speculation;
(x) the guarantee by the Company or any of the Subsidiary Guarantors
of Indebtedness of the Company or a Subsidiary Guarantor that was permitted
to be incurred by another provision of this covenant;
(xi) the incurrence by the Company or any of its Restricted
Subsidiaries of Indebtedness incurred in respect of performance, surety and
similar bonds and letters of credit (and reimbursement obligations with
respect thereto) provided by the Company and the Restricted Subsidiaries in
the ordinary course of business for commercial purposes and not for or
related to money borrowed;
(xii) the incurrence by the Company or any of its Restricted
Subsidiaries of Indebtedness for letters of credit relating to workers'
compensation claims and self-insurance or similar requirements in the
ordinary course of business;
(xiii) the incurrence by the Company or any of its Restricted
Subsidiaries of Indebtedness arising from guarantees of Indebtedness of the
Company or any of its Restricted Subsidiaries or other
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agreements of the Company or any of its Restricted Subsidiaries providing
for indemnification, adjustment of purchase price or similar obligations,
in each case, incurred or assumed in connection with the disposition of any
business, assets or Subsidiary, other than guarantees of Indebtedness
incurred by any person acquiring all or any portion of such business,
assets or Subsidiary for the purpose of financing such acquisition,
provided that the maximum aggregate liability in respect of all such
Indebtedness shall at no time exceed the gross proceeds actually received
by the Company and its Subsidiaries in connection with such disposition;
(xiv) the incurrence by a Leasing Subsidiary of Indebtedness in
connection with a Leasing Transaction;
(xv) the incurrence by the Company or any Restricted Subsidiary of
Indebtedness in connection with the acquisition of assets or a new
Subsidiary Guarantor; provided such Indebtedness was incurred by the prior
owner of such assets or such Subsidiary Guarantor prior to such acquisition
by the Company or one of its Subsidiary Guarantors and was not incurred in
connection with, or in contemplation of, such acquisition by the Company or
a Subsidiary Guarantor; and provided further that the principal amount (or
accreted value, as applicable) of such Indebtedness, together with any
other outstanding Indebtedness secured pursuant to this clause (xv) and any
Permitted Refinancing Indebtedness incurred to refund, refinance or replace
any Indebtedness incurred pursuant to this clause (xv), does not exceed
$10.0 million; and
(xvi) the incurrence by the Company or any of its Restricted
Subsidiaries of additional Indebtedness in an aggregate principal amount
(or accreted value, as applicable) at any time outstanding, including all
Permitted Refinancing Indebtedness incurred to refund, refinance or replace
any Indebtedness incurred pursuant to this clause (xvi), not to exceed
$20.0 million; provided, however, that the principal amount (or accreted
value, as applicable) of Indebtedness of Restricted Subsidiaries that are
not Subsidiary Guarantors, at any time outstanding, including all Permitted
Refinancing Indebtedness incurred to refund, refinance or replace any
Indebtedness incurred pursuant to this clause (xvi), does not exceed $5.0
million.
For purposes of determining compliance with this covenant, in the event
that an item of Indebtedness meets the criteria of more than one of the
categories of Permitted Debt described in clauses (i) through (xvi) above or is
entitled to be incurred pursuant to the first paragraph of this covenant, the
Company shall, in its sole discretion, classify such item of Indebtedness in any
manner that complies with this covenant. Accrual of interest, accretion or
amortization of original issue discount, the payment of interest on any
Indebtedness in the form of additional Indebtedness with the same terms, and the
payment of dividends on Disqualified Stock in the form of additional shares of
the same class of Disqualified Stock will not be deemed to be an incurrence of
Indebtedness or an issuance of Disqualified Stock for purposes of this covenant;
provided, in each such case, that the amount thereof is included in Fixed
Charges of the Company as accrued. Nothing in this covenant shall prohibit the
incurrence by the Company's Unrestricted Subsidiaries of Non-Recourse Debt
(excluding Indebtedness owed by such Unrestricted Subsidiary to the Company);
provided, however, that if any such Indebtedness ceases to be Non-Recourse Debt
of an Unrestricted Subsidiary, such event shall be deemed to constitute an
incurrence of Indebtedness by a Restricted Subsidiary of the Company.
RESTRICTED PAYMENTS
The Indenture provides that the Company will not, and will not permit any
of its Restricted Subsidiaries to, directly or indirectly: (i) declare or pay
any dividend or make any other payment or distribution on account of the
Company's or any of its Restricted Subsidiaries' Equity Interests (including,
without limitation, any payment in connection with any merger or consolidation
involving the Company or any of its Restricted Subsidiaries) or to the direct or
indirect holders of the Company's or any of its Restricted Subsidiaries' Equity
Interests in their capacity as such (other than dividends or distributions
payable in Equity Interests (other than Disqualified Stock) of the Company or to
the Company or a Restricted Subsidiary of the Company); (ii) purchase, redeem or
otherwise acquire or retire for value (including, without limitation, in
connection with any merger or consolidation involving the Company) any Equity
Interests of the Company, (iii) make any payment on or with respect to, or
purchase, redeem, defease or otherwise acquire or retire for value any
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Indebtedness that is subordinated to the New Notes, except a payment of interest
or principal at Stated Maturity; or (iv) make any Restricted Investment (all
such payments and other actions set forth in clauses (i) through (iv) above
being collectively referred to as "Restricted Payments"), unless, at the time of
and after giving effect to such Restricted Payment:
(a) no Default or Event of Default shall have occurred and be
continuing or would occur as a consequence thereof; and
(b) the Company would, at the time of such Restricted Payment and
after giving pro forma effect thereto as if such Restricted Payment had
been made at the beginning of the applicable four-quarter period, have been
permitted to incur at least $1.00 of additional Indebtedness pursuant to
the Fixed Charge Coverage Ratio test set forth in the first paragraph of
the covenant described above under caption "-- Incurrence of Indebtedness
and Issuance of Preferred Stock"; and
(c) such Restricted Payment, together with the aggregate amount of all
other Restricted Payments made by the Company and its Subsidiaries after
the date of the Indenture (excluding Restricted Payments permitted by
clauses (ii), (iii) and (iv) of the next succeeding paragraph), is less
than the sum, without duplication, of (i) 50% of the Consolidated Net
Income of the Company for the period (taken as one accounting period) from
the beginning of the first fiscal month commencing after the date of the
Indenture to the end of the Company's most recently ended fiscal quarter
for which internal financial statements are available at the time of such
Restricted Payment (or, if such Consolidated Net Income for such period is
a deficit, less 100% of such deficit), plus (ii) 100% of the aggregate net
cash proceeds received by the Company since the date of the Indenture as a
contribution to its common equity capital or from the issue or sale of
Equity Interests of the Company (other than Disqualified Stock) or from the
issue or sale of Disqualified Stock or debt securities of the Company that
have been converted into such Equity Interests (other than Equity Interests
(or Disqualified Stock or convertible debt securities) sold to a Subsidiary
of the Company), plus (iii) to the extent that any Restricted Investment
that was made after the date of the Indenture is sold for cash or otherwise
liquidated or repaid for cash, the lesser of (A) the cash return of capital
with respect to such Restricted Investment (less the cost of disposition,
if any) and (B) the initial amount of such Restricted Investment, plus (iv)
50% of any cash dividends or other cash distributions received by the
Company or a Restricted Subsidiary that is a Subsidiary Guarantor after the
date of the Indenture from MFSI or an Unrestricted Subsidiary of the
Company (other than dividends or distributions made by Nations Casualty
Insurance, Inc.), to the extent that such dividends or other cash
distributions were not otherwise included in Consolidated Net Income of the
Company for such period, plus (v) to the extent that any Unrestricted
Subsidiary designated as such after the date of the Indenture is
redesignated as a Restricted Subsidiary after the date of the Indenture,
the lesser of (A) the fair market value of the Company's Investment in such
Subsidiary as of the date of such redesignation or (B) such fair market
value as of the date on which such Subsidiary was originally designated as
an Unrestricted Subsidiary, plus (vi) after the sale or liquidation of
Nations Casualty Insurance, Inc., 50% of the excess of (A) any cash
dividends or other cash distributions received by the Company or a
Subsidiary Guarantor after the date of the Indenture from Nations Casualty
Insurance, Inc. over (B) any Investment in Nations Casualty Insurance, Inc.
permitted pursuant to clause (h) of the definition of Permitted
Investments, plus (vii) other Restricted Payments in an aggregate amount
not to exceed $5.0 million.
The foregoing provisions will not prohibit: (i) the payment of any dividend
within 60 days after the date of declaration thereof, if at said date of
declaration such payment would have complied with the provisions of the
Indenture; (ii) the redemption, repurchase, retirement, defeasance or other
acquisition of any subordinated Indebtedness or Equity Interests of the Company
in exchange for, or out of the net cash proceeds of the substantially concurrent
sale (other than to a Subsidiary of the Company) of, other Equity Interests of
the Company (other than any Disqualified Stock); provided that the amount of any
such net cash proceeds that are utilized for any such redemption, repurchase,
retirement, defeasance or other acquisition shall be excluded from clause (c)
(ii) of the preceding paragraph; (iii) the defeasance, redemption, repurchase or
other acquisition of subordinated Indebtedness with the net cash proceeds from
an incurrence of Permitted Refinancing Indebtedness; (iv) the payment of any
dividend by a Subsidiary of the Company to the holders of its common Equity
Interests on a pro rata basis; and (v) the repurchase, redemption or other
acquisition or
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retirement for value of any Equity Interests of the Company or any Subsidiary of
the Company held by any member of the Company's (or any of its Subsidiaries')
management pursuant to any management equity subscription agreement or stock
option agreement in effect as of the date of the Indenture; provided that the
aggregate price paid for all such repurchased, redeemed, acquired or retired
Equity Interests shall not exceed $1.0 million in any twelve-month period and
shall not at any time exceed $5.0 million in the aggregate and no Default or
Event of Default shall have occurred and be continuing immediately after such
transaction; (vi) Investments in securities not constituting cash or Cash
Equivalents and received in connection with an Asset Sale made pursuant to the
provisions of the covenant described under "-- Certain Covenants -- Limitation
on Asset Sales" above or any other disposition of assets not constituting an
Asset Sale by reason of the threshold contained in the definition thereof; and
(vii) repurchases of Equity Interests deemed to occur upon exercise of stock
options if such Equity Interests represent a portion of the exercise price of
such options.
The Board of Directors may designate any Restricted Subsidiary to be an
Unrestricted Subsidiary if such designation would not cause a Default; provided
that in no event shall all or substantially all of the business currently
operated by the Company, McNeilus Truck & Manufacturing Inc., or Pierce
Manufacturing Inc. be transferred to or held by an Unrestricted Subsidiary. For
purposes of making such determination, all outstanding Investments by the
Company and its Restricted Subsidiaries (except to the extent repaid in cash) in
the Subsidiary so designated will be deemed to be Restricted Payments at the
time of such designation and will reduce the amount available for Restricted
Payments under the first paragraph of this covenant. All such outstanding
Investments will be deemed to constitute Investments in an amount equal to the
fair market value of such Investments at the time of such designation. Such
designation will only be permitted if such Restricted Payment would be permitted
at such time and if such Restricted Subsidiary otherwise meets the definition of
an Unrestricted Subsidiary.
The amount of all Restricted Payments (other than cash) shall be the fair
market value on the date of the Restricted Payment of the asset(s) or securities
proposed to be transferred or issued by the Company or such Subsidiary, as the
case may be, pursuant to the Restricted Payment. The fair market value of any
non-cash Restricted Payment shall be determined by the Board of Directors whose
resolution with respect thereto shall be delivered to the Trustee, such
determination to be based upon an opinion or appraisal issued by an accounting,
appraisal or investment banking firm of national standing if such fair market
value exceeds $5.0 million. Not later than five Business Days after making any
Restricted Payment, the Company shall deliver to the Trustee an Officers'
Certificate stating that such Restricted Payment is permitted and setting forth
the basis upon which the calculations required by the covenant "Restricted
Payments" were computed, together with a copy of any fairness opinion or
appraisal required by the Indenture.
LIENS
The Indenture provides that the Company will not, and will not permit any
of its Subsidiaries to, directly or indirectly, create, incur, assume or suffer
to exist any Lien securing Indebtedness or trade payables on any asset now owned
or hereafter acquired, or any income or profits therefrom or assign or convey
any right to receive income therefrom, except Permitted Liens.
DIVIDEND AND OTHER PAYMENT RESTRICTIONS AFFECTING SUBSIDIARIES
The Indenture provides that the Company will not, and will not permit any
of its Restricted Subsidiaries to, directly or indirectly, create or otherwise
cause or suffer to exist or become effective any encumbrance or restriction on
the ability of any Restricted Subsidiary to: (i)(a) pay dividends or make any
other distributions to the Company or any of its Restricted Subsidiaries (1) on
its Capital Stock or (2) with respect to any other interest or participation in,
or measured by, its profits, or (b) pay any indebtedness owed to the Company or
any of its Restricted Subsidiaries; (ii) make loans or advances to the Company
or any of its Restricted Subsidiaries; or (iii) transfer any of its properties
or assets to the Company or any of its Restricted Subsidiaries. However, the
foregoing restrictions will not apply to encumbrances or restrictions existing
under or by reason of (a) Existing Indebtedness or the Senior Credit Agreement
as in effect as of the date of the Indenture, and any amendments, modifications,
restatements, renewals, increases, supplements, refundings, replacements or
refinancings thereof, provided that the provisions contained in such amendments,
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modifications, restatements, renewals, increases, supplements, refundings,
replacement or refinancings are no more restrictive, taken as a whole, with
respect to such dividend and other payment restrictions than those contained in
the Senior Credit Agreement or the agreement governing such Existing
Indebtedness, as applicable, as in effect on the date of the Indenture, (b) the
Indenture and the New Notes, (c) applicable law, (d) any instrument governing
Indebtedness or Capital Stock of a Person acquired by the Company or any of its
Restricted Subsidiaries as in effect at the time of such acquisition (except to
the extent such Indebtedness was incurred in connection with or in contemplation
of such acquisition), which encumbrance or restriction is not applicable to any
Person, or the properties or assets of any Person, other than the Person, or the
property or assets of the Person, so acquired, provided that, in the case of
Indebtedness, such Indebtedness was permitted by the terms of the Indenture to
be incurred by the acquiring Company or Restricted Subsidiary, as applicable, at
the time of such acquisition, (e) customary non-assignment provisions in leases
entered into in the ordinary course of business and consistent with past
practices, (f) purchase money obligations for property acquired in the ordinary
course of business that impose restrictions of the nature described in clause
(iii) above on the property so acquired, (g) any agreement for the sale of a
Restricted Subsidiary that restricts distributions by that Restricted Subsidiary
pending its sale, (h) Permitted Refinancing Indebtedness, provided that the
restrictions contained in the agreements governing such Permitted Refinancing
Indebtedness are no more restrictive, taken as a whole, than those contained in
the agreements governing the Indebtedness being refinanced, (i) secured
Indebtedness otherwise permitted to be incurred pursuant to the provisions of
the covenant described above under the caption "-- Liens" that limits the right
of the debtor to dispose of the assets securing such Indebtedness, (j) any
Indebtedness incurred by a Foreign Subsidiary pursuant to clause (ii)(c) of the
second paragraph of the covenant described above under the caption "--
Indebtedness and Issuance of Preferred Stock," (k) provisions with respect to
the disposition or distribution of assets or property in an Asset Sale (or in a
transaction which, but for it size, would be an Asset Sale), or in joint venture
agreements and other similar agreements entered into in the ordinary course of
business and (l) restrictions on cash or other deposits or net worth imposed by
customers under contracts entered into in the ordinary course of business.
MERGER, CONSOLIDATION, OR SALE OF ASSETS
The Indenture provides that the Company may not consolidate or merge with
or into (whether or not the Company is the surviving corporation), or sell,
assign, transfer, lease, convey or otherwise dispose of all or substantially all
of its properties or assets in one or more related transactions, to another
corporation, Person or entity unless: (i) the Company is the surviving
corporation or the entity or the Person formed by or surviving any such
consolidation or merger (if other than the Company) or to which such sale,
assignment, transfer, lease, conveyance or other disposition shall have been
made is a corporation organized or existing under the laws of the United States,
any state thereof or the District of Columbia; (ii) the entity or Person formed
by or surviving any such consolidation or merger (if other than the Company) or
the entity or Person to which such sale, assignment, transfer, lease, conveyance
or other disposition shall have been made assumes all the obligations of the
Company under the Registration Rights Agreement, the New Notes and the Indenture
pursuant to a supplemental indenture in a form reasonably satisfactory to the
Trustee; (iii) immediately after such transaction no Default or Event of Default
exists; and (iv) except in the case of a merger of the Company with or into a
Wholly Owned Restricted Subsidiary of the Company, the Company or the entity or
Person formed by or surviving any such consolidation or merger (if other than
the Company), or to which such sale, assignment, transfer, lease, conveyance or
other disposition shall have been made will, at the time of such transaction and
after giving pro forma effect thereto as if such transaction had occurred at the
beginning of the applicable four-quarter period, be permitted to incur at least
$1.00 of additional Indebtedness pursuant to the Fixed Charge Coverage Ratio
test set forth in the first paragraph of the covenant described above under the
caption "-- Incurrence of Indebtedness and Issuance of Preferred Stock."
TRANSACTIONS WITH AFFILIATES
The Indenture provides that the Company will not, and will not permit any
of its Restricted Subsidiaries to, make any payment to, or sell, lease, transfer
or otherwise dispose of any of its properties or assets to, or purchase any
property or assets from, or enter into or make or amend any transaction,
contract, agreement,
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understanding, loan, advance or guarantee with, or for the benefit of, any
Affiliate (each of the foregoing, an "Affiliate Transaction"), unless: (i) such
Affiliate Transaction is on terms that are no less favorable to the Company or
the relevant Subsidiary than those that would have been obtained in a comparable
transaction by the Company or such Subsidiary with an unrelated Person; and (ii)
the Company delivers to the Trustee (a) with respect to any Affiliate
Transaction or series of related Affiliate Transactions involving aggregate
consideration in excess of $1.0 million, a resolution of the Board of Directors
set forth in an Officers' Certificate certifying that such Affiliate Transaction
complies with clause (i) above and that such Affiliate Transaction has been
approved by a majority of the disinterested members of the Board of Directors
and (b) with respect to any Affiliate Transaction or series of related Affiliate
Transactions involving aggregate consideration in excess of $5.0 million, an
opinion as to the fairness to the Holders of such Affiliate Transaction from a
financial point of view issued by an accounting, appraisal or investment banking
firm of national standing. Notwithstanding the foregoing, the following items
shall not be deemed to be Affiliate Transactions: (i) any employment or
severance agreement and any amendment thereto entered into by the Company or any
of its Subsidiaries in the ordinary course of business; (ii) transactions
between or among the Company and/or its Restricted Subsidiaries and transactions
between or among the Company or any Restricted Subsidiary and any Leasing
Subsidiary in the ordinary course of business (including the contribution of
overhead costs consistent with past practice and in the ordinary course of
business); (iii) undertakings customary in lease securitization transactions for
the benefit of any Leasing Subsidiary (whether undertaken in connection with a
lease securitization or other transaction involving any Leasing Subsidiary),
including Leasing Subsidiary Undertakings and guarantees thereof; (iv) transfers
of Lease Assets by MFSI to any Leasing Subsidiary (provided that such transfer
includes an assumption of MFSI's Indebtedness in respect of such Lease Assets
and a release of MFSI's liability therefor); (v) payment of reasonable
directors' fees and benefits, provided that the amount of such fees and benefits
paid to any Affiliate does not exceed the amount of such fees and benefits paid
to any Person who is not otherwise an Affiliate of the Company; (vi) Restricted
Payments that are permitted by the provisions of the Indenture described above
under the caption "-- Restricted Payments"; (vii) provision of officers' and
directors' indemnification and insurance in the ordinary course of business to
the extent permitted by applicable law; (viii) payment of employee salaries,
bonuses and employee benefits in the ordinary course of business (including
payment of commissions on behalf of any Leasing Subsidiary by the Company or any
of its Restricted Subsidiaries consistent with past practices and in the
ordinary course of business) and (ix) payment of amounts owing under the
existing lease between the Company and Cadence Company and under any amendment
or extension thereof so long as any such amendment or extension is not
disadvantageous to the Holders of the Notes in any material respect.
SALE AND LEASEBACK TRANSACTIONS
The Indenture provides that the Company will not, and will not permit any
of its Restricted Subsidiaries to, enter into any sale and leaseback
transaction; provided that the Company may enter into a sale and leaseback
transaction if: (i) the Company could have (a) incurred Indebtedness in an
amount equal to the Attributable Debt relating to such sale and leaseback
transaction pursuant to the Fixed Charge Coverage Ratio test set forth in the
first paragraph of the covenant described above under the caption "-- Incurrence
of Additional Indebtedness and Issuance of Preferred Stock" and (b) incurred a
Lien to secure such Indebtedness pursuant to the covenant described above under
the caption "-- Liens;" (ii) the gross cash proceeds of such sale and leaseback
transaction are at least equal to the fair market value (as determined in good
faith by the Board of Directors and set forth in an Officers' Certificate
delivered to the Trustee) of the property that is the subject of such sale and
leaseback transaction; and (iii) the transfer of assets in such sale and
leaseback transaction is permitted by, and the Company applies the proceeds of
such transaction in compliance with, the covenant described above under the
caption "Repurchase at the Option of the Holders -- Asset Sales."
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BUSINESS ACTIVITIES
The Company will not, and will not permit any Restricted Subsidiary to,
engage in any business other than Permitted Businesses, except to such extent as
would not be material to the Company and its Subsidiaries taken as a whole.
PAYMENTS FOR CONSENT
The Indenture provides that neither the Company nor any of its Restricted
Subsidiaries will, directly or indirectly, pay or cause to be paid any
consideration, whether by way of interest, fee or otherwise, to any Holder of
any New Notes for or as an inducement to any consent, waiver or amendment of any
of the terms or provisions of the Indenture or the New Notes unless such
consideration is offered to be paid or is paid to all Holders of the New Notes
that consent, waive or agree to amend in the time frame set forth in the
solicitation documents relating to such consent, waiver or agreement.
NO SENIOR SUBORDINATED DEBT
The Indenture provides that: (i) the Company will not incur, create, issue,
assume, guarantee or otherwise become liable for any Indebtedness that is
subordinate or junior in right of payment to any Senior Debt and senior in any
respect in right of payment to the New Notes; and (ii) no Subsidiary Guarantor
will incur, create, issue, assume, guarantee or otherwise become liable for any
Indebtedness that is subordinate or junior in right of payment to Guarantees of
Senior Debt or to Senior Debt of such Subsidiary Guarantor and senior in any
respect in right of payment to the Subsidiary Guarantees.
ADDITIONAL SUBSIDIARY GUARANTEES
The Indenture provides that (i) if the Company or any of its Restricted
Subsidiaries shall, after the date of the Indenture, transfer or cause to be
transferred, including by way of any Investment, in one or a series of
transactions (whether or not related), any assets, businesses, divisions, real
property or equipment having an aggregate fair market value (as determined in
good faith by the Board of Directors) in excess of $1.0 million to any
Restricted Subsidiary (other than any Leasing Subsidiary) that is not a
Subsidiary Guarantor or a Foreign Subsidiary, (ii) if the Company or any of its
Restricted Subsidiaries shall acquire another Restricted Subsidiary other than a
Foreign Subsidiary having total assets with a fair market value (as determined
in good faith by the Board of Directors) in excess of $1.0 million, or (iii) if
any Restricted Subsidiary other than a Foreign Subsidiary shall incur
Indebtedness in excess of $1.0 million, then the Company shall, at the time of
such transfer, acquisition or incurrence cause such Restricted Subsidiary that
is the transferee of such transfer, is so acquired, or incurs such Indebtedness
(if not then a Subsidiary Guarantor) to become a Subsidiary Guarantor and
execute a Supplemental Indenture and deliver an Opinion of Counsel, in
accordance with the terms of the Indenture; provided, that: (i) the Subsidiary
Guarantee of such Subsidiary Guarantor may be subordinated to Senior Debt of
such Subsidiary Guarantor; and (ii) such Restricted Subsidiary shall not be
required to issue a Subsidiary Guarantee if such Restricted Subsidiary is a
Foreign Subsidiary and such Foreign Subsidiary has not guaranteed and does not
guarantee any other Indebtedness of the Company or any other Restricted
Subsidiary of the Company that is not a Foreign Subsidiary.
LIMITATION ON ISSUANCES AND SALES OF EQUITY INTERESTS IN WHOLLY OWNED
RESTRICTED SUBSIDIARIES
The Indenture provides that the Company (i) will not, and will not permit
any Wholly Owned Restricted Subsidiary of the Company to, transfer, convey,
sell, lease or otherwise dispose of any Equity Interests in any Wholly Owned
Restricted Subsidiary of the Company to any Person (other than the Company or a
Wholly Owned Restricted Subsidiary of the Company), unless (a) such transfer,
conveyance, sale, lease or other disposition is of all the Equity Interests in
such Wholly Owned Restricted Subsidiary and (b) the cash Net Proceeds from such
transfer, conveyance, sale, lease or other disposition are applied in accordance
with the covenant described above under the caption "-- Asset Sales," and (ii)
will not permit any Wholly Owned Restricted Subsidiary of the Company to issue
any of its Equity Interests (other than, if necessary, shares of
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its Capital Stock constituting directors' qualifying shares) to any Person other
than to the Company or a Wholly Owned Restricted Subsidiary of the Company.
REPORTS
The Indenture provides that, whether or not required by the rules and
regulations of the Commission, so long as any New Notes are outstanding, the
Company will furnish to the Holders of Notes: (i) all quarterly and annual
financial information that would be required to be contained in a filing with
the Commission on Forms 10-Q and 10-K if the Company were required to file such
Forms, including a "Management's Discussion and Analysis of Consolidated
Financial Condition and Results of Operations" that describes the financial
condition and results of operations of the Company and its consolidated
Subsidiaries (showing in reasonable detail, either on the face of the financial
statements or in the footnotes thereto, the financial condition and results of
operations of the Company and its Restricted Subsidiaries separate from the
financial condition and results of operations of the Unrestricted Subsidiaries
of the Company, if material) and, with respect to the annual information only, a
report thereon by the Company's certified independent accountants and (ii) all
current reports that would be required to be filed with the Commission on Form
8-K if the Company were required to file such reports, in each case within the
time periods specified in the Commission's rules and regulations. In addition,
following the consummation of this Exchange Offer, whether or not required by
the rules and regulations of the Commission, the Company will file a copy of all
such information and reports with the Commission for public availability within
the time periods specified in the Commission's rules and regulations (unless the
Commission will not accept such a filing) and make such information available to
securities analysts and prospective investors upon request. In addition, the
Company and the Subsidiary Guarantors have agreed that, for so long as any New
Notes remain outstanding (unless the Company is subject to the reporting
requirements of the Exchange Act), they will furnish to the Holders and to
securities analysts and prospective investors, upon their request, the
information required to be delivered pursuant to Rule 144A(d)(4) under the
Securities Act.
EVENTS OF DEFAULT AND REMEDIES
The Indenture provides that each of the following constitutes an Event of
Default: (i) default for 30 days in the payment when due of interest on, or
Liquidated Damages with respect to, the New Notes (whether or not prohibited by
the subordination provisions of the Indenture); (ii) default in payment when due
of the principal of or premium, if any, on the New Notes whether or not
prohibited by the subordination provisions of the Indenture); (iii) failure by
the Company or any of its Subsidiaries to comply with the provisions described
under the captions "-- Repurchase at the Option of the Holder -- Change of
Control," "Repurchase at the Option of the Holder -- Asset Sales," "Certain
Covenants -- Restricted Payments," "Certain Covenants -- Incurrence of
Indebtedness and Issuance of Preferred Stock," or "Merger, Consolidation or Sale
of Assets"; (iv) failure by the Company or any of its Subsidiaries for 60 days
after notice from the Trustee or the Holders of at least 25% in principal amount
of the outstanding New Notes to comply with any of its other agreements in the
Indenture or the New Notes; (v) default under any mortgage, indenture or
instrument under which there may be issued or by which there may be secured or
evidenced any Indebtedness for money borrowed by the Company or any of its
Subsidiaries (or the payment of which is guaranteed by the Company or any of its
Subsidiaries) whether such Indebtedness or guarantee now exists, or is created
after the date of the Indenture, which default (a) is caused by a failure to pay
principal of or premium, if any, or interest on such Indebtedness prior to the
expiration of the grace period provided in such Indebtedness on the date of such
default (a "Payment Default") or (b) results in the acceleration of such
Indebtedness prior to its express maturity and, in each case, the principal
amount of any such Indebtedness, together with the principal amount of any other
such Indebtedness under which there has been a Payment Default or the maturity
of which has been so accelerated, aggregates $10.0 million or more; (vi) failure
by the Company or any of its Subsidiaries to pay final judgments aggregating in
excess of $5.0 million, which judgments are not paid, discharged or stayed for a
period of 60 days; (vii) except as permitted by the Indenture, any Subsidiary
Guarantee shall be held in any judicial proceeding to be unenforceable or
invalid or shall cease for any reason to be in full force and effect or any
Subsidiary Guarantor, or any Person acting on behalf of any Subsidiary
Guarantor, shall
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deny or disaffirm its obligations under its Subsidiary Guarantee; and (viii)
certain events of bankruptcy or insolvency with respect to the Company or any of
its Significant Subsidiaries.
If any Event of Default occurs and is continuing, the Trustee or the
Holders of at least 25% in principal amount of the then outstanding New Notes
may declare all the New Notes to be due and payable by notice in writing to the
Company and the Trustee specifying the respective Event of Default and that it
is a "notice of acceleration" (the "Acceleration Notice") and the same (i) shall
become immediately due and payable or (ii) if there are any amounts outstanding
under the Senior Credit Agreement, shall become due and payable upon the first
to occur of an acceleration under the Senior Credit Agreement, or five business
days after receipt by the Company and the Representative under the Senior Credit
Agreement of such Acceleration Notice. In the event of a declaration of
acceleration because an Event of Default set forth in clause (v) of the
preceding paragraph has occurred and is continuing, such declaration of
acceleration shall be automatically annulled if (A) the missed payments in
respect of the applicable Indebtedness have been paid or if the holders of the
Indebtedness that is subject to acceleration have rescinded their declaration of
acceleration, in each case within 60 days thereof and (B) all existing Events of
Default, except non-payment of principal or interest which have become due
solely because of the acceleration of the New Notes, have been cured or waived.
Notwithstanding the foregoing, in the case of an Event of Default arising from
certain events of bankruptcy or insolvency, with respect to the Company, any
Subsidiary Guarantor constituting a Significant Subsidiary or any group of
Subsidiary Guarantors that, taken together, would constitute a Significant
Subsidiary, all outstanding New Notes will become due and payable without
further action or notice. Holders of the New Notes may not enforce the Indenture
or the New Notes except as provided in the Indenture. Subject to certain
limitations, Holders of a majority in principal amount of the then outstanding
New Notes may direct the Trustee in its exercise of any trust or power. The
Trustee may withhold from Holders of the New Notes notice of any continuing
Default or Event of Default (except a Default or Event of Default relating to
the payment of principal or interest) if it determines that withholding notice
is in their interest.
In the case of any Event of Default occurring by reason of any willful
action (or inaction) taken (or not taken) by or on behalf of the Company with
the intention of avoiding payment of the premium that the Company would have had
to pay if the Company then had elected to redeem the New Notes pursuant to the
optional redemption provisions of the Indenture, an equivalent premium shall
also become and be immediately due and payable to the extent permitted by law
upon the acceleration of the New Notes. If an Event of Default occurs prior to
March 1, 2003 by reason of any willful action (or inaction) taken (or not taken)
by or on behalf of the Company with the intention of avoiding the prohibition on
redemption of the New Notes prior to March 1, 2003, then the premium specified
in the Indenture shall also become immediately due and payable to the extent
permitted by law upon the acceleration of the New Notes.
The Holders of a majority in aggregate principal amount of the New Notes
then outstanding by notice to the Trustee may on behalf of the Holders of all of
the New Notes waive any existing Default or Event of Default and its
consequences under the Indenture except a continuing Default or Event of Default
in the payment of interest on, or the principal of, the New Notes.
The Company is required to deliver to the Trustee annually a statement
regarding compliance with the Indenture, and the Company is required upon
becoming aware of any Default or Event of Default, to deliver to the Trustee a
statement specifying such Default or Event of Default.
NO PERSONAL LIABILITY OF DIRECTORS, OFFICERS, EMPLOYEES AND SHAREHOLDERS UNDER
NEW NOTES
No director, officer, employee, incorporator or shareholder of the Company
or any Subsidiary Guarantor, as such, shall have any liability for any
obligations of the Company or any Subsidiary Guarantor under the New Notes, the
Indenture or the Subsidiary Guarantees or for any claim based on, in respect of,
or by reason of, such obligations or their creation. Each Holder of New Notes by
accepting a New Note waives and releases all such liability. The waiver and
release are part of the consideration for issuance of the New Notes and the
Subsidiary Guarantees. However, such waiver may not be effective to waive
liabilities under the federal securities laws, including, but not limited to,
liability under Section 11 of the Securities Act, and it is the view of the
Commission that such a waiver is not effective and is against public policy.
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LEGAL DEFEASANCE AND COVENANT DEFEASANCE
The Company may, at its option and at any time, elect to have all of its
obligations discharged with respect to the outstanding New Notes ("Legal
Defeasance") except for: (i) the rights of Holders of outstanding New Notes to
receive payments in respect of the principal of, premium, if any, and interest
and Liquidated Damages on such New Notes when such payments are due from the
trust referred to below; (ii) the Company's obligations with respect to the New
Notes concerning issuing temporary New Notes, registration of New Notes,
mutilated, destroyed, lost or stolen New Notes and the maintenance of an office
or agency for payment and money for security payments held in trust; (iii) the
rights, powers, trusts, duties and immunities of the Trustee, and the Company's
obligations in connection therewith; and (iv) the Legal Defeasance provisions of
the Indenture. In addition, the Company may, at its option and at any time,
elect to have the obligations of the Company released with respect to certain
covenants that are described in the Indenture ("Covenant Defeasance") and
thereafter any omission to comply with such obligations shall not constitute a
Default or Event of Default with respect to the New Notes. In the event Covenant
Defeasance occurs, certain events (not including non-payment, bankruptcy,
receivership, rehabilitation and insolvency events) described under "Events of
Default" will no longer constitute an Event of Default with respect to the New
Notes.
In order to exercise either Legal Defeasance or Covenant Defeasance, (i)
the Company must irrevocably deposit with the Trustee, in trust, for the benefit
of the Holders of the New Notes, cash in U.S. dollars, non-callable Government
Securities, or a combination thereof, in such amounts as will be sufficient, in
the opinion of a nationally recognized firm of independent public accountants,
to pay the principal of, premium, if any, and interest and Liquidated Damages,
if any, on the outstanding New Notes on the stated maturity or on the applicable
redemption date, as the case may be, and the Company must specify whether the
New Notes are being defeased to maturity or to a particular redemption date;
(ii) in the case of Legal Defeasance, the Company shall have delivered to the
Trustee an opinion of counsel in the United States reasonably acceptable to the
Trustee confirming that (A) the Company has received from, or there has been
published by, the Internal Revenue Service a ruling or (B) since the date of the
Indenture, there has been a change in the applicable federal income tax law, in
either case to the effect that, and based thereon such opinion of counsel shall
confirm that, the Holders of the outstanding New Notes will not recognize
income, gain or loss for federal income tax purposes as a result of such Legal
Defeasance and will be subject to federal income tax on the same amounts, in the
same manner and at the same times as would have been the case if such Legal
Defeasance had not occurred; (iii) in the case of Covenant Defeasance, the
Company shall have delivered to the Trustee an opinion of counsel in the United
States reasonably acceptable to the Trustee confirming that the Holders of the
outstanding New Notes will not recognize income, gain or loss for federal income
tax purposes as a result of such Covenant Defeasance and will be subject to
federal income tax on the same amounts, in the same manner and at the same times
as would have been the case if such Covenant Defeasance had not occurred; (iv)
no Default or Event of Default shall have occurred and be continuing on the date
of such deposit (other than a Default or Event of Default resulting from the
borrowing of funds to be applied to such deposit) or insofar as Events of
Default from bankruptcy or insolvency events are concerned, at any time in the
period ending on the 91st day after the date of deposit; (v) such Legal
Defeasance or Covenant Defeasance will not result in a breach or violation of,
or constitute a default under any material agreement or instrument (other than
the Indenture) to which the Company or any of its Subsidiaries is a party or by
which the Company or any of its Subsidiaries is bound; (vi) the Company must
have delivered to the Trustee an opinion of counsel to the effect that, assuming
no intervening bankruptcy of the Company between the date of deposit and the
91st day following the deposit and assuming no Holder of New Notes is an insider
of the Company, after the 91st day following the deposit, the trust funds will
not be subject to the effect of any applicable bankruptcy, insolvency,
reorganization or similar laws affecting creditors' rights generally; (vii) the
Company must deliver to the Trustee an Officers' Certificate stating that the
deposit was not made by the Company with the intent of preferring the Holders of
New Notes over the other creditors of the Company with the intent of defeating,
hindering, delaying or defrauding creditors of the Company or others; and (viii)
the Company must deliver to the Trustee an Officers' Certificate and an opinion
of counsel, each stating that all conditions precedent provided for relating to
the Legal Defeasance or the Covenant Defeasance have been complied with.
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TRANSFER AND EXCHANGE
A Holder may transfer or exchange New Notes in accordance with the
Indenture. The Registrar and the Trustee may require a Holder, among other
things, to furnish appropriate endorsements and transfer documents and the
Company may require a Holder to pay any taxes and fees required by law or
permitted by the Indenture. The Company is not required to transfer or exchange
any New Note selected for redemption. Also, the Company is not required to
transfer or exchange any New Note for a period of 15 days before a selection of
New Notes to be redeemed.
The registered Holder of a New Note will be treated as the owner of it for
all purposes.
AMENDMENT, SUPPLEMENT AND WAIVER
Except as provided in the next two succeeding paragraphs, the Indenture or
the New Notes may be amended or supplemented with the consent of the Holders of
at least a majority in principal amount of the New Notes then outstanding
(including, without limitation, consents obtained in connection with a purchase
of, or tender offer or exchange offer for, New Notes), and any existing default
or compliance with any provision of the Indenture or the New Notes may be waived
with the consent of the Holders of a majority in principal amount of the then
outstanding New Notes (including, without limitation, consents obtained in
connection with a purchase of, or tender offer or exchange offer for, New
Notes).
Without the consent of each Holder affected, an amendment or waiver may not
(with respect to any New Notes held by a non-consenting Holder): (i) reduce the
principal amount of New Notes whose Holders must consent to an amendment,
supplement or waiver; (ii) reduce the principal of or change the fixed maturity
of any New Note or alter the provisions with respect to the redemption of the
New Notes (other than provisions relating to the covenants described above under
the caption "-- Repurchase at the Option of Holders"); (iii) reduce the rate of
or change the time for payment of interest on any New Note; (iv) waive a Default
or Event of Default in the payment of principal of or premium, if any, or
interest on the New Notes (except a rescission of acceleration of the New Notes
by the Holders of at least a majority in aggregate principal amount of the New
Notes and a waiver of the payment default that resulted from such acceleration);
(v) make any New Note payable in money other than that stated in the New Notes;
(vi) make any change in the provisions of the Indenture relating to waivers of
past Defaults or the rights of Holders of New Notes to receive payments of
principal of or premium, if any, or interest on the New Notes; (vii) waive a
redemption payment with respect to any New Note (other than a payment required
by one of the covenants described above under the caption "-- Repurchase at the
Option of Holders") or (viii) make any change in the foregoing amendment and
waiver provisions. In addition, any amendment to the provisions of Article 10 of
the Indenture (which relate to subordination) will require the consent of the
Holders of at least 66 2/3% in aggregate principal amount of the New Notes then
outstanding if such amendment would adversely affect the rights of Holders of
New Notes.
Notwithstanding the foregoing, without the consent of any Holder of New
Notes, the Company and the Trustee may amend or supplement the Indenture or the
New Notes to cure any ambiguity, defect or inconsistency, to provide for
uncertificated New Notes in addition to or in place of certificated New Notes,
to provide for the assumption of the Company's or any Subsidiary Guarantor's
obligations to Holders of New Notes in the case of a merger or consolidation or
sale of all or substantially all of the Company's or such Subsidiary Guarantor's
assets, to make any change that would provide any additional rights or benefits
to the Holders of New Notes or that does not adversely affect the legal rights
under the Indenture of any such Holder, or to comply with requirements of the
Commission in order to effect or maintain the qualification of the Indenture
under the Trust Indenture Act.
CONCERNING THE TRUSTEE
The Indenture contains certain limitations on the rights of the Trustee,
should it become a creditor of the Company, to obtain payment of claims in
certain cases, or to realize on certain property received in respect of any such
claim as security or otherwise. The Trustee will be permitted to engage in other
transactions;
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however, if it acquires any conflicting interest it must eliminate such conflict
within 90 days, apply to the Commission for permission to continue or resign.
The Holders of a majority in principal amount of the then outstanding New
Notes will have the right to direct the time, method and place of conducting any
proceeding for exercising any remedy available to the Trustee, subject to
certain exceptions. The Indenture provides that in case an Event of Default
shall occur (which shall not be cured), the Trustee will be required, in the
exercise of its power, to use the degree of care of a prudent man in the conduct
of his own affairs. Subject to such provisions, the Trustee will be under no
obligation to exercise any of its rights or powers under the Indenture at the
request of any Holder of New Notes, unless such Holder shall have offered to the
Trustee security and indemnity satisfactory to it against any loss, liability or
expense.
ADDITIONAL INFORMATION
Anyone who receives this Prospectus may obtain a copy of the Indenture and
Registration Rights Agreement without charge by writing to Oshkosh Truck
Corporation, 2307 Oregon Street, P.O. Box 2566 Oshkosh, Wisconsin 54903, Attn:
Chief Financial Officer.
BOOK-ENTRY, DELIVERY AND FORM
The New Notes initially being issued in exchange for the Notes will be
represented by one or more registered global notes without interest coupons
(collectively, the "Global New Notes"). Notwithstanding the foregoing, Notes
held in certificated form will be exchanged solely for New Notes in certificated
form as discussed below. Upon issuance, the Global New Notes will be deposited
with the Trustee, as custodian for The Depository Trust Company ("DTC"), in New
York, New York, and registered in the name of DTC or its nominee, for credit to
the accounts of DTC's Direct and Indirect Participants (as defined below).
Transfers of beneficial interests in any Global New Notes will be subject to the
applicable rules and procedures of DTC and its Direct or Indirect Participants,
which may change from time to time.
The Global New Notes may be transferred, in whole and not in part, only to
another nominee of DTC or to a successor of DTC or its nominee in certain
limited circumstances. Beneficial interests in the Global New Notes may be
exchanged for New Notes in certificated form in certain limited circumstances.
See "-- Transfer of Interests in Global New Notes for Certificated Notes."
Initially, the Trustee will act as Paying Agent and Registrar. The New
Notes may be presented for registration of transfer and exchange at the offices
of the Registrar.
Depositary Procedures
DTC has advised the Company that DTC is a limited-purpose trust company
created to hold securities for its participating organizations (collectively,
the "Direct Participants") and to facilitate the clearance and settlement of
transactions in those securities between Direct Participants through electronic
book-entry changes in accounts of Participants. The Direct Participants include
securities brokers and dealers (including the Initial Purchaser), banks, trust
companies, clearing corporations and certain other organizations. Access to
DTC's system is also available to other entities that clear through or maintain
a direct or indirect, custodial relationship with a Direct Participant
(collectively, the "Indirect Participants").
DTC has advised the Company that, pursuant to DTC's procedures, (i) upon
deposit of the Global New Notes, DTC will credit the accounts of the Direct
Participants designated by the Exchange Agent with portions of the principal
amount of the Global New Notes, and (ii) DTC will maintain records of the
ownership interests of such Direct Participants in the Global New Notes and the
transfer of ownership interests by and between Direct Participants. DTC will not
maintain records of the ownership interests of, or the transfer of ownership
interests by and between, Indirect Participants or other owners of beneficial
interests in the Global New Notes. Direct Participants and Indirect Participants
must maintain their own records of the ownership interests of, and the transfer
of ownership interests by and between, Indirect Participants and other owners of
beneficial interests in the Global New Notes.
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Investors in the Global New Notes may hold their interests therein directly
through DTC if they are Direct Participants in DTC or indirectly through
organizations that are Direct Participants in DTC. All ownership interests in
any Global New Notes are subject to the procedures and requirements of DTC.
The laws of some states in the United States require that certain persons
take physical delivery in definitive, certificated form, of securities that they
own. This may limit or curtail the ability to transfer beneficial interests in a
Global New Note to such persons. Because DTC can act only on behalf of Direct
Participants, which in turn act on behalf of Indirect Participants and others,
the ability of a person having a beneficial interest in a Global New Note to
pledge such interest to persons or entities that are not Direct Participants in
DTC, or to otherwise take actions in respect of such interests, may be affected
by the lack of physical certificates evidencing such interests. For certain
other restrictions on the transferability of the Notes see "-- Transfers of
Interests in Global Notes for Certificated Notes."
Except as described in "-- Transfers of Interests in Global New Notes for
Certificated New Notes," owners of beneficial interests in the Global New Notes
will not have New Notes registered in their names, will not receive physical
delivery of New Notes in certificated form and will not be considered the
registered owners or holders thereof under the Indenture for any purpose.
Under the terms of the Indenture, the Company ,the Subsidiary Guarantors
and the Trustee will treat the persons in whose names the New Notes are
registered (including New Notes represented by Global New Notes) as the owners
thereof for the purpose of receiving payments and for any and all other purposes
whatsoever. Payments in respect of the principal, premium, Liquidated Damages,
if any, and interest on Global New Notes registered in the name of DTC or its
nominee will be payable by the Trustee to DTC or its nominee as the registered
holder under the Indenture. Consequently, neither the Company, the Trustee nor
any agent of the Company or the Trustee has or will have any responsibility or
liability for (i) any aspect of DTC's records or any Direct Participant's or
Indirect Participant's records relating to or payments made on account of
beneficial ownership interests in the Global New Notes or for maintaining,
supervising or reviewing any of DTC's records or any Direct Participant's or
Indirect Participant's records relating to the beneficial ownership interests in
any Global New Note or (ii) any other matter relating to the actions and
practices of DTC or any of its Direct Participants or Indirect Participants.
DTC has advised the Company that its current payment practice (for payments
of principal, interest and the like) with respect to securities such as the New
Notes is to credit the accounts of the relevant Direct Participants with such
payment on the payment date in amounts proportionate to such Direct
Participant's respective ownership interests in the Global New Notes as shown on
DTC's records. Payments by Direct Participants and Indirect Participants to the
beneficial owners of the New Notes will be governed by standing instructions and
customary practices between them and will not be the responsibility of DTC, the
Trustee, the Company or the Subsidiary Guarantors. Neither the Company, the
Subsidiary Guarantors nor the Trustee will be liable for any delay by DTC or its
Direct Participants or Indirect Participants in identifying the beneficial
owners of the New Notes and the Company and the Trustee may conclusively rely on
and will be protected in relying on instructions from DTC or its nominee as the
registered owner of the New Notes for all purposes.
The Global New Notes will trade in DTC's Same-Day Funds Settlement System
and, therefore, transfers between Direct Participants in DTC will be effected in
accordance with DTC's procedures, and will be settled in immediately available
funds. Transfers between Indirect Participants who hold an interest through a
Direct Participant will be effected in accordance with the procedures of such
Direct Participant but generally will settle in immediately available funds.
DTC has advised the Company that it will take any action permitted to be
taken by a holder of New Notes only at the direction of one or more Direct
Participants to whose account interests in the Global New Notes are credited and
only in respect of such portion of the aggregate principal amount of the New
Notes to which such Direct Participant or Direct Participants has or have given
direction. However, if there is an Event of Default under the New Notes, DTC
reserves the right to exchange Global New Notes (without the direction of one or
more of its Direct Participants) for New Notes in certificated form, and to
distribute such certificated forms of New Notes to its Direct Participants. See
"-- Transfers of Interests in Global New Notes for Certificated New Notes."
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Although DTC has agreed to the foregoing procedures to facilitate transfers
of interests in the Global New Notes among Direct Participants, it is under no
obligation to perform or to continue to perform such procedures, and such
procedures may be discontinued at any time. None of the Company, the Subsidiary
Guarantors, the Initial Purchaser or the Trustee shall have any responsibility
for the performance by DTC or its respective Direct and Indirect Participants of
their respective obligations under the rules and procedures governing any of
their operations.
The information in this section concerning DTC and its book-entry systems
has been obtained from sources that the Company believes to be reliable, but the
Company takes no responsibility for the accuracy thereof.
Transfers of Interests in Global New Notes for Certificated New Notes
An entire Global New Note may be exchanged for definitive New Notes in
registered, certificated form without interest coupons ("Certificated New
Notes") if (i) DTC (x) notifies the Company that it is unwilling or unable to
continue as depositary for the Global New Notes and the Company thereupon fails
to appoint a successor depositary within 90 days or (y) has ceased to be a
clearing agency registered under the Exchange Act, (ii) the Company, at its
option, notifies the Trustee in writing that it elects to cause the issuance of
Certificated New Notes or (iii) there shall have occurred and be continuing a
Default or an Event of Default with respect to the New Notes. In any such case,
the Company will notify the Trustee in writing that, upon surrender by the
Direct and Indirect Participants of their interest in such Global New Note,
Certificated New Notes will be issued to each person that such Direct and
Indirect Participants and DTC identify as being the beneficial owner of the
related New Notes.
Beneficial interests in Global New Notes held by any Direct or Indirect
Participant may be exchanged for Certificated Notes upon request to DTC, by such
Direct Participant (for itself or on behalf of an Indirect Participant), to the
Trustee in accordance with customary DTC procedures. Certificated New Notes
delivered in exchange for any beneficial interest in any Global New Note will be
registered in the names, and issued in any approved denominations, requested by
DTC on behalf of such Direct or Indirect Participants (in accordance with DTC's
customary procedures).
Neither the Company, the Subsidiary Guarantor nor the Trustee will be
liable for any delay by the holder of any Global New Note or DTC in identifying
the beneficial owners of New Notes, and the Company and the Trustee may
conclusively rely on, and will be protected in relying on, instructions from the
holder of the Global New Note or DTC for all purposes.
Same Day Settlement and Payment
The Indenture requires that payments in respect of the New Notes
represented by the Global New Notes (including principal, premium, if any,
interest and Liquidated Damages, if any) be made by wire transfer of immediately
available same day funds to the accounts specified by the holder of such Global
New Note. With respect to Certificated New Notes, the Company will make all
payments of principal, premium, if any, interest and Liquidated Damages, if any,
by wire transfer of immediately available same day funds to the accounts
specified by the holders thereof or, if no such account is specified, by mailing
a check to each such holder's registered address. The Company expects that
secondary trading in the Certificated New Notes will also be settled in
immediately available funds.
EXCHANGE OFFER; REGISTRATION RIGHTS
The Company and the Initial Purchaser entered into the Registration Rights
Agreement on the Closing Date. Pursuant to the Registration Rights Agreement,
the Company agreed to file with the Commission the Exchange Offer Registration
Statement of which this Prospectus is a part on the appropriate form under the
Securities Act with respect to the New Notes. Pursuant to the Exchange Offer,
the Company is offering to the Holders of Transfer Restricted Securities who are
able to make certain representations the opportunity to exchange their Transfer
Restricted Securities for New Notes. If any Holder of Transfer Restricted
Securities notifies the Company prior to the 20th day following consummation of
the Exchange Offer that (A) it is
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prohibited by law or Commission policy from participating in the Exchange Offer
or (B) that it may not resell the New Notes acquired by it in the Exchange Offer
to the public without delivering a prospectus and the prospectus contained in
the Exchange Offer Registration Statement is not appropriate or available for
such resales or (C) that it is a broker-dealer and owns Notes acquired directly
from the Company or an affiliate of the Company, the Company will file with the
Commission a Shelf Registration Statement to cover resales of the Notes by the
Holders thereof who satisfy certain conditions relating to the provision of
information in connection with the Shelf Registration Statement. The Company
will use its best efforts to cause the applicable registration statement to be
declared effective as promptly as possible by the Commission. For purposes of
the foregoing, "Transfer Restricted Securities" means each Note until: (i) the
date on which such Note has been exchanged by a person other than a
broker-dealer for a New Note in the Exchange Offer; (ii) following the exchange
by a broker-dealer in the Exchange Offer of a Note for a New Note, the date on
which such New Note is sold to a purchaser who receives from such broker-dealer
on or prior to the date of such sale a copy of the prospectus contained in the
Exchange Offer Registration Statement; (iii) the date on which such Note has
been effectively registered under the Securities Act and disposed of in
accordance with the Shelf Registration Statement; or (iv) the date on which such
Note is distributed to the public pursuant to Rule 144 under the Act.
The Registration Rights Agreement provides, among other things, that: (i)
unless the Exchange Offer would not be permitted by applicable law or Commission
policy, the Company will commence the Exchange Offer and use its best efforts to
issue on or prior to 30 business days after the date on which the Exchange Offer
Registration Statement was declared effective by the Commission, New Notes in
exchange for all Notes tendered prior thereto in the Exchange Offer and (ii) if
obligated to file the Shelf Registration Statement, the Company will use its
best efforts to file the Shelf Registration Statement with the Commission on or
prior to 60 days after such filing obligation arises and to cause the Shelf
Registration to be declared effective by the Commission on or prior to 150 days
after such obligation arises. If (a) the Company fails to file any of the
Registration Statements required by the Registration Rights Agreement on or
before the date specified for such filing, (b) any of such Registration
Statements is not declared effective by the Commission on or prior to the date
specified for such effectiveness (the "Effectiveness Target Date"), or (c) the
Company fails to consummate the Exchange Offer within 30 business days of the
Effectiveness Target Date with respect to the Exchange Offer Registration
Statement, or (d) the Shelf Registration Statement or the Exchange Offer
Registration Statement is declared effective but thereafter ceases to be
effective or usable in connection with resales of Transfer Restricted Securities
during the periods specified in the Registration Rights Agreement (each such
event referred to in clauses (a) through (d) above a "Registration Default"),
then the Company will pay Liquidated Damages to each Holder of Notes, with
respect to the first 90-day period immediately following the occurrence of the
first Registration Default in an amount equal to $.05 per week per $1,000
principal amount of Notes held by such Holder. The amount of the Liquidated
Damages will increase by an additional $.05 per week per $1,000 principal amount
of Notes with respect to each subsequent 90-day period until all Registration
Defaults have been cured, up to a maximum amount of Liquidated Damages for all
Registration Defaults of $.25 per week per $1,000 principal amount of Notes. All
accrued Liquidated Damages will be paid by the Company on each Damages Payment
Date to the Global Note Holder by wire transfer of immediately available funds
or by federal funds check and to Holders of Certificated Notes by wire transfer
to the accounts specified by them or by mailing checks to their registered
addresses if no such accounts have been specified. Following the cure of all
Registration Defaults, the accrual of Liquidated Damages will cease.
Holders of Notes will be required to make certain representations to the
Company (as described in the Registration Rights Agreement) in order to
participate in the Exchange Offer and will be required to deliver certain
information to be used in connection with the Shelf Registration Statement and
to provide comments on the Shelf Registration Statement within the time periods
set forth in the Registration Rights Agreement in order to have their Notes
included in the Shelf Registration Statement and benefit from the provisions
regarding Liquidated Damages set forth above.
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CERTAIN DEFINITIONS
Set forth below are certain defined terms used in the Indenture. Reference
is made to the Indenture for a full disclosure of all such terms, as well as any
other capitalized terms used herein for which no definition is provided.
"Acquired Debt" means, with respect to any specified Person, (i)
Indebtedness of any other Person existing at the time such other Person is
merged with or into or became a Subsidiary of such specified Person, including,
without limitation, Indebtedness incurred in connection with, or in
contemplation of, such other Person merging with or into or becoming a
Subsidiary of such specified Person, and (ii) Indebtedness secured by a Lien
encumbering any asset acquired by such specified Person.
"Affiliate" of any specified Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person. For purposes of this definition, "control"
(including, with correlative meanings, the terms "controlling," "controlled by"
and "under common control with"), as used with respect to any Person, shall mean
the possession, directly or indirectly, of the power to direct or cause the
direction of the management or policies of such Person, whether through the
ownership of voting securities, by agreement or otherwise; provided that
beneficial ownership of 25% or more of the Voting Stock of a Person shall be
deemed to be control.
"Asset Sale" means: (i) the sale, lease, conveyance or other disposition of
any assets or rights (including, without limitation, by way of a sale and
leaseback) other than sales of inventory in the ordinary course of business
(provided that the sale, lease, conveyance or other disposition of all or
substantially all of the assets of the Company and its Subsidiaries taken as a
whole will be governed by the provisions of the Indenture described above under
the caption "-- Change of Control" and/or the provisions described above under
the caption "-- Merger, Consolidation or Sale of Assets" and not by the
provisions of the Asset Sale covenant); and (ii) the issue or sale by the
Company or any of its Subsidiaries of Equity Interests of any of the Company's
Subsidiaries, in the case of either clause (i) or (ii), whether in a single
transaction or a series of related transactions (a) that have a fair market
value in excess of $1.5 million or (b) for net proceeds in excess of $1.5
million. Notwithstanding the foregoing, the following items shall not be deemed
to be Asset Sales: (i) a transfer of assets by the Company to a Wholly Owned
Restricted Subsidiary or by a Wholly Owned Restricted Subsidiary to the Company
or to another Wholly Owned Restricted Subsidiary, (ii) an issuance of Equity
Interests by a Wholly Owned Restricted Subsidiary to the Company or to another
Wholly Owned Restricted Subsidiary, (iii) a Restricted Payment that is permitted
by the covenant described above under the caption "-- Restricted Payments," (iv)
the sale by the Company of Equity Interests in, or assets of, Summit Performance
Systems, Inc. for net proceeds that include promissory notes in an aggregate
principal amount of not more than $5.0 million (v) the initial transfers of
Lease Assets from MFSI to another Leasing Subsidiary and (vi) transfer of Lease
Assets to or by a Leasing Subsidiary in the ordinary course of business.
"Attributable Debt" in respect of a sale and leaseback transaction means,
at the time of determination, the present value (discounted at the rate of
interest implicit in such transaction, determined in accordance with GAAP) of
the obligation of the lessee for net rental payments during the remaining term
of the lease included in such sale and leaseback transaction (including any
period for which such lease has been extended or may, at the option of the
lessor, be extended).
"Borrowing Base" means, as of any date, an amount equal to the sum of (a)
85% of the face amount of all accounts receivable owned by the Company and the
Subsidiary Guarantors that are not Foreign Subsidiaries as of such date that are
not more than 90 days past due, and (b) 65% of the book value of all inventory
owned by the Company and its Subsidiary Guarantors that are not Foreign
Subsidiaries as of such date; minus the sum of (a) the aggregate amount of trade
payables of the Company and its Subsidiary Guarantors that are not Foreign
Subsidiaries as of such date, and (b) the aggregate outstanding Indebtedness
under any Floor Plan Financing Facility as of such date, all calculated on a
consolidated basis and in accordance with GAAP.
"Capital Lease Obligation" means, at the time any determination thereof is
to be made, the amount of the liability in respect of a capital lease that would
at such time be required to be capitalized on a balance sheet in accordance with
GAAP.
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"Capital Stock" means: (i) in the case of a corporation, corporate stock;
(ii) in the case of an association or business entity, any and all shares,
interests, participations, rights or other equivalents (however designated) of
corporate stock; (iii) in the case of a partnership or limited liability
company, partnership or membership interests (whether general or limited) and
(iv) any other interest or participation that confers on a Person the right to
receive a share of the profits and losses of, or distributions of assets of, the
issuing Person.
"Cash Equivalents" means (i) United States dollars or, solely with respect
to any Foreign Subsidiary, its local currency equivalent; (ii) securities issued
or directly and fully guaranteed or insured by the United States government or
any agency or instrumentality thereof (provided that the full faith and credit
of the United States is pledged in support thereof) having maturities of not
more than six months from the date of acquisition; (iii) certificates of deposit
and eurodollar time deposits with maturities of six months or less from the date
of acquisition, bankers' acceptances with maturities not exceeding six months
and overnight bank deposits, in each case with any lender party to the Senior
Credit Agreement or with any domestic commercial bank having capital and surplus
in excess of $500 million and a Thompson Bank Watch Rating of "B" or better;
(iv) repurchase obligations with a term of not more than seven days for
underlying securities of the types described in clauses (ii) and (iii) above
entered into with any financial institution meeting the qualifications specified
in clause (iii) above; (v) commercial paper having the highest rating obtainable
from Moody's Investors Service, Inc. or Standard & Poor's Corporation and in
each case maturing within six months after the date of acquisition; and (vi)
money market funds at least 95% of the assets of which constitute Cash
Equivalents of the kinds described in clauses (i) - (v) of this definition.
"Change of Control" means the occurrence of any of the following: (i) the
sale, lease, transfer, conveyance or other disposition (other than by way of
merger or consolidation), in one or a series of related transactions, of all or
substantially all of the assets of the Company and its Restricted Subsidiaries
taken as a whole to any "person" (as such term is used in Section 13(d)(3) of
the Exchange Act); (ii) the adoption of a plan relating to the liquidation or
dissolution of the Company; (iii) the consummation of any transaction
(including, without limitation, any merger or consolidation) the result of which
is that any "person" (as defined above), other than the Principals and their
Related Parties, becomes the "beneficial owner" (as such term is defined in Rule
13d-3 and Rule 13d-5 under the Exchange Act, except that a person shall be
deemed to have "beneficial ownership" of all securities that such person has the
right to acquire, whether such right is currently exercisable or is exercisable
only upon the occurrence of a subsequent condition), directly or indirectly, of
more than 35% of the Voting Stock of the Company (measured by voting power
rather than number of shares); or (iv) the Company consolidates with, or merges
with or into, any Person, or any Person consolidates with, or merges with or
into, the Company, in any such event pursuant to a transaction in which any of
the outstanding Voting Stock of the Company is converted into or exchanged for
cash, securities or other property, other than any such transaction where the
Voting Stock of the Company outstanding immediately prior to such transaction is
converted into or exchanged for Voting Stock (other than Disqualified Stock) of
the surviving or transferee Person constituting a majority of the outstanding
shares of such Voting Stock of such surviving or transferee Person (immediately
after giving effect to such issuance).
"Consolidated Cash Flow" means, with respect to any Person for any period,
the Consolidated Net Income of such Person for such period plus: (i) an amount
equal to any extraordinary loss plus any net loss realized in connection with an
Asset Sale (to the extent such losses were deducted in computing such
Consolidated Net Income); plus (ii) provision for taxes based on income or
profits of such Person and its Subsidiaries for such period, to the extent that
such provision for taxes was included in computing such Consolidated Net Income;
plus (iii) consolidated interest expense of such Person and its Subsidiaries for
such period, whether paid or accrued and whether or not capitalized (including,
without limitation, amortization of debt issuance costs and original issue
discount, non-cash interest payments, the interest component of any deferred
payment obligations, the interest component of all payments associated with
Capital Lease Obligations, imputed interest with respect to Attributable Debt,
commissions, discounts and other fees and charges incurred in respect of letter
of credit or bankers' acceptance financings, and net payments (if any) pursuant
to Hedging Obligations), to the extent that any such expense was deducted in
computing such Consolidated Net Income; plus (iv) depreciation, amortization
(including amortization of goodwill and other intangibles but excluding
amortization of prepaid cash expenses that were paid in a prior period) and
other
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non-cash expenses (including, without limitation, LIFO charges but excluding any
such non-cash expense to the extent that it represents an accrual of or reserve
for cash expenses in any future period or amortization of a prepaid cash expense
that was paid in a prior period) of such Person and its Subsidiaries for such
period to the extent that such depreciation, amortization and other non-cash
expenses were deducted in computing such Consolidated Net Income; minus (v)
non-cash items increasing such Consolidated Net Income for such period
(including without limitation under any LIFO credit), in each case, on a
consolidated basis and determined in accordance with GAAP. Notwithstanding the
foregoing, the provision for taxes on the income or profits of, and the
depreciation and amortization and other non-cash expenses of, a Subsidiary of
the referent Person shall be added to Consolidated Net Income to compute
Consolidated Cash Flow only to the extent that a corresponding amount would be
permitted at the date of determination to be dividended or otherwise distributed
to the Company by such Subsidiary without prior governmental approval (that has
not been obtained), and without direct or indirect restriction pursuant to the
terms of its charter and all agreements, instruments, judgments, decrees,
orders, statutes, rules and governmental regulations applicable to that
Subsidiary or its stockholders.
"Consolidated Net Income" means, with respect to any Person for any period,
the aggregate of the Net Income of such Person and its Restricted Subsidiaries
for such period, on a consolidated basis, determined in accordance with GAAP;
provided that: (i) the Net Income (but not loss) of any Person that is not a
Restricted Subsidiary or that is accounted for by the equity method of
accounting shall be included only to the extent of the amount of dividends or
distributions paid in cash to the referent Person or a Wholly Owned Subsidiary
thereof that is a Subsidiary Guarantor; (ii) the Net Income of any Restricted
Subsidiary shall be excluded to the extent that the declaration or payment of
dividends or similar distributions by that Restricted Subsidiary of that Net
Income is not at the date of determination permitted without any prior
governmental approval (that has not been obtained) or, directly or indirectly,
by operation of the terms of its charter or any agreement, instrument, judgment,
decree, order, statute, rule or governmental regulation applicable to that
Restricted Subsidiary or its stockholders; (iii) the Net Income of any Person
acquired in a pooling of interests transaction for any period prior to the date
of such acquisition shall be excluded; (iv) the cumulative effect of a change in
accounting principles shall be excluded; (v) the Net Income (or loss) of any
Unrestricted Subsidiary that is a Leasing Subsidiary shall be included;
provided, that such Net Income shall be so included only to the extent of cash
dividends or other cash distributions paid by such Leasing Subsidiary during
such period to the Company or a Restricted Subsidiary; and (vi) the Net Income
(but not loss) of any Unrestricted Subsidiary (other than a Leasing Subsidiary)
shall be excluded, whether or not distributed to the Company or one of its
Restricted Subsidiaries. MFSI shall be considered an Unrestricted Subsidiary for
purposes of this definition provided that (a) MFSI incurs no Indebtedness other
than Indebtedness of MFSI existing on the date of the Indenture and has no
Indebtedness other than Indebtedness that would be Non-Recourse Debt but for the
existence of the Letter Agreements and (b) none of the Company or any of its
Restricted Subsidiaries have made any payment or contribution in connection with
any Letter Agreement.
"Credit Facilities" means, one or more debt facilities (including, without
limitation, the Senior Credit Agreement) or commercial paper facilities with
banks or other institutional lenders providing for revolving credit loans, term
loans, receivables financing (including through the sale of receivables to such
lenders or to special purpose entities formed to borrow from such lenders
against such receivables) or letters of credit, in each case, as amended,
restated, modified, renewed, refunded, replaced or refinanced in whole or in
part from time to time. Indebtedness incurred under Credit Facilities in
existence on the date on which Notes are first issued and authenticated under
the Indenture shall be deemed to have been incurred on such date in reliance on,
and shall be permitted by, the exceptions provided by clause (i) or (ii), as
applicable, of the definition of Permitted Indebtedness.
"Default" means any event that is or with the passage of time or the giving
of notice or both would be an Event of Default.
"Designated Senior Debt" means: (i) any Indebtedness outstanding under the
Senior Credit Agreement and (ii) any other Senior Debt permitted under the
Indenture the principal amount of which is $25 million or more and that has been
designated by the Company (with, so long as the Senior Credit Agreement is in
effect, the consent of the Representative thereunder) as "Designated Senior
Debt."
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"Disqualified Stock" means any Capital Stock that, by its terms (or by the
terms of any security into which it is convertible, or for which it is
exchangeable, at the option of the holder thereof), or upon the happening of any
event, matures or is mandatorily redeemable, pursuant to a sinking fund
obligation or otherwise, or redeemable at the option of the Holder thereof, in
whole or in part, on or prior to the date that is 91 days after the date on
which the Notes mature; provided, however, that any Capital Stock that would
constitute Disqualified Stock solely because the holders thereof have the right
to require the Company to repurchase such Capital Stock upon the occurrence of a
Change of Control or an Asset Sale shall not constitute Disqualified Stock if
the terms of such Capital Stock provide that the Company may not repurchase or
redeem any such Capital Stock pursuant to such provisions unless such repurchase
or redemption complies with the covenant described above under the caption
"-- Certain Covenants -- Restricted Payments."
"Equity Interests" means Capital Stock and all warrants, options or other
rights to acquire Capital Stock (but excluding any debt security that is
convertible into, or exchangeable for, Capital Stock).
"Existing Indebtedness" means Indebtedness of the Company and its
Subsidiaries (other than Indebtedness under the Senior Credit Agreement) in
existence on the date of the Indenture, until such amounts are repaid.
"Fixed Charges" means, with respect to any Person for any period, the sum,
without duplication, of: (i) the consolidated interest expense of such Person
and its Restricted Subsidiaries for such period, whether paid or accrued
(including, without limitation, amortization of debt issuance costs and original
issue discount, non-cash interest payments, the interest component of any
deferred payment obligations, the interest component of all payments associated
with Capital Lease Obligations, imputed interest with respect to Attributable
Debt, commissions, discounts and other fees and charges incurred in respect of
letter of credit or bankers' acceptance financings (other than letters of credit
posted in lieu of performance or completion bonds), and net payments (if any)
pursuant to Hedging Obligations); and (ii) the consolidated interest of such
Person and its Restricted Subsidiaries that was capitalized during such period;
and (iii) any interest expense on Indebtedness of another Person that is
Guaranteed by such Person or one of its Restricted Subsidiaries or secured by a
Lien on assets of such Person or one of its Restricted Subsidiaries (whether or
not such Guarantee or Lien is called upon); and (iv) the product of (a) all
dividend payments, whether or not in cash, on any series of preferred stock of
such Person or any of its Restricted Subsidiaries, other than dividend payments
on Equity Interests payable solely in Equity Interests of the Company (other
than Disqualified Stock) or to the Company or a Restricted Subsidiary of the
Company, times (b) a fraction, the numerator of which is one and the denominator
of which is one minus the then current combined federal, state and local
statutory tax rate of such Person, expressed as a decimal, in each case, on a
consolidated basis and in accordance with GAAP. MFSI shall not be considered a
Restricted Subsidiary for purposes of this definition provided that (a) MFSI
incurs no Indebtedness other than Indebtedness of MFSI existing on the date of
the Indenture and has no Indebtedness other than Indebtedness that would be
Non-Recourse Debt but for the existence of the Letter Agreements and (b) none of
the Company or any of its Restricted Subsidiaries have made any payments or
contribution in connection with any Letter Agreement.
"Fixed Charge Coverage Ratio" means with respect to any Person for any
period, the ratio of the Consolidated Cash Flow of such Person and its
Restricted Subsidiaries for such period to the Fixed Charges of such Person and
its Restricted Subsidiaries for such period. In the event that the referent
Person or any of its Restricted Subsidiaries incurs, assumes, Guarantees or
redeems any Indebtedness (other than revolving credit or floor plan borrowings)
or issues or redeems preferred stock subsequent to the commencement of the
period for which the Fixed Charge Coverage Ratio is being calculated but prior
to the date on which the event for which the calculation of the Fixed Charge
Coverage Ratio is made (the "Calculation Date"), then the Fixed Charge Coverage
Ratio shall be calculated giving pro forma effect to such incurrence,
assumption, Guarantee or redemption of Indebtedness, or such issuance or
redemption of preferred stock, as if the same had occurred at the beginning of
the applicable four-quarter reference period. In addition, for purposes of
making the computation referred to above (i) acquisitions that have been made by
the Company or any of its Subsidiaries, including through mergers or
consolidations and including any related financing transactions, during the
four-quarter reference period or subsequent to such reference period and on or
prior to the Calculation Date shall be deemed to have occurred on the first day
of the four-quarter reference period and Consolidated Cash Flow
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for such reference period shall be calculated (x) without giving effect to
clause (iii) of the proviso set forth in the definition of Consolidated Net
Income and (y) to include the pro forma adjustments reflected in the unaudited
pro forma condensed consolidated financial statements prepared in connection
with the acquisition of McNeilus Companies, Inc. and included in this Prospectus
with respect to the Notes, and an adjustment of up to $1.0 million reflecting
the difference between $1.3 million and the actual charitable contributions made
by the Company for any four quarter period ending on or prior to March 31, 1999
and (ii) the Consolidated Cash Flow attributable to discontinued operations, as
determined in accordance with GAAP, and operations or businesses disposed of
prior to the Calculation Date, shall be excluded, and (iii) the Fixed Charges
attributable to discontinued operations, as determined in accordance with GAAP,
and operations or businesses disposed of prior to the Calculation Date, shall be
excluded, but only to the extent that the obligations giving rise to such Fixed
Charges will not be obligations of the referent Person or any of its Restricted
Subsidiaries following the Calculation Date.
"Floor Plan Financing Facility" means any facility entered or to be entered
into by the Company or any Restricted Subsidiary pursuant to which such Person
may (i) incur Indebtedness to purchase vehicles and/or related equipment from
certain vendors for the prompt resale to customers in the ordinary course of
business and (ii) grant a security interest in such vehicles and/or related
equipment to secure such borrowings.
"Foreign Borrowing Base" means, as of any date, an amount equal to the sum
of (a) 85% of the face amount of all accounts receivable owned by Restricted
Subsidiaries that are Foreign Subsidiaries as of such date that are not more
than 90 days past due, and (b) 65% of the book value of all inventory owned by
Restricted Subsidiaries that are Foreign Subsidiaries as of such date; minus the
aggregate amount of trade payables of Restricted Subsidiaries that are Foreign
Subsidiaries as of such date, all calculated on a consolidated basis and in
accordance with GAAP.
"Foreign Subsidiary" means any Subsidiary not organized and validly
existing under the laws of the United States or any state thereof or the
District of Columbia.
"GAAP" means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or in such other statements by such
other entity as have been approved by a significant segment of the accounting
profession, which are in effect on the date of the Indenture.
"Guarantee" means a guarantee (other than by endorsement of negotiable
instruments for collection in the ordinary course of business), direct or
indirect, in any manner (including, without limitation, by way of a pledge of
assets or through letters of credit or reimbursement agreements in respect
thereof), of all or any part of any Indebtedness; provided, however, that the
Letter Agreements shall not be deemed Guarantees.
"Hedging Obligations" means, with respect to any Person, the obligations of
such Person under: (i) interest rate swap agreements, interest rate cap
agreements and interest rate collar agreements; (ii) other agreements or
arrangements designed to protect such Person against fluctuations in interest
rates; and (iii) agreements or arrangements designed to protect such Person
against fluctuations in the value of foreign currency.
"Indebtedness" means, with respect to any Person, any indebtedness of such
Person, whether or not contingent, in respect of borrowed money or evidenced by
bonds, notes, debentures or similar instruments or letters of credit (or
reimbursement agreements in respect thereof) or banker's acceptances or
representing Capital Lease Obligations or the balance deferred and unpaid of the
purchase price of any property or representing any Hedging Obligations, except
any such balance that constitutes an accrued expense or trade payable, if and to
the extent any of the foregoing (other than letters of credit and Hedging
Obligations) would appear as a liability upon a balance sheet of such Person
prepared in accordance with GAAP, as well as all Indebtedness of others secured
by a Lien on any asset of such Person (whether or not such Indebtedness is
assumed by such Person) and, to the extent not otherwise included, the Guarantee
by such Person of any Indebtedness of any other Person. The amount of any
Indebtedness outstanding as of any date shall be (i) the accreted value thereof,
in the case of any Indebtedness issued with original issue discount, and (ii)
the
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principal amount thereof, together with any interest thereon that is more than
30 days past due, in the case of any other Indebtedness.
"Investments" means, with respect to any Person, all investments by such
Person in other Persons (including Affiliates) in the forms of direct or
indirect loans (including guarantees of Indebtedness or other obligations),
advances or capital contributions (excluding commission, travel and similar
advances to officers and employees made in the ordinary course of business),
purchases or other acquisitions for consideration of Indebtedness, Equity
Interests or other securities, together with all items that are or would be
classified as investments on a balance sheet prepared in accordance with GAAP.
If the Company or any Subsidiary of the Company sells or otherwise disposes of
any Equity Interests of any direct or indirect Subsidiary of the Company such
that, after giving effect to any such sale or disposition, such Person is no
longer a Subsidiary of the Company, the Company shall be deemed to have made an
Investment on the date of any such sale or disposition equal to the fair market
value of the Equity Interests of such Subsidiary not sold or disposed of in an
amount determined as provided in the final paragraph of the covenant described
above under the caption "-- Restricted Payments."
"Lease Assets" means, with respect to any lease, all of the following
property and interests in property whether now existing or existing in the
future or hereafter acquired or arising: (i) all vehicles or equipment
manufactured or refurbished by the Company or any of its Subsidiaries (and truck
chassis, cement block boom trucks and similar vehicles or equipment manufactured
or refurbished by third parties) and acquired by a Leasing Subsidiary in
connection with such assets being contemporaneously leased to a third party;
(ii) all leases and other contracts or agreements relating to the lease
financing by a customer of vehicles or equipment manufactured or refurbished by
the Company or any of its Subsidiaries; (iii) all accounts receivable and other
obligations incurred by lessees in connection with the foregoing, no matter how
evidenced; (iv) all rights to any vehicles or equipment subject to any of the
foregoing after or in connection with creation of the foregoing, including,
without limitation, returned or repossessed goods; (v) all reserves and credit
balances with respect to any such lease contracts or agreements or lessees; (vi)
all letters of credit, security or guarantees for any of the foregoing; (vii)
all insurance policies or reports relating to any of the foregoing; and (viii)
all books and records relating to any of the foregoing.
"Leasing Subsidiary" means MFSI, Oshkosh/McNeilus Financial Services, Inc.,
Oshkosh/McNeilus Financial Services Partnership and any other Subsidiary (or
partnership of which a Subsidiary of the Company is a general partner) that is
designated by the Board of Directors of the Company as a Leasing Subsidiary and
that is exclusively engaged in Leasing Transactions and activities related
thereto. If at any time any Leasing Subsidiary should engage in a transaction or
activity other than those described above, it shall thereafter cease to be a
Leasing Subsidiary for purpose of the Indenture.
"Leasing Subsidiary Undertaking" means a guarantee (i) of indemnification
obligations with respect to representations and warranties made by a Leasing
Subsidiary in connection with a transfer of Lease Assets to a partnership that
is a Leasing Subsidiary, provided that such representations and warranties are
similar to those that would customarily be made in connection with a transfer of
assets in a lease securitization; (ii) of the performance by a Leasing
Subsidiary of its obligations as tax matters partner or as portfolio manager of
a partnership that is a Leasing Subsidiary; or (iii) of the performance by a
Leasing Subsidiary of its obligations as a partner to a partnership that is a
Leasing Subsidiary, provided, however, that the guarantee of obligations set
forth in clause (iii) shall not at any time exceed the amount that the Company
could then invest in a Leasing Subsidiary pursuant to clause (f) of the
definition of Permitted Investments and, provided further, that the guarantees
set forth in clauses (i), (ii) and (iii) above shall not include guarantees of
Indebtedness of a Leasing Subsidiary or obligations to make loans, investments
or capital contributions in or to a partnership that is a Leasing Subsidiary.
"Leasing Transaction" means (i) the sale or other disposition to a third
party of Lease Assets or an interest therein; (ii) the borrowing of money
secured by Lease Assets; or (iii) the sale or other disposition of Lease Assets
or an interest therein to a Leasing Subsidiary followed by a financing
transaction in connection with such sale or disposition of such Lease Assets
(whether such financing transaction is effected by such Leasing Subsidiary or by
a third party to whom such Leasing Subsidiary sells such Lease Assets or
interests
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therein); provided that in each of the foregoing, the Company or its Restricted
Subsidiaries receive or have received at least 95% of the aggregate sale price
attributed to the vehicles and equipment that underlie the Leases financed in
such transaction.
"Letter Agreement" means (i) a guarantee in place on the date of the
Indenture in an amount not to exceed $1.0 million by McNeilus Truck and
Manufacturing, Inc. of obligations of MFSI to FBS Business Finance Corporation
and (ii) letter agreements in effect on the date of the Indenture concerning the
maintenance by McNeilus Companies, Inc. of a minimum net worth of MFSI for the
benefit of the lenders to MFSI on the date of the Indenture and related
documents in favor of Navistar Financial Corporation.
"Lien" means, with respect to any asset, any mortgage, lien, pledge,
charge, security interest or encumbrance of any kind in respect of such asset,
whether or not filed, recorded or otherwise perfected under applicable law
(including any conditional sale or other title retention agreement, any lease in
the nature thereof, any option or other agreement to sell or give a security
interest in and any filing of or agreement to give any financing statement under
the Uniform Commercial Code (or equivalent statutes) of any jurisdiction).
"MFSI" means McNeilus Financial Services, Inc.
"Net Income" means, with respect to any Person, the net income (loss) of
such Person, determined in accordance with GAAP and before any reduction in
respect of preferred stock dividends, excluding, however: (i) any gain (but not
loss), together with any related provision for taxes on such gain (but not
loss), realized in connection with (a) any Asset Sale (including, without
limitation, dispositions pursuant to sale and leaseback transactions) or (b) the
disposition of any securities by such Person or any of its Restricted
Subsidiaries or the extinguishment of any Indebtedness of such Person or any of
its Restricted Subsidiaries; and (ii) any extraordinary or nonrecurring gain
(but not loss), together with any related provision for taxes on such
extraordinary or nonrecurring gain (but not loss).
"Net Proceeds" means the aggregate cash proceeds received by the Company or
any of its Restricted Subsidiaries in respect of any Asset Sale (including,
without limitation, any cash received upon the sale or other disposition of any
non-cash consideration received in any Asset Sale), net of the direct costs
relating to such Asset Sale (including, without limitation, legal, accounting
and investment banking fees, and sales commissions) and any relocation expenses
incurred as a result thereof, taxes paid or payable as a result thereof (after
taking into account any available tax credits or deductions and any tax sharing
arrangements), amounts required to be applied to the repayment of Senior Debt
secured by a Lien on the asset or assets that were the subject of such Asset
Sale and any reserve for adjustment in respect of the sale price of such asset
or assets established in accordance with GAAP.
"Non-Recourse Debt" means Indebtedness as to which neither the Company nor
any of its Restricted Subsidiaries (i) provides credit support of any kind
(including any undertaking, agreement or instrument that would constitute
Indebtedness, but excluding undertakings customary in lease securitization
transactions for the benefit of any Leasing Subsidiary, and guarantees thereof),
(ii) is directly or indirectly liable (as a guarantor or otherwise), or (iii)
constitutes the lender.
"Obligations" means any principal, interest (including interest accruing
after the commencement of any bankruptcy, reorganization, insolvency or similar
proceeding relating to the Company or any of its Subsidiaries whether or not
allowed as a claim in such proceeding), penalties, fees, indemnifications,
reimbursements, damages and other liabilities payable under the documentation
governing any Indebtedness.
"Permitted Business" means (a) any business in which the Company and its
Subsidiaries are engaged on the date of the Indenture or any reasonable
extension or expansion of such businesses and (b) any business similar or
related to the manufacture, design, leasing, marketing, financing, servicing,
refurbishment, distribution or resale of specialty trucks or truck bodies or of
parts or components thereof.
"Permitted Investments" means (a) any Investment in the Company or in a
Subsidiary Guarantor; (b) any Investment in Cash Equivalents; (c) any Investment
by the Company or any Restricted Subsidiary of the Company in a Person, if as a
result of such Investment (i) such Person becomes a Wholly Owned
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Restricted Subsidiary of the Company and a Subsidiary Guarantor or (ii) such
Person is merged, consolidated or amalgamated with or into, or transfers or
conveys substantially all of its assets to, or is liquidated into, the Company
or a Wholly Owned Restricted Subsidiary of the Company that is a Subsidiary
Guarantor and that is engaged in the same or a similar line of business as the
Company and its Subsidiaries were engaged in on the date of the Indenture; (d)
any Investment made as a result of the receipt of non-cash consideration from an
Asset Sale that was made pursuant to and in compliance with the covenant
described above under the caption "-- Repurchase at the Option of
Holders -- Asset Sales"; (e) any acquisition of assets solely in exchange for
the issuance of Equity Interests (other than Disqualified Stock) of the Company;
(f) Investments in Leasing Subsidiaries having an aggregate fair market value
(measured on the date such Investment was made and without giving effect to
subsequent changes in value), when taken together with all other Investments
made pursuant to this clause (f) that are at the time outstanding, not to exceed
$15.0 million; provided, that Investments made by a Leasing Subsidiary in
another Leasing Subsidiary do not count against such $15.0 million limitation;
(g) contributions of Lease Assets from one Leasing Subsidiary to another Leasing
Subsidiary; (h) Investments that are Leasing Subsidiary Undertakings; (i)
Investments in Nations Casualty Insurance, Inc. in an aggregate amount not to
exceed the aggregate amount of dividends paid to the Company by Nations Casualty
Insurance, Inc. after the date of the Indenture; (j) Investments in Permitted
Joint Ventures, Unrestricted Subsidiaries or Foreign Subsidiaries having an
aggregate fair market value (measured on the date each such Investment was made
and without giving effect to subsequent changes in value), when taken together
with all other Investments made pursuant to this clause (j) that are at the time
outstanding; not to exceed $15.0 million; and (k) other Investments in any
Person having an aggregate fair market value (measured on the date each such
Investment was made and without giving effect to subsequent changes in value),
when taken together with all other Investments made pursuant to this clause (k)
that are at the time outstanding, not to exceed $10.0 million.
"Permitted Joint Venture" means any joint venture, partnership or other
Person incorporated or otherwise formed in a jurisdiction outside the United
States or the District of Columbia designated as a Permitted Joint Venture by
the Board of Directors, all of whose Indebtedness is Non-Recourse Debt or
otherwise permitted to be incurred by such entity pursuant to clause (ii)(c)
and/or (xvi) of the second paragraph of the covenant described above under the
caption "-- Certain Covenants -- Incurrence of Indebtedness and Issuance of
Preferred Stock" and (ii) which is engaged in a Permitted Business. Any such
designation or designation to the contrary shall be evidenced to the Trustee by
promptly filing with the Trustee a copy of the resolution giving effect to such
designation and an Officers' Certificate certifying that such designation
complied with the foregoing provisions.
"Permitted Junior Securities" means Equity Interests in the Company or any
Subsidiary Guarantor or debt securities that are subordinated to all Senior Debt
(and any debt or equity securities issued in exchange for Senior Debt) to
substantially the same extent as, or to a greater extent than, the New Notes are
subordinated to Senior Debt pursuant to Article 10 of the Indenture.
"Permitted Liens" means: (i) Liens securing Indebtedness and Guarantees
under Credit Facilities or other Senior Debt that was permitted by the terms of
the Indenture to be incurred; (ii) Liens on vehicles or related equipment
securing Indebtedness under Floor Plan Financing Facilities that was permitted
by the terms of the Indenture to be incurred; (iii) Liens on assets of a Leasing
Subsidiary securing Indebtedness under Leasing Transactions, that were permitted
by terms of the Indenture to be incurred; (iv) Liens in favor of the Company and
its Subsidiary Guarantors; (v) Liens on property of a Person existing at the
time such Person is merged into or consolidated with the Company or any
Subsidiary of the Company; provided that such Liens were in existence prior to
the contemplation of such merger or consolidation and do not extend to any
assets other than those of the Person merged into or consolidated with the
Company; (vi) Liens on property existing at the time of acquisition thereof by
the Company or any Subsidiary of the Company, provided that such Liens were in
existence prior to the contemplation of such acquisition; (vii) Liens to secure
obligations in respect of statutory obligations, surety or appeal bonds,
performance bonds or other obligations of a like nature incurred in the ordinary
course of business; (viii) Liens to secure Indebtedness (including Capital Lease
Obligations) permitted by clause (vi) of the second paragraph of the covenant
entitled "Incurrence of Indebtedness and Issuance of Preferred Stock" covering
only the assets acquired with such
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Indebtedness; (ix) Liens (including Liens to secure Indebtedness under the
Senior Credit Agreement) existing on the date of the Indenture; (x) Liens for
taxes, assessments or governmental charges or claims that are not yet delinquent
or that are being contested in good faith by appropriate proceedings promptly
instituted and diligently concluded, provided that any reserve or other
appropriate provision as shall be required in conformity with GAAP shall have
been made therefor; (xi) Liens on assets of Subsidiary Guarantors to secure
Senior Debt of such Subsidiary Guarantors that was permitted by the Indenture to
be incurred; (xii) Liens on assets of Unrestricted Subsidiaries that secure
Non-Recourse Debt of Unrestricted Subsidiaries; (xiii) Liens incurred or
deposits made in the ordinary course of business in connection with workers'
compensation, unemployment insurance and other types of social security; (xiv)
easements, rights-of-way, municipal and zoning ordinances and similar charges,
encumbrances, title defects or other irregularities that do not materially
interfere with the ordinary course of business of the Company or any of the
Restricted Subsidiaries; (xv) any interest or title of a lessor in the property
subject to any Capitalized Lease or operating lease; (xvi) Liens arising from
filing Uniform Commercial Code financing statements regarding leases; (xvii)
Liens in favor of customs and revenue authorities arising as a matter of law to
secure payment of customs duties in connection with the importation of goods;
(xviii) Liens on customer deposits in favor of the depositor; (xix) Liens
encumbering customary initial deposits and margin deposits, and other Liens that
are either within the general parameters customary in the industry and incurred
in the ordinary course of business, in each case securing Hedging Obligations;
(xx) Liens arising out of conditional sale, title retention, consignment or
similar arrangements for the sale of goods entered into by the Company or any of
the Restricted Subsidiaries in the ordinary course of business in accordance
with the past practices of the Company and the Restricted Subsidiaries prior to
the date on which the Notes were issued; (xxi) carriers', warehousemen's,
mechanics', landlords' materialmen's, repairmen's or other like Liens arising in
the ordinary course of business in respect of obligations not overdue for a
period in excess of 60 days or which are being contested in good faith by
appropriate proceedings promptly instituted and diligently prosecuted; provided
that any reserve or other appropriate provision as shall be required to conform
with GAAP shall have been made therefor; (xxii) any attachment or judgment Lien
not constituting an Event of Default under clause (vi) of the first paragraph of
the section described above under the caption "Events of Default and Remedies";
and (xxiii) Liens on property of the Company or any Subsidiary of the Company
with respect to obligations that do not exceed $5.0 million in the aggregate at
any one time outstanding.
"Permitted Refinancing Indebtedness" means any Indebtedness of the Company
or any of its Restricted Subsidiaries issued in exchange for, or the net
proceeds of which are used to extend, refinance, renew, replace, defease or
refund other Indebtedness of the Company or any of its Restricted Subsidiaries
(other than intercompany Indebtedness); provided that: (i) the principal amount
(or accreted value, if applicable) of such Permitted Refinancing Indebtedness
does not exceed the principal amount of (or accreted value, if applicable), plus
accrued interest on, the Indebtedness so extended, refinanced, renewed,
replaced, defeased or refunded (plus the amount of reasonable expenses incurred
in connection therewith); (ii) such Permitted Refinancing Indebtedness has a
final maturity date later than the final maturity date of, and has a Weighted
Average Life to Maturity equal to or greater than the Weighted Average Life to
Maturity of, the Indebtedness being extended, refinanced, renewed, replaced,
defeased or refunded; (iii) if the Indebtedness being extended, refinanced,
renewed, replaced, defeased or refunded is subordinated in right of payment to
the New Notes, such Permitted Refinancing Indebtedness has a final maturity date
later than the final maturity date of, and is subordinated in right of payment
to, the New Notes on terms at least as favorable to the Holders of New Notes as
those contained in the documentation governing the Indebtedness being extended,
refinanced, renewed, replaced, defeased or refunded; and (iv) such Indebtedness
is incurred either by the Company or by the Restricted Subsidiary who is the
obligor on the Indebtedness being extended, refinanced, renewed, replaced,
defeased or refunded.
"Person" means any individual, corporation, partnership, joint venture,
association, joint stock company, trust, estate, unincorporated organization or
government or any agency or political subdivision thereof.
"Principal" means J. Peter Mosling, Jr., Stephen P. Mosling and Cadence
Company, as long as a majority of its economic interest is held by J. Peter
Mosling, Jr., Stephen P. Mosling and their Related Parties.
"Related Parties" with respect to any Principal means (A) 70% (or more)
owned Subsidiary, or spouse or immediate family member (in the case of an
individual) of such Principal or (B) any trust, corporation, partnership or
other entity, the beneficiaries, stockholders, partners, owners or Persons
beneficially holding an
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70% or more controlling interest of which consist of such Principal and/or such
other Persons referred to in the immediately preceding clause (A).
"Representative" means the indenture trustee or other trustee, agent or
representative in respect of any Designated Senior Debt; provided that, if and
for so long as any Designated Senior Debt lacks such a representative, then the
Representative for such Designated Senior Debt shall at all times constitute the
holders of a majority in outstanding principal amount of such Designated Senior
Debt in respect of any Designated Senior Debt.
"Restricted Investment" means an Investment other than a Permitted
Investment.
"Restricted Subsidiary" of a Person means any Subsidiary of the referent
Person that is not an Unrestricted Subsidiary.
"Senior Credit Agreement" means that certain Credit Agreement, dated as of
the date of the Indenture, by and among the Company, Bank of America National
Trust and Savings Association (as administrative agent) and the Lenders named
therein, including any related notes, guarantees, collateral documents,
instruments and agreements executed in connection therewith, and in each case as
amended, modified, renewed, refunded, replaced or refinanced (directly or
indirectly) in whole or in part from time to time.
"Senior Debt" means: (i) all Indebtedness now or hereafter outstanding
under Credit Facilities and all Hedging Obligations with respect thereto; (ii)
any other Indebtedness permitted to be incurred by the Company under the terms
of the Indenture, unless the instrument under which such Indebtedness is
incurred expressly provides that it is on a parity with or subordinated in right
of payment to the New Notes and (iii) all Obligations with respect to the
foregoing. Notwithstanding anything to the contrary in the foregoing, Senior
Debt will not include (v) Indebtedness which is classified as non-recourse in
accordance with GAAP or any unsecured claim arising in respect hereof by reason
of application of section 1111(b)(1) of the U.S. bankruptcy code, (w) any
liability for federal, state, local or other taxes owed or owing by the Company,
(x) any Indebtedness of the Company to any of its Subsidiaries or other
Affiliates, (y) any trade payables or (z) any Indebtedness that is incurred in
violation of the Indenture.
"Significant Senior Debt" means any (i) Indebtedness outstanding under
Credit Facilities or (ii) Senior Debt with principal amount due (as accreted
value with respect to Senior Debt issued at a discount) in excess of $5.0
million upon initial issuance thereof.
"Significant Subsidiary" means any Subsidiary that would be a "significant
subsidiary" as defined in Article 1, Rule 1-02 of Regulation S-X, promulgated
pursuant to the Act, as such Regulation is in effect on the date hereof.
"Stated Maturity" means, with respect to any installment of interest or
principal on any series of Indebtedness, the date on which such payment of
interest or principal was scheduled to be paid in the original documentation
governing such Indebtedness, and shall not include any contingent obligations to
repay, redeem or repurchase any such interest or principal prior to the date
originally scheduled for the payment thereof.
"Subsidiary" means, with respect to any Person: (i) any corporation,
association or other business entity of which more than 50% of the total voting
power of shares of Capital Stock entitled (without regard to the occurrence of
any contingency) to vote in the election of directors, managers or trustees
thereof is at the time owned or controlled, directly or indirectly, by such
Person or one or more of the other Subsidiaries of that Person (or a combination
thereof); and (ii) any partnership (a) the sole general partner or the managing
general partner of which is such Person or a Subsidiary of such Person or (b)
the only general partners of which are such Person or of one or more
Subsidiaries of such Person (or any combination thereof).
"Subsidiary Guarantees" means the Guarantees of the payment obligations in
respect of the New Notes by the Subsidiary Guarantors.
"Subsidiary Guarantor" means each of (i) McNeilus Truck & Manufacturing,
Inc., Iowa Contract Fabricators, Inc., McIntire Fabricators, Inc., Kensett
Fabricators, Inc., McNeilus Companies, Inc. McNeilus Financial, Inc., Pierce
Manufacturing, Inc., and Summit Performance Systems, Inc. and (ii) any other
Person that executes a Subsidiary Guarantee in accordance with the provisions of
the Indenture, and their respective successors and assigns.
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"Subsidiary Guarantor Senior Debt" means any Indebtedness of a Subsidiary
Guarantor that would constitute Senior Debt if incurred by the Company
(including, without limitation, Guarantees of Obligations under Credit
Facilities).
"Unrestricted Subsidiary" means Nations Casualty Insurance, Inc.,
Oshkosh/McNeilus Financial Services, Inc. and any Subsidiary that is designated
by the Board of Directors as an Unrestricted Subsidiary pursuant to a Board
Resolution; but only to the extent that such Subsidiary: (i) has no Indebtedness
other than Non-Recourse Debt; (ii) is not party to any agreement, contract,
arrangement or understanding with the Company or any Restricted Subsidiary of
the Company unless the terms of any such agreement, contract, arrangement or
understanding are no less favorable to the Company or such Restricted Subsidiary
than those that might be obtained at the time from Persons who are not
Affiliates of the Company; (iii) is a Person with respect to which neither the
Company nor any of its Restricted Subsidiaries has any direct or indirect
obligation (x) to subscribe for additional Equity Interests or (y) to maintain
or preserve such Person's financial condition or to cause such Person to achieve
any specified levels of operating results; and (iv) has not guaranteed or
otherwise directly or indirectly provided credit support for any Indebtedness of
the Company or any of its Restricted Subsidiaries (excluding assumption of
Indebtedness of MFSI by any Leasing Subsidiary). Any such designation by the
Board of Directors shall be evidenced to the Trustee by filing with the Trustee
a certified copy of the Board Resolution giving effect to such designation and
an Officers' Certificate certifying that such designation complied with the
foregoing conditions and was permitted by the covenant described above under the
caption "Certain Covenants -- Restricted Payments." If, at any time, any
Unrestricted Subsidiary would fail to meet the foregoing requirements as an
Unrestricted Subsidiary, it shall thereafter cease to be an Unrestricted
Subsidiary for purposes of the Indenture and any Indebtedness of such Subsidiary
shall be deemed to be incurred by a Restricted Subsidiary of the Company as of
such date (and, if such Indebtedness is not permitted to be incurred as of such
date under the covenant described under the caption "Incurrence of Indebtedness
and Issuance of Preferred Stock," the Company shall be in default of such
covenant). The Board of Directors of the Company may at any time designate any
Unrestricted Subsidiary to be a Restricted Subsidiary; provided that such
designation shall be deemed to be an incurrence of Indebtedness by a Restricted
Subsidiary of the Company of any outstanding Indebtedness of such Unrestricted
Subsidiary and such designation shall only be permitted if: (i) such
Indebtedness is permitted under the covenant described under the caption
"Certain Covenants -- Incurrence of Indebtedness and Issuance of Preferred
Stock," calculated on a pro forma basis as if such designation had occurred at
the beginning of the four-quarter reference period; and (ii) no Default or Event
of Default would be in existence following such designation.
"Voting Stock" of any Person as of any date means the Capital Stock of such
Person that is at the time entitled to vote in the election of the Board of
Directors of such Person.
"Weighted Average Life to Maturity" means, when applied to any Indebtedness
at any date, the number of years obtained by dividing (i) the sum of the
products obtained by multiplying (a) the amount of each then remaining
installment, sinking fund, serial maturity or other required payments of
principal, including payment at final maturity, in respect thereof, by (b) the
number of years (calculated to the nearest one-twelfth) that will elapse between
such date and the making of such payment, by (ii) the then outstanding principal
amount of such Indebtedness.
"Wholly Owned Restricted Subsidiary" of any Person means a Restricted
Subsidiary of such Person all of the outstanding Capital Stock or other
ownership interests of which (other than directors' qualifying shares) shall at
the time be owned by such Person or by one or more Wholly Owned Subsidiaries of
such Person and one or more Wholly Owned Subsidiaries of such Person.
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CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
THIS SUMMARY IS NOT INTENDED TO BE, NOR SHOULD IT BE CONSTRUED AS BEING,
LEGAL OR TAX ADVICE FOR OR TO ANY PARTICULAR PURCHASER, AND NO REPRESENTATION
WITH RESPECT TO THE CONSEQUENCES TO ANY PARTICULAR PURCHASER OF THE NEW NOTES IS
MADE. PROSPECTIVE PURCHASERS SHOULD CONSULT THEIR OWN TAX ADVISERS WITH RESPECT
TO THEIR PARTICULAR CIRCUMSTANCES.
The following discussion is a summary of certain United States federal
income tax considerations relevant to the purchase, ownership and disposition of
the New Notes by holders thereof, based upon current provisions of the Internal
Revenue Code of 1986, as amended (the "Code"), judicial decisions, and
administrative interpretations, all of which are subject to change at any time
by legislative, judicial or administrative action. Any such changes may be
applied retroactively in a manner that could adversely affect a holder of the
New Notes. There can be no assurance that the Internal Revenue Service (the
"IRS") will not challenge the conclusions stated below, and no ruling from the
IRS has been or will be sought on any of the matters discussed below.
The following discussion does not purport to be a complete analysis of all
the potential federal income tax effects relating to the purchase, ownership and
disposition of the New Notes, and, without limiting the generality of the
foregoing, this summary does not address the effect of any special rules
applicable to certain types of purchasers (including dealers in securities,
insurance companies, financial institutions, tax-exempt entities, and persons
who hold New Notes as part of a straddle, hedge, or conversion transaction). In
addition, this discussion is limited to holders who are the initial purchasers
of the New Notes and hold the New Notes as capital assets within the meaning of
Section 1221 of the Code. This discussion does not address the effect of any
state, local, or foreign tax laws.
CERTAIN U.S. FEDERAL INCOME TAX CONSEQUENCES TO U.S. PERSONS
The term "U.S. Person" means (i) an individual who is a citizen or resident
of the United States, (ii) a corporation or partnership created or organized in
or under the laws of the United States or any state thereof, (iii) an estate the
income of which is subject to United States federal income taxation regardless
of its source, or (iv) a trust if a court within the United States is able to
exercise primary supervision over the administration of the trust and one or
more United States persons have the authority to control all substantial
decisions of the trust. The term "Foreign Person" means a person other than a
U.S. Person.
Exchange Offer
The issuance of the New Notes to Holders of the Notes pursuant to the terms
set forth in this Prospectus should not constitute an exchange for federal
income tax purposes. Consequently, no gain or loss should be recognized by
Holders of the Notes upon receipt of the New Notes, and ownership of the New
Notes should be considered a continuation of ownership of the Notes. For
purposes of determining gain or loss upon the subsequent sale or exchange of the
New Notes, a Holder's basis in the New Notes should be the same as such Holder's
basis in the Notes exchanged therefor. A Holder's holding period for the New
Notes should include the Holder's holding period for the Notes exchanged
therefor. The issue price, and other tax characteristics of the New Notes should
be identical to the issue price, and other tax characteristics of the Notes
exchanged therefor.
Taxation of Interest and Liquidated Damages
Any interest or Liquidated Damages earned on a New Note held by a U.S.
Person is generally required to be included in the holder's gross income for
federal income tax purposes at the time that the interest or Liquidated Damages
is paid or accrued, in accordance with the holder's method of accounting for
federal income tax purposes.
For purposes of determining whether the New Notes are issued with original
issue discount, the Company has made a determination (which is binding on the
holders of the New Notes unless a holder explicitly discloses on its timely
filed federal income tax return that its determination in this regard is
different
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from the Company's determination) that the possibility that any Liquidated
Damages will be paid on the New Notes is remote. Accordingly, the Company will
treat the New Notes as being issued without any original issue discount.
Sale or Exchange of Notes
In the case of a sale or exchange (including a redemption) of a New Note,
the holder will recognize gain or loss equal to the difference, if any, between
the amount received (other than any amount representing accrued but unpaid
stated interest) and the holder's adjusted tax basis in the New Note. Any such
gain or loss will be treated as a capital gain or loss. Any capital gain or loss
on a sale or exchange of a New Note will be treated as a long-term capital gain
or loss if, at the time of the sale or exchange, the New Note has been held by
the holder for more than one year; otherwise, the capital gain or loss will be
short-term. An individual's long-term capital gain is subject to federal income
tax at a maximum stated rate of either 20%, if the individual has held the New
Notes for more than 18 months prior to the sale or exchange, or 28%, if the
individual has held the New Notes for not more than 18 months prior to the sale
or exchange. An individual's short-term capital gain is taxed at ordinary income
tax rates. An individual's capital loss is first deductible against other
capital gains and then the amount of any remaining capital loss, up to $3,000
(or $1,500 for married persons filing separately), is deductible against other
income. Capital losses in excess of these amounts will carry over as a capital
loss to succeeding years.
In addition, the recognition of capital gain on the New Notes could cause
an individual to exceed certain income thresholds which, in turn, could cause
items of income otherwise not taxable to the individual to become taxable and/or
could affect the individual's ability to utilize all or a portion of his or her
personal exemptions, certain itemized deductions and certain other deductions.
For corporations, a capital gain is subject to federal income tax at a
stated maximum rate of 35%, while any capital loss can be offset only against
capital gains. Any unutilized capital loss generally can be carried back three
years and forward five years to be offset against net capital gains generated in
those years.
CERTAIN U.S. FEDERAL INCOME AND ESTATE TAX CONSEQUENCES TO FOREIGN PERSONS
The following is a general discussion of certain United States federal
income and estate tax consequences of the ownership and disposition of New Notes
by a Foreign Person. This discussion is limited to Foreign Persons other than
former United States citizens described in Section 877(a) of the Code or former
residents of the United States described in Sections 877(e) or 7701(b)(10) of
the Code. Holders of New Notes who are Foreign Persons are urged to consult
their own tax advisers regarding the specific tax consequences to them of owning
and disposing of New Notes.
Any interest or Liquidated Damages earned on a New Note by a holder who is
a Foreign Person will be considered "portfolio interest" and will not be subject
to United States federal income tax or withholding if:
(1) such Foreign Person is neither (i) a "controlled foreign
corporation" that is related to the Issuer as described in Section
881(c)(3)(C) of the Code, (ii) a bank that has purchased New Notes pursuant
to an extension of credit made in the ordinary course of its trade or
business, nor (iii) a person who owns, directly or under the attribution
rules of Section 871(h)(3)(C) of the Code, 10% or more of the voting power
in the Company;
(2) the person who would otherwise be required to withhold tax from
payments of such interest or Liquidated Damages (the "withholding agent")
is furnished an IRS Form W-9 (or equivalent), signed under penalties of
perjury, identifying the beneficial owner of the Note and stating that the
beneficial owner of the New Note is a Foreign Person; and
(3) the interest or Liquidated Damages is not effectively connected
with the conduct of a trade or business within the United States by the
Foreign Person.
The United States Treasury Department recently promulgated final
regulations regarding withholding and information reporting, which regulations
are generally effective for payments made after December 31,
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1998. In general, the final regulations do not significantly alter the
substantive withholding and information reporting requirements but unify current
certification procedures and forms and clarify reliance standards. Special rules
apply which permit the shifting of primary responsibility for withholding to
certain financial intermediaries acting on behalf of beneficial owners. In the
case of interest paid to a foreign partnership (other than a partnership that
has entered into a withholding agreement with the IRS), the final regulations
specify that the "portfolio interest" exemption will not apply unless the
withholding agent receives appropriate certifications from the partners in
addition to receiving certain certifications from the partnership. A look-
through rule applies in the case of tiered partnerships.
Any interest or Liquidated Damages (other than "portfolio interest") earned
on a New Note by a Foreign Person will be subject to United States federal
income tax and withholding at a rate of 30% (or at a lower rate under an
applicable tax treaty) if this interest or Liquidated Damages is not effectively
connected with the conduct of a trade or business within the United States by
this Foreign Person.
Any interest or Liquidated Damages earned on a New Note, and any gain
realized on a sale or exchange (including a redemption) of a New Note, that is
effectively connected with the conduct of a trade or business within the United
States by a Foreign Person will be subject to United States federal income tax
at regular graduated rates (and, if the Foreign Person is a corporation, may
also be subject to a United States branch profits tax). Such income will not be
subject to United States income tax withholding, however, if the Foreign Person
furnishes the proper certificate to the withholding agent.
Any gain realized by a Foreign Person on a sale or exchange (including a
redemption) of a New Note will not be subject to United States federal income
tax or withholding if (i) the gain is not effectively connected with the conduct
of a trade or business within the United States by the Foreign Person; and (ii)
in the case of a Foreign Person who is an individual, such individual is not
present in the United States for 183 days or more in the taxable year of the
sale or exchange, or the individual does not have a "tax home" in the United
States and the gain is not attributable to an office or other fixed place of
business maintained in the United States by the individual.
Any New Notes owned by an individual who is not a citizen or resident (as
specially defined for United States federal estate tax purposes) of the United
States at the date of death will be included in such individual's estate for
United States federal estate tax purposes, unless all of the interest on such
New Notes constitutes "portfolio interest" (without regard to whether the
"portfolio interest" certification requirements are met), or unless an
applicable tax treaty provides otherwise.
BACKUP WITHHOLDING AND INFORMATION REPORTING
A U.S. Person who holds New Notes will generally be subject to information
reporting and to backup withholding at a 31% rate with respect to interest on
the New Notes, and with respect to proceeds received on the sale or exchange of
New Notes through a broker. Information reporting and backup withholding will
generally not apply, however, with respect to payments made to certain exempt
recipients, such as corporations. In addition, backup withholding will generally
not apply to a U.S. Person who provides a taxpayer identification number and who
certifies, under penalties of perjury, that such number is correct and that the
holder has not been notified by the IRS that it is subject to backup withholding
for failure to report interest and dividend payments. Generally, such
certification is made on Form W-9.
Information reporting on IRS Form 1099 and backup withholding will not
apply to payments made by the Company or any agent thereof to a holder of a New
Note if the holder has furnished a certification under penalties of perjury that
it is a Foreign Person, or has otherwise demonstrated that it qualifies for an
applicable exemption, provided that neither the Company nor such agent has
actual knowledge to the contrary. The interest and any Liquidated Damages earned
by a Foreign Person with respect to a New Note will generally be reported,
however, by the Company on IRS Form 1042S.
If a Foreign Person sells a New Note through a United States office of a
broker, the broker is required to file an information report and is required to
withhold 31% of the sale proceeds unless the Foreign Person certifies under
penalties of perjury its non-United States status (and the broker does not have
actual
101
<PAGE> 105
knowledge to the contrary) or otherwise establishes an exemption. If a Foreign
Person sells a New Note through a foreign office of a broker, backup withholding
is not required; but information reporting is required if the broker does not
have documentary evidence that the holder is a Foreign Person and if (i) the
broker is a U.S. Person, (ii) the broker is a "controlled foreign corporation"
(as defined in Section 957 of the Code), (iii) the broker derives 50% or more of
its gross income for a specified three year period from the conduct of a trade
or business in the United States, or (iv) in the case of payments made after
December 31, 1998, the broker is a foreign partnership with certain connections
to the United States.
Any amount withheld from payment to a holder under the backup withholding
rules will generally be allowed as a credit against such holder's United States
federal income tax liability, if any, and may entitle such holder to a refund,
provided that the required information is furnished to the IRS.
102
<PAGE> 106
PLAN OF DISTRIBUTION
Each broker-dealer that receives New Notes for its own account (a
"Participating Broker-Dealer") pursuant to the Exchange Offer must acknowledge
that it will deliver a Prospectus in connection with the initial sales of such
New Notes. This Prospectus, as it may be amended or supplemented from time to
time, may be used by a Participating Broker-Dealer in connection with the sales
of New Notes received in exchange for Notes where such Notes were acquired as
the result of market-making activities or other trading activities. The Company
will make this Prospectus, as amended or supplemented, available to any
Participating Broker-Dealer for use in connection with any such resale and
Participating Broker-Dealers shall be authorized to deliver this Prospectus for
the period specified in the Registration Rights Agreement.
The Company will not receive any proceeds from any sales of the New Notes
by Participating Broker-Dealers. New Notes received by Participating
Broker-Dealers for their own account pursuant to the Exchange Offer may be sold
from time to time, in one or more transactions in the over-the-counter market,
in negotiated transactions, through the writing of options on the New Notes or a
combination of such methods of resale, at market prices prevailing at the time
of resale, at prices related to such prevailing market prices or at negotiated
prices. Any such resale may be made directly to purchasers or to or through
brokers or dealers who may receive compensation in the form of commissions or
concessions from any such Participating Broker-Dealer that resells the New Notes
that were received by it for its own account pursuant to the Exchange Offer. Any
broker or dealer that participates in a distribution of such New Notes may be
deemed to be an "underwriter" within the meaning of the Securities Act and may
profit on any such resale of New Notes and any commissions or concessions
received by any such persons may be deemed to be underwriting compensation under
the Securities Act. The Letter of Transmittal states that by acknowledging that
it will deliver and by delivering a Prospectus, a Participating Broker-Dealer
will not be deemed to admit that it is an "underwriter" within the meaning of
the Securities Act.
The Initial Purchaser and certain of its affiliates have, from time to
time, performed certain banking, financial advisory and investment banking
services for the Company and certain of its affiliates, for which they have
received customary fees and expenses. A portion of the net proceeds from the
Note Offering was used to repay outstanding indebtedness under the Existing Bank
Credit Agreement of which Bank of America, an affiliate of BancAmerica Robertson
Stephens, is a lender. Bank of America is the lead agent and a lender under the
Senior Credit Facility, for which it receives customary fees and expenses.
BALCAP, an affiliate of BancAmerica Robertson Stephens, is a partner with the
Leasing Partner under the Lease Financing Facility.
LEGAL MATTERS
The validity of the New Notes offered hereby will be passed upon on behalf
of the Company by Foley & Lardner, Milwaukee, Wisconsin, legal advisors to the
Company. Michael W. Grebe, a partner in the firm of Foley & Lardner, is a
director of the Company.
EXPERTS
The consolidated financial statements of Oshkosh at September 30, 1997 and
1996 and for each of the three years in the period ended September 30, 1997
appearing in this Prospectus and Registration Statement and the financial
statement schedule incorporated by reference from Oshkosh's Annual Report (Form
10-K) for the year ended September 30, 1997 have been audited by Ernst & Young
LLP, independent auditors, as set forth in their reports thereon appearing
elsewhere herein and incorporated by reference therein, and are included in
reliance upon such reports given upon the authority of such firm as experts in
accounting and auditing. The consolidated financial statements of McNeilus as of
February 28, 1997 and February 29, 1996 and for each of the three years in the
period ended February 28, 1997 included in this Prospectus and Registration
Statement have been audited by Larson, Allen, Weishair and Co., LLP, independent
auditors, as set forth in their report thereon appearing elsewhere herein, and
are included in reliance upon such report given upon the authority of such firm
as experts in accounting and auditing.
103
<PAGE> 107
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed with the Commission by Oshkosh are hereby
incorporated by reference into this Prospectus except as superseded or modified
herein: (1) the Company's Annual Report on Form 10-K for the fiscal year ended
September 30, 1997, as amended by the Company's Form 10-K/A dated February 11,
1998; (2) the Company's Quarterly Report on Form 10-Q for the fiscal quarter
ended December 31, 1997; (3) the Proxy Statement for the Company's 1998 Annual
Meeting of Shareholders dated December 29, 1997; and (4) the Company's Current
Reports on Form 8-K dated February 6, 1998 and February 26, 1998. All documents
filed by the Company with the Commission pursuant to Section 13(a), 13(c), 14 or
15(d) of the Exchange Act after the date of this Prospectus and through the
period specified in the Registration Rights Agreement during which Participating
Broker-Dealers are authorized to deliver this Prospectus shall be deemed to be
incorporated by reference into this Prospectus and to be a part hereof from the
date of filing of such documents (such documents, and the documents enumerated
above, being hereinafter referred to as "Incorporated Documents"). Any statement
contained in any Incorporated Document shall be deemed to be modified or
superseded for purposes of this Prospectus to the extent that a statement
contained herein or in any other subsequently filed Incorporated Document
modifies or supersedes such statement. Statements in this Prospectus with
respect to the subject matter presented in the Incorporated Documents are
intended to supersede such statements in the Incorporated Documents. Any such
statement so modified or superseded shall not be deemed, except as modified or
superseded, to constitute a part of this Prospectus. The Company will provide
without charge to each person, including any beneficial owner, to whom this
Prospectus is delivered, upon written or oral request of such person, a copy of
any and all of the documents that have been or may be incorporated by reference
herein (other than exhibits to such documents which are not specifically
incorporated by reference into such documents). Such requests should be directed
to Oshkosh Truck Corporation, P.O. Box 2566, Oshkosh, Wisconsin 54903-2566,
telephone number (920) 235-9151. The information relating to the Company
contained in this Prospectus does not purport to be comprehensive and should be
read together with the information contained in the Incorporated Documents.
AVAILABLE INFORMATION
Oshkosh Truck Corporation is subject to the informational requirements of
the Exchange Act, and in accordance therewith files reports, proxy statements
and other information with the Securities and Exchange Commission (the
"Commission"). Such reports, proxy statements and other information can be
inspected and copied at the public reference facilities maintained by the
Commission at Room 1024, 450 Fifth Street, N.W., Judiciary Plaza, Washington,
D.C. 20549, and at the Commission's following regional Offices: Suite 1400,
Northwest Atrium Center, 500 West Madison Street, Chicago, Illinois 60661; and
13th Floor, Seven World Trade Center, New York, New York 10048. Copies of such
material can be obtained at prescribed rates from the Public Reference Section
of the Commission at 450 Fifth Street, N.W., Judiciary Plaza, Washington, D.C.
20549. The Company's shares of Common Stock are quoted for trading on the Nasdaq
National Market and reports, proxy statements and other information concerning
the Company also may be inspected at the offices of the National Association of
Securities Dealers, 9513 Key West Avenue, Rockville, Maryland 20850. The
Commission maintains a World Wide Web site that contains reports, proxy and
information statements and other information regarding registrants that file
electronically with the Commission. The address of the site is
http://www.sec.gov.
The Company has filed with the Commission a registration statement on Form
S-4 (herein, together with all amendments and exhibits, referred to as the
"Registration Statement") under the Securities Act. This Prospectus does not
contain all of the information set forth in the Registration Statement, certain
parts of which are omitted in accordance with the rules and regulations of the
Commission. For further information, reference is made to the Registration
Statement.
104
<PAGE> 108
INDEX TO HISTORICAL FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
OSHKOSH TRUCK CORPORATION
Report of Ernst & Young LLP, Independent Auditors........... F-2
Consolidated Balance Sheets as of September 30, 1997 and
1996, and as of December 31, 1997 (unaudited)............. F-3
Consolidated Statements of Income (Loss) for each of the
three fiscal years in the period ended September 30, 1997,
and for the three month periods ended December 31, 1997
and 1996 (unaudited)...................................... F-4
Consolidated Statements of Shareholders' Equity for each of
the three fiscal years in the period ended September 30,
1997, and for the three month period ended December 31,
1997 (unaudited).......................................... F-5
Consolidated Statements of Cash Flows for each of the three
fiscal years in the period ended September 30, 1997, and
for the three month periods ended December 31, 1997 and
1996 (unaudited).......................................... F-6
Notes to Consolidated Financial Statements.................. F-7
MCNEILUS COMPANIES, INC.
Report of Larson, Allen, Weishair and Co., LLP, Independent
Auditors.................................................. F-22
Consolidated Balance Sheets as of February 28, 1997 and
February 29, 1996, and as of November 30, 1997
(unaudited)............................................... F-23
Consolidated Statements of Income for each of the three
fiscal years in the period ended February 28, 1997, and
for the nine month periods ended November 30, 1997 and
1996 (unaudited).......................................... F-24
Consolidated Statements of Stockholders' Equity for each of
the three fiscal years in the period ended February 28,
1997, and for the nine month period ended November 30,
1997
(unaudited)............................................... F-25
Consolidated Statements of Cash Flows for each of the three
fiscal years in the period ended February 28, 1997, and
for the nine month periods ended November 30, 1997 and
1996 (unaudited).......................................... F-26
Notes to Consolidated Financial Statements.................. F-27
</TABLE>
F-1
<PAGE> 109
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
Board of Directors
Oshkosh Truck Corporation
We have audited the accompanying consolidated balance sheets of Oshkosh Truck
Corporation (the Company) as of September 30, 1997 and 1996, and the related
consolidated statements of income (loss), shareholders' equity and cash flows
for each of the three years in the period ended September 30, 1997. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of the Company at
September 30, 1997 and 1996, and the consolidated results of its operations and
its cash flows for each of the three years in the period ended September 30,
1997, in conformity with generally accepted accounting principles.
ERNST & YOUNG LLP
Milwaukee, Wisconsin
October 31, 1997, except for
Notes 4 and 13, as to which
the date is December 8, 1997
F-2
<PAGE> 110
OSHKOSH TRUCK CORPORATION
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
SEPTEMBER 30, SEPTEMBER 30, DECEMBER 31,
1997 1996 1997
------------- ------------- ------------
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents......................... $ 23,219 $ 127 $ 198
Receivables, net.................................. 81,235 76,624 54,215
Inventories....................................... 76,497 106,289 86,744
Prepaid expenses.................................. 3,405 3,619 3,487
Refundable income taxes........................... -- 6,483 418
Deferred income taxes............................. 9,479 7,055 9,169
-------- -------- --------
Total current assets........................... 193,835 200,197 154,231
Deferred charges.................................... 1,067 2,645 793
Other long-term assets.............................. 6,660 7,834 7,455
Property, plant and equipment:
Land.............................................. 7,172 7,131 7,172
Buildings......................................... 42,220 40,421 42,392
Machinery and equipment........................... 78,270 77,485 79,566
-------- -------- --------
127,662 125,037 129,130
Less accumulated depreciation..................... (72,174) (67,002) (73,790)
-------- -------- --------
Net property, plant and equipment.............. 55,488 58,035 55,340
Goodwill and other intangible assets, net........... 163,344 166,450 163,639
-------- -------- --------
Total assets........................................ $420,394 $435,161 $381,458
======== ======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable.................................. $ 48,220 $ 49,178 $ 40,556
Customer advances................................. 30,124 27,793 35,261
Payroll-related obligations....................... 15,157 12,843 12,897
Accrued warranty.................................. 12,320 8,942 11,103
Other current liabilities......................... 21,365 16,997 15,966
Net current liabilities of discontinued
operations..................................... 1,536 1,975 1,376
Current maturities of long-term debt and revolving
credit facility................................ 15,000 15,000 7,820
-------- -------- --------
Total current liabilities...................... 143,722 132,728 124,979
Long-term debt...................................... 120,000 142,882 95,000
Postretirement benefit obligations.................. 10,147 9,517 10,244
Other long-term liabilities......................... 1,811 1,843 3,756
Net long-term liabilities of discontinued
operations........................................ 1,362 2,581 1,031
Deferred income taxes............................... 22,452 24,008 22,701
Shareholders' equity:
Class A Common Stock.............................. 4 4 4
Common Stock...................................... 89 89 89
Paid-in capital................................... 13,591 16,059 13,989
Retained earnings................................. 120,085 114,246 122,112
Cost of Common Stock in treasury.................. (12,869) (8,796) (12,447)
-------- -------- --------
Total shareholders' equity..................... 120,900 121,602 123,747
-------- -------- --------
Total liabilities and shareholders' equity.......... $420,394 $435,161 $381,458
======== ======== ========
</TABLE>
See accompanying notes.
F-3
<PAGE> 111
OSHKOSH TRUCK CORPORATION
CONSOLIDATED STATEMENTS OF INCOME (LOSS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
FISCAL YEAR ENDED SEPTEMBER 30, DECEMBER 31,
-------------------------------- --------------------
1997 1996 1995 1997 1996
---- ---- ---- ---- ----
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
Continuing operations:
Net sales............................... $683,234 $413,455 $438,557 $151,801 $150,320
Cost of sales........................... 594,390 378,376 384,579 129,494 130,737
-------- -------- -------- -------- --------
Gross income....................... 88,844 35,079 53,978 22,307 19,583
Operating expenses:
Selling, general and administrative..... 47,742 32,205 29,242 11,676 10,025
Engineering, research and development... 7,847 6,304 5,443 2,143 1,993
Amortization of goodwill and other
intangibles.......................... 4,470 171 -- 1,126 1,132
-------- -------- -------- -------- --------
Total operating expenses........... 60,059 38,680 34,685 14,945 13,150
-------- -------- -------- -------- --------
Income (loss) from operations............. 28,785 (3,601) 19,293 7,362 6,433
Other income (expense):
Interest expense........................ (12,722) (929) (679) (2,504) (3,558)
Interest income......................... 717 1,040 774 165 206
Miscellaneous, net...................... (278) 1,508 (466) 72 (9)
-------- -------- -------- -------- --------
(12,283) 1,619 (371) (2,267) (3,361)
-------- -------- -------- -------- --------
Income (loss) from continuing operations
before income taxes..................... 16,502 (1,982) 18,922 5,095 3,072
Provision (credit) for income taxes....... 6,496 (1,741) 7,285 1,955 1,448
-------- -------- -------- -------- --------
Income (loss) from continuing
operations.............................. 10,006 (241) 11,637 3,140 1,624
Discontinued operations:
Loss from discontinued operations, net
of income tax benefit of $1,623...... -- -- (3,137) -- --
Gain (loss) on disposal of operations,
net of income tax benefit of $1,827
in 1996 and $357 in 1995............. -- (2,859) 716 -- --
-------- -------- -------- -------- --------
-- (2,859) (2,421) -- --
-------- -------- -------- -------- --------
Net income (loss)......................... $ 10,006 $ (3,100) $ 9,216 $ 3,140 $ 1,624
======== ======== ======== ======== ========
Earnings (loss) per share:
Continuing operations................... $ 1.18 $ (.03) $ 1.32 $ .38 $ .19
Discontinued operations................. -- (.32) (.28) -- --
-------- -------- -------- -------- --------
Net income (loss)....................... $ 1.18 $ (.35) $ 1.04 $ .38 $ .19
======== ======== ======== ======== ========
Earnings (loss) per share assuming
dilution:
Continuing operations................... $ 1.17 $ (.03) $ 1.31 $ .37 $ .19
Discontinued operations................. -- (.32) (.27) -- --
-------- -------- -------- -------- --------
Net income (loss)....................... $ 1.17 $ (.35) $ 1.04 $ .37 $ .19
======== ======== ======== ======== ========
</TABLE>
See accompanying notes.
F-4
<PAGE> 112
OSHKOSH TRUCK CORPORATION
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
PENSION
COMMON PAID-IN RETAINED TREASURY LIABILITY
STOCK CAPITAL EARNINGS STOCK ADJUSTMENT TOTAL
------ ------- -------- -------- ---------- -----
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C>
Balance at September 30, 1994............ $90 $ 7,623 $116,890 $ (2,591) $ (454) $121,558
Net income............................... -- -- 9,216 -- -- 9,216
Cash dividends:
Class A Common Stock
($.435 per share).................... -- -- (191) -- -- (191)
Common Stock ($.500 per share)......... -- -- (4,218) -- -- (4,218)
Sale of 350,000 shares of Common Stock... 3 5,247 -- -- -- 5,250
Sale of 1,250,000 stock warrants......... -- 4,187 -- -- -- 4,187
Common Stock issuance costs and cost of
stock restriction agreement............ -- (863) -- -- -- (863)
Purchase of Common Stock for treasury.... -- -- -- (933) -- (933)
Exercise of stock options................ -- 12 -- 121 -- 133
Incentive compensation awards............ -- 327 -- -- -- 327
Pension liability adjustment............. -- -- -- -- (1,053) (1,053)
--- ------- -------- -------- ------- --------
Balance at September 30, 1995............ 93 16,533 121,697 (3,403) (1,507) 133,413
Net loss................................. -- -- (3,100) -- -- (3,100)
Cash dividends:
Class A Common Stock
($.435 per share).................... -- -- (177) -- -- (177)
Common Stock ($.500 per share)......... -- -- (4,174) -- -- (4,174)
Purchase of Common Stock for treasury.... -- -- -- (5,618) -- (5,618)
Exercise of stock options................ -- 43 -- 225 -- 268
Termination of incentive compensation
awards................................. -- (517) -- -- -- (517)
Pension liability adjustment............. -- -- -- -- 1,507 1,507
--- ------- -------- -------- ------- --------
Balance at September 30, 1996............ 93 16,059 114,246 (8,796) -- 121,602
Net income............................... -- -- 10,006 -- -- 10,006
Cash dividends:
Class A Common Stock
($.435 per share).................... -- -- (177) -- -- (177)
Common Stock ($.500 per share)......... -- -- (3,990) -- -- (3,990)
Purchase of Common Stock for treasury.... -- -- -- (4,246) -- (4,246)
Purchase of 1,250,000 stock warrants..... -- (2,504) -- -- -- (2,504)
Exercise of stock options................ -- 36 -- 173 -- 209
--- ------- -------- -------- ------- --------
Balance at September 30, 1997............ 93 13,591 120,085 (12,869) -- 120,900
Net income............................... -- -- 3,140 -- -- 3,140
Cash dividends:
Class A Common Stock ($.10875 per
share)............................... -- -- (45) -- -- (45)
Common Stock ($.12500 per share)....... -- -- (1,068) -- -- (1,068)
Issuance of stock under incentive
compensation plan...................... -- 398 -- 422 -- 820
--- ------- -------- -------- ------- --------
Balance at December 31, 1997
(Unaudited)............................ $93 $13,989 $122,112 $(12,447) $ -- $123,747
=== ======= ======== ======== ======= ========
</TABLE>
See accompanying notes.
F-5
<PAGE> 113
OSHKOSH TRUCK CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
FISCAL YEAR ENDED SEPTEMBER 30, DECEMBER 31,
--------------------------------- -------------------
1997 1996 1995 1997 1996
---- ---- ---- ---- ----
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES:
Net income (loss) from continuing operations....... $ 10,006 $ (241) $11,637 $ 3,140 $ 1,624
Depreciation and amortization...................... 14,070 8,798 8,409 3,283 3,556
Write-off of investments........................... 200 4,125 -- -- --
Deferred income taxes.............................. (3,980) (1,381) 2,577 559 (177)
(Gain) loss on disposal of property, plant and
equipment........................................ (43) 77 (21) (18) 6
Changes in operating assets and liabilities:
Receivables...................................... (4,611) (10,648) (4,349) 27,020 20,972
Inventories...................................... 29,792 (25,071) (809) (8,357) 11,492
Prepaid expenses................................. 214 469 (540) (82) 405
Deferred charges................................. 1,578 333 (94) 274 (308)
Accounts payable................................. (958) 13,314 (4,314) (7,664) (11,494)
Customer advances................................ 2,331 930 (1,887) 5,137 (758)
Income taxes..................................... 7,446 (5,268) 636 (1,381) 2,739
Payroll-related obligations...................... 2,314 213 313 (1,440) (3,121)
Accrued warranty................................. 3,378 2,094 (639) (1,217) 578
Other current liabilities........................ 3,447 (4,646) 11 (4,517) (497)
Other long-term liabilities...................... 598 665 (4,764) 2,042 125
-------- --------- ------- -------- --------
Net cash provided from (used for) operating
activities................................ 65,782 (16,237) 6,166 16,779 25,142
INVESTING ACTIVITIES:
Acquisitions of businesses, net of cash acquired... -- (160,838) -- (3,461) --
Additions to property, plant and equipment......... (6,263) (5,355) (5,347) (1,697) (1,342)
Proceeds from sale of property, plant and
equipment........................................ 395 2,086 114 66 289
Increase in other long-term assets................. (1,532) (2,124) (937) (1,005) (174)
-------- --------- ------- -------- --------
Net cash used for investing activities....... (7,400) (166,231) (6,170) (6,097) (1,227)
NET CASH PROVIDED FROM (USED FOR) DISCONTINUED
OPERATIONS....................................... (1,658) 4,743 10,482 (491) (326)
FINANCING ACTIVITIES:
Net borrowings (repayments) of long-term debt and
revolving credit facility........................ (22,882) 157,882 -- (32,180) (17,882)
Sale of Common Stock and Common Stock warrants, net
of issuance costs................................ -- -- 8,574 -- --
Purchase of Common Stock, Common Stock warrants and
proceeds from exercise of stock options, net..... (6,541) (5,350) (800) -- 85
Dividends paid..................................... (4,209) (4,396) (4,372) (1,032) (1,074)
-------- --------- ------- -------- --------
Net cash provided from (used for) financing
activities................................ (33,632) 148,136 3,402 (33,212) (18,871)
-------- --------- ------- -------- --------
Increase (decrease) in cash and cash equivalents... 23,092 (29,589) 13,880 (23,021) 4,718
Cash and cash equivalents at beginning of period... 127 29,716 15,836 23,219 127
-------- --------- ------- -------- --------
Cash and cash equivalents at end of period......... $ 23,219 $ 127 $29,716 $ 198 $ 4,845
======== ========= ======= ======== ========
SUPPLEMENTAL DISCLOSURES:
Cash paid for interest:
Continuing operations.......................... $ 12,974 $ 538 $ 759 $ 2,498 $ 3,451
Discontinued operations........................ -- -- 709 -- --
Cash paid (received) for income taxes............ 2,998 3,116 2,114 2,777 (1,115)
</TABLE>
See accompanying notes.
F-6
<PAGE> 114
OSHKOSH TRUCK CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1997 AND DECEMBER 31, 1997 (UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
OPERATIONS -- Oshkosh Truck Corporation and its wholly-owned subsidiaries
(the company) is a leading manufacturer of a wide variety of heavy duty
specialized trucks. The company sells its products into three principal markets
- -- fire and emergency support, defense, and other commercial truck markets. The
company's fire and emergency support business is principally conducted through
its wholly-owned subsidiary, Pierce Manufacturing Inc. (Pierce).
PRINCIPLES OF CONSOLIDATION AND PRESENTATION -- The consolidated financial
statements include the accounts of Oshkosh Truck Corporation and all its
wholly-owned subsidiaries and are prepared in conformity with U.S. generally
accepted accounting principles. The preparation of financial statements in
conformity with generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
All significant intercompany accounts and transactions have been eliminated.
CASH AND CASH EQUIVALENTS -- The company considers all highly liquid
investments with a maturity of three months or less when purchased to be cash
equivalents. Cash equivalents, consisting principally of commercial paper,
totaled $23,022 at September 30, 1997. The cost of these securities, which are
considered "available for sale" for financial reporting purposes, approximates
fair value at September 30, 1997, and December 31, 1997.
INVENTORIES -- The company values its inventories at the lower of cost,
computed principally on the last-in, first-out (LIFO) method, or market.
PROPERTY, PLANT AND EQUIPMENT -- Property, plant and equipment are recorded
at cost. Depreciation is provided over the estimated useful lives of the
respective assets principally on accelerated methods.
DEFERRED CHARGES -- Deferred charges include certain engineering and
technical support costs incurred in connection with multi-year government
contracts. These costs are charged to cost of sales when the related project is
billable to the government, or are amortized to cost of sales as base units are
delivered under the related contracts.
OTHER LONG-TERM ASSETS -- Other long-term assets include capitalized
software and related costs which are amortized on a straight-line method over a
three to five year period, deferred financing costs which are amortized to
interest expense over the term of the debt, prepaid funding of pension costs and
certain investments. During fiscal 1996, the company wrote off its $3,025 equity
investment in a Mexican bus manufacturer due to prolonged weakness in the
Mexican economy and continuing high losses and high leverage reported by the
Mexican affiliate. Also, in fiscal 1996, the company wrote off a $200 equity
investment in Steeltech Manufacturing, Inc. (Steeltech) and a $900 investment in
a joint venture which leases equipment to Steeltech (see Note 11).
GOODWILL AND OTHER INTANGIBLE ASSETS -- The cost of goodwill and other
intangible assets is amortized on a straight-line basis over the estimated
periods benefitted ranging from 13 to 40 years.
IMPAIRMENT OF LONG-LIVED ASSETS -- Property, plant and equipment, other
long-term assets and goodwill and other intangible assets are reviewed for
impairment whenever events or changes in circumstances indicate that the
carrying amount may not be recoverable. If the sum of the expected undiscounted
cash flows is less than the carrying value of the related asset or group of
assets, a loss is recognized for the difference between the fair value and
carrying value of the asset or group of assets. Such analyses necessarily
involve significant judgment.
F-7
<PAGE> 115
OSHKOSH TRUCK CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
CUSTOMER ADVANCES -- Customer advances principally represent amounts
received in advance of the completion of a fire apparatus vehicle. Certain of
these advances bear interest at variable rates approximating the prime rate.
REVENUE RECOGNITION -- Sales under fixed-price defense contracts are
recorded as units are accepted by the government. Change orders are not invoiced
until agreed upon by the government. Recognition of profit on change orders and
on contracts which do not involve fixed prices is based upon estimates which may
be revised during the terms of the contracts. Sales to commercial customers are
recorded when the goods or services are billable at time of shipment or delivery
of the trucks.
RESEARCH AND DEVELOPMENT -- Research and development costs are charged to
expense as incurred and amounted to approximately $7,847, $6,304, and $5,443 for
continuing operations during fiscal 1997, 1996, and 1995, respectively.
WARRANTY -- Provisions for estimated warranty and other related costs are
recorded at the time of sale and are periodically adjusted to reflect actual
experience. Amounts expensed with respect to continuing operations in fiscal
1997, 1996, and 1995 were $9,658, $7,741, and $4,518, respectively.
INCOME TAXES -- Deferred income taxes are provided to recognize temporary
differences between the financial reporting basis and the income tax basis of
the company's assets and liabilities using currently enacted tax rates and laws.
FAIR VALUES -- The carrying amounts of receivables, accounts payable and
long-term debt approximated fair value as of September 30, 1997 and 1996.
ENVIRONMENTAL REMEDIATION COSTS -- Statement of Position 96-1
"Environmental Remediation Liabilities" (SOP 96-1) became effective for the
company in fiscal 1997. In accordance with SOP 96-1, the company accrues for
losses associated with environmental remediation obligations when such losses
are probable and reasonably estimable. Costs of future expenditures for
environmental remediation obligations are not discounted to their present value.
Recoveries of environmental remediation costs from other parties are recorded as
assets when their receipt is deemed probable. The accruals are adjusted as
further information develops or circumstances change.
EARNINGS (LOSS) PER SHARE -- In February 1997, the Financial Accounting
Standards Board issued Statement of Financial Accounting Standards (SFAS) No.
128, "Earnings per Share". SFAS No. 128 replaced the calculation of primary and
fully diluted earnings per share with basic and diluted earnings per share.
Unlike primary earnings per share, basic earnings per share excludes any
dilutive effects of options, warrants and convertible securities. Earnings per
share amounts for all periods have been presented and, where appropriate,
restated to conform to SFAS No. 128 requirements.
The following table sets forth the computation of basis and diluted
weighted average shares used in the per share calculations:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
FISCAL YEAR ENDED SEPTEMBER 30, DECEMBER 31,
--------------------------------- ---------------------
1997 1996 1995 1997 1996
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Denominator for basic earnings per
share................................. 8,502,166 8,828,224 8,823,766 8,340,854 8,645,106
Effect of dilutive options, warrants and
incentive compensation awards......... 43,916 -- 47,643 96,621 25,741
--------- --------- --------- --------- ---------
Denominator for dilutive earnings per
share................................. 8,546,082 8,828,224 8,871,409 8,437,475 8,670,847
========= ========= ========= ========= =========
</TABLE>
NEW ACCOUNTING STANDARDS -- In June 1997, the Financial Accounting
Standards Board issued SFAS No. 130, "Reporting Comprehensive Income." SFAS No.
130 establishes the standards for reporting and displaying comprehensive income
and its components (revenues, expenses, gains, and losses) as part of a full set
of financial statements. This statement requires that all elements of
comprehensive income be reported in a
F-8
<PAGE> 116
OSHKOSH TRUCK CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
financial statement that is displayed with the same prominence as other
financial statements. The statement is effective for fiscal years beginning
after December 15, 1997. Since this statement applies only to the presentation
of comprehensive income, it will not have any impact on the company's results of
operations, financial position or cash flows.
In June 1997, the Financial Accounting Standards Board also issued SFAS No.
131, "Disclosures about Segments of an Enterprise and Related Information." SFAS
No. 131 establishes the standards for the manner in which public enterprises are
required to report financial and descriptive information about their operating
segments. The statement defines operating segments as components of an
enterprise for which separate financial information is available and evaluated
regularly as a means for assessing segment performance and allocating resources
to segments. A measure of profit or loss, total assets and other related
information are required to be disclosed for each operating segment. In
addition, this statement requires the annual disclosure of information
concerning revenues derived from the enterprise's products or services,
countries in which it earns revenue or holds assets, and major customers. The
statement is also effective for fiscal years beginning after December 15, 1997.
The adoption of SFAS No. 131 will not affect the company's results of operations
or financial position, but will affect the disclosure of segment information.
2. BALANCE SHEET INFORMATION
<TABLE>
<CAPTION>
SEPTEMBER 30,
------------------ DECEMBER 31,
RECEIVABLES 1997 1996 1997
----------- ---- ---- ------------
(UNAUDITED)
<S> <C> <C> <C>
U.S. Government:
Amounts billed............................... $34,399 $ 27,353 $24,417
Amounts unbilled............................. 1,782 4,918 1,635
------- -------- -------
36,181 32,271 26,052
Commercial customers........................... 45,603 41,510 30,175
Other.......................................... 1,421 3,909 --
------- -------- -------
83,205 77,690 56,227
Less allowance for doubtful accounts........... (1,970) (1,066) (2,012)
------- -------- -------
$81,235 $ 76,624 $54,215
======= ======== =======
</TABLE>
The unbilled amounts represent estimated claims for government-ordered
changes which will be invoiced upon completion of negotiations and price
adjustment provisions which will be invoiced when they are agreed upon by the
government.
<TABLE>
<CAPTION>
SEPTEMBER 30,
------------------ DECEMBER 31,
INVENTORIES 1997 1996 1997
----------- ---- ---- ------------
(UNAUDITED)
<S> <C> <C> <C>
Finished products.............................. $ 6,430 $ 15,208 $ 6,798
Partially finished products.................... 36,661 51,533 43,437
Raw materials.................................. 44,455 47,580 47,696
------- -------- -------
Inventories at FIFO cost....................... 87,546 114,321 97,931
Less: Progress payments on U.S. government
contracts........................... (2,988) -- (2,988)
Excess of FIFO cost over LIFO cost....... (8,061) (8,032) (8,199)
------- -------- -------
$76,497 $106,289 $86,744
======= ======== =======
</TABLE>
Title to all inventories related to government contracts which provide for
progress payments vests in the government to the extent of unliquidated progress
payments.
F-9
<PAGE> 117
OSHKOSH TRUCK CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
SEPTEMBER 30,
------------------- DECEMBER 31,
GOODWILL AND OTHER INTANGIBLE ASSETS 1997 1996 1997
------------------------------------ ---- ---- ------------
USEFUL LIVES (UNAUDITED)
------------
<S> <C> <C> <C> <C>
Goodwill 40 Years.................. $103,887 $102,523 $103,887
Distribution network 40 Years.................. 53,000 53,000 53,000
Other 13-40 Years............... 11,098 11,098 12,519
-------- -------- --------
167,985 166,621 169,406
Less accumulated amortization................... (4,641) (171) (5,767)
-------- -------- --------
$163,344 $166,450 $163,639
======== ======== ========
</TABLE>
The increase in goodwill from fiscal 1996 to fiscal 1997 is due to
finalization of purchase accounting related to the Pierce acquisition.
The company engaged third party business valuation appraisers to determine
the fair value of the distribution network in connection with its acquisition of
Pierce (see Note 3). The company believes Pierce maintains the largest North
American fire apparatus distribution network and has exclusive contracts with
each distributor related to the fire apparatus product offerings manufactured by
Pierce. To establish the useful life of the distribution network, a historical
turnover analysis was performed.
3. ACQUISITIONS
On September 18, 1996, the company acquired for cash all of the issued and
outstanding stock of Pierce, a leading manufacturer and marketer of fire trucks
and other fire apparatus in the U.S. The acquisition price of $156,926,
including acquisition costs and net of cash acquired, was financed from
borrowings under a bank credit facility (see Note 4).
The acquisition was accounted for using the purchase method of accounting
and, accordingly, the operating results of Pierce are included in the company's
consolidated statements of income (loss) since the date of acquisition. The
purchase price, including acquisition costs, was allocated based on the
estimated fair values of the assets acquired and liabilities assumed at the date
of the acquisition and was subsequently adjusted during fiscal 1997.
Approximately $62,000 of the purchase price was allocated to the distribution
network and other intangible assets. The excess of the purchase price over the
estimated fair value of net assets acquired amounted to $103,887 which has been
accounted for as goodwill.
Pro forma unaudited consolidated operating results of the company, assuming
Pierce had been acquired as of October 1, 1995 and 1994, are summarized below:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
SEPTEMBER 30,
--------------------
1996 1995
---- ----
<S> <C> <C>
Net sales................................................ $605,439 $618,555
Income (loss) from continuing operations................. (1,262) 7,699
Net income (loss)........................................ (4,121) 4,901
Earnings (loss) per share:
Continuing operations............................... $ (0.14) $ 0.87
Net income (loss)................................... (0.47) 0.56
</TABLE>
These pro forma results have been prepared for informational purposes only
and include certain adjustments to depreciation expense related to acquired
plant and equipment, amortization expense arising from goodwill and other
intangible assets, interest expense on acquisition debt, elimination of certain
non-recurring expenses incurred by Pierce prior to the acquisition, and the
estimated related income tax effects of
F-10
<PAGE> 118
OSHKOSH TRUCK CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
all such adjustments. Anticipated efficiencies from the consolidation of
Pierce's manufacturing facilities and from the synergies related to the
consolidation of certain functions among Pierce and the company were not fully
determinable and therefore have been excluded from the amounts included in the
pro forma operating results. These pro forma results do not purport to be
indicative of the results of operations which would have resulted had the
combination been in effect as of October 1, 1995 and 1994 or of the future
results of operations of the consolidated entities.
On November 9, 1995, the company through its wholly-owned subsidiary,
Summit Performance Systems, Inc. (Summit), acquired the land, buildings,
machinery and equipment, and technology of Friesz Manufacturing Company (Friesz)
from available cash for $3,912. Friesz was engaged in the manufacture and sale
of concrete mixer systems and related aftermarket replacements parts.
Approximately $2,150 of the purchase price has been allocated to intangible
assets, principally designs and related technology. The acquisition was
accounted for using the purchase method of accounting and, accordingly, the
operating results of Friesz are included in the company's consolidated
statements of income (loss) since the date of acquisition. Had the acquisition
occurred as of October 1, 1995 or 1994, there would have been no material pro
forma effects on the net sales, net income (loss) or earnings (loss) per share
of the company in fiscal 1996 or 1995.
4. LONG-TERM DEBT
On September 18, 1996, the company entered into a bank credit agreement
(the Bank Credit Agreement) to finance the acquisition of Pierce (see Note 3)
and to refinance a previous revolving credit facility. The Bank Credit Agreement
consists of a $150,000 term loan which requires annual principal payments of
$15,000 through fiscal 2002 and a final payment of $60,000 on September 30,
2003, and a $50,000 revolving credit facility for working capital purposes which
expires on September 30, 1999. The total of all term loan and revolving credit
facility borrowings, excluding letters of credit, must be reduced to or below
$145,000, and $130,000 for 60 consecutive days in fiscal 1998 and 1999,
respectively.
Interest on the term loan and the revolving credit facility is payable at
prime or at the applicable Eurodollar rate plus 2.25% and 1.875%, respectively,
subject to adjustment if certain financial criteria are met (weighted-average
rate of 7.98% and zero, respectively, at September 30, 1997, 8.25% and 8.25%,
respectively, at September 30, 1996, and 7.72% and 8.5%, respectively, at
December 31, 1997).
The company is charged a 0.25% fee with respect to any unused balance under
its revolving credit facility, and a 1.875% fee with respect to any letters of
credit issued under the revolving credit facility. These fees are subject to
adjustment if certain financial criteria are met. At September 30, 1997, $2,962
of standby letters of credit reduced available capacity under the revolving
credit facility to $47,038.
At September 30, 1997, substantially all the tangible and intangible assets
of the company are pledged as collateral under the Bank Credit Agreement. Among
other restrictions, the Bank Credit Agreement: (1) limits payments of dividends,
purchases of the company's stock, and capital expenditures; (2) requires that
certain financial ratios be maintained at prescribed levels; (3) restricts the
ability of the company to make additional borrowings, or to consolidate, merge
or otherwise fundamentally change the ownership of the company; and (4) limits
investments, dispositions of assets and guarantees of indebtedness. The company
believes that such limitations should not impair its future operating
activities.
The aggregate annual maturities of long-term debt for the five years
succeeding September 30, 1997, are as follows: 1998 -- $15,000; 1999 -- $15,000;
2,000 -- $15,000; 2001 -- $15,000; and 2002 -- $15,000.
From October 1, 1997 through December 8, 1997, the company paid from
available cash the $15,000 mandatory principal payment due September 30, 1998
and paid an additional $25,000 on the term loan which will be applied on a pro
rata basis to the principal payments due in the fiscal years 1999 to 2003.
F-11
<PAGE> 119
OSHKOSH TRUCK CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
5. INCOME TAXES
<TABLE>
<CAPTION>
FISCAL YEAR ENDED SEPTEMBER 30,
-------------------------------
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
INCOME TAX PROVISION (CREDIT)
Current:
Federal........................................... $ 8,236 $ 2,988 $5,572
State............................................. 1,866 368 873
------- ------- ------
Total current................................ 10,102 3,356 6,445
Deferred:
Federal........................................... (3,271) (4,630) 763
State............................................. (335) (467) 77
------- ------- ------
Total deferred............................... (3,606) (5,097) 840
------- ------- ------
$ 6,496 $(1,741) $7,285
======= ======= ======
</TABLE>
<TABLE>
<CAPTION>
FISCAL YEAR ENDED SEPTEMBER 30,
-------------------------------
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
EFFECTIVE RATE RECONCILIATION
U.S. federal tax rate.............................. 35.0% (34.0)% 35.0%
State income taxes, net............................ 6.0 (5.0) 3.5
Reduction of prior years' excess tax provisions.... (5.5) (50.5) --
Foreign sales corporation.......................... (1.5) (5.2) (0.6)
Goodwill amortization.............................. 5.4 -- --
Other, net......................................... -- 6.9 0.6
---- ----- ----
39.4% (87.8)% 38.5%
==== ===== ====
</TABLE>
<TABLE>
<CAPTION>
SEPTEMBER 30,
-----------------------
1997 1996
---- ----
<S> <C> <C>
DEFERRED TAX ASSETS AND LIABILITIES
Deferred tax assets:
Other current liabilities............................ $ 5,277 $ 6,625
Accrued warranty..................................... 4,439 3,194
Postretirement benefit obligations................... 3,916 3,674
Investments.......................................... 1,887 1,801
Payroll-related obligations.......................... 1,846 818
Other................................................ 729 419
-------- --------
Total deferred tax assets....................... 18,094 16,531
Deferred tax liabilities:
Intangible assets.................................... 23,402 24,150
Property, plant and equipment........................ 4,175 5,972
Inventories.......................................... 2,341 1,922
Deferred charges..................................... 1,091 1,091
Other................................................ 58 349
-------- --------
Total deferred tax liabilities.................. 31,067 33,484
-------- --------
Net deferred tax liability...................... $(12,973) $(16,953)
======== ========
</TABLE>
The company has not recorded a valuation allowance with respect to any
deferred tax assets.
F-12
<PAGE> 120
OSHKOSH TRUCK CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
6. EMPLOYEE BENEFIT PLANS
The company has defined benefit pension plans covering substantially all
employees. The plans provide benefits based on compensation, years of service
and date of birth. The company's policy is to fund the plans in amounts which
comply with contribution limits imposed by law.
Components of net periodic pension cost for these plans for fiscal 1997,
1996, and 1995, including costs of discontinued operations which are not
significant in any year presented but excluding Pierce pension costs for 1996
due to the proximity of its acquisition to the company's fiscal year end, are as
follows:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED SEPTEMBER 30,
--------------------------------
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Service cost -- benefits earned during year........ $ 1,387 $ 1,149 $ 1,140
Interest cost on projected benefit obligations..... 2,439 1,979 1,862
Actual return on plan assets....................... (8,789) (3,347) (2,505)
Net amortization and deferral...................... 6,123 1,232 438
------- ------- -------
Net periodic pension cost.......................... $ 1,160 $ 1,013 $ 935
======= ======= =======
</TABLE>
The following table summarizes the funded status of the pension plans and
the amounts recognized in the company's consolidated balance sheets at September
30, 1997 and 1996:
<TABLE>
<CAPTION>
SEPTEMBER 30,
------------------
1997 1996
---- ----
<S> <C> <C>
Actuarial present value of benefit obligations:
Vested................................................... $29,334 $26,009
Nonvested................................................ 694 602
------- -------
Accumulated benefit obligations............................ 30,028 26,611
Adjustment for projected benefit obligations............... 4,759 4,731
------- -------
Projected benefit obligations.............................. 34,787 31,342
Plan assets at fair value.................................. 39,556 31,089
------- -------
Plan assets in excess of (less than) projected benefit
obligations.............................................. 4,769 (253)
Unrecognized net transition asset.......................... (594) (661)
Unrecognized net (gain) loss............................... (1,538) 4,811
Unrecognized prior service cost............................ 1,229 345
------- -------
Prepaid pension asset...................................... $ 3,866 $ 4,242
======= =======
</TABLE>
The plans' assets are comprised of investments in commingled equity and
fixed income funds and individually managed equity portfolios.
Actuarial assumptions are as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30,
------------------------
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Discount rate............................................ 7.75% 7.75% 7.50%
Rate of increase in compensation......................... 4.50 4.50 4.50
Expected long-term rate of return on plan assets......... 9.25 9.25 9.25
</TABLE>
In addition to providing pension benefits for the majority of its
employees, the company provides health benefits to certain of its retirees and
their eligible spouses. Approximately 50% of the company's employees become
eligible for these benefits if they reach normal retirement age while working
for the company.
F-13
<PAGE> 121
OSHKOSH TRUCK CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following table summarizes the status of the postretirement benefit
plan and the amounts recognized in the company's consolidated balance sheets for
the periods indicated:
<TABLE>
<CAPTION>
SEPTEMBER 30,
-----------------
1997 1996
---- ----
<S> <C> <C>
Postretirement benefit obligations:
Retirees.................................................. $ 2,828 $2,929
Fully eligible active participants........................ 522 397
Other active participants................................. 5,647 4,865
------- ------
8,997 8,191
Unrecognized net gain....................................... 1,150 1,326
------- ------
Postretirement benefit obligations.......................... $10,147 $9,517
======= ======
</TABLE>
Net periodic postretirement benefit cost for fiscal 1997, 1996, and 1995,
including discontinued operations which is not significant in any year
presented, includes the following components:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
SEPTEMBER 30,
------------------
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Service cost................................................ $366 $353 $372
Interest cost on the accumulated postretirement benefit
obligation................................................ 613 580 610
Amortization of unrecognized net gain....................... (32) -- --
---- ---- ----
Net periodic postretirement benefit cost.................... $947 $933 $982
==== ==== ====
</TABLE>
Net change in postretirement benefit obligations includes the following:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
SEPTEMBER 30,
-----------------
1997 1996
---- ----
<S> <C> <C>
Balance at beginning of year................................ $ 9,517 $8,839
Benefits paid............................................... (317) (255)
Net periodic postretirement benefit cost.................... 947 933
------- ------
Balance at end of year...................................... $10,147 $9,517
======= ======
</TABLE>
The assumed health care cost trend rate used in measuring the accumulated
postretirement benefit obligation was 10.2% in fiscal 1997, declining to 6.5% in
fiscal 2006. The weighted average discount rate used in determining the
postretirement benefit obligation was 7.75% in fiscal 1997 and 1996. If the
health care cost trend rate was increased by 1%, the postretirement benefit
obligation at September 30, 1997 would increase by $799 and net periodic
postretirement benefit cost for fiscal 1997 would increase by $107.
The company has defined contribution 401(k) plans covering substantially
all employees. The plans allow employees to defer 2% to 19% of their income on a
pre-tax basis. Each employee who elects to participate is eligible to receive
company matching contributions. Amounts expensed for company matching
contributions for continuing operations were $825, $401, and $407 in fiscal
1997, 1996, and 1995, respectively.
7. SHAREHOLDER'S EQUITY
The company is authorized to issue 1,000,000 shares of $.01 par value Class
A Common Stock of which 406,878 shares and 409,258 shares were issued and
outstanding at September 30, 1997 and 1996, respectively. The company is
authorized to issue 18,000,000 shares of $.01 par value Common Stock. At
September 30,
F-14
<PAGE> 122
OSHKOSH TRUCK CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
1997, 8,951,287 and 7,900,481 shares of Common Stock were issued and
outstanding, respectively. At September 30, 1996, 8,948,907 and 8,227,770 shares
of Common Stock were issued and outstanding, respectively. The company is also
authorized to issue up to 2,000,000 shares of $.01 par value Preferred Stock,
none of which were issued or outstanding at September 30, 1997 or 1996.
On May 2, 1997, the company and Freightliner Corporation (Freightliner)
formally terminated a strategic alliance formed on June 2, 1995. The company
repurchased from Freightliner 350,000 shares of its Common Stock and 1,250,000
warrants for the purchase of additional shares of Common Stock for a total of
$6,750. The company and Freightliner will continue to supply each other with
parts and components.
The company has a stock restriction agreement with two shareholders owning
the majority of the company's Class A Common Stock. The agreement is intended to
allow for an orderly transition of Class A Common Stock into Common Stock. The
agreement provides that at the time of death or incapacity of the survivor of
them, the two shareholders will exchange all of their Class A Common Stock for
Common Stock, and at that time, if not earlier, will support an amendment to the
Articles of Incorporation which will provide for a mandatory conversion of all
Class A Common Stock into Common Stock.
Each share of Class A Common Stock is convertible into Common Stock on a
one-for-one basis. As of September 30, 1997, 406,878 shares of Common Stock are
reserved for the conversion of Class A Common Stock. In July 1995, the company
authorized the buyback of up to one million shares of the company's Common
Stock. As of September 30, 1997 and 1996, the company had purchased 461,535
shares of its Common Stock at an aggregate cost of $6,551.
Dividends are required to be paid on both the Class A Common Stock and
Common Stock at any time that dividends are paid on either. Each share of Common
Stock is entitled to receive 115% of any dividend paid on each share of Class A
Common Stock, rounded up or down to the nearest $0.0025 per share.
Holders of the Common Stock have the right to elect or remove as a class
25% of the entire Board of Directors of the company rounded to the nearest whole
number of directors, but not less than one. Holders of Common Stock are not
entitled to vote on any other company matters, except as may be required by law
in connection with certain significant actions such as certain mergers and
amendments to the company's Articles of Incorporation, and are entitled to one
vote per share on all matters upon which they are entitled to vote. Holders of
Class A Common Stock are entitled to elect the remaining directors (subject to
any rights granted to any series of Preferred Stock) and are entitled to one
vote per share for the election of directors and on all matters presented to the
shareholders for vote.
The Common Stock shareholders are entitled to receive a liquidation
preference of $7.50 per share before any payment or distribution to holders of
the Class A Common Stock. Thereafter, holders of the Class A Common Stock are
entitled to receive $7.50 per share before any further payment or distribution
to holders of the Common Stock. Thereafter, holders of the Class A Common Stock
and Common Stock share on a pro rata basis in all payments or distributions upon
liquidation, dissolution or winding up of the company.
8. STOCK OPTION AND PERFORMANCE SHARE AWARD PLANS
The company has reserved 756,071 shares of Common Stock at September 30,
1997 to provide for the exercise of outstanding stock options and warrants, and
the issuance of Common Stock under incentive compensation awards. Under the 1990
Incentive Stock Plan for the Key Employees (the Plan), officers, other key
employees and directors may be granted options to purchase up to an aggregate of
825,000 shares of the company's Common Stock at not less than the fair market
value of such shares on the date of grant. Participants may also be awarded
grants of restricted stock under the Plan. The Plan expires on April 9, 2000.
Options become exercisable ratably on the first, second, third anniversary of
the date of grant. Options to purchase shares expire not later than ten years
and one month after the grant of option.
F-15
<PAGE> 123
OSHKOSH TRUCK CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following table summarizes the transactions of the Plan for the three
year period ended September 30, 1997.
<TABLE>
<CAPTION>
NUMBER OF WEIGHTED-AVERAGE
OPTIONS EXERCISE PRICE
--------- ----------------
<S> <C> <C>
Unexercised options outstanding --
September 30, 1994................................. 400,649 $10.22
Options granted................................. 100,500 13.84
Options exercised............................... (14,250) 9.31
Options forfeited or expired.................... (9,831) 12.24
------- ------
Unexercised options outstanding --
September 30, 1995................................. 477,068 10.96
Options granted................................. 14,500 14.68
Options exercised............................... (24,515) 9.72
Options forfeited or expired.................... (6,251) 12.58
------- ------
Unexercised options outstanding --
September 30, 1996................................. 460,802 11.12
Options granted................................. 5,000 12.00
Options exercised............................... (20,331) 10.34
Options forfeited or expired.................... (7,570) 12.97
------- ------
Unexercised options outstanding --
September 30, 1997................................. 437,901 $11.14
======= ======
Price range $7.88 -- $11.25 (weighted-average
contractual life of 5.6 years and weighted-average
exercise price of $9.78)........................... 303,151
Price range $12.00 -- $15.25 (weighted-average
contractual life of 7.3 years and weighted-average
exercise price of $14.19).......................... 134,750
-------
437,901
=======
Exercisable options at September 30, 1997............ 391,403
Shares available for grant at September 30, 1997..... 318,170
</TABLE>
SFAS No. 123, "Accounting for Stock-Based Compensation", became effective
for the company in fiscal 1997. As allowed by SFAS 123, the company has elected
to continue to follow Accounting Principles Board Opinion (APB) No. 25,
"Accounting for Stock Issued to Employees" in accounting for the Plan. Under APB
No. 25, the company does not recognize compensation expense on the issuance of
its stock options because the option terms are fixed and the exercise price
equals the market price of the underlying stock on the grant date.
As required by SFAS 123, the company has determined the pro forma
information as if the company had accounted for stock options granted since
September 30, 1995 under the fair value method of SFAS 123. The Black-Scholes
option pricing model was used with the following weighted-average assumptions:
risk-free interest rates of 6.27% in 1997 and 5.39% and 6.38% in 1996; dividend
yield of 4.17% in 1997 and 3.60% and 3.28% in 1996; expected common stock market
price volatility factor of .305; and a weighted-average expected life of the
options of six years. The weighted-average fair value of options granted in 1997
and 1996 was $3.07 and $4.08 per share, respectively. The pro forma effect of
these options on net earnings and earnings per share was not material. These pro
forma calculations only include the effects of 1996 and 1997 grants. As such,
the impacts are not necessarily indicative of the effects on reported net income
of future years.
F-16
<PAGE> 124
OSHKOSH TRUCK CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
9. OPERATING LEASES
Total rental expense for plant and equipment charged to continuing
operations under noncancelable operating leases was $886, $797, and $1,004 in
fiscal 1997, 1996, and 1995, respectively. Minimum rental payments due under
operating leases for subsequent fiscal years are: 1998 -- $937; 1999 -- $545;
2000 -- $212; 2001 -- $123; and 2002 -- $71.
Included in rental expense are charges of $128, $128, and $215 in fiscal
1997, 1996, and 1995, respectively, relating to leases between the company and
certain shareholders.
10. DISCONTINUED OPERATIONS
On June 2, 1995, Freightliner acquired certain assets of the company's
motor home, bus and van chassis business. The consideration included cash of
$23,815 and the assumption by Freightliner of certain liabilities. The assets
sold to Freightliner consisted of inventories, property, plant and equipment and
the company's ownership interest in a Mexican chassis manufacturer. The
liabilities assumed by Freightliner included certain warranty obligations
related to previously produced chassis in excess of certain specified amounts
for which the company retained liability and industrial revenue bonds that were
secured by the underlying real estate. The disposition of chassis business has
been accounted for as a discontinued operation. Revenues of the chassis business
for fiscal 1995 (through the date of sale) were $55,804. The net liabilities of
the discontinued operations have been segregated in the consolidated balance
sheets. Details of such amounts are as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30,
---------------- DECEMBER 31,
1997 1996 1997
---- ---- ------------
(UNAUDITED)
<S> <C> <C> <C>
Accrued warranty.................................. $1,352 $1,862 $1,161
Other, net........................................ 184 113 215
------ ------ ------
Net current liabilities of discontinued
operations...................................... $1,536 $1,975 $1,376
====== ====== ======
Accrued warranty.................................. $1,235 $2,181 $ 968
Other, net........................................ 127 400 63
------ ------ ------
Net long-term liabilities of discontinued
operations...................................... $1,362 $2,581 $1,031
====== ====== ======
</TABLE>
In fiscal 1996, the company incurred charges totaling $2,623 arising from
the write-off of receivables and other obligations related to the company's
former joint venture in Mexico. In addition, in fiscal 1996, the company
recognized additional warranty and other related costs totaling $2,063 with
respect to the company's former U.S. chassis business.
The company has allocated interest on the debt which was assumed by
Freightliner to discontinued operations. Interest expense included in
discontinued operations totaled $685 in fiscal 1995.
11. CONTINGENCIES, SIGNIFICANT ESTIMATES AND CONCENTRATIONS
The company is engaged in litigation against Super Steel Products
Corporation (SSPC), the company's former supplier of mixer systems for front
discharge concrete mixer trucks under a long-term supply contract. SSPC sued the
company in state court claiming that the company breached the contract. The
company counterclaimed for repudiation of contract. On July 26, 1996, a jury
returned a verdict for SSPC awarding damages totaling $4,485. On October 10,
1996, the state court judge overturned the verdict against the company, granted
judgment for the company on its counterclaim, and ordered a new trial for
damages on the company's counterclaim. Both SSPC and the company have appealed
the state court judge's decision. The Wisconsin Court of Appeals has agreed to
hear the case and both the company and SSPC have filed briefs in this matter.
F-17
<PAGE> 125
OSHKOSH TRUCK CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The company currently is engaged in the arbitration of certain disputes
between the Oshkosh Florida Division and O.V. Containers, Inc., which arose out
of the performance of a contract to deliver 690 skeletal container chassis. The
arbitration is being conducted before a three-member panel under the commercial
dispute rules of the American Arbitration Association, and is not expected to
conclude before April 1998. The company is vigorously contesting warranty and
other claims made against it, and has asserted substantial claims against O.V.
Containers, Inc. The outcome of these matters cannot be predicted at the present
time.
As part of its routine business operations, the company disposes of and
recycles or reclaims certain industrial waste materials, chemicals and solvents
at third party disposal and recycling facilities which are licensed by
appropriate governmental agencies. In some instances, these facilities have been
and may be designated by the United States Environmental Protection Agency (EPA)
or a state environmental agency for remediation. Under the Comprehensive
Environmental Response, Compensation, and Liability Act (the Superfund law) and
similar state laws, each potentially responsible party (PRP) that contributed
hazardous substances may be jointly and severally liable for the costs
associated with cleaning up the site. Typically, PRPs negotiate a resolution
with the EPA and/or the state environmental agencies. PRPs also negotiate with
each other regarding allocation of the cleanup cost.
As to one such Superfund site, Pierce is one of 414 PRPs participating in
the costs of addressing the site and has been assigned an allocation share of
approximately 0.04%. Currently a remedial investigation/ feasibility study is
being completed, and as such, an estimate for the total cost of the remediation
of this site has not been made to date. However, based on estimates and the
assigned allocations, the company believes its liability at the site will not be
material and its share is adequately covered through reserves established by the
company at September 30, 1997. Actual liability could vary based on results of
the study, the resources of other PRPs, and the company's final share of
liability.
The company is addressing a regional trichloroethylene (TCE) groundwater
plume on the south side of Oshkosh, Wisconsin. The company believes there may be
multiple sources in the area. TCE was detected at the company's North Plant
facility with recent testing showing the highest concentrations in a monitoring
well located on the upgradient property line. Because the investigation process
is still ongoing, it is not possible for the company to estimate its long-term
total liability associated with this issue at this time. Also, as part of the
regional TCE groundwater investigation, the company conducted a groundwater
investigation of a former landfill located on company property. The landfill,
acquired by the company in 1972, is approximately 2.0 acres in size and is
believed to have been used for the disposal of household waste. Based on the
investigation, the company does not believe the landfill is one of the sources
of the TCE contamination. Based upon current knowledge, the company believes its
liability associated with the TCE issue will not be material and is adequately
covered through reserves established by the company at September 30, 1997.
However, this may change as investigations proceed by the company, other
unrelated property owners, and government.
The company is subject to other environmental matters and legal proceedings
and claims which arise in the ordinary course of business. Although the final
results of all such matters and claims cannot be predicted with certainty,
management believes that the ultimate resolution of all such matters and claims,
after taking into account the liabilities accrued with respect to such matters
and claims, will not have a material adverse effect on the company's financial
condition or results of operations. Actual results could vary, among other
things, due to the uncertainties involved in litigation.
The company has guaranteed certain customers' obligations under deferred
payment contracts and lease purchase agreements totaling approximately $4,178 at
September 30, 1997. The company is also contingently liable under bid,
performance and specialty bonds totaling approximately $94,101 at September 30,
1997.
Provisions for estimated warranty and other related costs are recorded at
the time of sale and are periodically adjusted to reflect actual experience. As
of September 30, 1997 and 1996, the company has accrued $12,320 and $8,942 for
warranty claims. Certain warranty and other related claims involve matters of
F-18
<PAGE> 126
OSHKOSH TRUCK CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
dispute that ultimately are resolved by negotiation, arbitration or litigation.
Infrequently, a material warranty issue can arise which is beyond the scope of
the company's historical experience. During fiscal 1997 and 1996, the company
recorded warranty and other related costs for matters beyond the company's
historical experience totaling $3,770 and $5,602, respectively, with respect to
continuing operations and $2,063 with respect to discontinued operations in
fiscal 1996 (see Note 10). The additional charges in fiscal 1997 and 1996 with
regard to continuing operations principally related to the dispute with O.V.
Containers Inc., and secondarily to repair certain matters related to refuse and
front-discharge chassis. The additional warranty charges with respect to
discontinued operations in fiscal 1996 resulted from the underestimation of the
warranty liabilities retained by the company upon the sale of the company's
former chassis business. It is reasonably possible that additional warranty and
other related claims could arise from disputes or other matters beyond the scope
of the company's historical experience.
The company subcontracted production under an $85,000 ISO-Compatible
Palletized Flatracks (IPF) contract for the U.S. Army to Steeltech, a
minority-owned firm, pursuant to Department of Defense regulations under the IPF
contract. Due to financial difficulties encountered by Steeltech, the company
advanced working capital requirements to Steeltech in fiscal 1995 and 1996. As a
result of delays in the start-up of full-scale production under the IPF
contract, the company wrote off certain of its advances and an investment in
Steeltech totaling $3,300 in fiscal 1996. Such charges were determined based on
the amount of advances that were deemed to be unrealizable based on a projection
of Steeltech's cash flows through completion of the IPF contract. Steeltech's
IPF production passed first article testing in July 1996 and production is
expected to be completed in fiscal 1998. As of September 30, 1997 and 1996, the
company had outstanding advances due from Steeltech of $162 and $2,855,
respectively. In fiscal 1996, the company also wrote off an investment of $900
in a joint venture which leases equipment to Steeltech and accrued $1,084 for
the potential satisfaction of a guarantee of 50% of the outstanding indebtedness
of the joint venture. Such charges were based on a projection of Steeltech's
cash flows which indicated that Steeltech could not sustain its lease payments
to the joint venture, and because the company believed that there was not a
market for the sale of the leased equipment. The company is further contingently
liable for Department of Defense progress payments that have been advanced to
Steeltech totaling $3,352 at September 30, 1997 ($5,380 at September 30, 1996)
in the event of incomplete performance under the IPF contract. While management
currently expects the company to realize its remaining advances to Steeltech as
of September 30, 1997 and to avoid liability for progress payments advanced to
Steeltech, it is reasonably possible that the company could become liable for a
portion of such progress payments.
The company derives a significant portion of its revenue from the U.S.
Department of Defense, as follows:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED SEPTEMBER 30,
--------------------------------
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Defense:
U.S. Department of Defense................. $272,042 $249,413 $260,112
Export..................................... 16,584 2,059 1,623
-------- -------- --------
288,626 251,472 261,735
Commercial:
Domestic................................... 373,946 141,540 159,326
Export..................................... 20,662 20,443 17,496
-------- -------- --------
394,608 161,983 176,822
-------- -------- --------
Net sales....................................... $683,234 $413,455 $438,557
======== ======== ========
</TABLE>
U.S. Department of Defense sales include $17,723 and $58,855 in fiscal 1997
and 1996, respectively, for products sold internationally under the Foreign
Military Sales (FMS) Program. There were no sales under the FMS Program in 1995.
F-19
<PAGE> 127
OSHKOSH TRUCK CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Inherent in doing business with the U.S. Department of Defense are certain
risks, including technological changes and changes in levels of defense
spending. All U.S. Department of Defense contracts contain a provision that they
may be terminated at any time at the convenience of the government. In such an
event, the company is entitled to recover allowable costs plus a reasonable
profit earned to the date of termination.
Various actions or claims have been asserted or may be asserted in the
future by the government against the company. A potential action by the
government against the company in connection with a grand jury investigation was
commenced in 1989. In 1996, the government discontinued this investigation
without any action against the company or its employees, although a civil
investigation is possible.
12. UNAUDITED QUARTERLY RESULTS
<TABLE>
<CAPTION>
FISCAL 1997 FISCAL 1996
----------------------------------------------------- -------------------------
4TH QUARTER 3RD QUARTER 2ND QUARTER 1ST QUARTER 4TH QUARTER 3RD QUARTER
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Net Sales....................... $ 185,853 $ 176,596 $ 170,465 $ 150,320 $ 117,983 $ 111,950
Gross Income.................... 24,496 21,897 22,868 19,583 4,256 7,647
Income (Loss) From Continuing
Operations.................... 3,116 2,792 2,474 1,624 (1,645) (2,398)
Discontinued Operations......... -- -- -- -- (648) (2,211)
Net Income (Loss)............... 3,116 2,792 2,474 1,624 (2,293) (4,609)
Earnings (Loss) Per Share
Continuing Operations......... $.38 $.33 $.28 $.19 $(.19) $(.27)
Discontinued Operations....... -- -- -- -- (.07) (.25)
Net Income (Loss)............. .38 .33 .28 .19 (.26) (.52)
Dividends Per Share:
Class A Common Stock.......... $ 0.10875 $ 0.10875 $ 0.10875 $ 0.10875 $ 0.10875 $ 0.10875
Common Stock.................. 0.12500 0.12500 0.12500 0.12500 0.12500 0.12500
<CAPTION>
FISCAL 1996
-------------------------
2ND QUARTER 1ST QUARTER
----------- -----------
<S> <C> <C>
Net Sales....................... $ 103,139 $ 80,383
Gross Income.................... 12,725 10,451
Income (Loss) From Continuing
Operations.................... 2,230 1,572
Discontinued Operations......... -- --
Net Income (Loss)............... 2,230 1,572
Earnings (Loss) Per Share
Continuing Operations......... $.25 $.18
Discontinued Operations....... -- --
Net Income (Loss)............. .25 .18
Dividends Per Share:
Class A Common Stock.......... $ 0.10875 $ 0.10875
Common Stock.................. 0.12500 0.12500
</TABLE>
For the fourth quarter of 1996, continuing operations includes, on an
after-tax basis, approximately $2.4 million related to the IPF subcontract and
additional warranty provisions partially offset by reversal of $2.0 million of
income tax provisions and related accrued interest. Discontinued operations for
the fourth quarter of 1996 includes $0.6 million of after-tax charges related to
adjustments of estimated warranty expenses.
13. SUBSEQUENT EVENT
On December 8, 1997, the company agreed to acquire McNeilus Companies, Inc.
(McNeilus), a $300.0 million manufacturer and marketer of refuse and recycling
truck bodies, rear-discharge concrete mixers, and ready-mix batch plants. The
total purchase cost for all McNeilus stock and related non-compete and ancillary
agreements is $250.0 million in cash and will be financed through the issuance
of $100.0 million Senior Subordinated Notes and a $325.0 million senior debt
facility inclusive of a $100.0 million revolver and term loans of $100.0
million, $62.5 million and $62.5 million with terms of six, seven and eight
years, respectively.
The transaction is expected to close in the first quarter of calendar 1998.
Under certain conditions, if the acquisition is not consummated, the company may
be required to pay McNeilus a fee of $10.0 million, and conversely, McNeilus may
be required to pay a $10.0 million fee to the company.
Pierce and Summit, wholly owned subsidiaries of the company, will fully,
unconditionally, jointly and severally guarantee the company's obligations under
the Senior Subordinated Notes. The following is
F-20
<PAGE> 128
OSHKOSH TRUCK CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
summarized combined financial information of Pierce and Summit, both of which
were acquired by the company during fiscal 1996.
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30,
-------------------
1997 1996
---- ----
<S> <C> <C>
Current assets........................................... $ 47,910 $ 49,917
Goodwill and other intangibles, net...................... 163,344 166,450
Other non-current assets................................. 26,063 24,660
Current liabilities...................................... 73,039 52,982
Non-current liabilities.................................. 25,633 26,948
</TABLE>
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
SEPTEMBER 30,
-------------------
1997 1996
---- ----
<S> <C> <C>
Net sales................................................ $242,458 $ 9,417
Gross income............................................. 39,523 401
Income (loss) from operations............................ 21,466 (1,435)
</TABLE>
F-21
<PAGE> 129
INDEPENDENT AUDITOR'S REPORT
Board of Directors
McNeilus Companies, Inc.
We have audited the accompanying consolidated balance sheets of McNeilus
Companies, Inc. and Subsidiaries, as of February 28, 1997 and February 29, 1996,
and the related consolidated statements of income, stockholders' equity and cash
flows for each of the three years in the period ended February 28, 1997. These
consolidated financial statements are the responsibility of the Companies'
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
consolidated financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of McNeilus
Companies, Inc. and Subsidiaries as of February 28, 1997 and February 29, 1996,
and the results of their operations and their cash flows for each of the three
years in the period ended February 28, 1997, in conformity with generally
accepted accounting principles.
LARSON, ALLEN, WEISHAIR & CO., LLP
Austin, Minnesota
April 23, 1997, except for Notes 2 and 13, as to
which the date is December 8, 1997.
F-22
<PAGE> 130
MCNEILUS COMPANIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
FEBRUARY 28, 1997, FEBRUARY 29, 1996
AND NOVEMBER 30, 1997
<TABLE>
<CAPTION>
FEBRUARY 28, FEBRUARY 29, NOVEMBER 30,
1997 1996 1997
------------ ------------ ------------
(UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE DATA)
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS
Cash and Cash Equivalents................................. $ 24,743 $ 16,005 $ 20,159
Accounts Receivable, Net.................................. 9,432 11,203 12,259
Net Investment in Sales-Type Leases -- Current............ 32,009 25,710 35,108
Prepaids and Miscellaneous Receivables.................... 1,134 2,258 6,099
Short-Term Investments.................................... 2,425 2,350 1,436
Inventories............................................... 87,194 99,006 59,189
Deferred Income Taxes..................................... 4,334 2,452 4,213
-------- -------- --------
Total Current Assets................................. 161,271 158,984 138,463
-------- -------- --------
NET ASSETS OF DISCONTINUED OPERATIONS....................... 6,856 6,583 6,988
-------- -------- --------
NET INVESTMENT IN SALES-TYPE LEASES......................... 101,870 95,237 86,536
-------- -------- --------
LONG-TERM RECEIVABLES AND INVESTMENTS....................... 5,695 2,908 14,513
-------- -------- --------
PROPERTY AND EQUIPMENT
Property and Equipment.................................... 58,955 56,490 59,219
Less Accumulated Depreciation............................. 30,524 26,807 31,323
-------- -------- --------
Net Property and Equipment........................... 28,431 29,683 27,896
-------- -------- --------
INTANGIBLE ASSETS........................................... 97 -- 324
-------- -------- --------
Total Assets......................................... $304,220 $293,395 $274,720
======== ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts Payable -- Trade................................. $ 9,470 $ 10,097 $ 10,324
Accrued Expenses and Other Liabilities.................... 20,871 14,758 17,042
Dividends Payable......................................... 119 92 --
Revolving Line-Of-Credit.................................. 5,200 10,100 --
Floor Plan Notes Payable.................................. 39,515 56,981 17,194
Current Maturities of Leasing Long-Term Debt.............. 32,703 26,126 35,787
Current Maturities of Other Long-Term Debt................ 1,341 2,044 286
-------- -------- --------
Total Current Liabilities............................ 109,219 120,198 80,633
-------- -------- --------
LONG-TERM DEBT -- LEASING................................... 88,867 81,538 77,852
-------- -------- --------
OTHER LONG-TERM DEBT........................................ 6,400 11,425 2,598
-------- -------- --------
DEFERRED INCOME TAXES....................................... 22,632 18,575 23,079
-------- -------- --------
STOCKHOLDERS' EQUITY
Common Stock, No Par Value
Class A, Voting, Authorized 100,000 Shares
76,061 Shares Issued and Outstanding................. 234 23,596 234
Class B, Nonvoting, Authorized 9,900,000 Shares
7,380,264, -0-, 7,380,264 Shares Issued and
Outstanding, Respectively............................ 22,668 -- 22,668
Retained Earnings......................................... 54,200 38,063 67,656
-------- -------- --------
Total Stockholders' Equity........................... 77,102 61,659 90,558
-------- -------- --------
Total Liabilities and Stockholders' Equity.................. $304,220 $293,395 $274,720
======== ======== ========
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
F-23
<PAGE> 131
MCNEILUS COMPANIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED FEBRUARY 28, 1997
FEBRUARY 29, 1996, AND FEBRUARY 28, 1995
AND THE NINE MONTHS ENDED NOVEMBER 30, 1997 AND 1996
<TABLE>
<CAPTION>
FEBRUARY 28, FEBRUARY 29, FEBRUARY 28, NOVEMBER 30, NOVEMBER 30,
1997 1996 1995 1997 1996
------------ ------------ ------------ ------------ ------------
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
NET SALES AND REVENUES
Net Sales -- Manufactured
Products....................... $312,999 $331,359 $305,730 $246,774 $233,221
Interest Income -- Leasing........ 12,474 10,492 7,594 9,229 9,321
-------- -------- -------- -------- --------
Total Net Sales and
Revenues.................. 325,473 341,851 313,324 256,003 242,542
-------- -------- -------- -------- --------
COSTS AND EXPENSES
Cost of Sales -- Manufactured
Products....................... 257,163 281,790 259,437 203,690 191,930
Interest Expense -- Leasing....... 9,903 8,241 5,528 7,356 7,413
Selling........................... 12,286 10,823 9,339 9,868 9,804
General and Administrative........ 16,806 16,634 19,980 15,976 15,049
-------- -------- -------- -------- --------
Total Costs and Expenses..... 296,158 317,488 294,284 236,890 224,196
-------- -------- -------- -------- --------
INCOME FROM OPERATIONS.............. 29,315 24,363 19,040 19,113 18,346
-------- -------- -------- -------- --------
OTHER INCOME (EXPENSE)
Interest Expense.................. (2,752) (1,944) (1,801) (1,054) (2,090)
Miscellaneous Income.............. 2,305 2,642 1,734 2,218 1,942
-------- -------- -------- -------- --------
Total Other Income
(Expense)................. (447) 698 (67) 1,164 (148)
-------- -------- -------- -------- --------
INCOME FROM CONTINUING OPERATIONS
BEFORE INCOME TAXES............... 28,868 25,061 18,973 20,277 18,198
INCOME TAX PROVISION................ 10,920 9,503 8,923 7,423 7,013
-------- -------- -------- -------- --------
INCOME FROM CONTINUING OPERATIONS... 17,948 15,558 10,050 12,854 11,185
INCOME FROM DISCONTINUED OPERATIONS
(NET OF INCOME TAXES)............. 117 271 849 602 421
-------- -------- -------- -------- --------
NET INCOME.......................... $ 18,065 $ 15,829 $ 10,899 $ 13,456 $ 11,606
======== ======== ======== ======== ========
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
F-24
<PAGE> 132
MCNEILUS COMPANIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED FEBRUARY 28, 1997
FEBRUARY 29, 1996, AND FEBRUARY 28, 1995
AND THE NINE MONTHS ENDED NOVEMBER 30, 1997
<TABLE>
<CAPTION>
COMMON STOCK
-----------------------------------------
CLASS A CLASS B
----------------- -------------------- RETAINED
SHARES AMOUNT SHARES AMOUNT TOTAL EARNINGS
------ ------ ------ ------ ----- --------
(IN THOUSANDS, EXCEPT SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
BALANCE, FEBRUARY 28, 1994............ 86,572 $26,856 -- $ -- $26,856 $18,332
Retirement of 1,761 Shares of
Common Stock..................... (1,761) (546) -- -- (546) (853)
Net Income.......................... -- -- -- -- -- 10,899
Dividends........................... -- -- -- -- -- (106)
------ ------- --------- ------- ------- -------
BALANCE, FEBRUARY 28, 1995............ 84,811 26,310 -- -- 26,310 28,272
Retirement of 8,750 Shares of
Common Stock..................... (8,750) (2,714) -- -- (2,714) (5,946)
Net Income.......................... -- -- -- -- -- 15,829
Dividends........................... -- -- -- -- -- (92)
------ ------- --------- ------- ------- -------
BALANCE, FEBRUARY 29, 1996............ 76,061 23,596 -- -- 23,596 38,063
Stock Dividend Issued............... -- (23,362) 7,606,100 23,362 -- --
Retirement of 225,836 Shares of
Common Stock..................... -- -- (225,836) (694) (694) (1,806)
Net Income.......................... -- -- -- -- -- 18,065
Dividends........................... -- -- -- -- -- (122)
------ ------- --------- ------- ------- -------
BALANCE, FEBRUARY 28, 1997............ 76,061 234 7,380,264 22,668 22,902 54,200
Net Income.......................... -- -- -- -- -- 13,456
------ ------- --------- ------- ------- -------
BALANCE, NOVEMBER 30, 1997
(UNAUDITED)......................... 76,061 $ 234 7,380,264 $22,668 $22,902 $67,656
====== ======= ========= ======= ======= =======
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
F-25
<PAGE> 133
MCNEILUS COMPANIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED FEBRUARY 28, 1997
FEBRUARY 29, 1996, AND FEBRUARY 28, 1995
AND THE NINE MONTHS ENDED NOVEMBER 30, 1997 AND 1996
<TABLE>
<CAPTION>
FEBRUARY 28, FEBRUARY 29, FEBRUARY 28, NOVEMBER 30, NOVEMBER 30,
1997 1996 1995 1997 1996
------------ ------------ ------------ ------------ ------------
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income....................................... $ 18,065 $ 15,829 $ 10,899 $ 13,456 $ 11,606
-------- -------- -------- -------- --------
Adjustments to Reconcile Net Income to Net Cash
Provided by Operating Activities:
Gain on Sale of Leased Equipment, Property and
Equipment...................................... (568) (317) (160) (330) (365)
Loss on Sale of Investment....................... 48 29 28 28 28
Depreciation..................................... 4,074 4,129 3,393 2,786 3,005
Amortization..................................... 3 157 6 26 --
Deferred Income Taxes............................ 2,174 3,951 3,589 568 1,824
Earnings of Discontinued Operations.............. (117) (271) (849) (602) (421)
Change in Assets and Liabilities:
(Increase) Decrease In:
Accounts Receivable.......................... 1,771 (1,064) (425) (2,829) 4,087
Prepaids and Miscellaneous Receivables....... 700 395 (831) (4,964) 7
Inventories.................................. 11,811 (20,232) (24,120) 28,005 12,223
Increase (Decrease) In:
Accounts Payable -- Trade.................... (626) (3,507) 2,268 852 (2,121)
Accrued Expenses and Other Liabilities....... 6,112 1,593 4,355 (3,829) 2,269
Floor Plan Notes Payable..................... (17,466) 16,631 11,649 (22,321) (16,951)
-------- -------- -------- -------- --------
Total Adjustments.......................... 7,916 1,494 (1,097) (2,610) 3,585
-------- -------- -------- -------- --------
Net Cash Provided by Operating
Activities............................... 25,981 17,323 9,802 10,846 15,191
-------- -------- -------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of Property and Equipment............ (2,922) (5,427) (9,977) (2,621) (2,495)
Proceeds from Sale of Property and Equipment..... 18 589 94 344 18
Purchase of Investments.......................... (2,425) (2,350) (1,200) (1,436) (1,705)
Proceeds From Sale of Investments................ 2,350 1,200 1,000 2,425 2,350
Issuance of Long-Term Receivables and Other
Assets......................................... (12,435) (8,316) (5,325) (9,509) (12,278)
Proceeds from Long-Term Receivables and Other
Assets......................................... 9,895 8,074 6,273 903 794
Proceeds from Early Retirement and Disposals of
Leased Equipment............................... 11,185 5,700 5,115 7,897 7,834
Issuance of Leases Receivable.................... (52,406) (61,074) (47,169) (22,376) (38,493)
Proceeds from Receipt on Leases Receivable....... 28,941 23,251 18,485 27,070 23,610
-------- -------- -------- -------- --------
Net Cash Provided (Used) by Investing
Activities............................... (17,799) (38,353) (32,704) 2,697 (20,365)
-------- -------- -------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from Long-Term Debt..................... 63,613 59,336 39,112 25,286 43,358
Payments on Long-Term Debt....................... (55,562) (34,129) (23,884) (38,094) (32,717)
Payments for Retirement of Common Stock.......... (2,500) (700) (1,400) -- --
Payment of Dividends............................. (95) (106) (87) (119) (55)
Increase (Decrease) in Revolving Line of
Credit......................................... (4,900) 1,600 8,500 (5,200) (10,100)
-------- -------- -------- -------- --------
Net Cash Provided (Used) By Financing
Activities............................... 556 26,001 22,241 (18,127) 486
-------- -------- -------- -------- --------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS...................................... 8,738 4,971 (661) (4,584) (4,688)
Cash and Cash Equivalents -- Beginning............. 16,005 11,034 11,695 24,743 16,005
-------- -------- -------- -------- --------
CASH AND CASH EQUIVALENTS -- ENDING................ $ 24,743 $ 16,005 $ 11,034 $ 20,159 $ 11,317
======== ======== ======== ======== ========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash Payment For:
Interest Expense -- Leasing.................... $ 9,904 $ 8,241 $ 5,415 $ 7,413 $ 7,356
Interest Expense -- Other...................... 2,935 1,842 2,014 1,048 2,290
Taxes.......................................... 4,258 5,380 4,509 11,038 3,771
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
F-26
<PAGE> 134
MCNEILUS COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE YEARS ENDED FEBRUARY 28, 1997 (IN THOUSANDS)
(INFORMATION PERTAINING TO NOVEMBER 30, 1997 AND 1996 IS UNAUDITED)
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The consolidated financial statements include the accounts of McNeilus
Companies, Inc. and its wholly-owned subsidiaries (the Companies).
All significant intercompany transactions and accounts of the companies
included in these consolidated financial statements have been eliminated.
Lines of Business
McNeilus Truck and Manufacturing, Inc., a wholly-owned subsidiary of
McNeilus Companies, Inc. manufactures products used primarily by the ready-mix
and refuse industries in the United States and abroad. McNeilus Truck and
Manufacturing, Inc. has entered into a marketing agreement with its wholly-owned
subsidiary, McNeilus Financial, Inc., to sell and market its products. Under
this agreement, McNeilus Financial, Inc. makes all final destination sales and
provides branch facility services.
Leases of manufactured equipment are made through McNeilus Financial
Services, Inc., a wholly-owned subsidiary of McNeilus Companies, Inc.
Substantially all leases have an initial term of five years, and are accounted
for as sales-type leases. Unearned finance income is recognized over the life of
the leases in decreasing amounts which produce a constant rate of return on the
unrecovered investment in the leases.
McIntire Fabricators, Inc., Iowa Contract Fabricators, Inc. and Kensett
Fabricators, Inc., all wholly-owned subsidiaries of McNeilus Companies, Inc.,
provide component fabrication services to McNeilus Truck and Manufacturing, Inc.
The Companies insure for automobile, workers' compensation and employer's
liability, and general liability risks through Nation's Casualty Insurance,
Inc., a wholly-owned subsidiary. Nation's Casualty Insurance, Inc. insures only
for members of the McNeilus group of companies. Aggregate and excess losses are
subject to outside insurance coverages. For the fiscal years ended 1997, 1996,
1995 and the nine months ended November 30, 1997 and 1996 expenses incurred,
before income taxes, included in the consolidated statements of income was
approximately $2,484, $1,695, $1,815, $1,668 and $1,754, respectively.
Use of Estimates
The preparation of financial statements in accordance with generally
accepted accounting principles requires management to make estimates and
assumptions. Actual results may vary from those estimates. Areas impacted
through this process include the allowance for doubtful accounts and leases
receivable, residual values of leased equipment, current and long-term
classification of notes receivable and payable, useful lives of property and
equipment, accrued warranty and insurance reserves, and income taxes.
Cash and Cash Equivalents
Cash and cash equivalents include cash in checking and savings accounts.
Accounts and Leases Receivable
Accounts receivable are reflected net of an allowance for doubtful accounts
of $177, $341 and $172 as of February 28, 1997, February 29, 1996 and November
30, 1997, respectively. The Companies also use the reserve method in accounting
for doubtful leases. Net investment in sales-type leases are reflected net of an
F-27
<PAGE> 135
MCNEILUS COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
allowance for doubtful leases of $0, $0 and $20 as of February 28, 1997,
February 29, 1996 and November 30, 1997, respectively.
Lease Accounting Policies
Leasing activities consist of the leasing of ready mix equipment and plants
and refuse equipment. For financial reporting, these leases are accounted for as
sales-type leases, with profit on the sale recognized at lease inception. Cost
consists of the equipment's book value, less the present value of its residual.
The present value of both the future minimum lease payments and the residual
value are recorded as assets.
Residual values, representing the estimated net present value of the
equipment at the termination of the lease, are recorded at the inception of the
lease based on amounts estimated by management based upon its experience and
judgment.
Unearned income is the amount by which total rentals and estimated residual
value of equipment exceeds the cost of the equipment. Unearned income is
amortized over the lease term so as to produce a constant periodic rate of
return on the net investment in the lease.
Short-Term Investments
Short-term investments consist of deposits which are restricted through
statutory or trust agreements for the insurance operations of Nations Casualty
Insurance, Inc. These deposits consist primarily of certificates of deposit,
stated at cost, which mature within one year, as well as deposits in a
non-interest bearing account.
Inventories
The Companies utilize the LIFO (last-in, first-out) method of pricing
inventories for truck chassis, manufactured mixers, ready-mix plants,
replacement drums, and replacement parts. All other inventory is stated at FIFO
(first-in, first-out) cost.
Revenue Recognition
Sales are recorded when the goods or services are billable at time of
shipment or delivery.
Depreciation
Depreciation is provided for financial reporting by annual charges to
income calculated by use of the straight-line, 150% declining balance and 200%
declining balance methods to amortize the cost of depreciable assets over their
estimated useful lives. Depreciation is provided based upon the following useful
lives:
<TABLE>
<S> <C>
Buildings................................................... 10-35 years
Shop and Office Equipment................................... 3-10 years
Transportation Equipment.................................... 3-7 years
</TABLE>
Depreciation deducted in tax returns differs from depreciation for
financial reporting purposes due to the use of accelerated methods for tax
versus straight-line for financial reporting on certain assets.
Product Warranty
The Companies use the reserve method in accounting for warranty costs. A
warranty reserve of approximately $1,400 is recorded as of February 28, 1997 and
February 29, 1996 and November 30, 1997, respectively. For the fiscal years
ended 1997, 1996 and 1995 and the nine months ended November 30, 1997 and 1996
amounts expensed included in the consolidated statements of income were
approximately $1,189, $2,427, $2,209, $170 and $1,157, respectively.
F-28
<PAGE> 136
MCNEILUS COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Deferred Income Taxes
Deferred income taxes are provided on temporary differences between
financial reporting and income tax reporting of certain income and expense
items, as well as the accounting for the leasing activities of McNeilus
Financial Services, Inc. as sales-type leases for financial reporting and
operating leases for income tax reporting.
Advertising Costs
Advertising costs are expensed when incurred. For the fiscal years ended
1997, 1996 and 1995 and the nine months ended November 30, 1997 and 1996
advertising expense was approximately $1,458, $822, $694, $701 and $1,165,
respectively.
Pension and Profit Sharing Plans
The Companies offer to its employees a qualified salary reduction
retirement plan under Sec. 401(k)of the Internal Revenue Code. The members of
the consolidated group provide a limited matching of contributions as an
incentive for employees to participate in the plan. For the fiscal years ended
1997, 1996 and 1995 and the nine months ended November 30, 1997 and 1996
contribution expense included in the consolidated statements of income was
approximately $278, $303, $289, $248 and $171, respectively.
Research and Development Costs
Research and development costs are expensed when incurred. For the fiscal
years ended 1997, 1996 and 1995 and the nine months ended November 30, 1997 and
1996 research and development costs charged to expense were approximately $667,
$985, $607, $313 and $338, respectively.
New Accounting Standards
In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards (SFAS) No. 128, "Earnings Per Share," which is
required to be adopted effective for both interim and annual financial
statements for periods ending after December 15, 1997. Among other provisions,
the dilutive effect of stock options must be excluded under the new requirements
for calculating basic earnings per share, which will replace primary earnings
per share. This change will not impact the Companies' earnings per share
calculations.
In June 1997, the Financial Accounting Standards Board issued SFAS No. 130,
"Reporting Comprehensive Income." SFAS No. 130 establishes the standards for
reporting and displaying comprehensive income and its components (revenues,
expenses, gains, and losses) as part of a full set of financial statements. This
statement requires that all elements of comprehensive income be reported in a
financial statement that is displayed with the same prominence as other
financial statements. The statement is effective for fiscal years beginning
after December 15, 1997. Since this statement applies only to the presentation
of comprehensive income, it will not have any impact on the Companies' results
of operations, financial position or cash flows.
In June 1997, the Financial Accounting Standards Board also issued SFAS No.
131, "Disclosures about Segments of an Enterprise and Related Information," SFAS
No. 131 establishes the standards for the manner in which public enterprises are
required to report financial and descriptive information about their operating
segments. The statement defines operating segments as components of an
enterprise for which separate financial information is available and evaluated
regularly as a means for assessing segment performance and allocating resources
to segments. A measure of profit or loss, total assets, and other related
information are required to be disclosed for each operating segment. In
addition, this statement requires the annual disclosure of information
concerning revenues derived from the enterprise's products or services,
countries in which it earns revenue or holds assets, and major customers. The
statement is also effective for fiscal years beginning
F-29
<PAGE> 137
MCNEILUS COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
after December 15, 1997. The adoption of SFAS No. 131 will not affect the
Companies' results of operations or financial position, but will affect the
disclosure of segment information.
Reclassification of Financial Statement Data
Investments in Unconsolidated Subsidiaries, and the earnings from those
subsidiaries, presented as a separate line in the 1996 and 1995 balance sheets
and income statements have been reclassified to discontinued operation lines
within those statements to conform with their presentation in the 1997 financial
statements.
NOTE 2 DISCONTINUED OPERATIONS
In December, 1997 the Company entered into an agreement with a minority
stockholder to sell its 92% interest in ready mix operations, Ready Mix Holding,
Inc. and Subsidiaries. The sale price, which will be determined by independent
appraisal, has yet to be determined.
In December, 1997 the Company entered into an agreement with a minority
stockholder to sell its wholly-owned credit life insurance subsidiary, McNeilus
Fidelity Life Insurance Company. The sale price, which will be determined by
independent appraisal, has yet to be determined.
In December, 1997 the Company entered into an agreement with an unrelated
party to sell its wholly-owned subsidiary, Sterling Travel of Austin, Inc., for
$300.
The disposals of these companies are being accounted for as discontinued
operations. Net assets of these companies at February 28, 1997, February 29,
1996 and November 30, 1997 are summarized as follows:
<TABLE>
<CAPTION>
(UNAUDITED)
FEBRUARY 28, FEBRUARY 29, NOVEMBER 30,
1997 1996 1997
------------ ------------ ------------
<S> <C> <C> <C>
Cash and Short-Term Investments............ $1,869 $1,776 $ 2,009
Accounts Receivable, Net................... 534 474 1,392
Inventories................................ 608 662 788
Long-Term Receivables...................... 1,924 2,220 1,927
Property and Equipment, Net................ 2,324 2,631 2,011
Other Assets............................... 1,321 1,279 819
Accounts Payable and Accrued Expenses...... (425) (254) (1,118)
Other Current Liabilities.................. (498) (877) (485)
Long-Term Debt, Less Current Portion....... (801) (1,328) (355)
------ ------ -------
$6,856 $6,583 $ 6,988
====== ====== =======
</TABLE>
These entities had the following revenues for the fiscal years ended 1997,
1996 and 1995:
<TABLE>
<CAPTION>
FEBRUARY 28, FEBRUARY 29, FEBRUARY 28,
1997 1996 1995
------------ ------------ ------------
<S> <C> <C> <C>
Ready Mix Holding, Inc. and Subsidiaries.... $9,154 $8,604 $10,053
McNeilus Fidelity Life Insurance Company.... 95 88 64
Sterling Travel of Austin, Inc.............. 910 990 1,086
</TABLE>
F-30
<PAGE> 138
MCNEILUS COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 3 MINIMUM LEASE PAYMENTS RECEIVABLE AND NET INVESTMENT IN LEASES
The components of the net investment in sales-type leases are as follows at
February 28, 1997, February 29, 1996 and November 30, 1997:
<TABLE>
<CAPTION>
FEBRUARY 28, FEBRUARY 29, NOVEMBER 30,
1997 1996 1997
------------ ------------ ------------
(UNAUDITED)
<S> <C> <C> <C>
Minimum Lease Payments Receivable.......... $122,619 $115,699 $105,327
Less: Allowance for Credit Losses.......... 0 0 20
Add: Residual Value........................ 38,768 32,932 39,345
Less: Unearned Income...................... 27,508 27,684 23,008
-------- -------- --------
Net Investment in Leases.............. 133,879 120,947 121,644
Less: Current Portion...................... 32,009 25,710 35,108
-------- -------- --------
Non-Current Portion................... $101,870 $ 95,237 $ 86,536
======== ======== ========
</TABLE>
The approximate maturities of minimum lease payments receivable are
estimated to be as follows for the respective years ending February 28: 1998 --
$40,926; 1999 -- $35,177; 2000 -- $26,810; 2001 -- $15,181; 2002 -- $4,156; 2003
- -- $369.
NOTE 4 INVENTORIES
Inventories at February 28, 1997, February 29, 1996 and November 30, 1997
consist of the following:
<TABLE>
<CAPTION>
FEBRUARY 28, FEBRUARY 29, NOVEMBER 30,
1997 1996 1997
------------ ------------ ------------
(UNAUDITED)
<S> <C> <C> <C>
Trucks..................................... $49,780 $60,650 $25,354
Mixers..................................... 9,863 9,367 6,607
Refuse Bodies.............................. 5,942 7,548 5,130
Ready-Mix Plants........................... 1,391 768 325
Drums...................................... 818 597 672
Parts Held for Sale........................ 12,750 13,016 11,111
Manufacturing Raw Material and Parts....... 14,300 14,338 17,858
Collateral Held for Sale................... 0 78 0
------- ------- -------
Inventories at FIFO Cost.............. 94,844 106,362 67,057
Excess of FIFO Cost Over LIFO Cost......... (7,650) (7,356) (7,868)
------- ------- -------
$87,194 $99,006 $59,189
======= ======= =======
</TABLE>
F-31
<PAGE> 139
MCNEILUS COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 5 LONG-TERM RECEIVABLES AND INVESTMENTS
Long-term receivables and investments consist of the following at February
28, 1997, February 29, 1996 and November 30, 1997:
<TABLE>
<CAPTION>
FEBRUARY 28, FEBRUARY 29 NOVEMBER 30
1997 1996 1997
------------ ----------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Miscellaneous Notes Receivable............. $2,485 $ 653 $ 5,245
Related Party Notes Receivable............. 899 944 6,814
Conditional Sales Contracts................ 619 1,043 3,068
Marketable Equity Securities at Cost, Which
Approximates Market...................... 940 940 940
Other Investments at Cost.................. 1,298 323 1,406
------ ------ -------
Totals................................ 6,241 3,903 17,473
Less Current Portion (Included in Prepaids
and Miscellaneous Receivables)........... 546 995 2,960
------ ------ -------
$5,695 $2,908 $14,513
====== ====== =======
</TABLE>
Maturities for the next five years on all long-term notes receivable are
estimated to be as follows for the respective years ending February 28:
<TABLE>
<S> <C>
1998........................................................ $ 546
1999........................................................ 2,654
2000........................................................ 122
2001........................................................ 110
2002........................................................ 104
</TABLE>
The aggregate carrying value of the long-term notes receivable and
investments approximates the fair market value at February 28, 1997. The fair
value of notes receivable and conditional sales contracts is the present value
of estimated future principal and interest payments discounted at the current
interest rate. When quotations are not readily available, the fair value of
marketable equity securities and other investments is determined by management
based principally on expected cash flows.
NOTE 6 PROPERTY AND EQUIPMENT
Property and equipment, stated at cost, is composed as follows at February
28, 1997, February 29, 1996 and November 30, 1997:
<TABLE>
<CAPTION>
FEBRUARY 28, FEBRUARY 29 NOVEMBER 30
1997 1996 1997
------------ ----------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Land and Improvements...................... $ 1,684 $ 1,737 $ 1,975
Buildings.................................. 27,860 26,310 28,313
Shop and Office Equipment.................. 24,563 23,211 24,373
Transportation Equipment................... 4,575 4,289 4,536
Construction in Progress................... 273 943 22
------- ------- -------
Total................................. 58,955 56,490 59,219
Less Accumulated Depreciation.............. 30,524 26,807 31,323
------- ------- -------
Net Property and Equipment............ $28,431 $29,683 $27,896
======= ======= =======
</TABLE>
F-32
<PAGE> 140
MCNEILUS COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 7 ACCRUED EXPENSES AND OTHER LIABILITIES
Accrued expenses and other liabilities are composed as follows at February
28, 1997, February 29, 1996 and November 30, 1997:
<TABLE>
<CAPTION>
FEBRUARY 28, FEBRUARY 29, NOVEMBER 30,
1997 1996 1997
------------ ------------ ------------
(UNAUDITED)
<S> <C> <C> <C>
Insurance Reserves........................................ $ 3,940 $ 2,779 $ 4,983
Miscellaneous............................................. 16,931 11,979 12,059
-------- -------- --------
$ 20,871 $ 14,758 $ 17,042
======== ======== ========
</TABLE>
NOTE 8 DEBT
Line of Credit
McNeilus Truck and Manufacturing, Inc., has a bank line-of-credit which
contains several interest rate options, which approximate or are below the prime
rate. The following is a summary of the availability and transactions as of and
for the periods ending February 28, 1997, February 29, 1996 and November 30,
1997:
<TABLE>
<CAPTION>
FEBRUARY 28, FEBRUARY 29, NOVEMBER 30,
1997 1996 1997
------------ ------------ ------------
(UNAUDITED)
<S> <C> <C> <C>
Dollar Amount Available................................... $ 12,000 $ 12,000 $ 12,000
Outstanding at Respective Date............................ 5,200 10,100 0
Highest Dollar Amount Outstanding During the Period....... 11,800 10,100 5,200
Average Month-End Balance for Those Month-Ends With
Outstanding Balances.................................... 4,400 5,980 0
</TABLE>
Floor Plan Notes
Floor plan notes are secured by truck chassis inventory of McNeilus Truck
and Manufacturing, Inc. Interest rates on the floor plan notes approximate the
prime rate after free days of floor plan ranging up to 120 days as negotiated
with each financial institution.
Long-Term Debt -- Leasing
The leasing retail installment contracts have various fixed interest rates
and are due on varying dates. The leased assets are security for the installment
contracts. The fixed interest rates originated from these commitments are
generally below the prime rate existing at the time the funds were advanced.
Leasing long-term debt is comprised as follows:
<TABLE>
<CAPTION>
FEBRUARY 28, FEBRUARY 29, NOVEMBER 30,
1997 1996 1997
------------ ------------ ------------
(UNAUDITED)
<S> <C> <C> <C>
Total Leasing Long-Term Debt.............................. $121,570 $107,664 $113,639
Less Current Maturities................................. 32,703 26,126 35,787
-------- -------- --------
Total Leasing Long-Term Debt Less Current Maturities...... $ 88,867 $ 81,538 $ 77,852
======== ======== ========
</TABLE>
The estimated fair value of retail installment contracts as of February 28,
1997 is $122,541. The estimated fair value is the present value of estimated
future principal and interest payments discounted at the current interest rate.
F-33
<PAGE> 141
MCNEILUS COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Other Long-Term Debt
Other Long-term debt obligations of the Companies consist of the following
at February 28, 1997, February 29, 1996 and November 30, 1997:
<TABLE>
<CAPTION>
(UNAUDITED)
FEBRUARY 28, FEBRUARY 29, NOVEMBER 30,
1997 1996 1997
------------ ------------ ------------
<S> <C> <C> <C>
Note payable to bank. Tiered interest rate varying from
6.18% to 7.55%. Monthly principal payments of $82, plus
interest through February, 1999. All bank debt is
guaranteed by majority stockholder. (Note was paid off
in September, 1997.).................................... $4,537 $ 5,525 $ 0
Notes payable to prior stockholders. Interest rates
ranging from 5.7% to 8% with annual principal and
interest payments ranging from $3 to $250 with
maturities through February, 2033. Unsecured............ 2,861 7,591 2,590
Other notes payable to corporations and individuals. Notes
are unsecured or secured by property.................... 343 353 294
------ ------- ------
Total Long-Term Debt................................. 7,741 13,469 2,884
Less Current Maturities................................... 1,341 2,044 286
------ ------- ------
Total Other Long-Term Debt........................... $6,400 $11,425 $2,598
====== ======= ======
</TABLE>
The aggregate carrying value of floor plan notes and other long-term debt
approximates the fair market value at February 28, 1997.
Approximate aggregate maturities of all long-term debt are as follows for
the respective years ending February 28: 1998 -- $34,044; 1999 -- $36,164; 2000
- -- $27,286; 2001 -- $20,545; 2002 -- $9,748.
NOTE 9 OPERATING LEASES
The Companies lease computer and manufacturing equipment under long-term
operating lease arrangements. In addition, the Companies throughout the year
rent various equipment as needed under short-term arrangements. For the fiscal
years ended 1997, 1996 and 1995 and the nine months ended November 30, 1997 and
1996 rent expense included in the consolidated statements of income was
approximately $434, $641, $250, $104 and $114, respectively.
Future minimum rentals payable on significant operating leases are
estimated to be as follows for the respective years ending February 28: 1998,
$355; 1999, $210.
NOTE 10 INCOME TAX MATTERS
McNeilus Companies, Inc. and its subsidiaries file a consolidated federal
income tax return. The consolidated federal tax liability is initially allocated
to the members of the consolidated group based on the "taxable income method."
If a member's separate incurred tax liability exceed the amount so allocated, an
additional allocation is made equal to 100 percent of the excess. The
corresponding reduction in tax liability is allocated proportionately to the
members whose losses or credits were used to decrease the tax liability of the
group.
State tax expense is based on estimated state liabilities from filings made
under separate, combined, consolidated, or unitary filings as required by the
various taxing jurisdictions. McNeilus Truck and Manufacturing, Inc. reimburses
all other subsidiaries of McNeilus Companies, Inc. for excessive state tax
liabilities (in excess of 10% of taxable income) resulting from combined or
unitary filings.
F-34
<PAGE> 142
MCNEILUS COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Prepaids and miscellaneous receivables include income tax refunds
receivable of approximately $-0-, $715 and $1,631 as of February 28, 1997,
February 29, 1996 and November 30, 1997, respectively.
The provision for income tax consists of the following at February 28,
1997, February 29, 1996 and February 28, 1995:
<TABLE>
<CAPTION>
FEBRUARY 28, FEBRUARY 29, FEBRUARY 28,
1997 1996 1995
------------ ------------ ------------
<S> <C> <C> <C>
Current
Federal.................................. $ 7,426 $5,043 $4,252
State.................................... 1,320 508 1,082
Deferred
Federal.................................. 1,611 3,295 $3,183
State.................................... 563 657 406
------- ------ ------
$10,920 $9,503 $8,923
======= ====== ======
</TABLE>
Net current deferred tax assets arise primarily from accrued liabilities
which are not currently deductible for income tax purposes, as well as
allowances for doubtful accounts receivable and inventory reserves. The net
current deferred tax assets at February 28, 1997 and February 29, 1996 are
comprised as follows:
<TABLE>
<CAPTION>
FEBRUARY 28, FEBRUARY 29,
1997 1996
------------ ------------
<S> <C> <C>
Treatment of Lease
Origination Costs.................................... $ 310 $ 278
Insurance Reserves..................................... 1,379 973
Investment Loss Reserve................................ 350 0
Inventory Valuation Reserves........................... 1,466 455
Warranty Reserves...................................... 490 490
Accounts Receivable Allowance.......................... 62 120
Contribution and State Loss Carryovers................. 1,430 1,616
Valuation Allowances -- Carryover...................... (1,430) (1,616)
Other.................................................. 277 136
-------- --------
$ 4,334 $ 2,452
======== ========
</TABLE>
Contribution carryovers available to the extent of ten percent of taxable
income over the next five years approximate $2,800 as of February 28, 1997.
State loss carryovers available to the extent of future taxable income as
provided by the respective taxing jurisdictions are estimated to be
approximately $7,500 as of February 28, 1997. A valuation allowance is provided
for both of these carryovers as there is no guarantee that they will be utilized
to decrease future taxable income.
Net noncurrent deferred income tax liabilities arise primarily from the
recording of McNeilus Financial Services, Inc.'s leasing activities as
sales-type leases for financial reporting and as operating leases for income tax
reporting. State deferred income taxes are provided on this difference at a 6%
rate.
Deferred tax liabilities are also provided on the difference between
depreciation for financial reporting and income tax reporting, and the deferral
of the intercompany gain on the sale of equipment to McNeilus
F-35
<PAGE> 143
MCNEILUS COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Financial Services, Inc. for leasing purposes. The net deferred tax liabilities
at February 28, 1997 and February 29, 1996 are comprised as follows:
<TABLE>
<CAPTION>
FEBRUARY 28, FEBRUARY 29,
1997 1996
------------ ------------
<S> <C> <C>
Treatment of Leases.................................... $18,096 $14,359
Intercompany Profit on Sales to McNeilus Financial
Services, Inc., Net of Amortization.................. 4,245 3,925
Depreciation........................................... 291 291
------- -------
Total........................................... $22,632 $18,575
======= =======
</TABLE>
The provision for income taxes varies from the amount of income tax
determined by applying the U.S. statutory income tax rate to pre-tax income as a
result of the following differences at February 28, 1997, February 29, 1996 and
February 28, 1995:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
U.S. Statutory Rate........................................ 35.0% 35.0% 35.0%
State Tax Deduction........................................ (2.3) (1.6) (2.7)
Non-deductible contributions............................... 0.0 0.0 8.1
Other, Net................................................. (1.4) (0.2) (1.3)
---- ---- ----
Effective Federal Tax Rate................................. 31.3 33.2 39.1
Effective State Tax Rates.................................. 6.5 4.7 7.8
---- ---- ----
Combined Effective Tax Rate................................ 37.8% 37.9% 46.9%
==== ==== ====
</TABLE>
NOTE 11 COMMITMENTS AND CONTINGENCIES
Purchase Commitments
McNeilus Truck and Manufacturing, Inc. orders truck chassis for future
delivery based on anticipated sales and production volume. Deliveries to be
received in the fiscal year ending February 28, 1998 are expected to approximate
demand.
LITIGATION
McNeilus Truck and Manufacturing, Inc. is currently a defendant in several
product liability and other lawsuits. Management does not believe that the final
outcome of these cases will have a significant adverse effect upon the financial
position or results of operations of the Companies.
NOTE 12 CASH FLOW INFORMATION
Kensett Fabricators, Inc. was formed during the year ending February 29,
1996, The company is wholly owned by McNeilus Companies, Inc. The primary
investment was in the form of property, net of a long-term note assumed, for a
net investment of $100.
McNeilus Companies, Inc. repurchased 8,750 shares of outstanding common
stock for $8,660 during the year ending February 29, 1996. Of this, $700 was
paid in cash and a long-term note was issued for $7,960.
McIntire Fabricators, Inc. and Iowa Contract Fabricators, Inc. were formed
during the year ending February 28, 1995. The companies are wholly owned by
McNeilus Companies, Inc. The primary investment was in the form of property with
a book value of approximately $1,305.
F-36
<PAGE> 144
MCNEILUS COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 13 SUBSEQUENT EVENT
On December 8, 1997, the stockholders entered into an agreement to sell all
the outstanding common stock of the Companies to Oshkosh Truck Corporation. The
acquisition price, including amounts for non-compete agreements, is $250,000.
Under certain conditions, if the acquisition is not consummated, the
Companies may be required to pay Oshkosh a fee of $10 million, and conversely
Oshkosh may be required to pay a $10 million fee to the Companies.
F-37
<PAGE> 145
INDEX TO UNAUDITED PRO FORMA
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
OSHKOSH TRUCK CORPORATION AND MCNEILUS COMPANIES, INC.
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Unaudited Pro Forma Condensed Consolidated Balance Sheet as
of December 31, 1997...................................... P-3
Unaudited Pro Forma Condensed Consolidated Statement of
Income for the twelve months ended December 31, 1997...... P-4
Unaudited Pro Forma Condensed Consolidated Statement of
Income for the fiscal year ended September 30, 1997....... P-5
Unaudited Pro Forma Condensed Consolidated Statement of
Income for the three months ended December 31, 1997....... P-6
Notes to Unaudited Pro Forma Condensed Consolidated
Financial Statements...................................... P-7
</TABLE>
P-1
<PAGE> 146
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The unaudited pro forma condensed consolidated statements of income and
condensed consolidated balance sheet (collectively, the "Pro Forma Statements")
have been derived by the application of pro forma adjustments, which give effect
to the acquisition by Oshkosh Truck Corporation ("Oshkosh") of all of the issued
and outstanding common stock of McNeilus Companies, Inc. ("McNeilus") (the
"Acquisition"), the issuance by Oshkosh of $100 million Senior Subordinated
Notes (the "Offering"), the consummation of a $325 million Senior Credit
Facility ("Senior Credit Facility"), the prepayment of outstanding term loans
and borrowings under the revolving credit facility (the "Debt Repayment") and
the establishment of a lease financing partnership (the "Lease Financing")
(collectively referred to as the "Transactions") to the historical financial
statements of Oshkosh and McNeilus included elsewhere in this Prospectus as if
the Transactions had been consummated for balance sheet purposes as of December
31, 1997, and for statement of income purposes as of the beginning of the
periods presented. For purposes of the Pro Forma Statements, the Transactions
are assumed to have occurred simultaneously.
THE PRO FORMA STATEMENTS DO NOT PURPORT TO REPRESENT WHAT OSHKOSH'S
FINANCIAL POSITION OR RESULTS OF OPERATIONS WOULD ACTUALLY HAVE BEEN HAD THE
TRANSACTIONS IN FACT OCCURRED ON THE ASSUMED DATES OR TO PROJECT OSHKOSH'S
FINANCIAL POSITION OR RESULTS OF OPERATIONS FOR ANY FUTURE DATE OR FUTURE
PERIOD. THE PRO FORMA STATEMENTS SHOULD BE READ IN CONJUNCTION WITH THE
HISTORICAL FINANCIAL STATEMENTS AND RELATED NOTES OF OSHKOSH AND MCNEILUS
INCLUDED ELSEWHERE IN THIS PROSPECTUS.
The pro forma adjustments, as described in the accompanying notes to the
Pro Forma Statements, are based on available information and certain assumptions
that management believes are reasonable.
The Acquisition has been accounted for under the purchase method of
accounting. The purchase price for McNeilus has been allocated to the tangible
and intangible assets and liabilities of McNeilus based on preliminary estimates
of their fair values. The allocation of the purchase price is subject to
revision when additional information concerning certain asset and liability
valuations is obtained. However, in management's opinion, no material
adjustments from the preliminary estimates to final amounts are expected.
Oshkosh and McNeilus have different fiscal year ends -- September 30 for
Oshkosh and the last day of February for McNeilus -- and as a result, amounts
for McNeilus as of November 30, 1997 have been combined with amounts of Oshkosh
as of December 31, 1997 for the Unaudited Pro Forma Condensed Consolidated
Balance Sheet. The Unaudited Condensed Consolidated Statement of Income for
Oshkosh for the twelve month period ended September 30, 1997 and for the twelve
month period ended December 31, 1997 have been combined with the Unaudited
Condensed Consolidated Statement of Income for McNeilus for the twelve month
period ended November 30, 1997. The Unaudited Condensed Consolidated Statement
of Income of Oshkosh for the three months ended December 31, 1997 have been
combined with the Unaudited Condensed Consolidated Statement of Income for
McNeilus for the three months ended November 30, 1997. Statement of income
information of McNeilus for the three month period ended November 30, 1997 is
therefore included in both the interim and the annual Pro Forma Statements.
The application of the pro forma adjustments to the historical results of
operations of Oshkosh for the twelve months ended December 31, 1997 and
September 30, 1997, results in the pro forma income from continuing operations
being greater than the historical income from continuing operations of Oshkosh.
Net sales of Oshkosh for the first quarter of each fiscal year (the three months
ended December 31) and net sales of McNeilus for the third quarter of each
fiscal year (the three months ended November 30) represent the lowest quarter of
shipments for each company during their respective fiscal years. Accordingly,
the application of the pro forma adjustments to the historical results of
operations of Oshkosh for the three months ended December 31, 1997, results in
the pro forma income from continuing operations being less than the historical
income from continuing operations of Oshkosh.
P-2
<PAGE> 147
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
(IN THOUSANDS)
<TABLE>
<CAPTION>
PRO FORMA
ADJUSTMENTS
---------------------------
OFFERING, DEBT
AS REPORTED REPAYMENT,
------------------------------------- ACQUISITION
OSHKOSH MCNEILUS AND LEASE PRO FORMA
DECEMBER 31, 1997 NOVEMBER 30, 1997 FINANCING VALUATION CONSOLIDATED
----------------- ----------------- -------------- --------- ------------
(A) (B)
<S> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash
equivalents.............. $ 198 $ 20,159 $(17,659) $ -- $ 2,698
Receivables, net........... 54,215 12,259 -- -- 66,474
Net investment in
sales-type leases........ -- 35,108 (35,108) -- --
Inventories................ 86,744 59,189 -- 7,868 153,801
Prepaid expenses and
other.................... 3,905 7,535 -- -- 11,440
Deferred income taxes...... 9,169 4,213 -- -- 13,382
-------- -------- -------- --------- --------
Total current
assets.............. 154,231 138,463 (52,767) 7,868 247,795
Net assets of discontinued
operations................. -- 6,988 (2,840) (4,148) --
Investment in unconsolidated
partnership................ -- -- 8,005 -- 8,005
Net investment in sales-type
leases..................... -- 86,536 (86,536) -- --
Other long-term assets....... 8,248 14,513 (4,699) (1,000) 17,062
Property, plant and
equipment, net............. 55,340 27,896 (400) 7,500 90,336
Purchase cost................ -- -- 256,000 (256,000) --
Goodwill and other
intangibles, net........... 163,639 324 -- 169,829 333,792
-------- -------- -------- --------- --------
Total assets................. $381,458 $274,720 $116,763 $ (75,951) $696,990
======== ======== ======== ========= ========
LIABILITIES AND SHAREHOLDERS'
EQUITY
Current liabilities:
Accounts payable........... $ 40,556 $ 10,324 $ -- $ -- $ 50,880
Floor plan notes payable... -- 17,194 -- -- 17,194
Customer advances.......... 35,261 -- -- -- 35,261
Other current
liabilities.............. 41,342 17,042 (483) -- 57,901
Current maturities of
senior term loans,
revolving credit facility
and other long-term
debt..................... 7,820 36,073 (35,169) -- 8,724
-------- -------- -------- --------- --------
Total current
liabilities......... 124,979 80,633 (35,652) -- 169,960
Senior revolving credit
facility................... -- -- 13,048 -- 13,048
Senior term loans............ -- -- 216,562 -- 216,562
Senior subordinated notes.... -- -- 100,000 -- 100,000
Other long-term debt......... 95,000 80,450 (172,852) -- 2,598
Other long-term
liabilities................ 15,031 -- -- -- 15,031
Deferred income taxes........ 22,701 23,079 (3,588) 14,607 56,799
Total shareholders' equity... 123,747 90,558 (755) (90,558) 122,992
-------- -------- -------- --------- --------
Total liabilities and
shareholders' equity....... $381,458 $274,720 $116,763 $ (75,951) $696,990
======== ======== ======== ========= ========
</TABLE>
See Notes to Unaudited Pro Forma Condensed Consolidated Financial Statements.
P-3
<PAGE> 148
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
AS REPORTED PRO FORMA
------------------------------------- -----------------
OSHKOSH MCNEILUS TWELVE MONTHS
TWELVE MONTHS TWELVE MONTHS ENDED
ENDED ENDED PRO FORMA DECEMBER 31, 1997
DECEMBER 31, 1997 NOVEMBER 30, 1997 ADJUSTMENTS CONSOLIDATED
----------------- ----------------- ----------- -----------------
<S> <C> <C> <C> <C>
Net sales....................... $684,715 $326,552 $ -- $1,011,267
-- -- (699)(h) --
-- -- (1,048)(g) --
Cost of sales................... 593,147 268,923 1,764(c) 862,087
-------- -------- -------- ----------
Gross income --
manufacturing.............. 91,568 57,629 (17) 149,180
Interest income -- leasing...... -- 12,382 (12,382)(e) --
Interest expense -- leasing..... -- 9,846 (9,846)(e) --
-------- -------- -------- ----------
Gross income -- leasing....... -- 2,536 (2,536) --
-------- -------- -------- ----------
Gross income.................. 91,568 60,165 (2,553) 149,180
Operating expenses:
Selling, general and
administrative............. 49,393 30,083 (1,461)(c) 76,172
-- -- (1,843)(g) --
Engineering, research and
development................ 7,997 -- 699(h) 8,696
Amortization of goodwill and
intangibles................ 4,464 -- 6,642(d) 11,106
-------- -------- -------- ----------
Total operating
expenses.............. 61,854 30,083(k) 4,037 95,974(k)
-------- -------- -------- ----------
Income from operations.......... 29,714 30,082 (6,590) 53,206
Other income (expense):
Interest expense.............. (11,668) (1,716) (17,309)(f) (30,693)
Interest income............... 676 -- -- 676
-- -- (609)(e) --
Other -- net.................. (197) 2,581 (1,765)(i) 10
-------- -------- -------- ----------
(11,189) 865 (19,683) (30,007)
-------- -------- -------- ----------
Income from continuing
operations before income taxes
and equity in income of
unconsolidated partnership.... 18,525 30,947 (26,273) 23,199
Provision (credit) for income
taxes......................... 7,003 11,330 (9,186)(j) 9,147
-------- -------- -------- ----------
11,522 19,617 (17,087) 14,052
Equity in income of
unconsolidated partnership
(net of income taxes of
$1,227)....................... -- -- 1,918(e) 1,918
-------- -------- -------- ----------
Income from continuing
operations.................... $ 11,522 $ 19,617 $(15,169) $ 15,970
======== ======== ======== ==========
Earnings per common share from
continuing operations:
Basic......................... $ 1.37 $ 1.90
======== ==========
Diluted....................... $ 1.36 $ 1.88
======== ==========
Shares used in calculation:
Basic......................... 8,425 8,425
======== ==========
Diluted....................... 8,485 8,485
======== ==========
</TABLE>
See Notes to Unaudited Pro Forma Condensed Consolidated Financial Statements.
P-4
<PAGE> 149
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
AS REPORTED PRO FORMA
------------------------------------- -----------------
OSHKOSH TWELVE MONTHS
FISCAL YEAR MCNEILUS ENDED
ENDED TWELVE MONTHS SEPTEMBER 30,
SEPTEMBER 30, ENDED PRO FORMA 1997
1997 NOVEMBER 30, 1997 ADJUSTMENTS CONSOLIDATED
------------- ----------------- ----------- -------------
<S> <C> <C> <C> <C>
Net sales....................... $683,234 $326,552 $ -- $1,009,786
-- -- (699)(h) --
-- -- (1,048)(g) --
Cost of sales................... 594,390 268,923 1,764(c) 863,330
-------- -------- -------- ----------
Gross income --
manufacturing.............. 88,844 57,629 (17) 146,456
Interest income -- leasing...... -- 12,382 (12,382)(e) --
Interest expense -- leasing..... -- 9,846 (9,846)(e) --
-------- -------- -------- ----------
Gross income -- leasing....... -- 2,536 (2,536) --
-------- -------- -------- ----------
Gross income.................. 88,844 60,165 (2,553) 146,456
Operating expenses:
Selling, general and
administrative............. 47,742 30,083 (1,461)(c) 74,521
-- -- (1,843)(g) --
Engineering, research and
development................ 7,847 -- 699(h) 8,546
Amortization of goodwill and
intangibles................ 4,470 -- 6,642(d) 11,112
-------- -------- -------- ----------
Total operating
expenses.............. 60,059 30,083(k) 4,037 94,179(k)
-------- -------- -------- ----------
Income from operations.......... 28,785 30,082 (6,590) 52,277
Other income (expense):
Interest expense.............. (12,722) (1,716) (16,259)(f) (30,697)
Interest income............... 717 -- -- 717
-- -- (609)(e) --
Other -- net.................. (278) 2,581 (1,765)(i) (71)
-------- -------- -------- ----------
(12,283) 865 (18,633) (30,051)
-------- -------- -------- ----------
Income from continuing
operations before income taxes
and equity in income of
unconsolidated partnership.... 16,502 30,947 (25,223) 22,226
Provision for income taxes...... 6,496 11,330 (8,777)(j) 9,049
-------- -------- -------- ----------
10,006 19,617 (16,446) 13,177
Equity in income of
unconsolidated partnership
(net of income taxes of
$1,227)....................... -- -- 1,918(e) 1,918
-------- -------- -------- ----------
Income from continuing
operations.................... $ 10,006 $ 19,617 $(14,528) $ 15,095
======== ======== ======== ==========
Earnings per common share from
continuing operations:
Basic......................... $ 1.18 $ 1.78
======== ==========
Diluted....................... $ 1.17 $ 1.77
======== ==========
Shares used in calculation:
Basic......................... 8,502 8,502
======== ==========
Diluted....................... 8,546 8,546
======== ==========
</TABLE>
See Notes to Unaudited Pro Forma Condensed Consolidated Financial Statements.
P-5
<PAGE> 150
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
AS REPORTED
---------------------------
OSHKOSH MCNEILUS PRO FORMA
------------ ------------ ------------------
THREE MONTHS ENDED THREE MONTHS
--------------------------- ENDED
DECEMBER 31, NOVEMBER 30, PRO FORMA DECEMBER 31, 1997
1997 1997 ADJUSTMENTS CONSOLIDATED
------------ ------------ ------------ ------------------
<S> <C> <C> <C> <C>
Net sales.......................... $151,801 $67,295 $ -- $219,096
-- -- (114)(h) --
-- -- (166)(g) --
Cost of sales...................... 129,494 55,419 472(c) 185,105
-------- ------- ------- --------
Gross income --
manufacturing............... 22,307 11,876 (192) 33,991
Interest income -- leasing......... -- 2,955 (2,955)(e) --
Interest expense -- leasing........ -- 2,364 (2,364)(e) --
-------- ------- ------- --------
Gross income -- leasing....... -- 591 (591) --
-------- ------- ------- --------
Gross income.................. 22,307 12,467 (783) 33,991
Operating expenses:
Selling, general and
administrative................ 11,676 7,847 (380)(c) 18,883
-- -- (260)(g) --
Engineering, research and
development................... 2,143 -- 114(h) 2,257
Amortization of goodwill and
intangibles................... 1,126 -- 1,660(d) 2,786
-------- ------- ------- --------
Total operating expenses.... 14,945 7,847(k) 1,134 23,926(k)
-------- ------- ------- --------
Income from operations............. 7,362 4,620 (1,917) 10,065
Other income (expense):
Interest expense.............. (2,504) (136) (4,915)(f) (7,555)
Interest income............... 165 -- -- 165
-- -- (149)(e) --
Other -- net.................. 72 682 (356)(i) 249
-------- ------- ------- --------
(2,267) 546 (5,420) (7,141)
-------- ------- ------- --------
Income from continuing operations
before income taxes and equity
in income of unconsolidated
partnership................... 5,095 5,166 (7,337) 2,924
Provision for income taxes....... 1,955 1,891 (2,596)(h) 1,250
-------- ------- ------- --------
3,140 3,275 (4,741) 1,674
Equity in income of
unconsolidated partnership
(net of income taxes of
$289)......................... -- -- 451(e) 451
-------- ------- ------- --------
Income from continuing
operations.................... $ 3,140 $ 3,275 $(4,290) $ 2,125
======== ======= ======= ========
Earnings per common share from
continuing operations:
Basic......................... $0.38 $0.25
======== ========
Diluted....................... $0.37 $0.25
======== ========
Shares used in calculation:
Basic......................... 8,341 8,341
======== ========
Diluted....................... 8,437 8,437
======== ========
</TABLE>
See Notes to Unaudited Pro Forma Condensed Consolidated Financial Statements.
P-6
<PAGE> 151
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
(IN THOUSANDS)
(a) Pro forma adjustments related to the Offering, the Debt Repayment, the
Acquisition (including the sale of net assets of discontinued operations which
were sold prior to the closing of the Acquisition) and the Lease Financing are
summarized in the following table:
<TABLE>
<CAPTION>
OFFERING AND LEASE
FEES DEBT REPAYMENT ACQUISITION FINANCING TOTALS
---- -------------- ----------- --------- ------
(1) (2) (3) (4)
<S> <C> <C> <C> <C> <C>
Cash and cash equivalents.............. $(15,424) $ 235,228 $(233,875) $ (3,588) $ (17,659)
Net investment in sales-type leases.... -- -- -- (35,108) (35,108)
Net assets of discontinued
operations........................... -- -- (2,840) -- (2,840)
Investment in unconsolidated
partnership.......................... -- -- -- 8,005 8,005
Net investment in sales-type leases --
long-term............................ -- -- -- (86,536) (86,536)
Other long-term assets................. 9,424 (1,238) (12,885) -- (4,699)
Property, plant and equipment, net..... -- -- (400) -- (400)
Purchase cost.......................... 6,000 -- 250,000 -- 256,000
Other current liabilities.............. -- (483) -- -- (483)
Current maturities of long-term debt... -- 618 -- (35,787) (35,169)
Senior revolving credit facility....... -- 13,048 -- -- 13,048
Senior term loans -- less current
portion.............................. -- 216,562 -- -- 216,562
Senior subordinated notes payable...... -- 100,000 -- -- 100,000
Long-term debt......................... -- (95,000) -- (77,852) (172,852)
Deferred income taxes -- long-term..... -- -- (3,588) (3,588)
Shareholders' equity................... -- (755) -- -- (755)
</TABLE>
- -------------------------
(1) Fees and expenses totaling $16,000 for legal, financial and other
professional fees due at closing associated with the Senior Credit Facility
and the Offering ($8,500), the Acquisition ($6,000) and the Lease Financing
($1,500), less $576 prepaid at December 31, 1997.
(2) Issuance of aggregate debt of $338,048, repayment of existing long-term debt
of $95,000 and borrowings under the revolving credit facility of $7,820 and
write-off of deferred debt issuance costs of $1,238, less tax benefit of
$483, or $755.
(3) Aggregate cash purchase price of $250,000 due at closing less transactions
prior to or concurrent with closing, including $16,025 in cash to be
received from McNeilus shareholders (repayment of notes of $10,592, sale of
certain assets of $4,094 and intercompany payments of $1,339), and $100
received from third parties from the sale of a discontinued operation.
(4) To reflect contribution of the net investment in sales-type leases to the
unconsolidated lease financing partnership and recognition of gain for
income tax purposes on these sales-type leases which was previously deferred
for income tax purposes. Oshkosh/McNeilus Financial Services, Inc. and
BALCAP, an affiliate of Bank of America National Trust and Savings
Association, will both be general partners in the lease financing
partnership. Each general partner will participate equally in the principal
operating and financial decision making activities of the lease financing
partnership.
P-7
<PAGE> 152
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS)
(b) The Acquisition has been accounted for by Oshkosh using the purchase
method of accounting. The total purchase cost has been allocated first to the
assets and liabilities of McNeilus based upon their respective fair values with
the remainder allocated to costs in excess of net assets acquired. The
historical shareholders' equity of McNeilus has been eliminated. The aggregate
purchase cost and the preliminary allocation of the purchase cost to the assets
and liabilities of McNeilus are as follows:
<TABLE>
<S> <C>
Purchase cost, including related fees:
Acquisition of 100% of the issued and outstanding common
stock of McNeilus...................................... $250,000
Fees and expenses incurred in connection with the
Acquisition............................................ 6,000
--------
Total acquisition cost............................ $256,000
========
Preliminary allocation of acquisition cost(1):
Net assets acquired at historical cost.................... $ 90,558
Add (deduct):
Permitted pre-close dividend to shareholders of certain
discontinued operations(2)............................. (4,148)
Revaluation of McNeilus property, plant and equipment,
inventories and investment in foreign subsidiaries to
estimated fair values.................................. 14,368
Valuation of identified intangible assets:
Non-compete agreements................................. 38,000
Other.................................................. 23,085
Deferred income tax provision associated with the
revaluation of McNeilus assets and liabilities......... (14,607)
Cost in excess of net assets acquired..................... 108,744
--------
Total purchase cost............................... $256,000
========
</TABLE>
- -------------------------
(1) The allocation of the purchase cost reflects the revaluation of McNeilus'
assets and liabilities to their estimated fair values based on preliminary
estimates. The preliminary allocation may differ from the final allocation.
(2) In accordance with the Stock Purchase Agreement among Oshkosh, McNeilus and
the shareholders of McNeilus, Ready Mix Holding, Inc. and Subsidiaries (a
majority-owned subsidiary of McNeilus included in the historical financial
statements of McNeilus as a discontinued operation) were sold in February
1998 to a shareholder of McNeilus in exchange for a note receivable. In
February 1998, the note receivable was distributed to the shareholders of
McNeilus as a dividend.
(c) Adjustment to reflect depreciation expense based on the new basis and
remaining economic useful lives of McNeilus property, plant and equipment. New
basis depreciation is computed using the straight line method over the remaining
useful lives.
<TABLE>
<CAPTION>
TWELVE MONTHS ENDED THREE MONTHS ENDED
NOVEMBER 30, 1997 NOVEMBER 30, 1997
------------------------- -------------------------
SELLING, SELLING,
COST OF GENERAL AND COST OF GENERAL AND
SALES ADMINISTRATIVE SALES ADMINISTRATIVE
------- -------------- ------- --------------
<S> <C> <C> <C> <C>
Eliminate historical depreciation.................. $(1,020) $(2,835) $(224) $(723)
New basis depreciation............................. 2,784 1,374 696 343
------- ------- ----- -----
$ 1,764 $(1,461) $ 472 $(380)
======= ======= ===== =====
</TABLE>
P-8
<PAGE> 153
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS)
New basis depreciation on McNeilus property, plant and equipment is
computed using depreciation periods consistent with those used by Oshkosh and
its subsidiaries for assets of similar age and condition. The following is a
comparison of depreciation periods:
<TABLE>
<CAPTION>
DEPRECIATION PERIODS
--------------------
OLD NEW
--- ---
(YEARS)
<S> <C> <C>
Land improvements........................................... 15 10-40
Buildings and improvements.................................. 31-35 10-40
Machinery and equipment..................................... 7 5-25
Furniture and fixtures...................................... 5 5-15
Transportation equipment.................................... 3-5 3
Information technology...................................... 5 2-5
</TABLE>
(d) Adjustment to record the amortization of goodwill and other intangible
assets over the indicated periods.
<TABLE>
<CAPTION>
TWELVE MONTHS ENDED THREE MONTHS ENDED
NOVEMBER 30, 1997 NOVEMBER 30, 1997
------------------- ------------------
<S> <C> <C> <C>
Non-compete agreements(1)..... 10-15 yrs $2,633 $ 658
Other(2)...................... 5-30 yrs 1,290 322
Goodwill(2)................... 40 yrs 2,719 680
------ ------
$6,642 $1,660
====== ======
</TABLE>
- -------------------------
(1) Amortized over the terms of the respective agreements on the straight-line
method.
(2) Amortized over the estimated useful lives on a straight-line method.
(e) Reclassify interest income, interest expense and gain on sale of leased
equipment of the leasing operation to "Equity in Income of Unconsolidated
Partnership" to reflect the contribution of sales-type leases from McNeilus to
the lease financing partnership and to record amortization of costs to establish
the lease financing partnership.
<TABLE>
<CAPTION>
TWELVE MONTHS ENDED THREE MONTHS ENDED
NOVEMBER 30, 1997 NOVEMBER 30, 1997
------------------- ------------------
<S> <C> <C>
Interest income-leasing................... $12,382 $ 2,955
Interest expense-leasing.................. (9,846) (2,364)
Gains on sales of leased equipment........ 609 149
------- -------
3,145 740
Income taxes at 39%....................... (1,227) (289)
------- -------
$ 1,918 $ 451
======= =======
</TABLE>
P-9
<PAGE> 154
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS)
(f) Adjustment to record interest expense and amortization of deferred debt
issuance cost on the debt incurred to finance the Acquisition and repayment of
certain existing indebtedness of Oshkosh, based upon pro forma consolidated debt
of Oshkosh following consummation of the Transactions using the interest rates
as shown (as if the Transactions had been consummated as of the beginning of the
periods presented):
<TABLE>
<CAPTION>
TWELVE MONTHS TWELVE MONTHS THREE MONTHS
ENDED ENDED ENDED
INTEREST DECEMBER 31, SEPTEMBER 30, DECEMBER 31,
RATE 1997 1997 1997
-------- ------------- ------------- ------------
<S> <C> <C> <C> <C>
Eliminate historical expense:
Interest on debt repaid..................... $(11,243) $(12,293) $(2,227)
Amortization of debt issuance costs......... (216) (218) (54)
Financing fees and other expenses........... (207) (205) (48)
-------- -------- -------
Total historical expense.................... (11,666) (12,716) (2,329)
Interest on new debt:(1)(3)
Revolving Credit Facility................... 7.625% 995 995 249
$100,000 Senior Subordinated Notes.......... 8.750% 8,750 8,750 2,187
$100,000 Term A............................. 7.625% 7,625 7,625 1,906
$62,500 Term B.............................. 7.875% 4,922 4,922 1,230
$62,500 Term C.............................. 8.125% 5,078 5,078 1,270
-------- -------- -------
27,370 27,370 6,842
Amortization of debt issuance costs(2)...... 1,226 1,226 307
Financing fees and other expenses........... 379 379 95
-------- -------- -------
Total interest on new debt.......... 28,975 28,975 7,244
-------- -------- -------
Net adjustment...................... $ 17,309 $ 16,259 $ 4,915
======== ======== =======
</TABLE>
- -------------------------
(1) Borrowings under the Revolving Credit Facility at closing ($13,048) are
assumed to be outstanding for the entire period.
(2) Debt issuance costs are amortized over the life of the related debt, ranging
from 6 to 10 years using the interest method. The Unaudited Pro Forma
Condensed Consolidated Statements of Income do not include an extraordinary
charge of approximately $755 which represents the write-off of unamortized
debt issuance costs, net of income taxes associated with the Debt Repayment.
(3) An increase in the interest rate of 1/8% would change interest expense and
income from continuing operations by:
<TABLE>
<CAPTION>
TWELVE MONTHS ENDED TWELVE MONTHS ENDED THREE MONTHS ENDED
DECEMBER 31, 1997 SEPTEMBER 30, 1997 DECEMBER 31, 1997
------------------- ------------------- ------------------
<S> <C> <C> <C>
Interest expense......... $423 $423 $106
==== ==== ====
Income from continuing
operations............. $258 $258 $ 64
==== ==== ====
</TABLE>
P-10
<PAGE> 155
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS)
(g) Adjust amount of historical salaries paid to management in excess of
amounts per employment agreements included as part of the Transactions.
<TABLE>
<CAPTION>
TWELVE MONTHS ENDED THREE MONTHS ENDED
NOVEMBER 30, 1997 NOVEMBER 30, 1997
------------------------------- -------------------------------
SELLING, SELLING,
GENERAL AND GENERAL AND
COST OF SALES ADMINISTRATIVE COST OF SALES ADMINISTRATIVE
------------- -------------- ------------- --------------
<S> <C> <C> <C> <C>
Salaries and wages:
Historical................................ $(1,348) $(2,343) $(241) $(385)
Per employment agreements................. 300 500 75 125
------- ------- ----- -----
$(1,048) $(1,843) $(166) $(260)
======= ======= ===== =====
</TABLE>
(h) Reclassify engineering, research and development expenses of McNeilus
to conform with the Oshkosh presentation.
<TABLE>
<CAPTION>
TWELVE MONTHS ENDED THREE MONTHS ENDED
NOVEMBER 30, 1997 NOVEMBER 30, 1997
------------------- ------------------
<S> <C> <C>
Cost of goods sold........................ $(699) $(114)
===== =====
Engineering, research and development
expense................................. $ 699 $ 114
===== =====
</TABLE>
(i) Remove non-leasing interest income from McNeilus historical operating
results due to net borrowing position after consummation of the Transactions and
as a result of repayment of notes receivable from shareholders.
<TABLE>
<CAPTION>
TWELVE MONTHS ENDED THREE MONTHS ENDED
NOVEMBER 30, 1997 NOVEMBER 30, 1997
------------------- ------------------
<S> <C> <C>
Miscellaneous income...................... $(1,765) $(356)
======= =====
</TABLE>
(j) Adjustment to record the tax effect on the above adjustments using
Oshkosh's marginal effective income tax rate of 39%. All adjustments were
tax-effected except for goodwill amortization.
(k) Included in historical and pro forma operating expense for McNeilus are
charitable contributions (including charitable contributions to national
organizations) of $1,109 and $284 for the twelve month and three month periods
ended November 30, 1997, respectively. While no pro forma reductions of these
expenses have been reflected in the pro forma statements of income, Oshkosh's
policy is to focus charitable contributions on needs of the communities in which
it operates. Management expects that annual charitable contribution levels for
the McNeilus entity would approximate $100.
P-11
<PAGE> 156
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS)
(l) Historical and pro forma depreciation and amortization.
<TABLE>
<CAPTION>
AS REPORTED PRO FORMA
- -------------------------------------- ------------------
OSHKOSH MCNEILUS TWELVE MONTHS
TWELVE MONTHS TWELVE MONTHS ENDED
ENDED ENDED PRO FORMA DECEMBER 31, 1997
DECEMBER 31, 1997 NOVEMBER 30, 1997 ADJUSTMENTS CONSOLIDATED
- ----------------- ----------------- ----------- -----------------
<S> <C> <C> <C>
$13,797 $3,884 $ 303(c) $25,636
6,642(d)
1,226(f)
(216)(f)
</TABLE>
<TABLE>
<CAPTION>
AS REPORTED PRO FORMA
- -------------------------------------- ------------------
OSHKOSH MCNEILUS TWELVE MONTHS
FISCAL YEAR TWELVE MONTHS ENDED
ENDED ENDED PRO FORMA SEPTEMBER 30, 1997
SEPTEMBER 30, 1997 NOVEMBER 30, 1997 ADJUSTMENTS CONSOLIDATED
- ------------------ ----------------- ----------- ------------------
<S> <C> <C> <C>
$14,070 $3,884 $ 303(c) $25,907
6,642(d)
1,226(f)
(218)(f)
</TABLE>
<TABLE>
<CAPTION>
AS REPORTED PRO FORMA
- ------------------------------------- ------------------
OSHKOSH MCNEILUS
- ----------------- ----------------- THREE MONTHS
THREE MONTHS ENDED ENDED
- ------------------------------------- PRO FORMA DECEMBER 31, 1997
DECEMBER 31, 1997 NOVEMBER 30, 1997 ADJUSTMENTS CONSOLIDATED
- ----------------- ----------------- ----------- -----------------
<S> <C> <C> <C>
$3,283 $952 $ 92(c) $6,240
1,660(d)
307(f)
(54)(f)
</TABLE>
P-12
<PAGE> 157
======================================================
No dealer, salesperson or other person has been authorized to give any
information or to make any representations not contained in this Prospectus,
and, if given or made, such information or representations must not be relied
upon as having been authorized by the Company or by the Initial Purchaser. This
Prospectus does not constitute an offer to sell, or solicitation of an offer to
buy, to any person in any jurisdiction where such an offer or solicitation would
be unlawful. Neither the delivery of this Prospectus nor any sale made hereunder
shall, under any circumstances, create any implication that the information
contained herein is correct as of any time subsequent to the date hereof.
------------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary..................... 3
Risk Factors........................... 16
The Exchange Offer..................... 24
The Transactions....................... 31
Use of Proceeds........................ 33
Capitalization......................... 33
Selected Historical Consolidated
Financial Data for Oshkosh........... 34
Selected Historical Consolidated
Financial Data for McNeilus.......... 36
Management's Discussion and Analysis of
Consolidated Financial Condition and
Results of Operations................ 38
Business............................... 46
Management............................. 60
Principal Shareholders................. 62
Certain Transactions................... 63
Description of Indebtedness............ 64
Description of the New Notes........... 67
Certain Federal Income Tax
Considerations....................... 99
Plan of Distribution................... 103
Legal Matters.......................... 103
Experts................................ 103
Incorporation of Certain Documents by
Reference............................ 104
Available Information.................. 104
Index to Historical Financial
Statements........................... F-1
Index to Unaudited Pro Forma Condensed
Consolidated Financial Statements.... P-1
</TABLE>
======================================================
======================================================
OSHKOSH TRUCK CORPORATION
$100,000,000
NEW 8 3/4% SENIOR SUBORDINATED NOTES
DUE 2008
------------------------------
PROSPECTUS
May 6, 1998
------------------------------
======================================================
