SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
(Mark One)
(X) Annual Report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 for the fiscal year ended September 30, 1999, or
( ) Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the transition period from ____________________ to
_______________
Commission file number: 0-13886
Oshkosh Truck Corporation
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Wisconsin 39-0520270
- -------------------------------- ----------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification)
incorporation or organization)
P. O. Box 2566, Oshkosh, WI 54903-2566
- --------------------------------------------------------------------------------
(Address of principal executive offices) (zip code)
Registrant's telephone number, including area code: (920) 235-9151
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock
Preferred Share Purchase Rights
- --------------------------------------------------------------------------------
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes _X_ No ___
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
Aggregate market value of the voting and nonvoting common equity held by
non-affiliates of the registrant as of November 30, 1999:
Class A Common Stock, $.01 par value - No Established Market Value
Common Stock, $.01 par value - $420,020,000
Number of shares outstanding of each of the registrant's classes of common
stock as of November 30, 1999:
Class A Common Stock, $.01 par value - 425,982 shares
Common Stock, $.01 par value - 16,201,173 shares
DOCUMENTS INCORPORATED BY REFERENCE
Parts I, II and IV incorporate, by reference, portions of the Annual Report
to Shareholders for the year ended September 30, 1999.
Part III incorporates, by reference, portions of the Proxy Statement dated
December 29, 1999.
- --------------------------------------------------------------------------------
<PAGE>
OSHKOSH TRUCK CORPORATION
-------------------------
Index to Annual Report on Form 10-K
Fiscal year ended September 30, 1999
Page
----
PART I.
ITEM 1. BUSINESS ..........................................................3
ITEM 2. PROPERTIES .......................................................13
ITEM 3. LEGAL PROCEEDINGS.................................................13
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF
SECURITY HOLDERS................................................14
EXECUTIVE OFFICERS OF THE REGISTRANT .............................14
PART II.
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK
AND RELATED STOCKHOLDER MATTERS ................................15
ITEM 6. SELECTED FINANCIAL DATA...........................................15
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF CONSOLIDATED
FINANCIAL CONDITION AND RESULTS OF
OPERATIONS.....................................................15
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK...............................................15
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.......................15
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE..........................16
PART III.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS
OF THE REGISTRANT ..............................................16
ITEM 11. EXECUTIVE COMPENSATION ...........................................16
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT ..........................................16
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS....................................................16
PART IV.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
AND REPORTS ON FORM 8-K ........................................16
INDEX TO EXHIBITS.................................................21
2
<PAGE>
As used herein, the "Company" refers to Oshkosh Truck Corporation,
including Pierce Manufacturing Inc. ("Pierce"), McNeilus Companies, Inc.
("McNeilus") and its other wholly-owned subsidiaries, and "Oshkosh" refers to
Oshkosh Truck Corporation, not including Pierce or McNeilus or their
wholly-owned subsidiaries.
The "Oshkosh," "McNeilus" and "Pierce" trademarks and related logos are
registered trademarks of the Company. All other product and service names
referenced in this document are the trademarks or registered trademarks of their
respective owners.
All information in this document has been adjusted to reflect the
three-for-two split of the Company's common stock effected on August 19, 1999 in
the form of a 50% stock dividend.
Forward-Looking Statements
This Annual Report on Form 10-K contains "forward looking statements" which
are believed to be within the meaning of the Private Securities Litigation
Reform Act of 1995. All statements other than statements of historical fact
included in this report, including, without limitation, statements regarding the
Company's future financial position, business strategy, budgets, targets,
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. Although the Company believes 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
include, without limitation, the following: (1) the cyclical nature of the
concrete placement industry; (2) the risks related to reductions or changes in
U.S. government expenditures; (3) the potential for actual costs to exceed
projected costs with fixed-price U.S. government contracts; (4) the risks
related to suspension, termination or audit of U.S. government contracts; (5)
the challenges of identifying, completing and integrating future acquisitions;
(6) competition; (7) disruptions in the supply of parts or components from sole
source suppliers and subcontractors; (8) product liability and warranty claims;
(9) labor relations and market conditions; and (10) unanticipated events
relating to Year 2000 issues. Additional information concerning factors that
could cause actual results to differ materially from those in the
forward-looking statements is contained from time to time in the Company's SEC
filings, including, but not limited to, the Company's prospectus dated November
18, 1999 included in the Registration Statement on Form S-3 No. 333-87149. 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 these cautionary statements.
PART I
Item 1. BUSINESS
--------
The Company
The Company is a leading designer, manufacturer and marketer of a broad
range of specialty commercial, fire and emergency apparatus and military trucks
under the "Oshkosh," "Pierce," "McNeilus" and "MTM" trademarks. The Company
began business in 1917 and was among the early pioneers of four-wheel drive
technology. In 1981, the Company was awarded the first Heavy Expanded Mobility
Tactical Truck contract for the U.S. Department of Defense ("DoD"), and quickly
developed into the DoD's leading supplier of severe-duty heavy tactical trucks.
In 1996, the Company began a strategic initiative to shed under performing
assets and to diversify its business by making selective acquisitions in
attractive specialty segments of the commercial truck and truck body markets to
complement its defense truck business. The result of this initiative was an
increase in sales from $413 million in fiscal 1996 to $1,165 million in fiscal
1999, with earnings from continuing operations increasing from a loss of $.02
per share for fiscal 1996 to earnings of $2.39 per share for fiscal 1999.
As part of the Company's strategy, the Company has completed the following
acquisitions:
o Pierce, a leading manufacturer and marketer of fire trucks and other fire
apparatus in the United States, in September 1996.;
o Nova Quintech, a manufacturer of aerial devices for fire trucks, in
December 1997;
o McNeilus, a leading manufacturer and marketer of commercial specialty truck
bodies, including rear-discharge concrete mixers and portable concrete
batch plants for the concrete ready-mix industry and refuse truck bodies
for the waste services industry, in February 1998; and
o Kewaunee Engineering Corporation, a fabricator of heavy-steel components
such as cranes and aerial devices, in November 1999.
3
<PAGE>
The Company believes it has developed a reputation for excellent product
quality, performance and reliability in each of the segments in which it
participates. The Company has strong brand recognition in its segments and has
demonstrated design and engineering capabilities through the introduction of
several highly engineered proprietary components that increase the Company's
products' operating performance. The Company has developed comprehensive product
portfolios for each of its markets in an effort to become a single-source
supplier for its customers. The Company's commercial truck lines include refuse
truck bodies and rear- and front-discharge concrete mixers. The Company's custom
and commercial fire apparatus and emergency vehicles include pumpers, aerial and
ladder trucks, tankers, heavy-duty rescue vehicles, wildland rough terrain
response vehicles, aircraft rescue and firefighting ("ARFF") 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. In December 1998, the DoD awarded Oshkosh the Medium Tactical
Vehicle Replacement ("MTVR") contract for the U.S. Marine Corps., from which the
Company expects to generate total sales of $1.2 billion from fiscal 2000 through
fiscal 2005, assuming the DoD exercises all the options under the contract as
currently anticipated. Fiscal 2000 sales under this contract are expected to be
about $26 million, increasing to peak sales of about $300 million in fiscal
2002. This contract represents the Company's first production contract for
medium tactical trucks for the U.S. military. McNeilus has an equity interest in
Oshkosh/McNeilus Financial Services Partnership ("OMFSP"), which provides lease
financing to the Company's customers.
Competitive Strengths
The following competitive strengths support the Company's business
strategy:
Strong Market Positions. The Company has developed leading market positions
and brand recognition in each of its core businesses, which the Company
attributes to its reputation for quality products, advanced engineering,
innovation, vehicle performance, reliability and customer service.
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. In addition to its network of dealers and
distributors, the Company employs over 100 in-house sales and service
representatives.
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. Over the past seven years, the Company has significantly increased
manufacturing efficiencies. In addition, the Company believes it has competitive
advantages over smaller truck and truck body manufacturers, which comprise the
majority of the competition in its markets, due to the Company's relatively
higher volumes that permit the use of moving assembly lines and provide
purchasing power opportunities across product lines.
Diversified Product Offering and Customer Base. The Company's broad product
offerings and target markets serve to diversify its revenues, mitigate the
impact of economic cycles and provide multiple platforms for both internal
growth and acquisitions. For each of the Company's target markets, it has
developed or acquired a broad product line in order to become a single-source
provider to the Company's customers.
Strong Management Team. The present management team has successfully
executed a strategic repositioning of the Company's business while significantly
improving its financial and operating performance. With each of the recent
acquisitions, the Company assimilated the management and culture of the acquired
company, introduced new strategies to significantly increase sales and used the
Company's expertise in purchasing and manufacturing to 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 and Pierce. 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 that 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, independent suspension, the Sky-Arm articulating aerial ladder,
the Hercules compressed air foam systems, the Command Zone multiplexing
technology and the McNeilus Auto Reach Arm, an automated side-loading refuse
body. The Company believes these proprietary components provide the Company a
competitive advantage by increasing its vehicles' durability, operating
4
<PAGE>
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 and pursuing a comprehensive,
integrated business strategy. 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 to increase sales and profitability.
The Company believes the higher sales volumes associated with market leadership
will allow the Company to continue to enhance productivity in manufacturing
operations, fund innovative product development and invest in further expansion.
In addition to the Company's strategies to increase market share and
profitability, each of the Company's specialized truck and truck body markets is
exhibiting opportunities for further market growth.
Pursuing Strategic Acquisitions. The Company's present management team has
successfully negotiated and integrated three acquisitions since September 1996
(and completed a fourth acquisition (Kewaunee) in November 1999) that have
significantly increased the Company's sales and earnings. The Company intends to
selectively pursue additional strategic acquisitions, both domestically and
internationally, to enhance its product offerings and expand its international
presence in specialized truck markets. The Company will focus its acquisition
strategy on specialty truck and truck body markets that are growing, and where
the Company can enhance its strong market positions and achieve significant
acquisition synergies.
Expanding Distribution and International Sales. In fiscal 2000, 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. For example, in fiscal 1999, the Company added two refuse
service facilities and one fire apparatus service facility and began providing
refuse service at three existing mixer distribution facilities to attract
additional municipal sales. The Company plans to open additional service
facilities in fiscal 2000. The Company is developing strategies to increase
international sales. The Company is actively recruiting new representatives and
dealers in targeted international commercial markets to expand the international
sales of McNeilus' refuse truck bodies and rear-discharge concrete mixers. In
the summer of 1999, the Company began offering the new Contender line of custom
and commercial fire trucks to Pierce's extensive international dealer network.
This line of fire trucks is more appropriately priced for international sales
than Pierce's historically premium-priced product line. In fiscal 2000, the
Company plans to begin marketing its new medium tactical military truck to
approved foreign armies when the DoD concludes testing of the initial production
units. Because there have been limited sales of medium tactical trucks to
foreign armies over the last ten years under the U.S. Foreign Military Sales
Program and because the Company's truck has significant off-road capability at
an attractive price, the Company believes that the international market for this
truck will be significant.
Introducing New Products. The Company has increased its emphasis on new
product development in recent years, and seeks to expand sales by leading its
core markets in the introduction of new or improved products, either through
internal development or strategic acquisitions. For example, in fiscal 1998, the
Company purchased the aerial fire apparatus product line of Nova Quintech. This
acquisition broadened Pierce's aerial product line and provided Pierce with
three new products in fiscal 1998. In addition, Pierce introduced seven other
new products in fiscal 1998 and 1997, including the Dash 2000 and Lance 2000
chassis with Pierce's proprietary Command Zone multiplexing technology and a new
Hercules compressed air foam system. In January 1999, Pierce introduced its
Contender series of limited option fire apparatus produced at the Company's
Bradenton, Florida facility and mounted on a commercially available or custom
chassis, to compete in price segments Pierce did not previously serve. In the
commercial market, the Company introduced a substantially upgraded
front-discharge concrete mixer in fiscal 1999 to combine a new cab engineered
and produced by Oshkosh and a new mixer package produced in part by McNeilus.
For refuse customers, McNeilus introduced a new lightweight front-end loader in
August 1999 targeted for the large West Coast market where McNeilus did not have
a suitable product offering. In the defense market, Oshkosh recently received
its first medium tactical truck contract with the award of the MTVR contract,
and it continues to expand its heavy tactical truck offerings.
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 profitability and cash flow. With
each of its acquisitions, the Company has established cost reduction targets. At
Pierce, the Company exceeded its two-year cost reduction target of $6.5 million
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 2000. Similarly, the Company is
taking advantage of its greater purchasing power and manufacturing capabilities
in connection with its February 1998 acquisition of McNeilus, for which the
Company established a $5 to $7 million two-year cost reduction target. In the
first sixteen months following the McNeilus acquisition, the Company realized
<PAGE>
approximately $7 million of cost reductions, and believes that it ultimately
could save another $3 million. In July 1999, the Company announced plans for
McNeilus to invest more than $8.3 million to expand its Dodge Center, Minnesota
5
<PAGE>
manufacturing facility. The primary purpose of the expansion is to construct two
moving assembly lines with robotic welders to significantly reduce the
manufacturing costs of refuse bodies. The expansion will also double the paint
and refuse body manufacturing capacity of this facility. For historic product
lines, the Company also establishes annual labor productivity improvement
targets and, for many product lines, the Company establishes materials cost
reduction targets.
Products
The Company is focused on the following core specialty truck and truck body
markets:
Commercial Segment. The Company is a leading domestic manufacturer of
refuse truck bodies for the waste services industry and of rear- and
front-discharge concrete mixers and portable concrete batch plants for the
concrete ready-mix industry. McNeilus manufactures a wide range of automated
rear, front, side and top loading refuse truck bodies, which are mounted on
commercial chassis. With more than half of all mixers in the field bearing the
McNeilus nameplate, McNeilus is the U.S. market share leader in rear-discharge
concrete mixers. McNeilus sells its refuse vehicles primarily to commercial
waste management companies, but it is building a presence with municipal
customers such as the cities of Los Angeles and Philadelphia and in
international markets such as England. The Company believes its refuse vehicles
have a reputation for efficient, cost-effective, dependable, low maintenance
operation that supports the Company's continued expansion into municipal and
international markets. The Company sells rear- and front-discharge concrete
mixers and portable concrete batch plants to concrete ready-mix companies
throughout the United States and internationally. The Company believes it is one
of the only domestic concrete mixer manufacturers that markets both rear- and
front-discharge concrete mixers and portable concrete batch plants. Mixers and
batch plants are marketed on the basis of their quality, dependability,
efficiency, low maintenance and cost-effectiveness.
The Company offers four- to seven-year tax advantaged lease financing to
mixer and portable concrete batch plant customers and to commercial waste hauler
customers in the United States through OMFSP, an affiliated partnership.
Offerings include competitive lease financing rates and the ease of one-stop
shopping for customers' equipment and financing.
Fire and Emergency Segment. Through Pierce, the Company is the leading
domestic manufacturer of fire apparatus assembled on a custom chassis, which is
designed and manufactured by Pierce to meet the special needs of firefighters.
Pierce also manufactures fire apparatus assembled on a commercially available
chassis, which is produced for multiple end-customer applications. Pierce
primarily serves domestic governmental markets, but also sells fire apparatus to
airports, universities and large industrial companies, and in international
markets. Pierce's history of innovation and 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. Pierce's
engineering expertise also allows it to design its vehicles to meet stringent
government regulations for safety and effectiveness.
The Company is among the leaders in the sale of aircraft rescue and
firefighting vehicles to domestic and international airports. These highly
specialized vehicles are required to be in-service at most airports worldwide to
support commercial airlines in the event of an emergency. Many of the largest
airports in the world, including LaGuardia International Airport, O'Hare
International Airport and Los Angeles International Airport in the United States
and airports in the People's Republic of China and Montreal and Toronto, Canada,
are served by the Company's aircraft rescue and firefighting vehicles. The
Company believes that the reliability of its aircraft rescue and firefighting
vehicles contributes to the Company's strong market position.
The Company remains the leader in airport snow removal in the United
States. 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, including Denver International Airport, LaGuardia
International Airport, Minneapolis-St. Paul International Airport and O'Hare
International Airport. The Company believes that the reliability of its high
performance snow removal vehicles and the speed with which they clear airport
runways contributes to its leading market position. In fiscal 1999, the Company
introduced a downsized all-wheel drive snow removal vehicle for municipal
markets to take advantage of the Company's strong brand name and meet the needs
of heavy snow regions of the United States.
Through an independent third party finance company, the Company offers two-
to ten-year municipal lease financing programs to its fire and emergency
customers in the United States. Programs include competitive lease financing
rates, creative and flexible finance arrangements and the ease of one-stop
shopping for Pierce's customers' equipment and financing.
<PAGE>
Defense Truck Segment. The Company has sold products to the DoD for over 70
years. The Company's proprietary military all-wheel drive product line includes
the Heavy Expanded Mobility Tactical Truck ("HEMTT"), the Heavy Equipment
Transporter ("HET"), the Palletized Load System ("PLS") and the Logistic Vehicle
System ("LVS"). The Company also exports severe-duty heavy tactical trucks to
approved foreign customers.
6
<PAGE>
The Company has developed a strong relationship with the DoD over the years
that has resulted in the Company operating under "family contracts" with the DoD
for the HEMTT, HET, PLS and LVS and for DoD vehicle parts. "Family contracts" is
the term given to contracts that group similar models together to simplify the
acquisition process. Under the vehicle family contracts, the DoD orders a
specified range of volume of either HET and PLS trucks or HEMTT and LVS trucks
at fixed prices, which allows the Company to predict and plan its long-term
production and delivery schedules for vehicles. Current family contracts expire
in fiscal years 2000 and 2001.
With the award of the MTVR contract, the Company will become a major
manufacturer of medium tactical trucks for the U.S. Marine Corps. The Goal of
the U.S. Marine Corps is to upgrade the current configuration to carry a much
greater payload with substantially increased cross-country mobility. These
trucks are equipped with the Company's patented independent suspension and
transfer cases, and central tire inflation to enhance off-road performance. This
program is currently expected to include the production of 5,666 trucks with
options for up to 2,502 additional trucks. The total value of this contract
could reach $1.2 billion, including the options, or $850 million, exclusive of
options, over the fiscal years 2000 through 2005. Testing of the initial ten
trucks begins in December 1999. In early 2000, production is scheduled to be one
truck per day, ultimately increasing to eight trucks per day in August 2001.
The U.S. Army has commenced a competition to add a second supplier to build
Family of Medium Tactical Vehicles ("FMTV"). The Company received a $1.9 million
contract in November 1998 to compete with one other truck manufacturer to
qualify as a second source to produce three trucks for testing by the DoD under
Phase I of its second source supplier qualification plan. The three Oshkosh
FMTVs produced under this contract have successfully completed Phase I testing.
A new law embodied in the fiscal year 2000 Defense Authorization Act cancelled
the above mentioned second source program, however, it directed the Army to go
forward with a competition for 100% of the next procurement, which is expected
to involve production for the winner in 2003.
The Company's objective is to continue to diversify into other areas of the
U.S. defense truck market by expanding applications, uses and body styles of its
current heavy and medium tactical truck lines and by competing for the next
generation of light tactical trucks, which is expected to be opened for
competition early in the next decade. As the Company enters the medium tactical
truck and seeks to enter the light tactical truck areas of the defense market,
management believes that the Company has multiple competitive advantages,
including:
o Proprietary components. The Company's patented independent suspension and
transfer cases enhance its trucks' off-road performance. In addition,
because these are two of the highest cost components in a truck, the
Company has a competitive cost-advantage from in-house manufacturing of
these two truck components.
o Past performance. The Company has been building trucks for the DoD for 70
years. The Company believes that its past success in delivering reliable,
high quality trucks on time, within budget and meeting specifications, is a
competitive advantage in future defense truck procurement programs. The
Company understands the special contract procedures in use by the DoD and
has developed substantial expertise in contract management and accounting.
o Flexible manufacturing. The Company's ability to produce a variety of truck
models on the same moving assembly line permits it to avoid facilitation
costs on most new contracts and maintain competitive manufacturing
efficiencies.
o Logistics. The Company has gained significant experience in the development
of operators' manuals and training and in the delivery of parts and
services worldwide in accordance with the DoD's expectations, which differ
materially from commercial practices.
o Truck engineering and testing. DoD truck contract competitions require
significant defense truck engineering expertise to ensure that a company's
truck excels under demanding testing conditions. The Company has a team of
48 engineers and draftsmen to support current business and truck contract
competitions. These personnel have significant expertise designing new
trucks, using sophisticated computer aided tools, supporting grueling
testing programs at DoD test sites and submitting detailed, comprehensive,
successful contract proposals.
Marketing, 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 use the Company's trucks and truck bodies properly. In
addition, the Company's flexible distribution is focused on meeting customers on
their terms, whether on a jobsite, an evening public meeting or a municipality's
offices, compared to the showroom sales approach of the typical dealers of large
truck manufacturers. The Company backs all products by same-day parts shipment,
<PAGE>
and its service technicians are available in person or by telephone to domestic
customers 365 days a year. The Company believes its dedication to keeping its
trucks in-service in demanding conditions worldwide has contributed to customer
loyalty.
7
<PAGE>
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 some markets.
Dealers and representatives, where used, enter into agreements with the
Company that allows for termination by either party generally upon 90 days'
notice. Dealers and representatives are not permitted to market and sell
competitive products.
Commercial Segment. The Company operates 15 distribution centers with 95
in-house sales and service representatives in the U.S. to sell and service the
refuse truck bodies, rear- and front-discharge concrete mixers and concrete
batch plants. The Company also uses one independent distributor for
front-discharge concrete mixers. Eleven of the Company's distribution centers
provide sales, service and parts distribution to customers in their geographic
regions. Four of the distribution centers also have paint facilities and provide
significant additional paint and mounting services during peak demand periods.
Two of the centers also manufacture concrete mixer replacement barrels. The
Company believes this network represents one of the largest refuse truck body
and concrete mixer distribution networks in the United States. In fiscal 2000,
the Company plans on adding one additional distribution center and to begin
manufacturing concrete mixer replacement barrels at a third center.
The Company believes its direct distribution to customers is a competitive
advantage in commercial markets, particularly in the waste services industry
where principal competitors distribute through dealers and to a lesser extent in
the ready-mix concrete industry, where several competitors in part use dealers.
In addition to the avoidance of dealer commissions, the Company believes direct
distribution permits a more focused sales force in refuse body markets whereas
dealers frequently offer a very broad product line, and accordingly, the time
dealers tend to devote to refuse body sales activities is limited.
With respect to commercial market distribution efforts, the Company has
begun to apply Oshkosh's and Pierce's sales and marketing expertise in municipal
markets to increase sales of McNeilus refuse truck bodies to municipal
customers. Prior to the Company's acquisition of McNeilus, virtually all
McNeilus refuse truck body sales were to commercial customers. While the Company
believes commercial customers represent a majority of the refuse truck body
market, many municipalities purchase their own refuse trucks. The Company
believes it is positioned to create an effective municipal distribution system
in the refuse truck body market by leveraging its existing commercial
distribution capabilities and by opening service centers in major metropolitan
markets. The Company opened two centers in fiscal 1999. Following its
acquisition and new focus in municipal markets, McNeilus has been awarded new
business for the cities of Philadelphia, PA and Los Angeles, CA and has targeted
other major metropolitan areas.
The Company also has begun to offer McNeilus refuse truck bodies,
rear-discharge concrete mixers and concrete batch plants to Oshkosh's
international representatives and dealers for sales and service worldwide.
McNeilus' international sales have historically been limited because McNeilus
had focused on the domestic market. However, the Company believes that refuse
body exports are a significant percentage of some competitors' sales and
represent a meaningful opportunity for McNeilus. The Company is training its
international Oshkosh and Pierce representatives and dealers to sell and service
the McNeilus product line and has commenced sales of McNeilus products through
these representatives and dealers in the first nineteen months following the
acquisition. The Company has also been actively recruiting new refuse and rear
discharge concrete mixer representatives and dealers worldwide.
Fire and Emergency Segment. The Company believes 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 37 sales and service organizations with more than 240 sales
representatives nationwide, which combine broad geographical reach with
frequency of contact with fire departments and municipal government officials.
These sales and service organizations are supported by 65 product and marketing
support professionals and contract administrators at Pierce. The Company
believes 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 the Company's
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 result of this focus and since its acquisition, Pierce has been awarded new
business in the cities of Los Angeles, California; Richmond, Virginia; Tampa and
Miami, Florida; and Honolulu, Hawaii; among other major cities, and continues to
target other urban markets.
<PAGE>
Prior to its acquisition by Oshkosh, Pierce had targeted premium-priced
markets where it could use its innovative technology, quality and advanced
customization capabilities. In January 1999, Pierce also began targeting price
sensitive domestic and international markets through the introduction of its
Contender series of lower-priced commercial and custom pumpers. These
8
<PAGE>
limited-option vehicles are being produced in the Company's Bradenton, Florida
facility for lower cost delivery to international customers.
Pierce substantially strengthened its competitive position overseas in
fiscal 1998 and 1999. Pierce's worldwide distribution network was expanded from
one to 25 international representatives and dealers. This network has delivered
several new orders in fiscal 1998 and 1999 from government agencies and private
companies in Egypt, the Philippines, Latin America and South Africa, among other
countries.
The Company has invested in the development of sales tools for its
representatives that it believes create a competitive advantage in the sale of
fire apparatus. For example, Pierce's Pride 2000 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.
The Company's aircraft rescue and firefighting vehicles are marketed
through a combination of three direct sales representatives domestically and 53
representatives and dealers in international markets. In addition, the Company
maintains 23 full-time sales and service representative and dealer organizations
which have over 100 sales people focused on the sale of snow removal vehicles,
principally to airports, but also to municipalities, counties and other
governmental entities.
Defense Segment. Substantially all domestic defense products are sold
directly 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 offices of the Executive Branch. The Company also sells and
services defense products to foreign governments directly through four
international sales offices, through dealers, consultants and representatives,
and through the United States Foreign Military Sales ("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.
The Company maintains a marketing staff of four individuals that regularly
meets with all branches of the Armed Services, Reserves and National Guard and
with representatives of key military bases to determine their vehicle
requirements and identify specialty truck variants and apparatus required to
fulfill their missions.
In addition to marketing its current truck offerings and competing for new
contracts in the medium- and light-payload segments, the Company actively works
with the Armed Services to develop new applications for its vehicles and expand
its services.
Manufacturing
The Company manufactures trucks and truck bodies at twelve 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. The Company also employs a team of
industrial engineers that travel to all plants to study and streamline
workflows.
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 is drawing 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. Likewise, at McNeilus, the Company has
installed seven additional robots and re-arranged weld and mount activities. In
the summer of 1999, the Company began construction of a 100,000 square foot,
$8.3 million expansion at its Dodge Center, Minnesota facility, which expands
paint capacity and doubles refuse body manufacturing capacity. The primary
purpose of the expansion is to construct two moving assembly lines with robotic
welders to significantly reduce the manufacturing costs of refuse bodies.
<PAGE>
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. ISO 9001 is a
set of internationally accepted quality requirements established by the
International Organization for Standardization, which indicates that a company
has
9
<PAGE>
established and follows a rigorous set of requirements aimed at achieving
customer satisfaction by preventing nonconformity in design, development,
production, installation and servicing of products. 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.
Oshkosh achieved ISO 9001 certification in 1995 and Pierce achieved 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.
Engineering, Research and Development
The Company's extensive engineering, research and development capabilities
have been key drivers of the Company's marketplace success. The Company
maintains three facilities for new product development and testing with a staff
of 51 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 each month.
Virtually all of the Company's sales of fire apparatus require some custom
engineering to meet the customer's specifications and changing industry
standards. 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 commercial markets, product innovation is highly important to meet
customers' changing requirements. Accordingly, the Company maintains a permanent
staff of over 300 engineers and engineering technicians, and it regularly
outsources significant engineering activities in connection with major DoD bids
and proposals.
For fiscal years 1999, 1998 and 1997, the Company incurred engineering,
research and development expenditures of $10.9 million, $9.7 million and $7.8
million, respectively, portions of which were recoverable from customers,
principally the U.S. government.
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 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
marketing, technical and legislative actions in order to maintain existing
levels of defense business. 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. 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 product quality, flexible manufacturing and
specialized distribution systems. The Company believes that its competitive cost
structure, engineering expertise, product quality and global distribution
systems have enabled it to compete effectively with other specialized
manufacturers.
Principal competitors of McNeilus in the refuse truck body market include
The Heil Company (a subsidiary of Dover Corporation), Leach Company and McClain
E-Z Pack, Inc. Principal competitors of McNeilus and Oshkosh in concrete mixer
markets include Advance Mixer, Inc., London Machinery, Inc. and T.L. Smith
Machine Co., Inc. Oshkosh's principal competitor in the airport snow removal
market is Stewart & Stevenson Services, Inc. Pierce's principal competitors in
the fire apparatus market include Emergency One, Inc. (a subsidiary of Federal
Signal Corporation), Kovatch Mobile Equipment Corp., and numerous small,
regional manufacturers. Oshkosh's principal competitor for aircraft rescue and
firefighting sales is Emergency One, 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.
<PAGE>
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, profitability and cash flows.
10
<PAGE>
Customers and Backlog
Sales to the DoD comprised approximately 19% of the Company's net sales for
fiscal 1999. No other single customer accounted for more than 10% of the
Company's net 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 backlog at September 30, 1999 was $486.5 million compared to
$377.5 million at September 30, 1998. Commercial backlogs increased by $39.0
million to $122.3 million at September 30, 1999 compared to the prior year. Fire
and emergency backlogs increased by $16.6 million to $200.3 million at September
30, 1999 compared to the prior year. Backlog related to DoD contracts decreased
by $53.4 million to $163.9 million at September 30, 1999 compared to September
30, 1998 with approximately $46.6 million due to the multi-year MTVR contract
awarded in December 1998. Approximately 6% of the September 30, 1999 backlog is
not expected to be filled in fiscal 2000.
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 and MTVR 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.
Government Contracts
Approximately 19% of the Company's net sales for fiscal 1999 were made to
the U.S. government under long-term contracts and programs, the majority of
which were in the defense truck market. Accordingly, a significant portion of
the Company's sales are subject to risks specific to doing business with the
U.S. government, 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. Contractually under
the Company's MTVR contract, the Company is entitled to $11 million in program
year two and $5 million in program year three if the contract is terminated for
the convenience of the government.
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 that result in higher costs. If the Company is unable
to negotiate a satisfactory agreement to provide such increased compensation,
then 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 seeks to mitigate risks with respect to fixed price contracts by
executing firm fixed price contracts with qualified suppliers for the duration
of the Company's 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. 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. 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
<PAGE>
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, on-site inspection and assistance and
performance measurement system to control risks associated with such reliance on
suppliers. The
11
<PAGE>
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 each of the Company's segments. These components include
front drive and steer axles, transfer cases, cabs, the ALL-STEER electronic
all-wheel steering system, independent suspension, the Sky-Arm articulating
aerial ladder, the McNeilus Auto Reach Arm, the Hercules compressed air foam
systems, the Command Zone proprietary multiplexing system, body structures and
many smaller parts which add uniqueness and value to the Company's products.
Internal production of these components provides a significant competitive
advantage and also serves to reduce the manufacturing costs of the Company's
products.
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 to provide the Company's customers with advanced technological
solutions at attractive prices. The Company holds in excess of 80 active
domestic and 50 foreign patents. The Company believes patents for all-wheel
steer and independent suspension systems, which have remaining lives of 9 to 14
years, provide the Company with a competitive advantage in the fire and
emergency segment. In the defense segment, the independent suspension system was
added to the U.S. Marine Corps' MTVR program, which the Company believes
provided a performance and cost advantage in the successful competition for the
Phase II production contract. To a lesser extent, other proprietary components
provide the Company a competitive advantage in the Company's other segments. See
Legal Proceedings.
The Company holds trademarks for "Oshkosh," "Pierce" and "McNeilus." These
trademarks are considered to be important to the future success of the Company's
business.
Employees
As of November 30, 1999, the Company had approximately 4,100 employees, of
which approximately 1,300, 1,400, 1,100, 100 and 200 employees are located at
its principal facilities in Oshkosh, Wisconsin, Appleton, Wisconsin, Dodge
Center, Minnesota, Bradenton, Florida and Kewaunee, Wisconsin, 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.
Industry Segments
Financial information concerning the Company's industry segments is
included in Note 13 to the Consolidated Financial Statements contained in the
Company's Annual Report to Shareholders for the fiscal year ended September 30,
1999 and such information is incorporated herein by reference.
Foreign and Domestic Operations and Export Sales
Financial information concerning the Company's foreign and domestic
operations and export sales is included in Note 13 to the Consolidated Financial
Statements contained in the Company's Annual Report to Shareholders for the
fiscal year ended September 30, 1999 and such information is incorporated herein
by reference.
12
<PAGE>
Item 2. PROPERTIES
----------
Management believes the Company's equipment and buildings are modern, well
maintained and adequate for its present and anticipated needs. As of November
30, 1999, the Company operated in twelve manufacturing facilities and owned
another facility that was not in use. The location, size and focus of the
Company's facilities is provided in the table below:
<TABLE>
<CAPTION>
Approximate
Square Footage Principal
Location (# of facilities) Owned Leased Products Manufactured
----------------------------- ----------------- -------------- --------------------------------------------
<S> <C> <C> <C>
Oshkosh, Wisconsin(3)....... 688,000 Defense Trucks; Front-Discharge Mixers; Snow
Removal Vehicles; ARFF Vehicles
Appleton, Wisconsin(2)...... 589,000 19,000 Fire Apparatus
Dodge Center, Minnesota(1).. 612,000 Rear-Discharge Mixers; Refuse Truck Bodies
Portable Batch Plants
Bradenton, Florida(1)....... 287,000 Fire Apparatus; Defense Trucks and Truck
Bodies
Kewaunee, Wisconsin(1)...... 175,000 Aerial Devices and Heavy Steel Fabrication
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 Refurbished Fire Apparatus
Ontario, California(1)...... 23,000 Refurbished Fire Apparatus
</TABLE>
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 significantly increased
with limited capital spending by working an additional shift at each facility.
In addition to sales and service activities at the Company's manufacturing
facilities, the Company maintains fifteen sales and service centers in the
United States. The Company owns such facilities in Colton, California; Commerce
City, Colorado; Villa Rica, Georgia; Lithia Springs, Georgia; Hutchins, Texas;
Morgantown, Pennsylvania; Gahanna, Ohio; Dodge Center, Minnesota; Bradenton,
Florida; and Oshkosh, Wisconsin. The Company leases such facilities in Milpitas,
California; Tacoma, Washington; Salt Lake City, Utah; Aurora, Illinois; and East
Granby, Connecticut. These facilities range in size from approximately 3,000
square feet to approximately 46,000 square feet and are used primarily for sales
and service of concrete mixers and refuse bodies.
The Company's facilities are pledged as collateral under the terms of the
Company's Senior Credit Facility.
Item 3. LEGAL PROCEEDINGS
-----------------
The Company was 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. 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 appealed the state court judge's decision. On December 8, 1998, the
Wisconsin Court of Appeals ordered a state court judge to reinstate the jury
verdict against the Company awarding damages totaling approximately $4.5 million
plus interest to SSPC. On April 6, 1999, the Company's petition for review of
this decision by the Wisconsin Supreme Court was denied. On April 12, 1999, the
Company petitioned the state court judge to act on the Company's previous motion
for a retrial. The petition was denied on June 18, 1999 and the state court
directed that judgment be entered. In lieu of further appeals, the Company paid
$5.75 million on July 27, 1999 in final settlement of the matter.
McNeilus is a defendant in litigation, which was commenced in 1993 prior to
the acquisition of McNeilus by the Company, in the U.S. District Court for the
Northern District of Alabama. The litigation, which was brought by The Heil Co.
("Heil"), a McNeilus competitor, seeks damages and claims that McNeilus
infringed certain aspects of its patent for refuse packer design. The patent
referenced in the matter was allowed by Heil to lapse in 1995. The Company has
denied infringement and asserted that the patent is invalid, both on the basis
of prior art and on a defective application. A trial is scheduled in early
calendar 2000. The Company is vigorously contesting the claims and has
established a reserve for litigation and defense costs.
The Company is subject to federal, state and local environmental laws and
regulations that impose limitations on the discharge of pollutants into the
environment and establish standards for the treatment, storage and disposal of
toxic and hazardous wastes. As part of its routine business operations, the
Company disposes of and recycles or reclaims certain industrial waste materials,
chemicals and
13
<PAGE>
solvents at third party disposal and recycling facilities that 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 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 431 PRPs participating in
the costs of addressing the site and has been assigned an allocation share of
approximately 0.04%. Currently, a report of the 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, 1999.
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 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, 1999.
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 and legal proceedings
and claims, including patent, antitrust, product liability 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 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.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
---------------------------------------------------
No matters were submitted to a vote of security holders during the fourth
quarter of the fiscal year ended September 30, 1999.
EXECUTIVE OFFICERS OF THE REGISTRANT
- ------------------------------------
The following table sets forth certain information as of November 30, 1999
concerning the Company's executive officers. All of the Company's officers serve
terms of one year and until their successors are elected and qualified.
Name Age Title
---------------------- --- ------------------------------------------------
Robert G. Bohn........ 46 President and Chief Executive Officer
Timothy M. Dempsey.... 59 Executive Vice President, General Counsel and
Secretary
Paul C. Hollowell..... 58 Executive Vice President and President, Defense
Business
Daniel J. Lanzdorf.... 51 Executive Vice President and President, McNeilus
Companies, Inc.
John W. Randjelovic... 55 Executive Vice President and President, Pierce
Manufacturing Inc.
Charles L. Szews...... 43 Executive Vice President and Chief Financial
Officer
Matthew J. Zolnowski.. 46 Executive Vice President, Corporate
Administration
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. He is a director of
Graco, Inc.
<PAGE>
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.
14
<PAGE>
Paul C. Hollowell. Mr. Hollowell joined the Company in April 1989 as Vice
President-Defense Products and assumed his present position in February 1994.
Daniel 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
September 1998.
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.
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
September 1998.
PART II
Item 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS.
--------------------------------------------------------------------
The information under the captions "Financial Highlights" and
"Dividends and Common Stock Price" and Notes 7 and 11 to the Consolidated
Financial Statements contained in the Company's Annual Report to Shareholders
for the fiscal year ended September 30, 1999, is hereby incorporated by
reference in answer to this item.
In July 1995, the Company's board of directors authorized the
repurchase of up to 1,500,000 shares of Common Stock. As of December 23, 1999,
the Company has repurchased 692,302 shares under this program at a cost of $6.6
million.
Item 6. SELECTED FINANCIAL DATA.
-----------------------
The information under the caption "Financial Highlights" contained in
the Company's Annual Report to Shareholders for the fiscal year ended September
30, 1999, is hereby incorporated by reference in answer to this item.
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF CONSOLIDATED FINANCIAL
------------------------------------------------------------------
CONDITION AND RESULTS OF OPERATIONS.
-----------------------------------
The information under the caption "Management's Discussion and
Analysis" contained in the Company's Annual Report to Shareholders for the
fiscal year ended September 30, 1999, is hereby incorporated by reference in
answer to this item.
Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
----------------------------------------------------------
The information under the caption "Management's Discussion and
Analysis - Financial Market Risk" contained in the Company's Annual Report to
Shareholders for the fiscal year ended September 30, 1999, is hereby
incorporated by reference in answer to this item.
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
-------------------------------------------
The financial statements set forth in the Company's Annual Report to
Shareholders for the fiscal year ended September 30, 1999, are hereby
incorporated by reference in answer to this item. Data regarding quarterly
results of operations included in Note 11 to the Consolidated Financial
Statements contained in the Company's Annual Report to Shareholders for the
fiscal year ended September 30, 1999, is hereby incorporated by reference.
15
<PAGE>
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
---------------------------------------------------------------
FINANCIAL DISCLOSURES.
---------------------
None.
PART III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
--------------------------------------------------
The information under the captions "Governance of the Company - the
Board of Directors" and "Stock Ownership - Compliance with Section 16(a)
Beneficial Ownership Reporting" of the Company's definitive proxy statement for
the annual meeting of shareholders on January 31, 2000, as filed with the
Securities and Exchange Commission, is hereby incorporated by reference in
answer to this item. Reference is also made to the information under the heading
"Executive Officers of the Registrant" included under Part I of this report.
Item 11. EXECUTIVE COMPENSATION.
----------------------
The information under the captions "Governance of the Company -
Compensation of Directors," "Stock Price Performance Graph" and "Executive
Compensation" contained in the Company's definitive proxy statement for the
annual meeting of shareholders on January 31, 2000, as filed with the Securities
and Exchange Commission, is hereby incorporated by reference in answer to this
item.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
--------------------------------------------------------------
The information under the caption "Stock Ownership - Stock Ownership
of Directors, Executive Officers and Other Large Shareholders" contained in the
Company's definitive proxy statement for the annual meeting of shareholders on
January 31, 2000, as filed with the Securities and Exchange Commission, is
hereby incorporated by reference in answer to this item.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
----------------------------------------------
None.
PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
---------------------------------------------------------------
(a) 1. Financial Statements: The following consolidated financial
statements of the company and the report of independent auditors included in the
Annual Report to Shareholders for the fiscal year ended September 30, 1999, are
incorporated by reference in Item 8:
Report of Ernst & Young LLP, Independent Auditors
Consolidated Statements of Income for the years ended September 30,
1999, 1998 and 1997
Consolidated Balance Sheets at September 30, 1999 and 1998
Consolidated Statements of Shareholders' Equity for the years ended
September 30, 1999, 1998 and 1997.
Consolidated Statements of Cash Flows for the years ended September
30, 1999, 1998 and 1997
Notes to Consolidated Financial Statements
2. Financial Statement Schedules:
Schedule II - Valuation & Qualifying Accounts
All other schedules are omitted because they are not applicable, or
the required information is included in the consolidated financial
statements or notes thereto.
16
<PAGE>
3. Exhibits:
3.1 Restated Articles of Incorporation of Oshkosh Truck
Corporation (incorporated by reference to Exhibit 3.1 to the
Company's Annual Report on Form 10-K for the year ended
September 30, 1997 (File No. 0-13886)).
3.2 By-Laws of Oshkosh Truck Corporation, as amended
(incorporated by reference to Exhibit 3.2 to the Company's
Registration Statement on Form S-4 (Reg. No. 333-47931)).
4.1 Credit Agreement dated February 26, 1998, among Oshkosh
Truck Corporation, Bank of America National Trust and
Savings Association, as Agent and as Swing Line Lender, and
certain other financial institutions (incorporated by
reference to Exhibit 4.1 to the Company's Current Report on
Form 8-K dated February 26, 1998 (File No. 0-13886)).
4.2 Indenture dated February 26, 1998, among Oshkosh Truck
Corporation, the Subsidiary Guarantors and Firstar Trust
Company (incorporated by reference to Exhibit 4.2 to the
Company's Current Report on Form 8-K dated February 26, 1998
(File No. 0-13886)).
4.3 Form of 8 3/4% Senior Subordinated Note due 2008
(incorporated by reference to Exhibit 4.3 to the Company's
Registration Statement on Form S-4 (Reg. No. 333-47931)).
4.4 Form of Note Guarantee (incorporated by reference to Exhibit
4.4 to the Company's Registration Statement on Form S-4
(Reg. No. 333-47931)).
4.5 Rights Agreement, dated as of February 1, 1999, between
Oshkosh Truck Corporation and Firstar Bank, N.A.
(incorporated by reference to Exhibit 4.1 to the Company's
Registration Statement on Form 8-A, dated as of February 1,
1999 (File No. 013886)).
10.1 1990 Incentive Stock Plan for Key Employees, as amended
(incorporated by reference to Exhibit 10.1 to the Company's
Annual Report on Form 10-K for the year ended September 30,
1998 (File No. 0-13886)).*
10.2 1994 Long-Term Incentive Compensation Plan, dated March 29,
1994 (incorporated by reference to Exhibit 10.12 to the
Company's Annual Report on Form 10-K for the year ended
September 30, 1994) (File No. 0-13886)).*
10.3 Form of Key Employees Employment and Severance Agreement
with Messrs. R.G. Bohn, T.M. Dempsey, P.C. Hollowell, C.L.
Szews, and M.J. Zolnowski (incorporated by reference to
Exhibit 10.13 to the Company's Annual Report on Form 10-K
for the year ended September 30, 1994 (File No. 0-13886)).*
10.4 Form of Oshkosh Truck Corporation 1990 Incentive Stock Plan,
as amended, Nonqualified Stock Option Agreement
(incorporated by reference to Exhibit 4.2 to the Company's
Registration Statement on Form S-8 (Reg. No. 33-6287)).*
10.5 Form of Oshkosh Truck Corporation 1990 Incentive Stock Plan,
as amended, Nonqualified Director Stock Option Agreement
(incorporated by reference to Exhibit 4.3 to the Company's
Registration Statement on Form S-8 (Reg. No. 33-6287)).*
10.6 Form of 1994 Long-Term Incentive Compensation Plan Award
Agreement (incorporated by reference to Exhibit 10.16 to the
Company's Annual Report on Form 10-K for the year ended
September 30, 1995 (File No. 0-13886)).*
10.7 Stock Purchase Agreement, dated April 26, 1996, among
Oshkosh Truck Corporation, J. Peter Mosling, Jr. and Stephen
P. Mosling (incorporated by reference to Exhibit 10.17 to
the Company's Annual Report on Form 10-K for the year ended
September 30, 1996 (File No. 0-13886)).
10.8 Employment Agreement, dated as of October 15, 1998, between
Oshkosh Truck Corporation and Robert G. Bohn (incorporated
by reference to Exhibit 10.9 to the Company's Annual Report
on Form 10-K for the year ended September 30, 1998 (File No.
0-13886)).*
10.9 Employment Agreement, dated April 24, 1998, between McNeilus
Companies, Inc. and Daniel J. Lanzdorf.*
17
<PAGE>
11. Computation of per share earnings (contained in Note 1 of
"Notes to Consolidated Financial Statements" of the
Company's Annual Report to Shareholders for the fiscal year
ended September 30, 1999).
13. 1999 Annual Report to Shareholders, to the extent
incorporated herein by reference.
21. Subsidiaries of Registrant.
23. Consent of Ernst & Young LLP
27. Financial Data Schedule
*Denotes a management contract or compensatory plan or arrangement.
(b) The Company was not required to file a report on Form 8-K during
the quarter ended September 30, 1999.
18
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
OSHKOSH TRUCK CORPORATION
December 27, 1999 By /S/ Robert G. Bohn
---------------------------------------------------
Robert G. Bohn, President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities on the dates indicated.
December 27, 1999 /S/ R.G. Bohn
-----------------------------------------------------
R.G. Bohn, President and Chief Executive Officer
(Principal Executive Officer)
December 27, 1999 /S/ C.L. Szews
-----------------------------------------------------
C.L. Szews, Executive Vice President and Chief
Financial Officer
(Principal Financial Officer)
December 27, 1999 /S/ T.J. Polnaszek
-----------------------------------------------------
T.J. Polnaszek, Vice President and Controller
(Principal Accounting Officer)
December 27, 1999 /S/ J.W. Andersen
-----------------------------------------------------
J.W. Andersen, Director
December 27, 1999 /S/ D.T. Carroll
-----------------------------------------------------
D.T. Carroll, Chairman
December 27, 1999 /S/ General F.M. Franks, Jr.
-----------------------------------------------------
General F.M. Franks, Jr., Director
December 27, 1999 /S/ M.W. Grebe
-----------------------------------------------------
M.W. Grebe, Director
December 27, 1999 /S/ K.J. Hempel
-----------------------------------------------------
K.J. Hempel, Director
December 27, 1999 /S/ S.P. Mosling
-----------------------------------------------------
S.P. Mosling, Director
December 27, 1999 /S/ J.P. Mosling, Jr.
-----------------------------------------------------
J.P. Mosling, Jr., Director
December 27, 1999 /S/ R.G. Sim
-----------------------------------------------------
R.G. Sim, Director
19
<PAGE>
SCHEDULE II
OSHKOSH TRUCK CORPORATION
VALUATION AND QUALIFYING ACCOUNTS
Years Ended September 30, 1999, 1998 and 1997
(In Thousands)
<TABLE>
<CAPTION>
Balance at Additions
Beginning of Purchase of Charged to Balance at
Classification Year McNeilus Expense Reductions* End of Year
-------------- ---- -------- ------- ---------- -----------
Receivables -
Allowance for doubtful accounts:
<S> <C> <C> <C> <C> <C>
1997 $1,066 --- $881 $23 $1,970
====== === ==== ==== ======
1998 $1,970 $173 $124 $(199) $2,068
====== ==== ==== ====== ======
1999 $2,068 --- $201 $(65) $2,204
====== === ==== ===== ======
</TABLE>
* Represents amounts written off to the reserve, net of recoveries.
20
<PAGE>
INDEX TO EXHIBITS
- -----------------
3. Exhibits:
3.1 Restated Articles of Incorporation of Oshkosh Truck Corporation
(incorporated by reference to Exhibit 3.1 to the Company's Annual
Report on Form 10-K for the year ended September 30, 1997 (File
No. 0-13886)).
3.2 By-Laws of Oshkosh Truck Corporation, as amended (incorporated by
reference to Exhibit 3.2 to the Company's Registration Statement
on Form S-4 (Reg. No. 333-47931)).
4.1 Credit Agreement dated February 26, 1998, among Oshkosh Truck
Corporation, Bank of America National Trust and Savings
Association, as Agent and as Swing Line Lender, and certain other
financial institutions (incorporated by reference to Exhibit 4.1
to the Company's Current Report on Form 8-K dated February 26,
1998 (File No. 0-13886)).
4.2 Indenture dated February 26, 1998, among Oshkosh Truck
Corporation, the Subsidiary Guarantors and Firstar Trust Company
(incorporated by reference to Exhibit 4.2 to the Company's
Current Report on Form 8-K dated February 26, 1998 (File No.
0-13886)).
4.3 Form of 8 3/4% Senior Subordinated Note due 2008 (incorporated by
reference to Exhibit 4.3 to the Company's Registration Statement
on Form S-4 (Reg. No. 333-47931)).
4.4 Form of Note Guarantee (incorporated by reference to Exhibit 4.4
to the Company's Registration Statement on Form S-4 (Reg. No.
333-47931)).
4.5 Rights Agreement, dated as of February 1, 1999, between Oshkosh
Truck Corporation and Firstar Bank, N.A. (incorporated by
reference to Exhibit 4.1 to the Company's Registration Statement
on Form 8-A, dated as of February 1, 1999 (File No. 013886)).
10.1 1990 Incentive Stock Plan for Key Employees, as amended
(incorporated by reference to Exhibit 10.1 to the Company's
Annual Report on Form 10-K for the year ended September 30, 1998
(File No. 0-13886)).*
10.2 1994 Long-Term Incentive Compensation Plan, dated March 29, 1994
(incorporated by reference to Exhibit 10.12 to the Company's
Annual Report on Form 10-K for the year ended September 30, 1994)
(File No. 0-13886)).*
10.3 Form of Key Employees Employment and Severance Agreement with
Messrs. R.G. Bohn, T.M. Dempsey, P.C. Hollowell, C.L. Szews, and
M.J. Zolnowski (incorporated by reference to Exhibit 10.13 to the
Company's Annual Report on Form 10-K for the year ended September
30, 1994 (File No. 0-13886)).*
10.4 Form of Oshkosh Truck Corporation 1990 Incentive Stock Plan, as
amended, Nonqualified Stock Option Agreement (incorporated by
reference to Exhibit 4.2 to the Company's Registration Statement
on Form S-8 (Reg. No. 33-6287)).*
10.5 Form of Oshkosh Truck Corporation 1990 Incentive Stock Plan, as
amended, Nonqualified Director Stock Option Agreement
(incorporated by reference to Exhibit 4.3 to the Company's
Registration Statement on Form S-8 (Reg. No. 33-6287)).*
10.6 Form of 1994 Long-Term Incentive Compensation Plan Award
Agreement (incorporated by reference to Exhibit 10.16 to the
Company's Annual Report on Form 10-K for the year ended September
30, 1995 (File No. 0-13886)).*
10.7 Stock Purchase Agreement, dated April 26, 1996, among Oshkosh
Truck Corporation, J. Peter Mosling, Jr. and Stephen P. Mosling
(incorporated by reference to Exhibit 10.17 to the Company's
Annual Report on Form 10-K for the year ended September 30, 1996
(File No. 0-13886)).
10.8 Employment Agreement, dated as of October 15, 1998, between
Oshkosh Truck Corporation and Robert G. Bohn (incorporated by
reference to Exhibit 10.9 to the Company's Annual Report on Form
10-K for the year ended September 30, 1998 (File No. 0-13886)).*
21
<PAGE>
10.9 Employment Agreement, dated April 24, 1998, between McNeilus
Companies, Inc. and Daniel J. Lanzdorf.*
11. Computation of per share earnings (contained in Note 1 of "Notes
to Consolidated Financial Statements" of the Company's Annual
Report to Shareholders for the fiscal year ended September 30,
1999).
13. 1999 Annual Report to Shareholders, to the extent incorporated
herein by reference.
21. Subsidiaries of Registrant.
23. Consent of Ernst & Young LLP
27. Financial Data Schedule
*Denotes a management contract or compensatory plan or arrangement.
22
EMPLOYMENT AGREEMENT
THIS AGREEMENT by and between McNeilus Companies, Inc., a Minnesota
corporation (the "Company"), and Dan J. Lanzdorf, (the "Executive"), dated as of
the 24th day of April 1998.
WITNESSETH THAT
WHEREAS, the parties wish to provide for the employment by the Company of
the Executive, and the Executive wishes to serve the Company, its affiliates,
McNeilus Truck and Manufacturing, Inc., Iowa Contract Fabricators, Inc.,
McIntire Fabricators, Inc., and Kensett Fabricators, Inc., and its parent
Oshkosh Truck Corporation, in the capacities and on the terms and conditions set
forth in this agreement.
NOW THEREFORE, it is hereby agreed as follows:
1. Employment Period. The Company shall employ the Executive, and
the Executive shall serve the Company, on the terms and
conditions set forth in this agreement, for an initial period
(the "Initial Period") commencing at the date of this Agreement
and ending on September 31, 1998. This Agreement thereafter will
renew automatically for successive terms of one (1) year each,
unless either party has given at least forty-five (45) days'
advance written notice of it or his intent to allow this
Agreement to expire as of the end of such Initial Period or
renewal term. The term during which the Executive is employed by
the Company hereunder (including without limitation the Initial
Period) is hereafter referred to as the "Employment Period."
In the event that for any reason, the Executive's employment
continues with the Company following the expiration of the
Employment Period, as set forth above, then for so long as the
Executive is so employed by the Company, the provisions of
Sections 8 and 9 shall survive the expiration of the Employment
Period of this Agreement.
2. Position and Duties.
(a) The Executive shall serve as President of McNeilus
Companies, Inc., and of its said affiliates with such duties
and responsibilities as are customarily assigned to such
position, and such other duties and responsibilities not
inconsistent therewith as may from time to time be assigned
to him by the President and CEO (the "CEO") of Oshkosh Truck
Corporation.
(b) During the Employment Period, and excluding any periods of
vacation and sick leave to which the Executive is entitled,
the Executive shall devote his full attention and time
during normal business hours to the business and affairs of
the Company and its said affiliates and, to the extent
necessary to discharge the responsibilities assigned to the
Executive under this Agreement, use the Executive's
reasonable best efforts to carry out such responsibilities
faithfully and efficiently. It shall not be considered a
violation of the foregoing for the Executive to serve on
industry, civic, or charitable boards or committees, so long
as such activities do not significantly interfere with the
performance of the Executive's responsibilities as an
employee of the Company and its affiliate in accordance with
this Agreement.
- 1 -
<PAGE>
3. Compensation.
(a) Base Salary. The Executive's compensation during the
Employment Period shall be determined by the CEO, subject to
the next sentence and paragraph (b) of Section 3. During the
Initial Period, the Executive shall receive an annual base
salary ("Annual Base Salary") of not less than his aggregate
annual base salary from Company as in effect immediately
before the date of this Agreement. The Annual Base Salary
shall be payable in accordance with the Company's regular
payroll practice for its executives, as in effect from time
to time. During the Employment Period, the Annual Base
Salary shall be reviewed for possible adjustment at least
annually. Any adjustment in the Annual Base Salary shall not
limit or reduce any other obligation of the Company under
this Agreement. The term "Annual Base Salary" shall
thereafter refer to the Annual Base Salary as so adjusted.
(b) Incentive Compensation. During the Employment Period, the
Executive shall be provided the opportunity to participate
in short-term incentive compensation plans and long-term
incentive compensation plans which shall be developed and
offered by the Company to executives employed in the
business.
(c) Vacations and Holidays. The Executive shall be entitled to
receive twenty (20) days of paid vacation per year together
with the paid holidays available to all other management
personnel.
(d) Fringe Benefits. The Executive shall be entitled to
participate in fringe benefit plans and programs in effect
from time to time for employees of the company, and on a
basis appropriate to the position, including medical and
dental insurance, expense reimbursements, pension and
retirement benefits and other similar benefits.
(e) Reimbursements. The Company shall reimburse the Executive
for actual out-of-pocket costs incurred by him in the course
of carrying out his duties hereunder, such reimbursements to
be made in accordance with the policies and procedures of
the Company in effect from time to time.
(f) Withholding. All payments under this Agreement shall be
subject to withholding or deduction by reason of the Federal
Insurance Contributions Act, the federal income tax and
state or local income tax and similar laws, to the extent
such laws apply to such payments.
4. Termination of Employment.
(a) Death or Disability. The Executive's employment shall
terminate automatically upon the Executive's death during
the Employment Period. The Company shall be entitled to
terminate the Executive's employment because of the
Executive's Disability during the Employment Period.
"Disability" means that (i) the Executive has been unable,
for a period of one hundred eight (180) consecutive days, to
perform the Executive's duties under this Agreement, as a
result of physical or mental illness or injury, and (ii) a
physician selected by the Company or its insurers, and
acceptable to the Executive or the Executive's legal
representative, has determined that the Executive's
incapacity will continue. A termination of the Executive's
employment by the Company for Disability shall be
communicated to the Executive by written notice, and shall
be effective on the thirtieth day after receipt of such
notice by the Executive (the "Disability
- 2 -
<PAGE>
Effective date"), unless the Executive returns to full-time
performance of the Executive's duties before the Disability
Effective Date.
(b) By the Company.
(i) The Company may terminate the Executive's employment
during the Employment Period for Cause or without
Cause. "Cause" means:
A. The willful and continued failure of the Executive
to substantially perform the Executive's duties
under this Agreement (other than as a result of
physical or mental illness or injury), after the
CEO delivers to the Executive a written demand for
substantial performance that specifically
identifies the manner in which the CEO believes
that the Executive has not substantially performed
the Executive's duties; or
B. Illegal conduct or gross misconduct by the
Executive, in either case that is willful and
results in material and demonstrable damage to the
business or reputation of the Company.
C. Violation of any of the covenants set forth under
Sections 8 and 9 of this Agreement.
No act or failure to act on the part of the Executive
shall be considered "willful" unless it is done, or
omitted to be done, by the Executive in bad faith or
without reasonable belief that the Executive's action
or omission was in the best interests of the Company.
(ii) A termination of the Executive's employment for Cause
shall be effected by the CEO following written notice
to the Executive and an opportunity for the Executive
to be heard by the Chairman of Oshkosh Truck
Corporation.
(iii)A termination of the Executive's employment without
Cause shall be effected by the CEO following written
notice to the Executive and an opportunity for the
Executive to be heard by the Chairman of Oshkosh Truck
Corporation.
(c) Good Reason.
(i) The Executive may terminate employment for Good Reason
or without Good Reason. "Good Reason" means:
A. The assignment to the Executive of any duties
inconsistent in any respect with paragraph (a) of
Section 2 of this Agreement, or any other action
by the Company that results in a diminution in the
Executive's position, including base salary,
authority, duties or responsibilities, other than
an isolated, insubstantial and inadvertent action
that is not taken in bad faith and is remedied by
the Company promptly after receipt of notice
thereof from the Executive.
B. Any failure by the Company to comply with any
provision of Section 3 of this Agreement, other
than an isolated, insubstantial and inadvertent
failure that is not taken in bad faith and is
- 3 -
<PAGE>
remedied by the Company promptly after receipt of
notice thereof from the Executive;
C. Any purported termination of the Executive's
employment by the Company for a reason or in a
manner not expressly permitted by this Agreement;
or
D. Any other substantial breach of this agreement by
the Company that either is not taken in good faith
or is not remedied by the Company promptly after
receipt of notice thereof from the Executive.
(ii) A termination of employment by the Executive for Good
Reason shall be effected by giving the Company written
notice ("Notice of Termination for Good Reason") of the
termination within three (3) months of the event
constituting Good Reason, setting forth in reasonable
detail the specific conduct of the Company that
constitutes Good Reason and the specific provision(s)
of this Agreement on which the Executive relies. A
termination of employment by the Executive for Good
Reason shall be effective on the fifth business day
following the date when the Notice of Termination for
Good Reason is given, unless the notice sets forth a
later date (which date shall in no event be later than
thirty (30) days after the notice is given).
(iii)A termination of the Executive's employment by the
Executive without Good Reason shall be effected by
giving the Company written notice of the termination.
(d) Date of Termination. The "Date of Termination" means the
date of the Executive's death, the Disability Effective
Date, the date on which the termination of the Executive's
employment by the Company for Cause or without Cause or by
the Executive for Good Reason is effective, or the date on
which the Executive gives the Company notice of a
termination of employment without good Reason, as the case
may be.
5. Obligations of the Company upon Termination.
(a) By the Company other than for Cause, Death or Disability; by
the Executive for Good Reason. If, during the Employment
Period, the Company terminates the Executive's employment,
other than for Cause, Death, or Disability, or the Executive
terminates employment for Good Reason the Company shall
continue to provide the Executive with the compensation and
fringe benefits as set forth in paragraphs (a) and (d) of
Section 3 as if he had remained employed by the Company
pursuant to this Agreement through the end of the Employment
Period, but, in no event for fewer than twelve (12) months.
The payments provided pursuant to this paragraph (a) of
Section 5 are intended as liquidated damages for a
termination of the Executive's employment by the Company
other than for Cause or Disability or for the actions of the
Company leading to a termination of the Executive's
employment by the Executive for Good Reason, and shall be
the sole and exclusive remedy therefor.
(b) Death and Disability. If the Executive's employment is
terminated by reason of the Executive's death or disability
during the Employment Period, the Company shall pay to the
Executive or, in the case of the Executive's death, to the
Executive's designated beneficiaries (or, if there is no
such beneficiary, to the
- 4 -
<PAGE>
Executive's estate or legal representative), in a lump sum
in cash within thirty (30) days after the Date of
Termination, the sum of the following amounts (the "Accrued
Obligations"): (1) any portion of the Executive's Annual
Base Salary through the Date of Termination that has not yet
been paid; (2) an amount representing Incentive Compensation
due for the period through the Date of Termination; and (3)
any accrued but unpaid vacation pay.
(c) By the Company for Cause; By the Executive Other than for
Good Reason. If the Executive's employment is terminated by
the Company for Cause during the Employment Period the
Company shall pay the Executive the Annual Base Salary
through the Date of Termination and the Company shall have
no further obligations under this Agreement, except as
specified in Section 6 below. If the Executive voluntarily
terminates employment during the Employment Period, other
than for Good Reason, the Company shall pay to the
Executive: (1) any portion of the Executive's Annual Base
Salary through the Date of Termination that has not yet been
paid and (2) any accrued vacation pay, both payable in a
lump sum in cash within thirty (30) days of the date of
Termination, and the Company shall have no further
obligations under this agreement, except as specified in
Section 6 below.
6. Non-exclusivity of Rights. Nothing in this Agreement shall
prevent or limit the Executive's continuing of future
participation in any plan, program, policy or practice provided
by the Company or any of its affiliates for which the Executive
may qualify, nor shall anything in this Agreement limit or
otherwise affect such rights as the Executive may have under any
contract or agreement with the Company or any of its affiliates
relating to subject matter other than that specifically addressed
herein. Vested benefits and other amounts that the Executive is
otherwise entitled to receive under the Company's Compensation
program or any other plan, policy, practice or program of or any
contract or agreement with, the Company or any of its affiliates
on or after the Date of Termination shall be payable in
accordance with the terms of each such plan, policy, practice,
program, contract or agreement, as the case may be, except as
explicitly modified by this Agreement.
7. Full Settlement. The Company's obligation to make the payments
provided for in, and otherwise to perform its obligations under,
this Agreement shall not be affected by any set-off,
counterclaim, recoupment, defense or other claim, right or action
that the Company may have against the Executive or others. In no
event shall the Executive be obligated to seek other employment
or take any other action by way of mitigation of the amounts
payable to the Executive under any of the provisions of this
Agreement.
8. Confidential Information.
(a) Defined. "Confidential Information" shall mean ideas,
information, knowledge and discoveries, whether or not
patentable, that are not generally known in the trade or
industry and about which the Executive has knowledge as a
result of his employment with the Company, including without
limitation refuse, mixer, construction, fire, or defense
products engineering information, marketing, sales,
distribution, pricing, and bid process information, product
specifications, manufacturing procedures, methods, business
plans, strategic plans, marketing plans, internal memoranda,
formulae, trade secrets, know-how, research and development
and other confidential technical or business information and
data. For the purposes of this definition "products" is
intended to include, but not limited by way of enumeration,
completed motor vehicles, incomplete vehicle chassis, bodies
for installation on incomplete vehicle chassis, and parts
and accessories for motor vehicles and vehicle components.
Confidential
- 5 -
<PAGE>
Information shall not include any information that the
Executive can demonstrate is in the public domain by means
other than disclosure by the Executive.
(b) Nondisclosure. For a period of two (2) years after the
termination of the Executive's active employment with the
Company (whether such termination occurs before or after the
expiration of the term of this Agreement) and indefinitely
thereafter in respect of any Confidential Information that
constitutes a trade secret or other information protected by
law, the Executive will keep confidential and protect all
Confidential Information to any other person and will not
use any Confidential Information, except for use or
disclosure of Confidential Information for the exclusive
benefit of the Company as it may direct or as necessary to
fulfill the Executive's continuing duties as an employee of
the Company.
(c) Return of Property. All memoranda, notes, records, papers,
tapes, disks, programs or other documents or forms of
documents and all copies thereof relating to the operations
or business of the Company or any of its subsidiaries that
contain Confidential Information, some of which may be
prepared by the Executive, and all objects associated
therewith in any way obtained by him shall be the property
of the Company. The Executive shall not, except for the use
of the Company or any of its subsidiaries, use or duplicate
any such documents or objects, nor remove them from
facilities and premises of the Company or any subsidiary,
nor use any information concerning them except for the
benefit of the Company or any subsidiary, at any time. The
Executive will deliver all of the aforementioned documents
and objects, if any, that may be in his possession to the
Company at any time at the request of the Company.
9. Restrictive Covenants.
(a) The Executive shall hold in a fiduciary capacity for the
benefit of the Company all secret or Confidential
Information, knowledge or data relating to the Company or
any of its affiliated companies and their respective
businesses that the Executive obtains during the Executive's
employment by the Company or any of its affiliated companies
and that is not public knowledge (other than as a result of
the Executive's violation of this Section 9). The Executive
shall not communicate, divulge or disseminate Confidential
Information at any time during the Executive's employment
with the Company and for the two (2) year period thereafter,
except with the prior written consent of the Company or as
otherwise required by law or legal process. In no event
shall any asserted violation of the provisions of this
Section 9 constitute a basis for deferring or withholding
any amounts otherwise payable to the Executive under the
Agreement.
(b) The Executive shall not, during the Employment Period and
for one (1) year following the end of the Employment Period,
without the prior written consent of the CEO of the Company,
be employed directly or indirectly by, be a sole proprietor
or partner of, or act as a consultant to, any business in
any capacity where confidential information concerning the
Company and/or its subsidiaries or affiliates which was
acquired by the Executive during his employment with the
same would reasonably be considered to be useful in such
employment; neither will the Executive, directly or
indirectly during such period of time, make sales
solicitations to any person, corporation, partnership or
other business entity which is, at the time of such sales
solicitation, a customer or known to him to be a prospective
customer of the Company and/or its subsidiaries or
affiliates, if the effect of such action would be likely to
cause such customer to substantially
- 6 -
<PAGE>
reduce existing or future business relationships with or
purchases from the Company and/or its subsidiaries or
affiliates.
(c) The Executive agrees that the Company will suffer
irreparable damage in the event the provisions of paragraphs
(b) and (c) of Section 8 and paragraphs (a) and (b) of
Section 9 are breached and his acceptance of the provisions
of Sections 8 and 9 is a material factor in his decision to
enter into this Agreement. The Executive further agrees that
the Company shall be entitled as a matter of right to
injunctive relief to prevent a breach by the Executive of
the provisions of Sections 8 and 9. Resort to such equitable
relief, however, shall not constitute a waiver of any other
rights or remedies the Company may have. Nothing in this
Agreement modifies or reduces the Executive's obligation to
comply with applicable laws relating to trade secrets,
confidential information, or unfair competition.
10. Successors.
(a) This Agreement is personal to the Executive and, without the
prior written consent of the Company, shall not be
assignable by the Executive. This Agreement shall inure to
the benefit of and be enforceable by the Executive's legal
representatives.
(b) This Agreement shall inure to the benefit of and be binding
upon the Company and its successors and assigns.
11. Miscellaneous.
(a) This Agreement shall be governed by, and construed in
accordance with the laws of the State of Wisconsin, without
reference to principles of conflict of laws. The captions of
this Agreement are not part of the provisions hereof and
shall have no force or effect. This Agreement may not be
amended or modified except by a written agreement executed
by the parties hereto or their respective successors and
legal representatives.
(b) All notices and other communications under this agreement
shall be in writing and shall be given by hand delivery to
the other party or by registered for certified mail, return
receipt requested, postage prepaid, addressed as follows:
(i) If to the Executive;
Dan J. Landorf
1670 Rivermill Road
Oshkosh, WI 54901
(ii) If to the Company:
McNeilus Companies Inc.
Highway 14 East
Post Office Box 70
Dodge Center, MN 55927
Or to such other address as either party furnishes to the
other in writing in accordance with this paragraph (b) of
Section 11. Notices and communications shall be effective
when actually received by the addressee.
- 7 -
<PAGE>
(c) The invalidity or unenforceability of any provision of this
Agreement shall not affect the validity or enforceability of
any other provision of this Agreement. If any provision of
this Agreement shall be held invalid or unenforceable in
part, the remaining portion of such provision, together with
all other provisions of this agreement, shall remain valid
and enforceable and continue in full force and effect to the
fullest extent consistent with law.
(d) Notwithstanding any other provisions of this agreement, the
Company may withhold from amounts payable under this
agreement all federal, state, local and foreign taxes that
are required to be withheld by applicable laws or
regulations.
(e) The Executive's or the Company's failure to insist upon
strict compliance with any provisions of, or to assert any
right under, this Agreement (including, without limitation,
the right of Executive to terminate employment for Good
Reason pursuant to paragraph ( c ) of Section 4 of this
Agreement) shall not be deemed to be a waiver of such
provision or right or of any other provision of or right
under this Agreement.
(f) The rights and benefits of the Executive under this
Agreement may not be anticipated, assigned, alienated or
subject to attachment, garnishment, levy, execution or other
legal or equitable process except as required by law. Any
attempt by the Executive to anticipate, alienate, assign,
sell, transfer, pledge, encumber or charge the same shall be
void. Payments hereunder shall not be considered assets of
the Executive in the event of insolvency or bankruptcy.
(g) This Agreement may be executed in several counterparts, each
of which shall be deemed an original, and said counterparts
shall constitute but one and the same instrument.
IN WITNESS WHEREOF, the parties have caused this agreement to be
duly executed as of the day and year first above written.
OSHKOSH TRUCK CORPORATION
By: _______________________________
Title: _______________________________
Date: _______________________________
Attest: _______________________________
AGREED TO:
By: _______________________________
Title: _______________________________
Date: _______________________________
Attest: _______________________________
- 8 -
MANAGEMENT'S DISCUSSION AND ANALYSIS
Oshkosh Truck Corporation and Subsidiaries
Forward-Looking Statements
This Management's Discussion and Analysis of Consolidated Financial
Condition and Results of Operations and other sections of this annual report
contain "forward-looking statements" which are believed to be within the meaning
of the Private Securities Litigation Reform Act of 1995. All statements other
than statements of historical fact included in this report, including, without
limitation, statements regarding the Oshkosh Truck Corporation's (the "Company"
or "Oshkosh") future financial position, business strategy, budgets, targets,
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. Although the Company believes 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 include,
without limitation, the following: (1) the cyclical nature of the concrete
placement industry; (2) the risks related to reductions or changes in U.S.
government expenditures; (3) the potential for actual costs to exceed projected
costs with fixed-price U.S. government contracts; (4) the risks related to
suspension, termination or audit of U.S. government contracts; (5) the
challenges of identifying, completing and integrating future acquisitions; (6)
competition; (7) disruptions in the supply of parts or components from sole
source suppliers and subcontractors; (8) product liability and warranty claims;
(9) labor relations and market conditions; and (10) unanticipated events
relating to Year 2000 issues. Additional information concerning factors that
could cause actual results to differ materially from those in the
forward-looking statements is contained from time to time in the Company's SEC
filings, including, but not limited to, the Company's prospectus dated November
18, 1999 included in the Registration Statement on Form S-3 No. 333-87149. 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 these cautionary statements.
General
The Company is a leading designer, manufacturer and marketer of a wide
range of specialty trucks and truck bodies including concrete mixers, refuse
bodies, fire and emergency vehicles and defense trucks. Under the "McNeilus" and
"Oshkosh" brand names, the Company manufactures rear- and front-discharge
concrete mixers and a wide range of automated rear, front, side and top loading
refuse truck bodies. Under the "Pierce" brand name, the Company is among the
leading domestic manufacturers of fire apparatus assembled on both custom and
commercial chassis. The Company manufactures aircraft rescue and firefighting
and airport snow removal vehicles under the "Oshkosh" brand name. The Company
also manufactures defense trucks under the "Oshkosh" brand name and is the
leading manufacturer of severe-duty heavy tactical trucks for the Department of
Defense.
The Company adopted Statement of Financial Accounting Standards ("SFAS")
No. 131, "Disclosures about Segments of an Enterprise and Related Information,"
in the fourth quarter of fiscal 1999. In accordance with this pronouncement,
this management's discussion and analysis has been organized to report about the
results of the three segments identified by management: commercial, fire and
emergency and defense. Prior year information has been reclassified to the
current year basis of presentation. The major products manufactured and marketed
by each of the Company's business segments are as follows:
Commercial--concrete mixer systems, refuse truck bodies, portable
concrete batch plants and truck components sold to ready-mix companies
and commercial and municipal waste haulers in the U. S. and abroad.
Fire and emergency--commercial and custom fire trucks, aircraft rescue
and firefighting trucks, snow removal trucks and other emergency
vehicles primarily sold to fire departments, airports and other
governmental units in the U. S. and abroad.
<PAGE>
Defense--heavy- and medium-payload tactical trucks and supply parts
sold to the U. S. military and to other militaries around the world.
Recent Developments
On November 24, 1999, the Company completed the offer and sale of 3,795,000
shares of its Common Stock at $26.00 per share. The Company used proceeds, net
of underwriters' discounts and commissions, from the offering to prepay $93.5
million in outstanding indebtedness of the Company under its Senior Credit
Facility.
On November 1, 1999, the Company acquired the manufacturing assets of
Kewaunee Engineering Corporation ("Kewaunee") for approximately $6.2 million in
cash plus assumption of certain liabilities aggregating $2.3 million. Kewaunee
is a fabricator of heavy-steel components such as cranes and aerial devices.
Kewaunee manufactures all of the Company's current requirements for aerial
devices in its fire and emergency segment. The acquisition of Kewaunee will be
accounted for using the purchase method of accounting and, accordingly, the
operating results of Kewaunee will be included in the Company's consolidated
statements of income beginning November 1, 1999 as part of the Company's fire
and emergency segment. The acquisition was financed from borrowings under the
Company's Senior Credit Facility.
Acquisition History
Since 1996, the Company has selectively pursued strategic acquisitions in
order to enhance its product offerings and diversify its business. The Company
has focused its acquisition strategy in specialty truck and truck body markets
that are growing and where it can develop strong market positions and achieve
acquisition synergies. Identified below is information with respect to these
acquisitions, all of which have been accounted for using the purchase method of
accounting and have been included in the Company's results of operations from
the date of acquisition.
On September 18, 1996, the Company acquired for cash all of the issued and
outstanding capital stock of Pierce Manufacturing Inc. ("Pierce"), a leading
manufacturer and marketer of fire trucks and other emergency apparatus for
$156.9 million, including acquisition costs and net of cash acquired. The
acquisition was financed from borrowings under a subsequently retired bank
credit facility.
On December 19, 1997, Pierce acquired certain inventory, machinery and
equipment, and intangible assets of Nova Quintech, a division of Nova Bus
Corporation, for $3.6 million. Nova Quintech was engaged in the manufacture and
sale of aerial devices for fire trucks.
On February 26, 1998, the Company acquired for cash all of the issued and
outstanding capital stock of McNeilus Companies, Inc. ("McNeilus") and entered
into related non-compete and ancillary agreements for $217.6 million, including
acquisition costs and net of cash acquired. McNeilus is a leading manufacturer
and marketer of rear-discharge concrete mixers and portable concrete batch
plants for the concrete placement industry and refuse truck bodies for the waste
services industry in the United States. The acquisition was financed from
borrowings under a Senior Credit Facility and the issuance of Senior
Subordinated Notes.
As indicated above, on November 1, 1999, the Company acquired certain
assets and assumed certain liabilities of Kewaunee.
<PAGE>
Results of Operations
Analysis of Consolidated Net Sales--Three Years Ended September 30, 1999
The following table presents net sales by business segment (in thousands):
Fiscal Year Ended September 30,
1999 1998 1997
---- ---- ----
Net sales to unaffiliated customers:
Commercial............................ $ 607,678 $ 354,165 $ 107,944
Fire and emergency.................... 336,241 301,181 292,382
Defense............................... 222,535 247,956 282,826
Corporate and other................... (1,500) (510) 82
----------- --------- ---------
Consolidated...................... $ 1,164,954 $ 902,792 $ 683,234
=========== ========= =========
The following table presents net sales by geographic region based on
product shipment destination (in thousands):
Fiscal Year Ended September 30,
1999 1998 1997
---- ---- ----
Net sales:
United States......................... $ 1,113,214 $ 857,310 $ 628,265
Other North America................... 7,822 4,678 688
Middle East........................... 21,713 16,889 22,836
Other................................. 22,205 23,915 $ 31,445
----------- --------- ---------
Consolidated...................... $ 1,164,954 $ 902,792 $ 683,234
=========== ========= =========
FISCAL 1999 COMPARED TO FISCAL 1998
Consolidated net sales increased $262.2 million, or 29.0%, to $1,165.0
million in fiscal 1999 compared to fiscal 1998. Fiscal 1998 results included
seven months of operations of McNeilus, which was acquired in February 1998,
while fiscal 1999 results included a full twelve months of McNeilus operations.
On a pro forma basis, assuming McNeilus had been acquired at the beginning of
fiscal 1998, net sales increased $124.0 million, or 11.9%, in fiscal 1999
compared to fiscal 1998.
Commercial segment net sales increased $253.5 million, or 71.6%, in fiscal
1999 compared to fiscal 1998. Strong end markets in the concrete placement
industry, the introduction of a new cab and mixer package for Oshkosh's
front-discharge concrete mixer, and sales, marketing and distribution synergies
created through the acquisition of McNeilus contributed to a 24% increase in
concrete mixer sales compared to prior year pro forma sales. Refuse truck and
truck body sales increased 36% compared to pro forma 1998 sales, generally as a
result of commercial waste haulers accelerating the replacement of refuse
packers in their fleets and as a result of McNeilus increasing sales penetration
with both commercial and municipal accounts.
Fire and emergency segment net sales increased $35.1 million, or 11.6%, in
fiscal 1999 compared to fiscal 1998. Pierce comprises the largest share of this
segment and has increased its sales at a compound annual growth rate of 11%
since 1980. Pierce's sales increased 10.9% in fiscal 1999 compared to fiscal
1998, generally as a result of strong market demand, expanding international
sales and new product introductions.
Defense segment net sales decreased $25.4 million, or 10.2%, in fiscal 1999
compared to fiscal 1998. Defense sales declined due to the trend of lower heavy
military truck spending in the federal budget and the completion of the
ISO-Compatible Palletized Flatrack ("IPF") contract in fiscal 1998, which had
fiscal 1998 sales of $32.0 million. Vehicle sales under the Company's Medium
Tactical Vehicle Replacement ("MTVR") contract awarded to Oshkosh in December
1998 will not begin until the first quarter of fiscal 2000. Reversal of the
trend
<PAGE>
toward lower heavy military truck spending combined with initial sales of the
MTVR vehicle will result in increased defense sales in fiscal 2000 compared to
fiscal 1999.
FISCAL 1998 COMPARED TO FISCAL 1997
Consolidated net sales increased $219.6 million, or 32.1%, to $902.8
million in fiscal 1998 compared to fiscal 1997, generally as a result of the
acquisition of McNeilus, which was partially offset by lower defense sales.
Fiscal 1998 results included seven months of operations of McNeilus.
Commercial segment net sales increased $246.2 million, or 228.1%, in fiscal
1998 compared to fiscal 1997. The inclusion of the McNeilus operations for seven
months of fiscal 1998 accounted for $239.6 million of the increase.
Fire and emergency segment sales increased $8.8 million, or 3.0%, in fiscal
1998 compared to fiscal 1997. Pierce fire apparatus sales increased 10.9%
following the introduction of Pierce products to Oshkosh's international dealer
network. However, aircraft rescue and firefighting truck sales declined due to
significant world-wide price discounting by competitors.
Defense segment sales decreased $34.9 million, or 12.3%, in fiscal 1998
compared to fiscal 1997. The previously-mentioned trend in lower heavy military
truck spending in the federal budget and, to a lesser extent, the completion of
the multi-year IPF contract in July 1998 ($9.4 million lower sales in fiscal
1998 compared to fiscal 1997) were primary factors for the decrease in defense
segment sales.
Analysis of Consolidated Operating Income--Three Years Ended September 30, 1999
The following table presents operating income by business segment (in
thousands):
Fiscal Year Ended September 30,
1999 1998 1997
---- ---- ----
Operating income (loss):
Commercial............................ $ 48,995 $ 19,317 $ (3,742)
Fire and emergency.................... 26,758 25,581 28,480
Defense............................... 22,878 22,680 20,155
Corporate and other................... (22,418) (18,858) (16,108)
-------- -------- --------
Consolidated...................... $ 76,213 $ 48,720 $ 28,785
======== ======== ========
FISCAL 1999 COMPARED TO FISCAL 1998
Consolidated operating income increased $27.5 million, or 56.4%, in fiscal
1999 compared to fiscal 1998. Fiscal 1998 results included seven months of
operations of McNeilus, while fiscal 1999 results included a full twelve months
of McNeilus operations. Fiscal 1999 consolidated operating income increased
$18.1 million, or 31.2% over pro forma fiscal 1998 consolidated operating
income, assuming McNeilus had been acquired at the beginning of fiscal 1998.
Commercial segment operating income increased $29.7 million, or 153.6%, in
fiscal 1999 compared to fiscal 1998. On a pro forma basis, assuming McNeilus had
been acquired at the beginning of fiscal 1998, operating income increased $20.3
million, or 70.7%, in fiscal 1999 compared to fiscal 1998. Operating income as a
percent of segment sales ("operating income margin") increased to 8.1% of
commercial segment sales in fiscal 1999 compared to 5.5% of commercial segment
sales in fiscal 1998. Increased concrete mixer unit volume and manufacturing,
purchasing and distribution synergies generated as a result of the acquisition
of McNeilus contributed to the improvement in the operating income margin. Also,
fiscal 1998 results included a $1.9 million charge related to an impairment loss
on previously-acquired concrete mixer technology.
<PAGE>
Fire and emergency segment operating income increased $1.2 million, or
4.6%, in fiscal 1999 compared to fiscal 1998. The operating income margin
decreased from 8.5% in fiscal 1998 to 8.0% in fiscal 1999. Benefits of increased
sales volume were offset by short-term production inefficiencies following the
installation at Pierce of the final modules of a new enterprise-wide resource
planning system during the third quarter of fiscal 1999. By the end of September
1999, Pierce had significantly reduced those production inefficiencies.
Management believes any lingering effects from the system conversion will be
substantially resolved by the end of the first quarter of fiscal 2000.
Defense segment operating income was comparable in fiscal 1999 and fiscal
1998 ($0.2 million increase in fiscal 1999). However, the operating income
margin increased from 9.1% in fiscal 1998 to 10.3% in fiscal 1999. Fiscal 1998
results included the low margin IPF contract and bid-and-proposal costs on the
MTVR contract.
Corporate and other expenses increased $3.6 million to $22.4 million, or
1.9% of consolidated net sales, from $18.9 million, or 2.1% of consolidated net
sales, in fiscal 1998. Fiscal 1999 results included a $3.5 million charge in
connection with the settlement of litigation.
FISCAL 1998 COMPARED TO FISCAL 1997
Consolidated operating income increased $19.9 million, or 69.6%, in fiscal
1998 compared to fiscal 1997. Fiscal 1998 results included seven months of
operations of McNeilus compared to none in fiscal 1997. The inclusion of
operations of McNeilus for seven months in fiscal 1998 contributed $22.5 million
of the operating income increase.
Commercial segment operating income increased $23.1 million in fiscal 1998
compared to fiscal 1997, with McNeilus contributing $22.5 million of the
increase. Increased operating income due to higher sales volume was partially
offset by a $1.9 million impairment charge related to previously-acquired mixer
technology. The operating income margin increased from a negative 3.5% of
commercial segment sales in fiscal 1997 to a positive 5.5% of commercial segment
sales in fiscal 1998.
Fire and emergency segment operating income decreased $2.9 million in
fiscal 1998 compared to fiscal 1997 due to lower gross income on reduced sales
of the Company's aircraft rescue and firefighting trucks caused by significant
world-wide price discounting by competitors. This increased competition was
largely responsible for the reduction in operating income margins to 8.5% in
fiscal 1998 compared to 9.7% in fiscal 1997. Operating income at Pierce grew
7.1%, just slightly lower than the rate of increase in sales, as a result of
increased costs related to new product introductions.
Defense segment operating income increased $2.5 million in fiscal 1998
compared to fiscal 1997, principally due to an improved mix of heavy tactical
truck sales. This improved mix also contributed to the increase in operating
income margin from 7.1% in fiscal 1997 to 9.1% in fiscal 1998.
Corporate and other expenses increased $2.8 million to $18.9 million, or
2.1% of consolidated net sales, in fiscal 1998 compared to $16.1 million, or
2.4% of consolidated net sales, in fiscal 1997.
Analysis of Non-operating Income Statement Items--Three Years Ended September
30, 1999
FISCAL 1999 COMPARED TO FISCAL 1998
Interest expense increased $5.3 million, or 24.4%, in fiscal 1999 compared
to fiscal 1998. Increased interest expense generally relates to indebtedness
incurred in connection with the McNeilus acquisition being outstanding for a
full twelve months in fiscal 1999 compared to only seven months in fiscal 1998.
Interest expense as a percent of net sales dropped to 2.3% in fiscal 1999
compared to 2.4% in fiscal 1998 as the Company paid down debt during fiscal
1999.
The provision for income taxes in fiscal 1999 was $21.3 million, or 41.8%
of pre-tax income, compared to $12.7 million, or 44.2% of pre-tax income, in
fiscal 1998. The effective tax rate was adversely impacted by
<PAGE>
nondeductible goodwill amortization of $5.5 million in fiscal 1999 and $4.2
million in fiscal 1998 related to the acquisitions of McNeilus and Pierce.
Equity in earnings of an unconsolidated lease financing partnership of $1.5
million in fiscal 1999 included a full twelve months of the Company's share of
the after-tax income of the lease financing partnership. Fiscal 1998 equity in
earnings of $0.3 million included seven months of operations of the lease
financing partnership since its formation in February 1998, which was offset by
the Company's share of the write-off of organization costs ($1.5 million
pre-tax, $0.9 million after-tax) in accordance with the issuance of a new
accounting standard.
The $0.1 million extraordinary charge in fiscal 1999 and the $1.2 million
extraordinary charge in fiscal 1998 related to the write-off of deferred
financing costs for that portion of debt prepaid during the respective fiscal
year.
FISCAL 1998 COMPARED TO FISCAL 1997
Interest expense increased $8.8 million to $21.5 million in fiscal 1998
compared to $12.7 million in fiscal 1997 as a result of financing the McNeilus
acquisition.
The provision for income taxes in fiscal 1998 was $12.7 million, or 44.2%
of pre-tax income, compared to $6.5 million, or 39.4% of pre-tax income, in
fiscal 1997. The effective income tax rate in fiscal 1998 was adversely affected
by non-deductible goodwill of $4.2 million related to the acquisitions of Pierce
in September 1996 and McNeilus in February 1998. The effective income tax rate
in fiscal 1997 was adversely impacted by non-deductible goodwill of $2.6 million
related to the acquisition of Pierce in fiscal 1996 and benefited from the
reversal of $0.9 million of prior years' provisions for income taxes.
Equity in earnings of an unconsolidated lease financing partnership of $0.3
million in fiscal 1998 represented the Company's after-tax share of income of
the lease financing partnership since its formation in February 1998. These
results included the Company's share of the write-off of organization costs
($1.5 million pre-tax, $0.9 million after-tax) incurred by the partnership in
fiscal 1998.
The $1.2 million after-tax extraordinary charge recorded in fiscal 1998
related to the write-off of deferred financing costs for that portion of debt
prepaid during the year.
Financial Condition
Fiscal Year Ended September 30, 1999
During fiscal 1999, cash increased by $1.5 million to $5.1 million at
September 30, 1999. Cash provided from operating activities of $39.0 million was
used to fund capital expenditures of $13.1 million, reduce indebtedness by $20.3
million (including $15.8 million of debt prepayments) and pay dividends of $4.2
million. Cash provided from operating activities in fiscal 1999 was impacted by
a $49.3 million increase in inventory. The increase in inventory is primarily
the result of the timing of truck chassis purchases at McNeilus.
The Company's debt-to-total-capital ratio at September 30, 1999 was 61.5%.
In November 1999, the Company completed a secondary offering of 3,795,000 shares
of Common Stock at $26.00 per share, before commissions and expenses. Proceeds
to the Company from the offering, net of underwriting discounts and commissions,
were used to prepay $93.5 million of term debt under the Company's Senior Credit
Facility. The Company's pro forma debt-to-total-capital ratio at September 30,
1999, after giving effect to the debt prepayment from proceeds of the Company's
November 1999 equity offering, was 39.6%.
Fiscal Year Ended September 30, 1998
During fiscal 1998, cash decreased by $19.6 million to $3.6 million at
September 30, 1998. Cash available at the beginning of the year of $23.2
million, $11.1 million of cash equivalents acquired from McNeilus and cash
<PAGE>
provided from operating activities of $79.9 million were used primarily to fund
$78.0 million of debt repayments (including $25.0 million prior to the
acquisition of McNeilus), a $16.3 million reduction of the Company's Revolving
Credit Facility, the acquisition of Nova Quintech for $3.6 million, property,
plant and equipment additions of $8.6 million and dividends of $4.2 million. The
Company borrowed $347.3 million in February 1998, including $225.0 million under
a multi-tranche Senior Credit Facility, $100.0 million of Senior Subordinated
Notes and $22.3 million under a new $100 million Revolving Credit Facility. The
Company used borrowings to refinance outstanding indebtedness of $110.0 million
under a previous credit facility and to pay $8.6 million of debt issuance costs.
The Company also used borrowings to close the McNeilus transaction for $249.5
million consideration plus $6.0 million in acquisition costs less cash acquired
of $37.9 million, $11.1 million of which was temporarily invested at the
acquisition date.
Liquidity and Capital Resources
The Company had approximately $87.0 million of unused availability under
the terms of its Revolving Credit Facility as of September 30, 1999. 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 expected to be
cash flow from operations and borrowings under the Company's Senior Credit
Facility. As indicated above, in November 1999 the Company completed the sale of
3,795,000 shares of its Common Stock. Proceeds to the Company from the offering,
net of underwriting discounts and commissions, were used to repay $93.5 million
of term indebtedness under the Company's Senior Credit Facility. In addition, in
November 1999 the Company purchased the manufacturing assets of Kewaunee for
approximately $6.2 million in cash plus the assumption of certain liabilities
aggregating approximately $2.3 million. See Note 15 to the Notes to Consolidated
Financial Statements. The Kewaunee acquisition was financed through borrowings
under the Company's Revolving Credit Facility. The effects of the recent
transactions are to increase annual dividend requirements (based on the fourth
quarter dividend rate and the additional shares outstanding) to $5.7 million.
The Senior Credit Facility requires prepayment of indebtedness to the extent of
"excess cash flows" as defined in the Senior Credit Agreement. Based upon
current and anticipated future operations, management believes that capital
resources will be adequate to meet future working capital, debt service and
other capital requirements for fiscal 2000, including the working capital
requirements associated with the start-up of production under the MTVR contract
and the acquisition of Kewaunee.
The Company's cash flow from operations has fluctuated, and will likely
continue to fluctuate, significantly from quarter to quarter due to changes in
working capital requirements arising principally from seasonal fluctuations in
sales.
The Company's Senior Credit Facility and Senior Subordinated Notes contain
various restrictions and covenants 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 Note 4 to the Notes to Consolidated Financial
Statements.
The Company's Senior Credit Facility accrues interest at variable rates.
The Company presently has no plans to enter into interest rate swap arrangements
to limit exposure to future increases in interest rates.
Capital expenditures are expected to approximate $15 to $17 million
annually through fiscal 2001.
Year 2000
General. The Company commenced a corporate-wide Year 2000 project in 1997
to address issues with respect to the ability of computer programs and embedded
computer chips to distinguish between the years 1900 and 2000. The Year 2000
project is complete in all material respects. Material items are those
management believes to have a risk involving the safety of individuals, or that
may cause damage to property or affect revenues and expenses. Management
believes all of the Company's principal enterprise resource planning systems and
all other significant information systems are Year 2000 ready.
<PAGE>
Year 2000 Project. The Company's Year 2000 project addressed four principal
areas: infrastructure and applications software; company-produced trucks and
equipment; process controls and instrumentation; and third-party suppliers and
customers. The project phases common to each area included:
o development of an inventory of Year 2000 risks;
o assignment of priorities to identified risks;
o assessment of Year 2000 compliance and impact of noncompliance;
o tests to determine whether any upgrade or replacement is required;
o upgrade or replacement of items that are determined not to be Year
2000 compliant if the impact of noncompliance is material; and
o design and implementation of contingency and business continuation
plans for each organization and facility.
Infrastructure and Applications Software. As the Company addresses its
infrastructure and applications software, it tests and then upgrades or replaces
the affected hardware and systems software, as necessary. The Company maintains
two enterprise resource planning computer systems at its Oshkosh operations and
one system each at its Pierce and McNeilus operations. In May 1999, the Company
consolidated its Florida computer operations into Oshkosh's computer operations.
The Company installed an upgraded release of software, which is certified by the
software vendor as being Year 2000 ready, to its enterprise resource planning
system for truck operations in Oshkosh in July 1998. Programming to upgrade the
remaining Oshkosh enterprise resource planning system for the parts operations
was completed in December 1998. In April 1999, Pierce completed the replacement
of all of its hardware and business systems with a new, enterprise resource
planning system and related hardware, which are certified by the vendors as
being Year 2000 ready. McNeilus installed upgraded releases to its enterprise
resource planning systems in August and September 1998 and August 1999.
Validation testing of all enterprise resource planning systems to assure that
the systems are Year 2000 ready was completed in October 1999.
Management believes other infrastructure and applications software,
including engineering systems, pose lesser risks in the event of Year 2000
noncompliance due to a wider range of less disruptive commercial options
available to cure noncompliance. The Company has upgraded or replaced all such
significant non-compliant systems.
Company-Produced Trucks and Equipment. The Company has communicated with
suppliers that are critical to the manufacture of our products to verify whether
computer chips embedded in our trucks and equipment are Year 2000 ready and has
issued service bulletins to customers with respect to the findings. The Company
has not identified any material issues with respect to computer chips embedded
into our products. Nevertheless, there can be no assurance at this time that our
investigation was complete or that material warranty and product liability
issues will not develop with respect to this matter. To the extent that the
Company's suppliers experience Year 2000 problems and the Company is unable to
source alternate suppliers, changes to its products may be necessary to avoid
warranty and liability, both as to products already in use and as to products to
be shipped in the future.
Process Controls and Instrumentation. To the Company's knowledge, all of
its process controls and instrumentation have been upgraded to be Year 2000
ready, if necessary. It is possible that testing and investigation of process
controls and instrumentation was incomplete given the magnitude of this task,
but the Company believes that all material equipment and systems will function
properly in the year 2000.
External Parties. The Company has surveyed critical parts and all chassis
suppliers to assess the Year 2000 readiness of their products and business
systems. The Company's largest suppliers are large public companies and, as
such, generally have significant projects completed or underway similar to the
Company's Year 2000 project. However, the Company cannot give any assurance that
these suppliers or its smaller suppliers will not have Year 2000 issues with
their processes or business systems that ultimately could have a material effect
on the
<PAGE>
Company in spite of those projects. Where suppliers were deemed to pose
significant risk to the Company's operations, the Company developed alternate
suppliers or contingency plans.
The Company does not maintain significant computer interfaces with its
customers, except with the Department of Defense, where invoices and remittances
are sent by electronic data interchange. The Department of Defense is an
extremely large organization. Some departments within the Department of Defense
that interface with the Company have communicated that they were Year 2000
compliant as of March 31, 1999. However, the Department of Defense has not
provided the Company with any assurances that all of its systems will be Year
2000 compliant, or whether Department of Defense computer interfaces with other
U.S. government entities will be Year 2000 ready. Should the Department of
Defense encounter Year 2000 difficulties, the Company's financial condition,
profitability and cash flows could be materially adversely affected.
Additionally, the Company's other customers could lose business or otherwise
encounter Year 2000 issues that could ultimately affect our financial condition,
profitability and cash flows.
Costs. The total estimated capital costs of the Year 2000 project, which
would have been incurred regardless of Year 2000 issues and which have the
incidental consequence of Year 2000 readiness, are $9.7 million. Period expenses
of the Year 2000 project are $1.0 million. As of September 30, 1999, the Company
had expended $9.6 million of these capital costs and $0.9 million of these
period expenses. Approximately $9.0 million of the estimated capital costs
relate to the replacement of hardware and business systems at Pierce, which was
completed in April 1999. None of the Company's other information systems
projects have been delayed due to the Year 2000 project.
Risks. Under the Year 2000 project, as in any project of this magnitude and
scope, the risk of underestimating the tasks and difficulties to be encountered
exists. Risk also exists in that the failure to correct a material Year 2000
problem could result in an interruption in, or a failure of, normal business
activities or operations. In part due to the uncertainty of the Year 2000
readiness of third-party suppliers, service providers and customers, the Company
is unable to determine at this time whether the consequences of Year 2000
failures will have a material impact on the Company's financial condition,
profitability and cash flows. The Year 2000 project is expected to significantly
reduce the Company's level of uncertainty about the Year 2000 problem and, in
particular, about the Year 2000 compliance and readiness of the Company's
material third-party suppliers, service providers and customers. The Company
believes that, with the installation of new or upgraded enterprise resource
planning systems and completion of the Year 2000 project as scheduled, the
possibility of significant interruptions of normal operations should be reduced.
In fact, many of the Company's business systems, including sales order,
materials planning and purchasing systems, have been properly processing year
2000 transactions for several months. The Company has established contingency
plans in the event that any unexpected issues arise when the Year 2000 arrives.
New Accounting Standards
The Financial Accounting Standards Board issued SFAS No. 133, "Accounting
for Derivative Instruments and Hedging Activities," which was amended by SFAS
No. 137. Provisions of these standards are required to be adopted in years
beginning after June 15, 2000. Because of the Company's minimal use of
derivatives, management does not anticipate that the adoption of the new
statement will have a significant effect on the Company's financial condition,
profitability or cash flows.
Customers and Backlog
Sales to the U. S. Department of Defense comprised approximately 19% of the
Company's net sales in fiscal 1999. No other single customer accounted for more
than 10% of the Company's net 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 backlog at September 30, 1999 was $486.5 million compared to
$377.5 million at September 30, 1998. Backlog related to the U. S. Department of
Defense increased by $53.4 million to $163.9 million in 1999 compared to 1998,
with approximately $46.6 million due to the multi-year MTVR contract awarded in
December 1998. Fire and emergency and commercial backlogs increased by $16.6
million to $200.3 million and
<PAGE>
$39.0 million to $122.3 million, respectively, at September 30, 1999 compared to
amounts at the same date in the prior year. Approximately 94% of the September
30, 1999 backlog is expected to be filled in fiscal 2000.
Reported backlog excludes purchase options and announced orders for which
definitive contracts have not been executed. Additionally, backlog excludes
unfunded portions of the U. S. Department of Defense long-term family and MTVR
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 U. S. Department of Defense versus its sales to other customers.
Financial Market Risk
The Company's primary financial market risk exposures consist of interest
rate risk from its fixed and variable rate long-term debt and foreign currency
risk resulting from multi-unit sales contracts denominated in foreign
currencies.
The Company's interest expense is sensitive to changes in the interest
rates in the U.S. and off-shore markets. In this regard, changes in U.S. and
off-shore interest rates affect interest payable on the Company's long-term
borrowing under its Senior Credit Facility. The Company has not historically
utilized derivative securities to fix variable rate interest obligations or to
make fixed-rate interest obligations variable. After consideration of the
November 1999 prepayment of long-term debt from proceeds of the Company's
offering of Common Stock, if short-term interest rates averaged two percent more
in fiscal 2000 than in fiscal 1999, the Company's interest expense would
increase, and pre-tax income would decrease by approximately $3.3 million.
Similarly, if interest rates increased by two percent, the fair value of the
Company's $100 million fixed rate, long-term notes at September 30, 1999 would
decrease by approximately $12 million. These amounts are determined by
considering the impact of the hypothetical interest rates on the Company's
borrowing cost, but do not consider the effects of the reduced level of overall
economic activity that could exist in such an environment. Further, in the event
of a change of such magnitude, management would likely take actions to mitigate
the Company's exposure to the change. However, due to the uncertainty of the
specific actions that would be taken and their possible effects, the foregoing
sensitivity analysis assumes no changes in the Company's financial structure
other than as noted.
The Company's operations consist of manufacturing in the U. S. and sales
activities in the U. S. and in various foreign jurisdictions. Export sales were
less than five percent of overall net sales in fiscal 1999. Generally, the
Company attempts to seek payment in U. S. dollars for large multi-unit sales
contracts which span several months or years. From time to time, the Company has
entered into foreign exchange forward contracts to minimize foreign currency
risk in sales contracts denominated in currency other than U. S. dollars.
Foreign currency denominated transactions are immaterial to the Company's
operations.
<PAGE>
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, 1999 and 1998, and the related
consolidated statements of income, shareholders' equity and cash flows for each
of the three years in the period ended September 30, 1999. 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, 1999 and 1998, and the consolidated results of its operations and
its cash flows for each of the three years in the period ended September 30,
1999, in conformity with generally accepted accounting principles.
Milwaukee, Wisconsin ERNST & YOUNG LLP
October 23, 1999, except for
Notes 4 and 15, as to which
the date is November 24, 1999
<PAGE>
<TABLE>
OSHKOSH TRUCK CORPORATION
Consolidated Statements of Income
<CAPTION>
Fiscal Year Ended September 30,
------------------------------
1999 1998 1997
---- ---- ----
(In thousands, except per share amounts)
<S> <C> <C> <C>
Net sales................................................. $1,164,954 $902,792 $683,234
Cost of sales............................................ 991,573 776,756 602,237
---------- -------- --------
Gross income......................................... 173,381 126,036 80,997
Operating expenses:
Selling, general and administrative.................. 85,996 69,001 47,742
Amortization of goodwill and other intangibles....... 11,172 8,315 4,470
---------- -------- --------
Total operating expenses...................... 97,168 77,316 52,212
---------- -------- --------
Operating income.......................................... 76,213 48,720 28,785
Other income (expense):
Interest expense...................................... (26,744) (21,490) (12,722)
Interest income....................................... 760 1,326 717
Miscellaneous, net.................................... 730 92 (278)
---------- -------- --------
(25,254) (20,072) (12,283)
---------- -------- --------
Income before income taxes, equity in earnings of
unconsolidated partnership and extraordinary item...... 50,959 28,648 16,502
Provision for income taxes................................ 21,313 12,655 6,496
---------- -------- --------
29,646 15,993 10,006
Equity in earnings of unconsolidated partnership, net of
income taxes of $948 and $167.......................... 1,545 260 --
---------- -------- --------
Income before extraordinary item.......................... 31,191 16,253 10,006
Extraordinary charge for early retirement of debt, net of
income tax benefit of $37 and $757..................... (60) (1,185) --
---------- -------- --------
Net income................................................ $ 31,131 $ 15,068 $ 10,006
========== ======== ========
Earnings (loss) per share:
Income before extraordinary item...................... $ 2.45 $ 1.29 $ 0.78
Extraordinary item.................................... -- (0.09) --
---------- -------- --------
Net income............................................ $ 2.45 $ 1.20 $ 0.78
========== ======== ========
Earnings (loss) per share assuming dilution:
Income before extraordinary item...................... $ 2.39 $ 1.27 $ 0.78
Extraordinary item.................................... -- (0.09) --
---------- -------- --------
Net income............................................ $ 2.39 $ 1.18 $ 0.78
========== ======== ========
See accompanying notes.
</TABLE>
<PAGE>
<TABLE>
OSHKOSH TRUCK CORPORATION
Consolidated Balance Sheets
<CAPTION>
September 30,
------------
1999 1998
---- ----
(In thousands, except share
Assets and per share amounts)
Current assets:
<S> <C> <C>
Cash and cash equivalents........................................... $ 5,137 $ 3,622
Receivables, net.................................................... 93,186 80,982
Inventories......................................................... 198,446 149,191
Prepaid expenses.................................................... 4,963 3,768
Deferred income taxes............................................... 14,558 12,281
-------- --------
Total current assets............................................. 316,290 249,844
Investment in unconsolidated partnership................................ 12,335 13,496
Other long-term assets.................................................. 20,853 14,198
Property, plant and equipment:
Land................................................................ 8,070 7,574
Buildings........................................................... 66,097 64,566
Machinery and equipment............................................. 80,430 84,643
-------- --------
154,597 156,783
Less accumulated depreciation....................................... (70,606) (75,947)
-------- --------
Net property, plant and equipment................................ 83,991 80,836
Goodwill and other intangible assets, net............................... 319,821 326,665
-------- --------
Total assets............................................................ $753,290 $685,039
======== ========
Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable.................................................... $ 84,727 $ 65,171
Floor plan notes payable............................................ 26,616 11,645
Customer advances................................................... 68,364 44,915
Payroll-related obligations......................................... 24,734 24,124
Accrued warranty.................................................... 14,623 15,887
Other current liabilities........................................... 48,462 43,498
Revolving credit facility and current maturities of long-term debt.. 5,259 3,467
-------- --------
Total current liabilities...................................... 272,785 208,707
Long-term debt.......................................................... 255,289 277,337
Deferred income taxes................................................... 44,265 47,832
Other long-term liabilities............................................. 18,071 19,867
Commitments and contingencies.......................................... -- --
Shareholders' equity:
Preferred Stock, $.01 par value; authorized - 2,000,000 shares;
none issued and outstanding..................................... -- --
Class A Common Stock, $.01 par value; authorized - 1,000,000 shares;
issued - 425,985 in 1999 and 445,332 in 1998.................... 4 4
Common Stock, $.01 par value; authorized 18,000,000 shares;
issued - 13,611,044 in 1999 and 13,591,916 in 1998.............. 136 136
Paid-in capital..................................................... 15,997 14,665
Retained earnings................................................... 157,810 130,959
Common Stock in treasury, at cost: 1,206,874 shares in 1999 and
1,406,496 shares in 1998........................................ (11,067) (12,664)
Minimum pension liability adjustment................................ -- (1,804)
-------- --------
Total shareholders' equity...................................... 162,880 131,296
-------- --------
Total liabilities and shareholders' equity.............................. $753,290 $685,039
======== ========
</TABLE>
See accompanying notes.
<PAGE>
<TABLE>
OSHKOSH TRUCK CORPORATION
Consolidated Statements of Shareholders' Equity
<CAPTION>
Cost of Minimum
Common Pension
Common Paid-In Retained Stock in Liability
Stock Capital Earnings Treasury Adjustment Total
--------- --------- --------- --------- ---------- ---------
(In thousands, except share and per share amounts)
<S> <C> <C> <C> <C> <C> <C>
Balance at September 30, 1996
as previously reported....................... $ 93 $ 16,059 $ 114,246 $ (8,796) $ -- $ 121,602
Three-for-two stock split
effective August 19, 1999.................... 47 (47) -- -- -- --
---- -------- --------- --------- ------- ---------
Balance at September 30, 1996.................... 140 16,012 114,246 (8,796) -- 121,602
Net income and comprehensive income.............. -- -- 10,006 -- -- 10,006
Cash dividends:
Class A Common Stock
($.29000 per share)...................... -- -- (177) -- -- (177)
Common Stock ($.33333 per share)............. -- -- (3,990) -- -- (3,990)
Purchase of Common Stock for treasury............ -- -- -- (4,246) -- (4,246)
Purchase of 1,875,000 stock warrants............. -- (2,504) -- -- -- (2,504)
Exercise of stock options........................ -- 36 -- 173 -- 209
---- -------- --------- --------- ------- ---------
Balance at September 30, 1997.................... 140 13,544 120,085 (12,869) -- 120,900
Comprehensive income:
Net income................................... -- -- 15,068 -- -- 15,068
Minimum pension liability adjustment......... -- -- -- -- (1,804) (1,804)
---------
Comprehensive income..................... 13,264
Cash dividends:
Class A Common Stock
($.29000 per share)...................... -- -- (153) -- -- (153)
Common Stock ($.33333 per share)............. -- -- (4,041) -- -- (4,041)
Exercise of stock options........................ -- 255 -- (217) -- 38
Tax benefit related to stock options exercised... -- 468 -- -- -- 468
Issuance of Common Stock under incentive
compensation plan............................ -- 398 -- 422 -- 820
---- -------- --------- --------- ------- ---------
Balance at September 30, 1998.................... 140 14,665 130,959 (12,664) (1,804) 131,296
Comprehensive income:
Net income................................... -- -- 31,131 -- -- 31,131
Minimum pension liability adjustment......... -- -- -- -- 1,804 1,804
-------
Comprehensive income..................... 32,935
Cash dividends:
Class A Common Stock
($.29250 per share)...................... -- -- (125) -- -- (125)
Common Stock ($.33625 per share)............. -- -- (4,155) -- -- (4,155)
Exercise of stock options........................ -- (156) -- 1,597 -- 1,441
Tax benefit related to stock options exercised... -- 1,496 -- -- -- 1,496
Other............................................ -- (8) -- -- -- (8)
---- -------- --------- --------- ------- ---------
Balance at September 30, 1999.................... $140 $ 15,997 $ 157,810 $ (11,067) $ -- $ 162,880
==== ======== ========= ========= ======= =========
</TABLE>
See accompanying notes.
<PAGE>
<TABLE>
OSHKOSH TRUCK CORPORATION
Consolidated Statements of Cash Flows
<CAPTION>
Fiscal Year Ended September 30,
1999 1998 1997
-------- -------- --------
(In thousands)
Operating activities:
<S> <C> <C> <C>
Income before extraordinary item............................... $ 31,191 $ 16,253 $ 10,006
Provision for impairment of assets............................. -- 5,800 --
Depreciation and amortization.................................. 23,157 18,698 14,070
Write-off (gain from sale) of investments...................... -- (3,375) 200
Deferred income taxes.......................................... (3,370) 26 (3,980)
Equity in earnings of unconsolidated partnership............... (2,493) (427) --
(Gain) loss on disposal of property, plant and
equipment................................................ 59 122 (43)
Changes in operating assets and liabilities:
Receivables, net........................................... (12,204) 20,900 (4,611)
Inventories................................................ (49,255) 9,958 29,792
Prepaid expenses........................................... (1,195) (260) 214
Other...................................................... (2,017) 725 1,578
Accounts payable........................................... 19,556 956 (958)
Floor plan notes payable................................... 14,971 (11,377) --
Customer advances.......................................... 23,449 10,718 2,331
Payroll-related obligations................................ 510 3,480 2,314
Accrued warranty........................................... (2,264) (1,883) 3,378
Other current liabilities.................................. (1,803) 6,750 10,893
Other long-term liabilities................................ 756 2,877 598
-------- -------- --------
Net cash provided from operating activities............ 39,048 79,941 65,782
Investing activities:
Acquisitions of businesses, net of cash acquired............... -- (221,144) --
Additions to property, plant and equipment..................... (13,139) (8,555) (6,263)
Proceeds from sale of investments.............................. -- 3,375 --
Proceeds from sale of property, plant and equipment............ 158 1,524 395
Increase in other long-term assets............................. (1,503) (3,817) (1,532)
-------- --------- --------
Net cash used for investing activities................... (14,484) (228,617) (7,400)
Net cash used for discontinued operations...................... -- (1,093) (1,658)
Financing activities:
Net borrowings (repayments) under revolving credit facility.... (1,000) 6,000 (7,882)
Proceeds from issuance of long-term debt....................... -- 325,000 --
Repayment of long-term debt.................................... (19,256) (188,049) (15,000)
Debt issuance costs............................................ -- (8,641) --
Purchase of Common Stock, Common Stock warrants and
proceeds from exercise of stock options, net............... 1,433 38 (6,541)
Dividends paid................................................. (4,226) (4,176) (4,209)
-------- -------- --------
Net cash provided from (used for) financing
activities............................................. (23,049) 130,172 (33,632)
-------- -------- --------
Increase (decrease) in cash and cash equivalents............... 1,515 (19,597) 23,092
Cash and cash equivalents at beginning of year................. 3,622 23,219 127
-------- -------- --------
Cash and cash equivalents at end of year....................... $ 5,137 $ 3,622 $ 23,219
======== ======== ========
Supplemental disclosures:
Cash paid for interest..................................... $ 26,142 $ 17,240 $ 12,974
Cash paid for income taxes................................. 26,859 11,097 2,998
</TABLE>
See accompanying notes.
<PAGE>
OSHKOSH TRUCK CORPORATION
Notes to Consolidated Financial Statements
September 30, 1999
(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" or "Oshkosh") is a leading manufacturer of a wide variety of
heavy duty specialized trucks and truck bodies predominately for the U.S.
market. The Company sells its products into three principal truck markets --
commercial, fire and emergency, and defense. The Company's commercial truck
business is principally conducted through its wholly-owned subsidiary, McNeilus
Companies, Inc. ("McNeilus"). The Company's fire and emergency business is
principally conducted through its wholly-owned subsidiary, Pierce Manufacturing
Inc. ("Pierce"). The defense business and certain fire and emergency and
commercial truck businesses are conducted through the operations of the parent
company. McNeilus is one of two general partners in Oshkosh/McNeilus Financial
Services Partnership ("OMFSP"), which provides lease financing to the Company's
customers. Each of the two general partners have identical participating and
protective rights and responsibilities and, accordingly, the Company accounts
for its equity interest in OMFSP of 57% at September 30, 1999 and 68% at
September 30, 1998, under the equity method.
Principles of Consolidation and Presentation -- The consolidated financial
statements include the accounts of Oshkosh Truck Corporation and all of its
wholly-owned subsidiaries and are prepared in conformity with U.S. generally
accepted accounting principles. The Company records its interest in OMFSP under
the equity method. 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 $2,150 and $785 at September 30, 1999 and 1998, respectively. The cost
of these securities, which are considered "available for sale" for financial
reporting purposes, approximates fair value at September 30, 1999 and 1998.
Receivables -- Receivables consist of amounts billed and currently due from
customers and unbilled costs and accrued profits related to revenues on
long-term contracts that have been recognized for accounting purposes but not
yet billed to customers.
Inventories -- The Company values the majority of its inventories at the
lower of cost, computed on the last-in, first-out ("LIFO") method, or market.
The remaining inventories are valued at the lower of cost, computed on the
first-in, first-out ("FIFO") 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 using accelerated and straight-line methods. The estimated
useful lives range from 10 to 40 years for buildings and improvements and from 4
to 25 years for machinery and equipment.
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-ten year period, deferred financing costs, which are amortized using
the interest method over the term of the debt, prepaid funding of pension costs,
certain investments and 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.
Goodwill and Other Intangible Assets -- The cost of goodwill and other
intangible assets is amortized on a straight-line basis over the estimated
periods benefited ranging from 5 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
<PAGE>
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. See Note 12.
Floor Plan Notes Payable -- Floor plan notes payable represent liabilities
related to the purchase of commercial truck chassis upon which the Company
mounts its manufactured refuse bodies and rear-discharge cement mixers and
certain fire apparatus. Floor plan notes payable are non-interest bearing for
terms ranging from 75 to 150 days and must be repaid upon the sale of the
vehicle to a customer. The Company's practice is to repay all floor plan notes
for which the non-interest bearing period has expired without sale of the
vehicle to a customer.
Customer Advances -- Customer advances principally represent amounts
received in advance of the completion of fire and emergency and commercial
vehicles. Most of these advances bear interest at variable rates approximating
the prime rate.
Revenue Recognition -- Sales to commercial and fire and emergency customers
are recorded when the goods or services are billable at time of shipment or
delivery of the trucks. Sales under fixed-price defense contracts generally are
recorded as units are accepted by the U.S. government. Sales and anticipated
profits under the Company's Medium Tactical Vehicle Replacement ("MTVR")
long-term, fixed-price production contract are recorded on a
percentage-of-completion basis, generally using units accepted as the
measurement basis for effort accomplished. Estimated contract profits are taken
into earnings in proportion to recorded sales. Sales under certain long-term,
fixed price defense contracts which, among other things, provide for delivery of
minimal quantities or require a significant amount of development effort in
relation to total contract value, are recorded upon achievement of performance
milestones, or using cost-to-cost method of accounting where sales and profits
are recorded based on the ratio of costs incurred to estimated total costs at
completion. Amounts representing contract change orders, claims or other items
are included in sales only when they can be reliably estimated and realization
is probable. When adjustments in contract value or estimated costs are
determined, any changes from prior estimates are reflected in earnings in the
current period. Anticipated losses on contracts or programs in progress are
charged to earnings when identified.
Research and Development and Similar Costs -- Except for certain
arrangements described below, research and development costs are generally
expensed as incurred and included as part of cost of sales. Research and
development costs charged to expense amounted to approximately $10,868, $9,681
and $7,847 during fiscal 1999, 1998 and 1997, respectively. Customer-sponsored
research and development costs incurred pursuant to contracts are accounted for
as contract costs.
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 in fiscal 1999, 1998 and 1997 were $10,508, $9,403
and $9,658, 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.
Financial Instruments -- The carrying amounts of cash equivalents,
receivables, accounts payable and debt approximated fair value as of September
30, 1999 and 1998.
Concentration of Credit Risk -- Financial instruments which potentially
subject the Company to significant concentrations of credit risk consist
principally of cash equivalents, trade accounts receivable and leases receivable
of OMFSP.
The Company maintains cash and cash equivalents, and certain other
financial instruments, with various major financial institutions. The Company
performs periodic evaluations of the relative credit standing of these financial
institutions and limits the amount of credit exposure with any institution.
Concentration of credit risk with respect to trade accounts and leases
receivable is limited due to the large number of customers and their dispersion
across many geographic areas. However, a significant amount of trade receivables
are with the U.S. government, with companies in the ready-mix concrete industry
and with several large waste haulers in the United States. The Company does not
currently foresee a significant credit risk associated with these receivables.
<PAGE>
Derivative Financial Instruments -- The Company may use derivative
financial instruments to manage its exposure to fluctuations in interest rates
and foreign exchange rates. Forward exchange contracts are designated as
qualifying hedges of firm commitments. Gains and losses on these contracts are
recognized in income when the hedged transactions occur. At September 30, 1999,
the amounts of forward exchange contracts outstanding, as well as the amounts of
gains and losses recorded during the year, were not material. The Company does
not hold or issue derivative financial instruments for trading purposes.
Stock-Based Compensation -- The Company measures compensation cost for
stock-based compensation plans using the intrinsic value method of accounting as
prescribed in Accounting Principles Board ("APB") Opinion No. 25, "Accounting
for Stock Issued to Employees," and related interpretations. The Company has
adopted those provisions of Statement of Financial Accounting Standards ("SFAS")
No. 123, "Accounting for Stock-Based Compensation," which require disclosure of
the pro forma effect on net earnings and earnings per share as if compensation
cost had been recognized based upon the estimated fair value at the date of
grant for options awarded.
Environmental Remediation Costs -- 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 Per Share -- The following table sets forth the computation of
basic and diluted weighted average shares used in the per share calculations:
Fiscal Year Ended September 30,
1999 1998 1997
---------- ---------- ----------
Denominator for basic earnings per
share.......................... 12,727,141 12,597,598 12,753,249
Effect of dilutive options and
incentive compensation awards.. 324,713 161,901 65,874
---------- ---------- ----------
Denominator for dilutive earnings
per share...................... 13,051,854 12,759,499 12,819,123
========== ========== ==========
New Accounting Standards -- Effective October 1, 1998, the Company adopted
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 adoption of SFAS No. 130 had no impact on the
Company's net earnings. Comprehensive income has been included in the Company's
Consolidated Statement of Shareholders' Equity and prior period amounts have
been reclassified to conform to SFAS No. 130 requirements.
Effective September 30, 1999, the Company adopted SFAS No. 131,
"Disclosures about Segments of an Enterprise and Related Information." SFAS No.
131 establishes the standards for public enterprises to report financial and
descriptive information about their operating segments in financial statements
for both interim and annual periods and provide disclosures with respect to
products and services, geographic areas of operations and major customers. The
adoption of SFAS No. 131 did not affect the Company's results of operations,
financial position or cash flows, but did increase the level of disclosure. See
Note 13.
Effective September 30, 1999, the Company adopted SFAS No. 132, "Employers'
Disclosures about Pensions and Other Postretirement Benefits." The provisions of
SFAS No. 132 revise employers' disclosures about pension and other
postretirement benefit plans. This statement does not change the measurement or
recognition of costs associated with these plans. In addition, SFAS No. 132
standardizes the disclosure requirements for pensions and other postretirement
benefits to the extent practicable.
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities," which was
amended by SFAS No. 137. Provisions of these standards are required to be
adopted in years
<PAGE>
beginning after June 15, 2000. Because of the Company's minimal use of
derivatives, management does not anticipate that the adoption of SFAS No. 133
will have a significant effect on the results of operations or on the financial
position of the Company.
Reclassifications -- Certain reclassifications have been made to the fiscal
1998 and 1997 financial statements to conform to the 1999 presentation.
Common Stock Split -- On July 23, 1999, the Board of Directors of the
Company authorized a three-for-two split of the Company's common stock in the
form of a 50% stock dividend. The stock split was effected on August 19, 1999
for shareholders of record at the close of business on August 5, 1999. All
references in the Consolidated Financial Statements and the Notes to
Consolidated Financial Statements to number of shares, per share amounts, stock
option data and market prices of the Company's stock have been restated to
reflect the stock split. In addition, an amount equal to the par value of the
shares distributed to effect the stock split has been transferred from
paid-in-capital to common stock.
2. Balance Sheet Information
September 30,
Receivables 1999 1998
--------------------------------------- --------- ---------
U.S. government:
Amounts billed..................... $ 25,573 $ 22,197
Amounts unbilled................... 243 --
--------- --------
25,816 22,197
Commercial customers................... 66,999 58,776
Other.................................. 2,575 2,077
--------- ---------
95,390 83,050
Less allowance for doubtful accounts... (2,204) (2,068)
--------- ---------
$ 93,186 $ 80,982
========= =========
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.
September 30,
Inventories 1999 1998
----------------------------------------- --------- ---------
Finished products........................ $ 59,649 $ 27,916
Partially finished products.............. 62,047 52,700
Raw materials............................ 89,417 77,675
--------- ---------
Inventories at FIFO cost................. 211,113 158,291
Less: Progress payments on U.S.
government contracts............. (2,951) --
Excess of FIFO cost over LIFO cost. (9,716) (9,100)
--------- ---------
$ 198,446 $ 149,191
========= =========
Title to all inventories related to government contracts, which provide for
progress payments, vests with the government to the extent of unliquidated
progress payments. Inventory at September 30, 1999 includes $2,417 of tooling
under the Company's MTVR contract.
September 30,
Goodwill and Other Intangible Assets 1999 1998
------------------------------------------ ---------- -----------
Useful Lives
----------------
Goodwill 40 Years........ $ 218,614 $ 212,746
Distribution network 40 Years........ 63,800 63,800
Non-compete agreements 15 Years........ 38,000 38,000
Other 5-40 Years...... 23,320 24,860
--------- ---------
343,734 339,406
Less accumulated amortization............. (23,913) (12,741)
--------- ---------
$ 319,821 $ 326,665
========= =========
<PAGE>
The Company engaged third party business valuation appraisers to determine
the fair value of the distribution network in connection with its acquisition of
Pierce. 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. The
useful life of the distribution network is based on a historical turnover
analysis.
On February 26, 1998, concurrent with the Company's acquisition of McNeilus
(see Note 3), the Company and BA Leasing & Capital Corporation ("BALCAP") formed
OMFSP, a general partnership, for the purpose of offering lease financing to
customers of the Company. Each partner contributed existing lease assets (and in
the case of the Company, related notes payable to third party lenders which were
secured by such leases) to capitalize the partnership. Leases and related notes
payable contributed by the Company were originally acquired in connection with
the McNeilus acquisition.
OMFSP manages the contributed assets and liabilities and engages in new
vendor lease business providing financing to customers of the Company. OMFSP
purchases trucks and concrete batch plants for lease to user-customers. Banks
and other financial institutions lend to OMFSP a portion of the purchase price,
with recourse solely to OMFSP, secured by a pledge of lease payments due from
the user-lessees. Each partner funds one-half of the equity portion of the cost
of the new truck and batch plant purchases, and each partner is allocated its
proportionate share of OMFSP cash flow and taxable income. Indebtedness of OMFSP
is secured by the underlying leases and assets of, and is with recourse to,
OMFSP. However, such indebtedness is non-recourse to the Company.
Summarized financial information of OMFSP as of September 30, 1999 and
1998, the fiscal year ended September 30, 1999 and for the period February 26,
1998 (the date OMFSP was formed) to September 30, 1998, is as follows:
September 30,
1999 1998
---- ----
Cash and cash equivalents............ $ 1,383 $ 4,584
Investment in sales type leases, net. 140,912 123,473
Other assets......................... 278 267
----------- -----------
$ 142,573 $ 128,324
=========== ===========
Notes payable........................ $ 119,156 $ 105,473
Other liabilities.................... 1,799 2,944
Partners' equity..................... 21,618 19,907
----------- -----------
$ 142,573 $ 128,324
=========== ===========
Period From
Fiscal Year Ended February 26, 1998 to
September 30, 1999 September 30, 1998
------------------ ------------------
Interest income...................... $ 11,624 $ 6,605
Net interest income.................. 3,499 1,622
Excess of revenues over expenses..... 3,854 644
Excess of revenues over expenses in fiscal 1998 includes a $1,466
nonrecurring charge to write off start-up expenses incurred in fiscal 1998 to
establish OMFSP (see Note 11).
3. Acquisitions
On February 26, 1998, the Company acquired for cash all of the issued and
outstanding capital stock of McNeilus and entered into related non-compete and
ancillary agreements for $217,581, including acquisition costs and net of cash
acquired. McNeilus is a leading manufacturer and marketer of rear-discharge
concrete mixers for the construction industry and refuse truck bodies for the
waste services industry in the United States. The acquisition was financed from
borrowings under a Senior Credit Facility and the issuance of Senior
Subordinated Notes (see Note 4).
The acquisition was accounted for using the purchase method of accounting
and, accordingly, the operating results of McNeilus are included in the
Company's consolidated statements of income 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 1999.
Approximately $60,985 of the purchase price was allocated to intangible assets,
including non-competition agreements. The excess of the purchase price over the
estimated fair value of net assets acquired amounted to $114,727, which has been
accounted for as goodwill.
<PAGE>
Pro forma unaudited consolidated operating results of the Company for the
fiscal year ended September 30, 1998, assuming McNeilus had been acquired as of
October 1, 1997 is summarized below:
Net sales...................................... $1,040,986
Income before extraordinary item............... 18,590
Net income..................................... 17,405
Earnings per share:
Before extraordinary item................. 1.47
Net income................................ 1.38
Earnings per share assuming dilution:
Before extraordinary item................. 1.46
Net income................................ 1.36
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 directly attributable to the transaction (including
elimination of the write-off of the Company's share of start-up expenses), and
the estimated related income tax effects of all such adjustments. 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, 1997.
On December 19, 1997, the Company, through Pierce, acquired certain
inventory, machinery and equipment, and intangible assets of Nova Quintech, a
division of Nova Bus Corporation ("Nova Quintech") using available cash for
$3,563. Nova Quintech was engaged in the manufacture and sale of aerial devices
for fire trucks. Approximately $1,849 of the purchase price has been allocated
to intangible assets, principally aerial device designs and technology. The Nova
Quintech products have been integrated into Pierce's product line and are being
manufactured at Pierce. The acquisition was accounted for using the purchase
method of accounting, and accordingly, the operating results of Nova Quintech
are included in the Company's statements of income since the date of the
acquisition. Had the acquisition occurred as of October 1, 1997, there would
have been no material pro forma effect on net sales, net income, or earnings per
share in fiscal 1998.
4. Revolving Credit Facility and Long-Term Debt
On February 26, 1998, the Company entered into the Senior Credit Facility
and issued $100,000 of 8 3/4% Senior Subordinated Notes due March 1, 2008 to
finance the acquisition of McNeilus (see Note 3) and to refinance a previous
credit facility. The Senior Credit Facility consists of a six year $100,000
revolving credit facility ("Revolving Credit Facility") and three term loan
facilities ("Term Loan A," "Term Loan B," and "Term Loan C"--collectively, the
"Term Loan Facility"). Term Loan A was for $100,000 and matures on March 31,
2004. Term Loans B and C each were for $62,500 and mature on March 31, 2005 and
March 31, 2006, respectively.
In fiscal 1999 and from February 26, 1998 through September 30, 1998, the
Company paid from available cash $19,000 and $53,000, respectively, on the Term
Loan Facility, including scheduled payments of $3,216 and $5,625 and prepayments
of $15,784 and $47,375, respectively. All prepayments are first applied to the
next twelve months mandatory principal payments and then on a pro rata basis to
the principal payments due over the remainder of the loans. The outstanding
balances as of September 30, 1999 on Term Loan A, Term Loan B, and Term Loan C
were $84,000, $34,500, and $34,500, respectively. On November 24, 1999, the
Company prepaid $93,500 of term debt from proceeds of an offering of Common
Stock (see Note 15) resulting in remaining outstanding balances of $32,500,
$13,500 and $13,500 under Term Loan A, Term Loan B and Term Loan C,
respectively. Current maturities of Term Loan A of $13,500 at September 30, 1999
have been included in long-term debt at September 30, 1999 because this
obligation was prepaid in connection with the Common Stock offering. After
adjustment for prepayments, Term Loan A requires principal payments of $6,915 in
fiscal 2001, $8,989 in fiscal 2002, $11,064 in fiscal 2003 and $5,532 in fiscal
2004. Term Loans B and C each require principal payments of $35 per quarter
through March 31, 2004 (for Term Loan B) and through March 31, 2005 (for Term
Loan C). Any remaining outstanding principal balances on Term Loans B and C are
due in quarterly installments through March 31, 2005 and March 31, 2006,
respectively.
At September 30, 1999, borrowings of $5,000 and letters of credit of $7,973
reduced available capacity under the Company's Revolving Credit Facility to
$87,027.
<PAGE>
Interest rates on borrowings under the Revolving Credit and Term Loan
Facilities are variable and are equal to the "Base Rate" (which is equal to the
higher of a bank's reference rate and the federal funds rate plus 0.5%) or the
"IBOR Rate" (which is a bank's inter-bank offered rate for U.S. dollars in
off-shore markets) plus a margin of 0.50%, 0.50%, 1.00% and 1.25% for Base Rate
loans and a margin of 1.75%, 1.75%, 2.25% and 2.50% for IBOR Rate loans under
the Revolving Credit Facility, Term Loan A, Term Loan B and Term Loan C,
respectively, as of September 30, 1999. The margins are subject to adjustment,
up or down, based on whether certain financial criteria are met. The weighted
average interest rates on borrowings outstanding at September 30, 1999 were
7.392% on the Revolving Credit Facility and 6.874%, 7.637% and 7.887% for Term
Loans A, B and C, respectively.
The Company is charged a 0.30% annual fee with respect to any unused
balance under its Revolving Credit Facility, and a 1.75% annual 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.
Substantially all the tangible and intangible assets of the Company and its
subsidiaries (including the stock of certain subsidiaries) are pledged as
collateral under the Senior Credit Facility. Among other restrictions, the
Senior Credit Facility: (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; (4) requires mandatory
prepayments to the extent of "excess cash flows"; and (5) limits investments,
dispositions of assets and guarantees of indebtedness. The Company believes that
such limitations should not impair its future operating activities.
The Senior Subordinated Notes were issued pursuant to an Indenture dated
February 26, 1998 (the "Indenture"), between the Company, the Subsidiary
Guarantors (as defined below) and Firstar Trust Company, as trustee. The
Indenture contains customary affirmative and negative covenants. The Senior
Subordinated Notes are due March 1, 2008 and can be redeemed by the Company for
a premium after March 1, 2003. In addition to the Company, certain of the
Company's subsidiaries, including Pierce Manufacturing Inc., Summit Performance
Systems, Inc., McNeilus Companies, Inc., McNeilus Truck & Manufacturing, Inc.,
Iowa Contract Fabricators, Inc., McIntire Fabricators, Inc., Kensett
Fabricators, Inc. and McNeilus Financial, Inc. (collectively, the "Subsidiary
Guarantors") fully, unconditionally, jointly and severally guarantee the
Company's obligations under the Senior Subordinated Notes (see Note 14).
McNeilus has unsecured notes payable to several of its former shareholders
aggregating $2,548 at September 30, 1999 and $2,804 at September 30, 1998.
Interest rates on these notes range from 5.7% to 8.0% with annual principal and
interest payments ranging from $20 to $155 with maturities through October 2033.
The aggregate annual maturities of long-term debt for the five years
succeeding September 30, 1999, as adjusted to reflect the prepayment of debt
from proceeds of the Common Stock offering are as follows: 2000 -- $259; 2001 --
$7,429; 2002 -- $9,507; 2003 -- $11,567; and 2004 -- $12,448.
<PAGE>
5. Income Taxes
Fiscal Year Ended September 30,
1999 1998 1997
-------- -------- --------
Income Tax Provision (Credit)
Current:
Federal.............................. $ 22,654 $ 10,555 $ 8,610
State................................ 2,029 2,074 1,866
-------- -------- --------
Total current..................... 24,683 12,629 10,476
Deferred:
Federal.............................. (2,882) 35 (3,645)
State................................ (488) (9) (335)
-------- -------- --------
Total deferred.................... (3,370) 26 (3,980)
-------- -------- --------
$ 21,313 $ 12,655 $ 6,496
======== ======== ========
Fiscal Year Ended September 30,
1999 1998 1997
-------- -------- --------
Effective Rate Reconciliation
U.S. federal tax rate................... 35.0% 35.0% 35.0%
State income taxes, net................. 2.9 4.9 6.0
Reduction of prior years' excess tax
provisions.............................. -- -- (5.5)
Foreign sales corporation............... (0.5) (1.5) (1.5)
Goodwill amortization................... 3.8 5.1 5.4
Other, net.............................. 0.6 0.7 --
------ ------ ------
41.8% 44.2% 39.4%
====== ====== ======
September 30,
1999 1998
--------- ---------
Deferred Tax Assets and Liabilities
Deferred tax assets:
Other current liabilities..................... $ 10,946 $ 6,284
Postretirement benefit obligations............ 7,990 4,219
Accrued warranty.............................. 6,597 8,625
Payroll-related obligations................... 2,700 3,177
Other......................................... 1,820 1,355
--------- ---------
Total deferred tax assets................. 30,053 23,660
Deferred tax liabilities:
Intangible assets............................. 31,061 31,498
Investment in unconsolidated partnership...... 13,301 16,496
Property, plant and equipment................. 7,974 7,288
Inventories................................... 6,211 3,038
Other......................................... 1,213 891
--------- ---------
Total deferred tax liabilities............ 59,760 59,211
--------- ---------
Net deferred tax liability................ $ (29,707) $ (35,551)
========= =========
The Company has not recorded a valuation allowance with respect to any deferred
tax assets.
<PAGE>
6. Employee Benefit Plans
The Company and certain of its subsidiaries sponsor multiple defined
benefit pension plans and a postretirement benefit plan covering certain Oshkosh
and Pierce employees and certain Oshkosh retirees and their spouses,
respectively. The pension plans provide benefits based on compensation, years of
service and date of birth. The postretirement benefit plan provides health
benefits based on years of service and date of birth. The Company's policy is to
fund the pension plans in amounts that comply with contribution limits imposed
by law. Requirements of the Company's postretirement benefit plan are funded as
benefit payments are made.
<TABLE>
<CAPTION>
Pension Benefits Postretirement Benefits
1999 1998 1999 1998
--------- --------- --------- ---------
Change in benefit obligation
<S> <C> <C> <C> <C>
Benefit obligation at October 1.......................... $ 41,860 $ 34,787 $ 10,071 $ 8,997
Service cost............................................. 1,828 1,744 461 397
Interest cost............................................ 2,853 2,751 708 676
Actuarial losses (gains)................................. (3,402) 3,755 (2,207) 273
Benefits paid by the Company............................. -- -- (289) (272)
-
Benefits paid from plan assets........................... (1,323) (1,177) -- --
--------- ---------- --------- ---------
Benefit obligation at September 30....................... $ 41,816 $ 41,860 $ 8,744 $ 10,071
========= ========= ========= =========
Change in plan assets
Fair value of plan assets at October 1................... $ 37,769 $ 34,787 $ -- $ --
Actual return on plan assets............................. 8,231 3,122 -- --
Company contributions.................................... 1,276 1,037 289 272
Benefits paid from plan assets........................... (1,323) (1,177) -- --
Benefits paid by the Company............................. -- -- (289) (272)
--------- --------- --------- ---------
Fair value of plan assets at September 30................ $ 45,953 $ 37,769 $ -- $ --
========= ========= ========= =========
Funded status of plan - over (under) funded.............. $ 4,137 $ (4,091) $ (8,744) $ (10,071)
Unrecognized net actuarial losses (gains)................ (2,299) 6,040 (3,071) (864)
Unrecognized transition asset............................ (459) (527) -- --
Unamortized prior service cost........................... 1,783 1,914 -- --
Adjustment to recognize minimum pension liability........ -- (4,835) -- --
--------- --------- --------- ---------
3,162 (1,499) (11,815) (10,935)
Prepaid benefit cost..................................... 3,162 1,107 -- --
--------- --------- --------- ---------
Accrued benefit cost..................................... $ -- $ (2,606) $ (11,815) $ (10,935)
========= ========= ========= =========
Weighted-average assumptions as of September 30
Discount rate............................................ 7.75% 7.25% 7.75% 7.25%
Expected return on plan assets........................... 9.25 9.25 n/a n/a
Rate of compensation increase............................ 4.50 4.50 n/a n/a
<CAPTION>
Pension Benefits Postretirement Benefits
Fiscal Year Ended September 30, Fiscal Year Ended September 30,
1999 1998 1997 1999 1998 1997
--------- --------- --------- --------- --------- ---------
Components of net periodic benefit cost
<S> <C> <C> <C> <C> <C> <C>
Service cost............................ $ 1,828 $ 1,744 $ 1,387 $ 461 $ 397 $ 366
Interest cost........................... 2,853 2,751 2,439 708 676 613
Expected return on plan assets.......... (3,450) (3,185) (2,807) -- -- --
Amortization of prior service cost...... 131 131 86 -- -- --
Amortization of transition asset........ (67) (67) (67) -- -- --
Amortization of net actuarial
(gains)/losses........................ 155 193 122 -- (13) (32)
--------- --------- --------- --------- ---------- ---------
Net periodic benefit cost............... $ 1,450 $ 1,567 $ 1,160 $ 1,169 $ 1,060 $ 947
========= ========= ========= ========= ========= =========
</TABLE>
Generally accepted accounting principles require the recognition of a
minimum pension liability for each defined benefit plan for which the
accumulated benefit obligation exceeds plan assets ($2,606 at September 30,
1998) and recognition of an intangible asset to the extent of unrecognized past
service cost ($1,878 at September 30, 1998). These amounts are included in other
long-term liabilities and intangible assets, respectively, at September 30,
1998. An adjustment of $1,804 has been recorded as a charge to other
comprehensive income in fiscal 1998 to recognize the minimum liability of
$4,835, net of both the intangible asset recorded of $1,878 and the related
income tax benefit of $1,153.
<PAGE>
The assumed health care cost trend rate used in measuring the accumulated
postretirement benefit obligation was 9.4% in fiscal 1999, declining to 5.5% in
fiscal 2008. If the health care cost trend rate was increased by 1%, the
postretirement benefit obligation at September 30, 1999 would increase by $659
and net periodic postretirement benefit cost for fiscal 1999 would increase by
$136.
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 were $1,684, $1,345 and $825, in fiscal 1999, 1998 and 1997,
respectively.
7. Shareholders' Equity
On February 1, 1999, the Board of Directors of the Company adopted a
shareholder rights plan and declared a rights dividend of two-thirds of one
Preferred Share Purchase Right ("Right") for each share of Common Stock and
40/69 of one Right for each share of Class A Common Stock outstanding on
February 8, 1999, and provided that two-thirds of one Right and 40/69 of one
Right would be issued with each share of Common Stock and Class A Common Stock,
respectively, thereafter issued. The Rights are exercisable only if a person or
group acquires 15% or more of the Common Stock and Class A Common Stock or
announces a tender offer for 15% or more of the Common Stock and Class A Common
Stock. Each Right entitles the holder thereof to purchase from the Company one
one-hundredth share of the Company's Series A Junior Participating Preferred
Stock at an initial exercise price of $145 per one one-hundredth of a share
(subject to adjustment), or, upon the occurrence of certain events, Common Stock
or common stock of an acquiring company having a market value equivalent to two
times the exercise price. Subject to certain conditions, the Rights are
redeemable by the Board of Directors for $.01 per Right and are exchangeable for
shares of Common Stock. The Board of Directors is also authorized to reduce the
15% thresholds referred to above to not less than 10%. The Rights have no voting
power and initially expire on February 1, 2009.
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 525,000 shares of its Common Stock and 1,875,000
warrants for the purchase of additional shares of Common Stock for a total of
$6,750.
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. At that time, or at such earlier time as there are no more than
225,000 shares of Class A Common Stock issued and outstanding, the Company's
Articles of Incorporation 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. During fiscal 1999, 19,347 shares of Class A Common Stock
were converted into Common Stock. As of September 30, 1999, 425,985 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 1,500,000 shares of the
Company's Common Stock. As of September 30, 1999 and 1998, the Company had
purchased 692,302 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. Agreements
governing the Company's Senior Credit Facility and Senior Subordinated Notes
restrict the Company's ability to pay dividends. Under these agreements, the
Company generally may pay dividends in an amount not to exceed $5,000 plus 5% of
net income.
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.
<PAGE>
The Common Stock shareholders are entitled to receive a liquidation
preference of $5.00 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 $5.00 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 Plan
The Company has reserved 1,288,630 shares of Common Stock at September 30,
1999 to provide for the exercise of outstanding stock options and the issuance
of Common Stock under incentive compensation awards and 425,985 shares of Common
Stock at September 30, 1999 to provide for conversion of Class A Common Stock to
Common Stock. Under the 1990 Incentive Stock Plan for Key Employees (the
"Plan"), officers, other key employees and directors may be granted options to
purchase up to an aggregate of 1,875,000 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 September 21, 2008. Options become exercisable ratably on the
first, second, and third anniversary of the date of grant. Options to purchase
shares expire not later than ten years and one month after the grant of the
option.
The following table summarizes the transactions under the Plan for the
three-year period ended September 30, 1999.
Number of Weighted-Average
Options Exercise Price
Unexercised options outstanding
September 30, 1996....................... 691,203 $ 7.42
Options granted........................ 7,500 8.00
Options exercised...................... (30,496) 6.89
Options forfeited...................... (11,355) 8.64
---------
Unexercised options outstanding
September 30, 1997....................... 656,852 7.43
Options granted........................ 621,000 13.57
Options exercised...................... (208,800) 7.00
Options forfeited...................... (1,500) 9.25
---------
Unexercised options outstanding
September 30, 1998....................... 1,067,552 11.08
Options granted........................ 210,500 29.89
Options exercised...................... (199,622) 7.22
Options forfeited...................... (1,875) 10.43
---------
Unexercised options outstanding
September 30, 1999....................... 1,076,555 $ 15.47
========= =======
Price range $5.25-- $11.17 (weighted-average
contractual life of 6.3 years)............... 402,555 $ 9.20
Price range $12.75-- $15.75 (weighted-average
contractual life of 8.8 years)................ 463,500 14.38
Price range $25.17-- $30.50 (weighted-average
contractual life of 10.0 years)............... 210,500 29.89
Exercisable options at September 30, 1999....... 452,169 10.53
Shares available for grant at
September 30, 1999............................ 212,075
As allowed by SFAS No. 123, "Accounting for Stock-Based Compensation," 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 No. 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 No. 123. The
Black-Scholes option pricing model was used with the following weighted-average
assumptions: risk-free interest rates of 4.70% and 5.96% in 1999, 5.87%, 5.44%
and 4.62% in 1998, and 6.27% in 1997; dividend yield of 1.34% and 1.10% in 1999,
2.99%, 2.61% and 2.12% in 1998, and 4.17% in 1997; expected common stock market
price volatility factor of .335 in 1999, .308 in 1998 and .305 in 1997; and a
weighted-average expected life of the options of six years. The weighted-average
fair value of options granted in 1999, 1998 and 1997 was $11.57, $4.07 and $2.05
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 1999, 1998 and 1997 grants. As such, the impacts are not
necessarily indicative of the effects on reported net income of future years.
<PAGE>
9. Operating Leases and Related Party Transactions
Total rental expense for plant and equipment charged to operations under
noncancelable operating leases was $937, $1,114 and $886 in fiscal 1999, 1998
and 1997, respectively. Minimum rental payments due under operating leases for
subsequent fiscal years are: 2000 -- $1,045; 2001 -- $748; 2002 -- $500; 2003 --
$313; and 2004 -- $223.
Included in rental expense are charges of $128 in both fiscal 1998 and
1997, relating to a building lease between the Company and certain shareholders.
In September 1998, the Company purchased the building, which had been leased
from such shareholders, for $773. The purchase price was based on the average of
two independent appraisals.
10. Contingencies, Significant Estimates and Concentrations
The Company was 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 appealed the
state court judge's decision. On December 8, 1998, the Wisconsin Court of
Appeals ordered a state court judge to reinstate the jury verdict against the
Company awarding damages totaling $4,485 plus interest to SSPC. On April 6,
1999, the Company's petition for review of this decision by the Wisconsin
Supreme Court was denied. On April 12, 1999, the Company petitioned the state
court judge to act on the Company's previous motion for a retrial. This petition
was denied on June 18, 1999 and the state court judge directed that judgment be
entered. In lieu of further appeals, the Company paid $5.75 million on July 27,
1999 in final settlement of the matter.
McNeilus is a defendant in litigation, which was commenced in 1993 prior to
the acquisition of McNeilus by the Company, in the U.S. District Court for the
Northern District of Alabama. The litigation, which was brought by The Heil Co.
("Heil"), a McNeilus competitor, seeks damages and claims that McNeilus
infringed certain aspects of its patent for refuse packer design. The patent
referenced in the matter was allowed by Heil to lapse in 1995. The Company has
denied infringement and asserted that the patent is invalid, both on the basis
of prior art and on a defective application. A trial is scheduled in early
calendar 2000. The Company is vigorously contesting the claims and has
established a reserve for litigation and defense costs.
The Company was 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 trailers. The Company contested
warranty and other claims made against it, and reached a settlement in June
1998, which included payment by the Company of $1,000 to OV.
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 431 PRPs participating in
the costs of addressing the site and has been assigned an allocation share of
approximately 0.04%. Currently, a report of the 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, 1999.
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 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
<PAGE>
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, 1999. However, this
may change as investigations proceed by the Company, other unrelated property
owners, and the government.
The Company is subject to other environmental matters and legal proceedings
and claims, including patent, antitrust, product liability and state dealership
regulation compliance proceedings, that 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 $1,000 at
September 30, 1999. The Company is also contingently liable under bid,
performance and specialty bonds totaling approximately $118,238 and open standby
letters of credit issued by the Company's bank in favor of third parties
totaling $7,973 at September 30, 1999.
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, 1999 and 1998, the Company has accrued $14,623 and $15,887 for
warranty claims. Certain warranty and other related claims involve matters of
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 1998 and 1997, the Company
recorded warranty and other related costs for matters beyond the Company's
historical experience totaling $3,200 and $3,770, respectively. The additional
charges in fiscal 1998 and 1997 principally related to a dispute with or
involving the Company's former trailer manufacturing operations, which was
settled in fiscal 1998 (see above), and secondarily to repair certain matters
related to refuse and front-discharge chassis. 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
Manufacturing, Inc. ("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. 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 prior years. 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 was completed in July 1998. The Company
also wrote off an investment of $900 in a joint venture, which leases equipment
to Steeltech, and accrued $1,084 for the satisfaction of a guarantee of 50% of
the outstanding indebtedness of the joint venture which was paid in full in
fiscal 1999. 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. Given the completion of the IPF contract, and
Steeltech's filing for bankruptcy under Chapter 7 of the U.S. Bankruptcy code in
October 1999, the Company is attempting to dispose of its investment in the
joint venture. The Company believes that it is adequately reserved at September
30, 1999, for any matters relating to the disposition of such investment.
The Company derives a significant portion of its revenue from the U.S.
Department of Defense, as follows:
Fiscal Year Ended September 30,
1999 1998 1997
---------- --------- ---------
Defense:
U.S. Department of Defense.... $ 218,017 $ 248,577 $ 272,042
Export........................ 4,518 452 16,584
---------- --------- ---------
222,535 249,029 288,626
Commercial and Fire and Emergency:
Domestic...................... 895,377 619,170 373,946
Export........................ 47,042 34,593 20,662
---------- --------- ---------
942,419 653,763 394,608
---------- --------- ---------
Net sales.......................... $1,164,954 $ 902,792 $ 683,234
========== ========= =========
U.S. Department of Defense sales include $180, $10,437 and $17,723 in
fiscal 1999, 1998 and 1997, respectively, for products sold internationally
under the Foreign Military Sales ("FMS") Program.
<PAGE>
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.
11. Unaudited Quarterly Results
<TABLE>
<CAPTION>
Fiscal Year Ended September 30, 1999 Fiscal Year Ended September 30, 1998
-------------------------------------------------- --------------------------------------------------
4th Quarter 3rd Quarter 2nd Quarter 1st Quarter 4th Quarter 3rd Quarter 2nd Quarter 1st Quarter
----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales................ $ 313,906 $ 329,821 $ 298,534 $ 222,693 $ 243,051 $ 290,104 $ 217,836 $ 151,801
Gross income............. 48,461 48,292 44,520 32,108 38,925 39,579 27,534 19,998
Income before
extraordinary item..... 10,185 10,545 6,549 3,912 4,952 5,000 3,161 3,140
Extraordinary item....... (60) -- -- -- -- (450) (735) --
Net income............... 10,125 10,545 6,549 3,912 4,952 4,550 2,426 3,140
Earnings per share:
Income before
extraordinary item. $ .79 $ .83 $ .51 $ .31 $ .39 $ .39 $ .25 $ .25
Extraordinary item.... -- -- -- -- -- (.03) (.06) --
Net income............ .79 .83 .51 .31 .39 .36 .19 .25
Earnings per share assuming
dilution:
Income before
extraordinary item .77 .81 .50 .30 .39 .38 .25 .25
Extraordinary item.. -- -- -- -- -- (.03) (.06) --
Net income.......... .77 .81 .50 .30 .39 .35 .19 .25
Dividends per share:
Class A Common Stock.. $ 0.07500 $ 0.07250 $0.07250 $ 0.07250 $ 0.07250 $ 0.07250 $ 0.07250 $ 0.07250
Common Stock.......... 0.08625 0.08333 0.08333 0.08333 0.08333 0.08333 0.08333 0.08333
</TABLE>
For the fourth quarter of fiscal 1998, continuing operations includes, on a
pre-tax basis, a $3,865 non-cash charge related to an impairment loss for the
Company's Florida manufacturing facilities, a $1,935 non-cash charge related to
an impairment loss on the Company's Summit brand mixer system technology
intangible asset, and a $3,375 cash gain from the sale of an interest in a
Mexican bus manufacturer (see Note 12).
In the second quarter of fiscal 1998, OMFSP, which the Company accounts for
using the equity method, incurred and expensed approximately $1,466 of costs
($895 net of income taxes) related to the organization of the partnership. The
charge has been included in the consolidated statements of income under the
caption "Equity in earnings of unconsolidated partnership, net of income taxes."
12. Impairment Losses and Gain on Sale of Affiliate
Following the acquisition of McNeilus and after conducting an internal
study to determine how to integrate the concrete mixer businesses of the Company
and McNeilus, the Company revised its plans regarding the use of the Company's
Florida manufacturing facility and of previously acquired concrete mixer
technology. The Florida manufacturing facility was originally acquired in
connection with the Company's acquisition of assets and the business of a
manufacturer of truck trailers in fiscal 1991. In 1996, the Company exited the
manufacture of truck trailers but retained the Florida facility to manufacture
products for the U.S. military and the Company's Summit brand of rear-discharge
cement mixers. During the fourth quarter of fiscal 1998, following the
completion of the internal study, management determined that all of the
Company's U.S. requirements for rear-discharge concrete mixers would be sourced
through the McNeilus manufacturing facilities due to the quality of the McNeilus
brand and the efficient manufacturing processes at its facilities. In the fourth
quarter of fiscal 1998, the Company further decided to begin to consolidate all
its U.S. defense-related manufacturing in its Oshkosh, Wisconsin facility due to
available capacity in Oshkosh and the ability to improve management of defense
programs from this facility. As a result, management determined that Oshkosh's
Florida facility and the Summit intangible asset may be impaired. Management
estimated the projected undiscounted future cash flows from the Florida facility
and the acquired concrete mixer technology and determined that such cash flows
were less than the carrying value of the assets. Accordingly, pre-tax impairment
losses of $3,865 and $1,935 included in selling, general and administrative
expenses of corporate and the commerical segment, respectively, were recognized
in fiscal 1998 based on the excess of their carrying values over the fair values
of the assets. The fair value of the Florida facility was based on a third party
appraisal. The fair value of the mixer intangible asset was determined based on
the absence of future cash flows.
<PAGE>
In previous years, the Company wrote off (as a charge to selling, general
and administrative expense) 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
previous years, the Company wrote off a $200 equity investment in Steeltech and
a $900 investment in a joint venture which leases equipment to Steeltech (see
Note 10). In September 1998, the Company sold its 5.0% ownership interest in the
Mexican bus manufacturer and recorded a pre-tax gain of $3,375. This gain was
recorded as a reduction of selling, general and administrative expense in fiscal
1998.
13. Business Segment Information
The Company is organized into three reportable segments based on the
internal organization used by management for making operating decisions and
measuring performance. The Company's six operating units have been aggregated
into the three reportable segments of commercial, fire and emergency, and
defense based on similar customers served and similar economic results attained.
Commercial: This segment consists of two operating units--McNeilus and the
commercial division of Oshkosh. These units manufacture, market and distribute
concrete mixer systems, refuse truck bodies, portable concrete batch plants and
truck components. Sales are made to commercial and municipal customers in the
U.S. and abroad.
Fire and emergency: This segment consists of three operating units--Pierce
and the aircraft, rescue and firefighting ("ARFF") and snow removal divisions of
Oshkosh. These units manufacture and market commercial and custom fire trucks
and emergency vehicles primarily for fire departments, airports and other
governmental units in the U.S. and abroad.
Defense: This segment consists of one operating unit (a division of
Oshkosh), which manufactures heavy- and medium-payload tactical trucks and
supply parts for the U.S. military and to other militaries around the world.
The Company evaluates performance and allocates resources based on profit
or loss from segment operations before interest income and expense, income taxes
and non-recurring items. Intersegment sales are not significant. The accounting
policies of the reportable segments are the same as those described in Note 1 of
the Notes to Consolidated Financial Statements.
Summarized financial information concerning the Company's reportable
segments is shown in the following table. The caption "Corporate and other"
includes corporate related items, results of insignificant operations,
intersegment eliminations and income and expense not allocated to reportable
segments.
Selected financial data by business segment is as follows:
<TABLE>
<CAPTION>
Fiscal Year Ended September 30,
1999 1998 1997
---- ---- ----
Net sales to unaffiliated customers:
<S> <C> <C> <C>
Commercial....................................... $ 607,678 $ 354,165 $ 107,944
Fire and emergency............................... 336,241 301,181 292,382
Defense.......................................... 222,535 247,956 282,826
Corporate and other.............................. (1,500) (510) 82
------------ ------------ ------------
Consolidated................................. $ 1,164,954 $ 902,792 $ 683,234
============ ============ ============
Operating income (loss):
Commercial....................................... $ 48,995 $ 19,317 $ (3,742)
Fire and emergency............................... 26,758 25,581 28,480
Defense.......................................... 22,878 22,680 20,155
Corporate and other.............................. (22,418) (18,858) (16,108)
------------ ------------ ------------
Consolidated operating income................ 76,213 48,720 28,785
Net interest expense............................. (25,984) (20,164) (12,005)
Miscellaneous other.............................. 730 92 (278)
------------ ------------ -------------
Income before income taxes, equity in earnings of
unconsolidated partnership and extraordinary
item......................................... $ 50,959 $ 28,648 $ 16,502
============ ============ ============
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Fiscal Year Ended September 30,
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Depreciation and amortization:
Commercial....................................... $ 10,949 $ 7,273 $ 2,612
Fire and emergency............................... 8,156 7,286 7,030
Defense.......................................... 2,810 3,271 4,210
Corporate and other.............................. 1,242 868 218
---------- ---------- -----------
Consolidated................................. $ 23,157 $ 18,698 $ 14,070
========== ========== ===========
Capital expenditures:
Commercial....................................... $ 8,119 $ 2,082 $ 963
Fire and emergency............................... 2,931 4,923 3,747
Defense.......................................... 2,089 1,550 1,553
---------- ---------- -----------
Consolidated................................. $ 13,139 $ 8,555 $ 6,263
========== ========== ===========
<CAPTION>
September 30,
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Identifiable assets(a):
Commercial (b)................................... $ 381,199 $ 329,036 $ 38,536
Fire and emergency............................... 276,692 273,188 252,167
Defense.......................................... 85,796 73,917 105,188
Corporate and other.............................. 9,603 8,898 24,503
---------- ---------- -----------
Consolidated................................. $ 753,290 $ 685,039 $ 420,394
========== ========== ===========
(a)The Company has no significant long-lived assets in foreign countries.
(b)Includes investment in unconsolidated partnership.
</TABLE>
The following table presents net sales by geographic region based on product
shipment destination.
<TABLE>
<CAPTION>
Fiscal Year Ended September 30,
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Net sales:
United States........................................ $1,113,214 $857,310 $628,265
Other North America.................................. 7,822 4,678 688
Middle East.......................................... 21,713 16,889 22,836
Other................................................ 22,205 23,915 31,445
----------- --------- ---------
Consolidated..................................... $1,164,954 $902,792 $683,234
========== ======== ========
</TABLE>
14. Subsidiary Guarantors
The following tables present condensed consolidating financial information
for fiscal 1999 and 1998 for: (a) the Company; (b) on a combined basis, the
guarantors of the Senior Subordinated Notes, which include all of the
wholly-owned subsidiaries of the Company ("Subsidiary Guarantors") other than
McNeilus Financial Services, Inc., Oshkosh/McNeilus Financial Services, Inc.,
Pierce Western Refurbishment Center, Inc. and Nation's Casualty Insurance, Inc.,
which are the only non-guarantor subsidiaries of the Company ("Non-Guarantor
Subsidiaries"); and (c) on a combined basis, the Non-Guarantor Subsidiaries.
Condensed consolidating financial information has not been presented for any
period prior to fiscal 1998 because no Non-Guarantor Subsidiaries existed prior
to the issuance of the Senior Subordinated Notes on February 26, 1998. Separate
financial statements of the Subsidiary Guarantors are not presented because the
guarantors are jointly, severally, and unconditionally liable under the
guarantees, and the Company believes separate financial statements and other
disclosures regarding the Subsidiary Guarantors are not material to investors.
The Company is comprised of Wisconsin and Florida manufacturing operations
and certain corporate management, information services and finance functions.
Borrowings and related interest expense under the Senior Credit Facility and the
Senior Subordinated Notes are charged to the Company. The Company has allocated
a portion of this interest expense to certain Subsidiary Guarantors through a
formal lending arrangement. There are presently no management fee arrangements
between the Company and its Non-Guarantor Subsidiaries.
<PAGE>
<TABLE>
OSHKOSH TRUCK CORPORATION
Condensed Consolidating Statement of Income
Fiscal Year Ended September 30, 1999
<CAPTION>
Subsidiary Non-Guarantor
Company Guarantors Subsidiaries Eliminations Consolidated
(In thousands)
<S> <C> <C> <C> <C> <C>
Net sales................................ $ 410,197 $ 767,441 $ -- $ (12,684) $ 1,164,954
Cost of sales............................ 359,299 644,958 -- (12,684) 991,573
---------- ---------- ----------- ----------- -----------
Gross income............................. 50,898 122,483 -- -- 173,381
Operating expenses:
Selling, general and administrative.. 41,100 44,567 329 -- 85,996
Amortization of goodwill and other
intangibles.................... -- 11,172 -- -- 11,172
---------- ---------- ----------- ---------- -----------
Total operating expenses................. 41,100 55,739 329 -- 97,168
---------- ---------- ----------- ---------- -----------
Operating income (loss).................. 9,798 66,744 (329) -- 76,213
Other income (expense):
Interest expense..................... (24,817) (8,227) -- 6,300 (26,744)
Interest income...................... 282 6,725 53 (6,300) 760
Miscellaneous, net................... 95 205 430 -- 730
---------- ---------- ----------- ---------- -----------
(24,440) (1,297) 483 -- (25,254)
---------- ---------- ----------- ---------- -----------
Income (loss) before income taxes, equity
in earnings of subsidiaries and
unconsolidated partnership and
extraordinary item................... (14,642) 65,447 154 -- 50,959
Provision (credit) for income taxes...... (5,706) 26,961 58 -- 21,313
---------- ---------- ----------- ---------- -----------
(8,936) 38,486 96 -- 29,646
Equity in earnings of subsidiaries and
unconsolidated partnership, net of
income taxes......................... 40,127 -- 1,545 (40,127) 1,545
---------- ---------- ----------- ---------- -----------
Income before extraordinary item......... 31,191 38,486 1,641 (40,127) 31,191
Extraordinary charge for early retirement
of debt, net of income tax benefit... (60) -- -- -- (60)
---------- ---------- ----------- ---------- -----------
Net income............................... $ 31,131 $ 38,486 $ 1,641 $ (40,127) $ 31,131
========== ========== =========== ========== ===========
</TABLE>
<PAGE>
<TABLE>
OSHKOSH TRUCK CORPORATION
Condensed Consolidating Statement of Income
Fiscal Year Ended September 30, 1998
<CAPTION>
Subsidiary Non-Guarantor
Company Guarantors Subsidiaries Eliminations Consolidated
(In thousands)
<S> <C> <C> <C> <C> <C>
Net sales................................ $ 393,720 $ 509,072 $ -- $ -- $ 902,792
Cost of sales............................ 350,139 426,617 -- -- 776,756
---------- ---------- ----------- ---------- -----------
Gross income............................. 43,581 82,455 -- -- 126,036
Operating expenses:
Selling, general and administrative.. 37,861 31,117 23 -- 69,001
Amortization of goodwill and other
intangibles.................... -- 8,315 -- -- 8,315
---------- ---------- ----------- ---------- -----------
Total operating expenses................. 37,861 39,432 23 -- 77,316
---------- ---------- ----------- ---------- -----------
Operating income (loss).................. 5,720 43,023 (23) -- 48,720
Other income (expense):
Interest expense..................... (16,878) (7,195) (180) 2,763 (21,490)
Interest income...................... 418 3,248 423 (2,763) 1,326
Miscellaneous, net................... (96) 18 170 -- 92
---------- ---------- ----------- ---------- -----------
(16,556) (3,929) 413 -- (20,072)
---------- ---------- ----------- ---------- -----------
Income (loss) before income taxes, equity
in earnings of subsidiaries and
unconsolidated partnership and
extraordinary item................... (10,836) 39,094 390 -- 28,648
Provision (credit) for income taxes...... (4,075) 16,578 152 -- 12,655
---------- ---------- ----------- ---------- -----------
(6,761) 22,516 238 -- 15,993
Equity in earnings of subsidiaries and
unconsolidated partnership, net of
income taxes......................... 23,014 -- 260 (23,014) 260
---------- ---------- ----------- ---------- -----------
Income before extraordinary item......... 16,253 22,516 498 (23,014) 16,253
Extraordinary charge for early retirement
of debt, net of income tax benefit... (1,185) -- -- -- (1,185)
---------- ---------- ----------- ---------- -----------
Net income............................... $ 15,068 $ 22,516 $ 498 $ (23,014) $ 15,068
========== ========== =========== ========== ===========
</TABLE>
<PAGE>
<TABLE>
OSHKOSH TRUCK CORPORATION
Condensed Consolidating Balance Sheet
September 30, 1999
<CAPTION>
Subsidiary Non-Guarantor
Company Guarantors Subsidiaries Eliminations Consolidated
(In thousands)
<S> <C> <C> <C> <C> <C>
Assets
Current assets:
Cash and cash equivalents.............. $ 3,698 $ 1,337 $ 102 $ -- $ 5,137
Receivables, net....................... 49,311 43,837 38 -- 93,186
Inventories............................ 49,988 148,458 -- -- 198,446
Prepaid expenses and other............. 7,609 7,695 4,217 -- 19,521
--------- ---------- --------- ------------ ------------
Total current assets................ 110,606 201,327 4,357 -- 316,290
Investment in and advances to:
Subsidiaries........................... 357,575 (7,590) -- (349,985) --
Unconsolidated partnership............. -- -- 12,335 -- 12,335
Other long-term assets..................... 11,902 8,899 52 -- 20,853
Net property, plant and equipment.......... 22,803 61,188 -- -- 83,991
Goodwill and other intangible assets, net.. -- 319,821 -- -- 319,821
--------- ---------- --------- ------------ ------------
Total assets............................... $ 502,886 $ 583,645 $ 16,744 $ (349,985) $ 753,290
========= ========== ========= ============= ============
Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable....................... $ 34,261 $ 50,234 $ 232 $ -- $ 84,727
Floor plan notes payable............... -- 26,616 -- -- 26,616
Customer advances...................... 1,669 66,695 -- -- 68,364
Payroll-related obligations............ 9,172 15,532 30 -- 24,734
Accrued warranty....................... 6,785 7,838 -- -- 14,623
Other current liabilities.............. 17,940 19,894 10,628 -- 48,462
Revolving credit facility and current
maturities of long-term debt....... 5,000 259 -- -- 5,259
--------- ---------- --------- ------------ ------------
Total current liabilities....... 74,827 187,068 10,890 -- 272,785
Long-term debt............................. 253,000 2,289 -- -- 255,289
Deferred income taxes...................... (5,407) 36,228 13,444 -- 44,265
Other long-term liabilities ............... 17,586 485 -- -- 18,071
Investment by and advances from (to)
Parent................................. -- 357,575 (7,590) (349,985) --
Shareholders' equity....................... 162,880 -- -- -- 162,880
--------- ---------- --------- ------------ ------------
Total liabilities and shareholders' equity. $ 502,886 $ 583,645 $ 16,744 $ (349,985) $ 753,290
========= ========== ========= ============= ============
</TABLE>
<PAGE>
<TABLE>
OSHKOSH TRUCK CORPORATION
Condensed Consolidating Balance Sheet
September 30, 1998
<CAPTION>
Subsidiary Non-Guarantor
Company Guarantors Subsidiaries Eliminations Consolidated
(In thousands)
<S> <C> <C> <C> <C> <C>
Assets
Current assets:
Cash and cash equivalents.............. $ 1,065 $ 979 $ 1,578 $ -- $ 3,622
Receivables, net....................... 41,009 39,863 110 -- 80,982
Inventories............................ 47,191 102,000 -- -- 149,191
Prepaid expenses and other............. 9,059 5,099 1,891 -- 16,049
--------- ---------- --------- ------------ ------------
Total current assets................ 98,324 147,941 3,579 -- 249,844
Investment in and advances to:
Subsidiaries........................... 363,189 (4,585) -- (358,604) --
Unconsolidated partnership............. -- -- 13,496 -- 13,496
Other long-term assets..................... 9,276 4,960 (38) -- 14,198
Net property, plant and equipment.......... 23,789 57,047 -- -- 80,836
Goodwill and other intangible assets, net.. 1,108 325,557 -- -- 326,665
--------- ---------- --------- ------------ ------------
Total assets............................... $ 495,686 $ 530,920 $ 17,037 $ (358,604) $ 685,039
========= ========== ========= ============= ============
Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable....................... $ 30,843 $ 34,294 $ 34 $ -- $ 65,171
Floor plan notes payable............... -- 11,645 -- -- 11,645
Customer advances...................... 1,689 43,226 -- -- 44,915
Payroll-related obligations............ 8,749 15,348 27 -- 24,124
Accrued warranty....................... 5,689 10,198 -- -- 15,887
Other current liabilities.............. 23,710 15,037 4,751 -- 43,498
Revolving credit facility and current
maturities of long-term debt....... 3,216 251 -- -- 3,467
--------- ---------- --------- ------------ ------------
Total current liabilities....... 73,896 129,999 4,812 -- 208,707
Long-term debt............................. 274,784 2,553 -- -- 277,337
Deferred income taxes...................... (2,394) 33,416 16,810 -- 47,832
Other long-term liabilities ............... 18,104 1,763 -- -- 19,867
Investment by and advances from (to)
Parent................................. -- 363,189 (4,585) (358,604) --
Shareholders' equity....................... 131,296 -- -- -- 131,296
--------- ---------- --------- ------------ ------------
Total liabilities and shareholders' equity. $ 495,686 $ 530,920 $ 17,037 $ (358,604) $ 685,039
========= ========== ========= ============= ============
</TABLE>
<PAGE>
<TABLE>
OSHKOSH TRUCK CORPORATION
Condensed Consolidating Statement of Cash Flows
Fiscal Year Ended September 30, 1999
<CAPTION>
Subsidiary Non-Guarantor
Company Guarantors Subsidiaries Eliminations Consolidated
(In thousands)
<S> <C> <C> <C> <C> <C>
Operating activities:
Income before extraordinary item........ $ 31,191 $ 38,486 $ 1,641 $(40,127) $ 31,191
Non-cash adjustments.................... 4,005 18,491 (5,143) -- 17,353
Changes in operating assets and
liabilities......................... (11,739) 3,893 (1,650) -- (9,496)
---------- --------- ----------- -------- -----------
Net cash provided from (used for)
operating activities................ 23,457 60,870 (5,152) (40,127) 39,048
Investing activities:
Investments in and advances to
subsidiaries........................ 5,992 (46,231) 112 40,127 --
Additions to property, plant and
equipment........................... (3,481) (9,658) -- -- (13,139)
Other................................... (542) (4,367) 3,564 -- (1,345)
---------- --------- ---------- -------- -----------
Net cash provided from (used for)
investing activities................ 1,969 (60,256) 3,676 40,127 (14,484)
Financing activities:
Net repayments under
revolving credit facility........... (1,000) -- -- -- (1,000)
Repayments of long-term debt............ (19,000) (256) -- -- (19,256)
Dividends paid.......................... (4,226) -- -- -- (4,226)
Other................................... 1,433 -- -- -- 1,433
--------- --------- ---------- -------- ----------
Net cash used for financing activities. (22,793) (256) -- -- (23,049)
---------- ---------- ---------- -------- -----------
Increase (decrease) in cash and cash
equivalents............................. 2,633 358 (1,476) -- 1,515
Cash and cash equivalents at beginning of
year.................................... 1,065 979 1,578 -- 3,622
--------- --------- ---------- -------- ----------
Cash and cash equivalents at end of year.... $ 3,698 $ 1,337 $ 102 $ -- $ 5,137
========= ========= ========== ======== ==========
</TABLE>
<PAGE>
<TABLE>
OSHKOSH TRUCK CORPORATION
Condensed Consolidating Statement of Cash Flows
Fiscal Year Ended September 30, 1998
<CAPTION>
Subsidiary Non-Guarantor
Company Guarantors Subsidiaries Eliminations Consolidated
(In thousands)
<S> <C> <C> <C> <C> <C>
Operating activities:
Income before extraordinary item........ $ 16,253 $ 22,516 $ 498 $(23,014) $ 16,253
Non-cash adjustments.................... 9,707 14,293 (3,156) -- 20,844
Changes in operating assets and
liabilities......................... 40,800 4,533 (2,489) -- 42,844
--------- --------- ----------- -------- ----------
Net cash provided from (used for)
operating activities................ 66,760 41,342 (5,147) (23,014) 79,941
Investing activities:
Acquisitions of businesses, net of
cash acquired....................... (229,876) (3,563) 12,295 -- (221,144)
Investments in and advances to
subsidiaries........................ 10,250 (28,181) (5,083) 23,014 --
Additions to property, plant and
equipment........................... (2,583) (5,972) -- -- (8,555)
Other................................... 4,176 (2,607) (487) -- 1,082
--------- --------- ----------- -------- ----------
Net cash provided from (used for)
investing activities................ (218,033) (40,323) 6,725 23,014 (228,617)
Net cash used for discontinued
operations.............................. (1,093) -- -- -- (1,093)
Financing activities:
Net borrowings under revolving credit
facility............................ 6,000 -- -- -- 6,000
Proceeds from issuance of long-term
debt................................ 325,000 -- -- -- 325,000
Repayments of long-term debt............ (188,000) (49) -- -- (188,049)
Debt issuance costs..................... (8,641) -- -- -- (8,641)
Dividends paid.......................... (4,176) -- -- -- (4,176)
Other................................... 38 -- -- -- 38
--------- --------- ---------- -------- ----------
Net cash provided from (used for)
financing activities................ 130,221 (49) -- -- 130,172
--------- ---------- ---------- -------- ----------
Increase (decrease) in cash and cash
equivalents............................. (22,145) 970 1,578 -- (19,597)
Cash and cash equivalents at beginning of
year.................................... 23,210 9 -- -- 23,219
--------- --------- ---------- -------- ----------
Cash and cash equivalents at end of year.... $ 1,065 $ 979 $ 1,578 $ -- $ 3,622
========= ========= ========== ======== ==========
</TABLE>
<PAGE>
15. Subsequent Events
On November 1, 1999, the Company acquired the manufacturing assets of
Kewaunee Engineering Corporation ("Kewaunee") for approximately $6,250 in cash
plus the assumption of certain liabilities aggregating $2,300. Kewaunee is a
fabricator of heavy-steel components such as cranes and aerial devices. The
acquisition was financed from borrowings under the Company's Senior Credit
Facility.
The acquisition will be accounted for using the purchase method of
accounting and, accordingly, the operating results of Kewaunee will be included
in the Company's consolidated statements of income beginning November 1, 1999.
The purchase price, including acquisition costs, approximated the estimated fair
value of the assets acquired and liabilities assumed as of the acquisition date.
Had the acquisition occurred on October 1, 1998 or 1997, there would have
been no material pro forma impact on the Company's consolidated net sales, net
income or earnings per share in fiscal 1999 or 1998.
On November 24, 1999, the Company completed the offer and sale of
3,795,000 shares of its Common Stock at $26.00 per share. Proceeds from the
offering, net of underwriting discounts and commissions, totaled $93,736 with
$93,500 used to repay indebtedness under the Company's Senior Credit Facility
(see Note 4). Assuming that the net proceeds to the Company from the offering
were used to repay term debt as of October 1, 1998, earnings per share before
extraordinary item and earnings per share before extraordinary item assuming
dilution for fiscal 1999 would have been $2.15 and $2.11, respectively, and the
corresponding weighted average shares outstanding for the purposes of these
computations would have been 16,522,141 and 16,846,854, respectively.
<PAGE>
FINANCIAL HIGHLIGHTS
Selected Historical Consolidated Financial Data Fiscal years ended September 30,
(Dollars in thousands, except per share amounts)
<TABLE>
<CAPTION>
1999 1998(4) 1997 1996(5) 1995
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net sales....................................... $1,164,954 $902,792 $683,234 $413,455 $438,557
Operating income (loss)......................... 76,213 48,720 28,785 (3,601) 19,293
Income (loss) from continuing operations........ 31,191 16,253 10,006 (241) 11,637
Per share assuming dilution................ 2.39 1.27 0.78 (0.02) 0.87
Discontinued operations(1)...................... --- --- --- (2,859) (2,421)
Per share assuming dilution(1)............. --- --- --- (0.21) (0.18)
Net income (loss) (2)........................... 31,131 15,068 10,006 (3,100) 9,216
Per share assuming dilution (2)............ 2.39 1.18 0.78 (0.23) 0.69
Dividends per share:
Class A Common Stock....................... .292 .290 .290 .290 .290
Common Stock............................... .336 .333 .333 .333 .333
Total assets.................................... 753,290 685,039 420,394 435,161 200,916
Expenditures for property, plant and equipment.. 13,139 8,555 6,263 5,355 5,347
Depreciation.................................... 11,985 10,383 9,600 8,627 8,409
Amortization of goodwill and other intangible
assets.................................... 11,172 8,315 4,470 171 ---
Net working capital............................. 43,505 41,137 50,113 67,469 91,777
Long-term debt (including current maturities)(3) 260,548 280,804 135,000 157,882 ---
Shareholders' equity(3)......................... 162,880 131,296 120,900 121,602 113,413
Book value per share(3)......................... 12.70 10.39 9.70 9.39 9.88
Backlog......................................... 487,000 377,000 361,000 433,000 350,000
(1)On June 2, 1995, the Company sold certain assets of its motor home, bus and
van chassis business for consideration which included cash of $23,815 and the
assumption of certain liabilities by the purchaser. This disposition has been
accounted for as a discontinued operation and, accordingly, income statement
data reflects the business sold as a discontinued operation in fiscal 1995. In
fiscal 1996, the Company incurred after-tax charges of $1,600 arising from the
write-off of receivables and other obligations related to the Company's former
chassis joint venture in Mexico and incurred additional warranty and other
related costs of $1,259 with respect to the Company's former U.S. chassis
business.
(2)Includes an after-tax extraordinary charge of $60 ($0.00 per share) in 1999
and $1,185 ($0.09 per share) in 1998 related to early retirement of debt.
(3)On November 24, 1999, the Company prepaid $93,500 of term debt under its
Senior Credit Facility from proceeds of the sale of 3,795,000 shares of Common
Stock. See Notes 4 and 15 to Notes to Consolidated Financial Statements.
Long-term debt, shareholders' equity and book value per share at September 30,
1999 on a pro forma basis adjusted for the issuance of additional shares of
Common Stock, the write-off of deferred financing costs of $937 net of income
tax benefit of $356, or $581 and the prepayment of debt were $167,048, $255,610
and $15.37, respectively.
(4)On February 26, 1998, the Company acquired for cash all of the issued and
outstanding capital stock of McNeilus Companies, Inc. and entered into related
non-compete and ancillary agreements for $217,851. See Note 3 to Notes to
Consolidated Financial Statements.
(5)On September 18, 1996, the Company acquired for cash all of the issued and
outstanding capital stock of Pierce Manufacturing Inc. for $156,926.
</TABLE>
<PAGE>
Dividends and Common Stock Price*
It is the Company's intention to declare and pay dividends on a regular basis.
However, the payment of future dividends is at the discretion of the Company's
Board of Directors and will depend upon, among other things, future earnings,
capital requirements, the Company's general financial condition, general
business conditions and other factors. When the Company pays dividends, it pays
a dividend on each share of Common Stock equal to 115% of the amount paid on
each share of Class A Common Stock. The agreements governing the Company's
subordinated debt and bank debt restrict its ability to pay dividends on Common
Stock and Class A Common Stock. For fiscal 2000, the terms of its Senior Credit
Facility generally limit the aggregate amount of all dividends the Company may
pay on its common equity during that period to an amount equal to $5 million
plus 5% of consolidated net income.
The Company's Common Stock is quoted on the Nasdaq National Market. As of
September 30, 1999, there were 864 holders of record of the Company's Common
Stock and 108 holders of record of the Company's Class A Common Stock. The
following table sets forth prices reflecting actual sales as reported on the
Nasdaq National Market, as adjusted to reflect the three-for-two split of the
Company's Common Stock effected on August 19, 1999.
Fiscal 1999 Fiscal 1998
Quarter Ended High Low High Low
September...................... $38.50 $22.75 $18.83 $12.33
June........................... 33.58 19.33 17.42 12.67
March.......................... 25.50 20.83 13.33 11.58
December....................... 23.33 14.50 14.17 9.92
*There is no established public trading market for Class A Common Stock.
Exhibit 21
----------
Subsidiaries of the Company
The Company owns all of the stock of the following corporations:
State or Other Jurisdiction
Name of Incorporation or Organization
---- --------------------------------
Pierce Manufacturing Inc. Wisconsin
McNeilus Companies, Inc. Minnesota
Summit Performance Systems, Inc. Wisconsin
Kewaunee Fabrications, L.L.C. Wisconsin
Pierce Manufacturing Inc. owns all of the stock of the following
corporations:
State or Other Jurisdiction
Name of Incorporation or Organization
---- --------------------------------
Dover Technologies Inc. Wisconsin
Pierce Manufacturing International Inc. Barbados
Pierce Western Region Refurbishment Center, Inc. California
McNeilus Companies, Inc. owns all of the stock of the following
corporations:
State or Other Jurisdiction
Name of Incorporation or Organization
---- --------------------------------
McNeilus Truck & Manufacturing, Inc. Minnesota
Iowa Contract Fabricators, Inc. Iowa
McIntire Fabricators, Inc. Iowa
Kensett Fabricators, Inc. Iowa
McNeilus Financial Services, Inc. Minnesota
McNeilus Truck & Manufacturing, Inc. owns all of the stock of McNeilus
Financial, Inc., a Texas corporation.
McNeilus Financial Services, Inc. owns all of the stock of Oshkosh/McNeilus
Financial Services, Inc., a Minnesota corporation.
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the incorporation by reference in this Annual Report on Form 10-K
of Oshkosh Truck Corporation of our report dated October 23, 1999, except for
Notes 4 and 15, as to which the date is November 24, 1999, included in the 1999
Annual Report to Shareholders of Oshkosh Truck Corporation.
Our audits also included the financial statement schedule of Oshkosh Truck
Corporation listed in Item 14(a). This schedule is the responsibility of the
Company's management. Our responsibility is to express an opinion based on our
audits. In our opinion, the financial statement schedule referred to above, when
considered in relation to the basic financial statements taken as a whole,
presents fairly, in all material respects, the information set forth therein.
We also consent to the incorporation by reference in the Registration Statements
(Form S-8 No. 333-81681, No. 33-38822 and No. 33-62687) pertaining to the
Oshkosh Truck Corporation 1990 Incentive Stock Plan of our report dated October
23, 1999, except for Notes 4 and 15, as to which the date is November 24, 1999,
with respect to the consolidated financial statements and schedule of Oshkosh
Truck Corporation included in or incorporated by reference in the Annual Report
(Form 10-K) for the year ended September 30, 1999.
/s/ Ernst & Young LLP
Ernst & Young LLP
Milwaukee, Wisconsin
December 23, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY INFORMATION EXTRACTED FROM THE CONSOLIDATED
FINANCIAL STATEMENTS OF OSHKOSH TRUCK CORPORATION AS OF AND FOR THE YEAR ENDED
SEPTEMBER 30, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-30-1999
<PERIOD-START> OCT-01-1998
<PERIOD-END> SEP-30-1999
<CASH> 5,137
<SECURITIES> 0
<RECEIVABLES> 95,390
<ALLOWANCES> 2,204
<INVENTORY> 198,446
<CURRENT-ASSETS> 316,290
<PP&E> 154,597
<DEPRECIATION> 70,606
<TOTAL-ASSETS> 753,290
<CURRENT-LIABILITIES> 272,785
<BONDS> 255,289
0
0
<COMMON> 140
<OTHER-SE> 162,740
<TOTAL-LIABILITY-AND-EQUITY> 753,290
<SALES> 1,164,954
<TOTAL-REVENUES> 1,164,954
<CGS> 991,573
<TOTAL-COSTS> 991,573
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 201
<INTEREST-EXPENSE> 26,744
<INCOME-PRETAX> 50,959
<INCOME-TAX> 21,313
<INCOME-CONTINUING> 31,191
<DISCONTINUED> 0
<EXTRAORDINARY> 60
<CHANGES> 0
<NET-INCOME> 31,131
<EPS-BASIC> 2.45
<EPS-DILUTED> 2.39
</TABLE>
