SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K/A
AMENDMENT TO NO. 1 TO
(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, 1998, 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
(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 stock held by non-affiliates of
the registrant as of November 18, 1998:
Class A Common Stock, $.01 par value - No Established Market Value
Common Stock, $.01 par value - $216,104,000
Number of shares outstanding of each of the registrant's classes of
common stock as of November 18, 1998:
Class A Common Stock, $.01 par value - 296,888 shares
Common Stock, $.01 par value - 8,124,613 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, 1998.
Part III incorporates, by reference, portions of the Proxy Statement
dated December 23, 1998.
<PAGE>
The undersigned registrant hereby amends and restates Items 1, 2, 5, 7,
8, 10 and 14 of its Annual Report on Form 10-K for the fiscal year ended
September 30, 1998 to provide in their entirety as follows:
<PAGE>
Forward-Looking Statements
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. This Annual Report on Form 10-K contains statements that
management believes are "forward looking statements" within the meaning of
Section 27A of the Securities Act and Section 21E of the Securities Exchange Act
of 1934, as amended. 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, 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 consequences of financial leverage;
(2) the cyclical nature of the construction industry; (3) the risks related to
reductions or changes in government expenditures; (4) the uncertainty inherent
in government contracts; (5) the challenges of integration of acquired
businesses; (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 resolving Year 2000 issues. 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 commenced business in 1917 and was incorporated in 1930.
The Company is a leading designer, manufacturer and marketer of a broad range of
fire and emergency apparatus and specialty commercial and military trucks under
the "Oshkosh," "Pierce," "McNeilus" and "MTM" trademarks. 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. The Company's commercial truck lines include refuse truck bodies and
rear- and forward-discharge concrete mixers. As the leading manufacturer of
severe-duty heavy tactical trucks for the United States Department of Defense
("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. McNeilus has an equity interest in Oshkosh/McNeilus Financial
Services Partnership ("OMFSP") which provides lease financing to the Company's
customers.
The Company's objective is to continue to enhance market positions by
providing innovative design, sophisticated engineering, efficient, low-cost
manufacturing, extensive distribution and superior customer service to its
commercial, municipal and military customers within its core markets.
Competitive Strengths
The following competitive strengths support the Company's business
strategy:
Strong Market Positions. The Company has developed strong market positions
in each of its core businesses, which management attributes to the Company's
reputation for innovation, vehicle performance, reliability and customer
service. The Company has the leading share of the severe-duty heavy tactical
truck segment of the domestic defense truck market, and also believes it has a
leading share in: (i) custom and commercial fire apparatus, including pumpers,
aerial and ladder trucks, tankers, heavy duty rescue, wildland rough terrain
response vehicles and ARFF vehicles for the domestic fire apparatus market; (ii)
the domestic refuse truck body market; (iii) the domestic rear- and
forward-discharge concrete mixer markets; and (iv) the domestic airport snow
removal vehicle market. The Company intends to continue to strengthen its market
share by capitalizing on its strong reputation, introducing innovative products
and services and leveraging its extensive distribution capabilities.
Extensive Distribution Capabilities. With the addition of the commercial
and municipal distribution capabilities of Pierce and McNeilus, the Company has
established an extensive domestic and international distribution system for
specialty trucks and truck bodies covering over 70 countries. In addition to its
network of dealers and distributors, the Company employs over 100 in-house sales
and service representatives. Management believes the Company's broad
distribution system has enabled the Company to: (i) maximize sales of new
products and technologies: (ii) become a benchmark for government customers in
establishing their bid
3
<PAGE>
specifications; (iii) provide customer service on a national and international
scale; and (iv) reduce distribution expenses through significant economies of
scale.
Flexible and Efficient Manufacturing. The Company believes it has
competitive advantages over larger truck manufacturers in its specialty truck
markets due to its manufacturing flexibility and custom fabrication
capabilities. For example, the Company has successfully configured its defense
truck and fire apparatus manufacturing plants for the simultaneous manufacture
of many different types and models of vehicles on the same assembly line. In
addition, the Company believes it has a competitive advantage over smaller
competitors due to its: (i) manufacturing in relatively higher volumes; (ii)
purchasing power across its product lines; and (iii) investing in fixturing and
robotics to improve efficiency and reduce costs.
Quality Products and Customer Service. Oshkosh, Pierce and McNeilus have
each developed strong brand recognition based on their commitments to meet the
stringent product quality and reliability requirements of their customers and
the specialty truck markets they serve. The Company's commitment to product
quality is exemplified by the ISO 9001 certification of Oshkosh and Pierce,
which achieved ISO 9001 certification in April 1998. The Company also achieves
high quality customer service through its extensive service and parts support
program, which is available to domestic customers 365 days a year in all product
lines throughout the Company's distribution systems.
Proprietary Components. The Company's advanced design and engineering
capabilities have contributed to the development of proprietary, severe-duty
components 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
and the McNeilus Auto Reach Arm, an automated side-loading refuse body. See
"Products and Markets" for further discussion of these products and
technologies. Management believes these proprietary components provide the
Company a competitive advantage by increasing its vehicles' durability,
operating efficiency and vehicle effectiveness. The integration of many of these
components across various product lines also reduces the Company's costs to
manufacture its products compared to manufacturers who simply assemble purchased
components.
Business Strategy
The Company is focused on increasing its net sales, profitability and cash
flow by capitalizing on its competitive strengths. Key elements of the Company's
business strategy include:
Focusing on Specialized Truck Markets. The Company plans to continue its
focus on those specialized truck and truck body markets where it has strong
market positions and where the Company can leverage synergies in purchasing,
manufacturing, technology and distribution. The Company's objective is to
achieve and maintain market leadership through internal growth and strategic
acquisitions. Management believes the higher sales volumes associated with
market leadership would allow the Company to continue to enhance productivity in
manufacturing operations, fund innovative product development and invest in
further expansion.
Expanding Distribution and International Sales. The Company plans to add
new distribution capabilities for the municipal segment of the refuse truck body
market and in targeted geographic areas in the domestic fire apparatus market.
The Company intends to increase international sales beyond the $35.0 million
volume achieved in fiscal 1998 by introducing McNeilus refuse truck bodies,
rear-discharge concrete mixers and ready-mix batch plants to international
markets and by continuing the expansion of Pierce's international customer base
through the Company's expanding international distribution capabilities.
Reducing Costs While Maintaining Quality. The Company actively benchmarks
its competitors' costs and best industry practices, and continuously seeks to
implement process improvements to increase cash flow and improve profitability.
With each of its acquisitions, the Company has established cost reduction
targets. At Pierce, the Company exceeded its 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 1999. The Company
intends to further improve efficiencies by taking advantage of the Company's
greater purchasing power and by developing additional manufacturing synergies
across product lines following its acquisition of McNeilus and has established a
$5-$7 million two-year cost reduction target with respect to this acquisition.
In the first seven months following the acquisition of McNeilus, $1.45 million
of the cost reduction target was realized.
Introducing New Products. The Company has increased its emphasis on new
product development in recent years, and seeks to expand sales by introducing
new or improved products in its core markets, either through internal
development or strategic acquisition. For example, in December 1997, the Company
purchased the aerial fire apparatus product line of Nova Quintech, a division of
Nova Bus Corporation. This acquisition broadened Pierce's aerial product line
and provided Pierce with three new products in fiscal 1998.
4
<PAGE>
Diversifying DoD Contracts. The Company is seeking to diversify its
business with the DoD beyond its traditional contracts relating to the
manufacture of severe-duty heavy tactical trucks. Management believes the
Company has a reputation within the DoD for advanced engineering, quality
manufacturing and vehicle performance that will assist the Company in obtaining
contracts to provide other types of vehicles to the DoD. For example, the
Company was one of two manufacturers selected to participate in a DoD program to
produce upgraded medium-duty prototype vehicles for the Medium Tactical Truck
Remanufacture ("MTTR") program. The Company expects the initial production
contract to be awarded to the Company or the competing bidder in December 1998.
The Company is also one of two manufacturers currently preparing prototype
Family of Medium Tactical Vehicles ("FMTV") trucks for testing by the DoD. Upon
conclusion of this testing, the Company will compete to be a second source
supplier for the $15.6 billion FMTV program which extends through 2020.
Increasing Aftermarket Sales and Service. The Company is focused on
increasing its aftermarket sales and service revenues. In the fire apparatus and
commercial truck markets, the Company has expanded and plans to continue to
expand its refurbishment facilities and parts distribution capabilities. In the
defense truck market, the Company plans to continue to pursue parts and
maintenance contracts for upgrading and reconditioning trucks at both domestic
and international U.S. military bases.
Pursuing Strategic Acquisitions. The Company intends to selectively pursue
additional strategic acquisitions, both domestically and internationally, in
order to enhance its product line and expand its international presence in
specialized truck markets. The Company intends to focus its acquisition strategy
in specialty truck and truck body markets where it can enhance its strong market
positions and achieve significant acquisition synergies.
Products and Markets
The Company is focused on the following core specialty truck and truck body
markets:
Fire Apparatus. The Company, through Pierce, is among the leading domestic
manufacturers of custom and commercial fire apparatus. The Company primarily
serves domestic governmental markets, but also sells fire apparatus to airports,
universities and large industrial companies. In addition, the Company sells fire
apparatus in international markets. Pierce's history of research and development
in consultation with firefighters has resulted in a broad product line that
features a wide range of innovative, high-quality custom and commercial
firefighting equipment with advanced fire suppression capabilities. The
Company's engineering expertise also allows it to design its vehicles to meet
stringent government regulations for safety and effectiveness.
Refuse Truck Bodies. Management believes the Company, through McNeilus, is
a leading domestic manufacturer of refuse truck bodies for the waste services
industry. The Company manufactures a wide range of automated rear, front, side
and top loading refuse truck bodies, which the Company mounts on commercial
chassis. The Company sells its refuse vehicles primarily to commercial waste
management companies. Management believes the Company's refuse vehicles have a
reputation for efficient, cost-effective, dependable operation that supports the
Company's continued expansion into municipal and international markets.
Concrete Mixers and Snow Removal Vehicles. Management believes the Company
is a leading domestic manufacturer of rear- and forward-discharge concrete
mixers. The Company sells rear- and forward-discharge concrete mixers and
portable concrete mixer plants to construction companies throughout the United
States and internationally. Management believes the Company is one of the only
domestic concrete mixer manufacturers that markets both rear- and
forward-discharge concrete mixers.
The Company is also among the leading domestic manufacturers of snow
removal vehicles for airports. The Company's specially designed airport snow
removal vehicles can cast up to 4,000 tons of snow per hour and are used by some
of the largest airports in the United States, such as Denver International
Airport, LaGuardia International Airport, Minneapolis-St. Paul International
Airport and O'Hare International Airport. Management believes the reliability of
the Company's high performance snow removal vehicles contributes to its strong
market position.
Defense Trucks. The Company has sold products to the DoD for over 70 years
and is the leading manufacturer of a broad line of severe-duty heavy tactical
trucks for the DoD. The Company's proprietary military all-wheel drive product
line includes: (i) the Palletized Load System ("PLS"), a highly mobile
self-contained truck and trailer system that loads and unloads a wide range of
cargo in a short period of time; (ii) the Heavy Expanded Mobility Tactical Truck
("HEMTT"), a cross-country cargo and supply carrier that, among other tasks, is
used for direct rearming of the Multiple Launch Rocket System, transport of
Patriot erector/launchers, resupply of field artillery ammunition and refueling
of tanks, trucks and helicopters in forward areas; (iii) the Heavy Equipment
Transporter ("HET"), the primary hauler of the M1A1 main battle tank and also a
hauler of other tanks, fighting and recovery vehicles, self-propelled howitzers
and construction equipment; and (iv) the Logistic Vehicle System ("LVS"), a
highly mobile cargo carrier with a maximum payload capacity of 20 tons. The
Company also exports its severe-duty heavy tactical trucks to approved foreign
customers.
5
<PAGE>
The Company has developed a strong relationship with the DoD that has
resulted in the Company operating under "family contracts" with the DoD for the
PLS, HEMTT, HET and LVS and for DoD vehicle parts. "Family contracts" is the
term given to contracts between the Company and the DoD 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 PLS and HET
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 were established in 1996 and 1997 and expire in fiscal
years 2000 and 2001.
Markets and Products Description
Fire and Emergency Market Firefighting apparatus that are
Custom Pumpers......... equipped with a water tank, water
pump, and foam system (optional).
The Pierce line of
* Quantum - Flagship of the Pierce
custom pumpers is available on each
of these line. Features advanced
ergonomics, custom chassis: unique
styling, enhanced maneuverability,
and a cab that seats up to 10
personnel.
* Lance 2000 - Features a split-tilt
cab. High gross vehicle weight
rating enables this truck to support
aerial devices.
* Dash 2000 - Custom tilt cab,
designed for comfort, space and
maneuverability.
* Saber - Value-priced chassis
featuring a tilt-cab, select
options, and seating for up to 8
personnel.
* Arrow - Cab-forward design.
Commercial Pumpers..... Firefighting apparatus that arewith
a water tank, equipped water pump
and foam system (optional).
Commercial pumpers have the
firefighting bodies mounted on
customer-specified commercial truck
chassis.
Aerial Apparatus....... Firefighting apparatus with an
aerial device mounted on the body
for access and rescues in elevated
locations. These devices are
available on the Pierce line of
custom chassis.
Products include:
* 105' and 85' aerial platforms.
* 75' and 105' heavy-duty ladders.
* 105' super heavy-duty ladder.
* 105' aerial tiller - Tractor-drawn
trailer has an Aerial ladder mounted
on the trailer and steering
capability for the rear axle.
* Sky Arm - Four-section, 100-foot
aerial ladder with an articulating
platform.
* Sky Five - Five-section aerial
ladder that is available in rear-
and mid-mount configurations. The
Company believes that, at rest, this
is the shortest 100-foot aerial
ladder available.
* Sky Boom - Elevated water tower
boom with an attached ladder.
Available in 55' and 60' lengths.
Rescue Vehicles........ These units are designed to carr
and large personnel quantities of
equipment. Pierce rescue vehicles
are used for extrication, water
rescue, hazardous materials
response, fire fighting, command
center, and lighting operations.
Mini-Pumper............ This initial response vehicle is a
fast, lightweight, scaled-down
version of full-sized pumper.
Elliptical Tanker...... Elliptical tankers are used to large
amounts of transport water to fire
scenes and can be equipped with a
variety of pumping packages so the
vehicles can also be used as a front
line of attack. Water capacity
ranges from 1,500 to 5,000 gallons.
Hawk Wildland Rapid
Response
Vehicle.............. Four-wheel-drive vehicle takes
firefighters into off-road terrain
that can be difficult or even
impassable for larger,
two-wheel-drive pumpers. Designed
specifically as a first-strike
vehicle, the Hawk features a water
tank, water pump, and a compressed
air foam system.
H-Series............... An airport snow removal vehicle that
can clear 4,000 tons of snow per
hour. Optional sweepers, blowers and
plows are Available.
P-Series............... A super heavy-duty frame vehicle
that can break through heavily
drifted snow. The vehicle also has
the added flexibility of being
durable enough to meet the demands
of off-road applications.
6
<PAGE>
Refuse Truck Body Market
Front Loader........... Refuse is loaded into a container at
the front of the vehicle; The
container is lifted by large arms
and dumped into the body. The front
loader can carry 40 to 43 cubic
yards of refuse and is available on
a selection of commercial chassis. A
self-leveling system for keeping the
container level during dumping cycle
is optional.
Rear Loader............ McNeilus offers three different
models of rear-loading refuse
bodies. Refuse is loaded into the
rear of the vehicle and compacted
toward the front of the refuse body.
McNeilus rear loaders can carry from
17 to 32 cubic yards of refuse
Autoreach Automated Side
Loader............... This refuse body features a boomless
arm for loading large containers of
refuse from the side of the vehicle.
The side-loading arm is designed to
articulate left to right and dump
from any angle. The driver can keep
the vehicle in one position after
stopping for a pick-up rather than
having to move the vehicle to put
the arm in the proper position for
lifting the next refuse container.
The McNeilus Autoreach is available
in 28-, 33- and 36-cubic yard
capacities and features a continuous
packing cycle.
Manual Side Loader..... Designed for one-person refuse
collection operations and can carry
up to 33 cubic yards. The body can
be loaded from either side and is
typically mounted on a low-entry
chassis.
Concrete Mixer Market
F-Series............... Designed for a variety of
severe-duty all-wheel drive
applications, including
rear-discharge concrete mixers,
concrete block trucks, dry wall
haulers, wall form trucks, digger
derricks, aerial buckets and oil
field service.
S-Series............... A forward-discharge concrete mixer
that allows the driver to approach a
job with greater visibility,
improved placement and greater
safety. The two-speed transfer case
and front driving gear gives extra
power to maneuver into tighter spots
in challenging terrain.
Bridgemaster III....... Rear-discharge mixer featuring a
trailing axle. This mixer lineup can
carry from 9 to 11.5 cubic yards of
concrete. The Bridgemaster IIIs are
available on a variety of commercial
truck chassis.
Standard Rear Discharge
Mixer................ Rear-discharge concrete mixer that
can handle from 4 to 11 cubic yards
and are available with a variety of
axle Configurations including tag
axles. Options include remote
pendant controls for controlling
discharge near the rear of the
vehicle.
Sliding Mixer System... Mounted on a trailer that can be
extended up to 13 feet depending on
the size of the mixer selected. It
is designed for transport and large
pours. It typically can carry 11 to
13 yards of concrete.
Defense Truck Market
Heavy Expanded Mobility
Tactical Truck
("HEMTT").............. Cross-country cargo and supply
carrier with maximum payload
capacity of 11 tons. The HEMTT is
used for direct rearming of the
Multiple Launch Rocket System,
transport of Patriot
erector/launchers and resupply of
field artillery ammunition and
refueling of tanks, trucks and
helicopters in forward areas.
Heavy Equipment
Transporter
("HET").............. Primary hauler of the M1A1 main
battle tank and also transports
other tanks, fighting and recovery
vehicles, self-propelled howitzers
and construction equipment.
Palletized Load System
('PLS").............. Cargo hauler with maximum payload
capacity of 33 tons. The truck and
trailer system hauls a variety of
cargo and can load or unload in a
short period of time.
Logistic Vehicle System
("LVS").............. Highly mobile cargo carriers with a
maximum payload capacity of 20 tons.
The LVS can carry military vehicles
and supply containers over rough
terrain and steep g grades due to
its separating chassis module
design.
7
<PAGE>
Sales and Distribution
The Company believes it differentiates itself from many of its larger
competitors by tailoring its distribution to the needs of its specialized truck
markets and from its smaller competitors with its national and global sales and
service capabilities. Distribution personnel use demonstration trucks to show
customers how to properly use the Company's trucks and truck bodies, compared to
the showroom sales approach of the typical dealers of large truck manufacturers.
The Company backs all products by same-day parts shipment, and its service
technicians are available in person or by telephone to domestic customers 365
days a year. The Company believes that its dedication to keeping its trucks
in-service in demanding conditions worldwide has contributed to customer
loyalty.
The Company provides its salespeople, representatives and distributors with
product and sales training on the operation and specifications of its products.
The Company's engineers, along with its product managers, develop operating
manuals and provide field support at truck delivery for certain markets.
Distributors, where used, enter into agreements with the Company that allow
for termination by either party generally upon 90 days' notice. Distributors are
not permitted to market and sell competitive products.
Fire and Emergency. The Company believes that the geographical breadth,
size and quality of its fire apparatus sales and service organization are
competitive advantages in a market characterized by a few large manufacturers
and numerous small, regional competitors. Pierce's fire apparatus are sold
through 38 sales and service organizations with more than 260 sales
representatives nationwide, which combine broad geographical reach with
frequency of contact with fire departments and municipal government officials.
Management believes that frequency of contact and local presence are important
to cultivate major, and typically infrequent, purchases involving the city or
town council and fire department, purchasing, finance, and mayoral offices,
among others, that may participate in a fire truck bid and selection. After the
sale, Pierce's nationwide local parts and service capability is available to
help municipalities maintain peak readiness for this vital municipal service.
Pierce primarily focused its sales efforts in rural and small suburban
domestic markets prior to its acquisition by Oshkosh. Due to 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.
Pierce substantially strengthened its competitive position overseas in
fiscal 1998. Pierce's worldwide distribution network was expanded to include 43
international representatives. This network has delivered several new orders
including the award in December 1997 of a $35 million contract for 130 custom
fire trucks for Saudi Arabia to be delivered from November 1998 through October
1999.
The Company has invested in the development of sales tools for its
representatives that it believes creates a competitive advantage in the sale of
fire apparatus. For example, Pierce's Pride II PC-based sales tool can be used
by its sales representatives to develop the detail specifications, price the
base truck and options and draw the configured truck on the customer's premises.
The quote, if accepted, is directly interfaced into Pierce's sales order
systems.
Oshkosh maintains 22 full-time sales and service dealers focused on the
sale of snow removal vehicles, principally to airports, but also to
municipalities, counties and other governmental entities.
Defense. Substantially all domestic defense products are sold direct to
principal branches of the DoD. The Company maintains a liaison office in
Washington, D.C. to represent its interests with the Pentagon, Congress and the
Office of the President. The Company also sells and services defense products to
foreign governments directly through four Company-owned international sales
offices, through agents, consultants and representatives, and through the United
States 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.
In addition to marketing its current truck offerings and competing for new
contracts in the medium- and light-duty segments, the Company actively works
with the Armed Services to develop new applications for its vehicles. For
example, the Company is:
o Developing new applications for its PLS vehicle beyond its traditional
ammunition transportation role. A contract for construction models has
already been awarded, and several other models of the PLS are currently
under evaluation.
o Modifying its HEMTT vehicle for alternate uses. The Company has
integrated a foam proportioning fire fighting package on a HEMTT for use
by the U.S. military and other governmental agencies in the
extinguishment of wildland fires. The HEMTT has also been modified to
include a load handling system to meet lower payload requirements.
8
<PAGE>
o Upgrading existing products such as the HEMTT, PLS and HET in order to
achieve better performance and new technology. As an example, the
Company has separate development contracts for each product with the
U.S. Army to develop a new HEMTT, HET and PLS with new engines,
transmissions, transfer cases and numerous other components that
increase reliability and performance at reduced costs. In addition, the
HEMTT Extended Service Program ("ESP") and HET Technology Insertion
Program ("TIP") vehicles incorporate facets of the new "sealed hood"
concept in which vehicle systems are monitored electronically and
maintenance recommendations are delivered directly to the operator
without ever having to open the hood.
Commercial. Oshkosh maintains four distribution centers with 26 in-house
sales and service representatives in the U.S. to sell and service its forward-
and rear-discharge concrete mixers. All of the Oshkosh facilities provide full
service, mounting and parts distribution to customers in their geographic
regions, while two also have paint facilities. In addition, Oshkosh utilizes one
independent distributor in this market.
McNeilus operates eight distribution centers with 83 in-house sales and
service representatives in the U.S. to sell and service its refuse truck bodies,
rear-discharge concrete mixers and ready-mix batch plants. Six of such
distribution centers provide full service, mounting and parts distribution to
customers in their geographic regions while the remainder are primarily sales
offices with limited parts and service capabilities. Five of the McNeilus
distribution centers also have paint facilities and provide significant
additional paint and mounting services during peak demand periods.
With respect to McNeilus, the Company has begun to:
o Combine the McNeilus and Oshkosh distribution capabilities. Because
there is little geographic overlap between the rear-discharge markets of
McNeilus and the forward-discharge markets of Oshkosh, management
retained all existing distribution centers of both companies. The
Company believes that the combined network represents one of the largest
refuse truck body and concrete mixer distribution networks in the U.S.
o 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. The
Company believes that commercial customers represent a majority of the
refuse truck body market. However, many municipalities purchase their
own refuse trucks. The Company believes that it is positioned to create
an effective municipal distribution in the refuse truck body market by
building upon its present base of municipal distributors. Following its
acquisition and new focus in municipal markets, McNeilus has been
awarded new business for the city of Los Angeles and has targeted other
major metropolitan areas.
o Offer McNeilus refuse truck bodies, rear-discharge concrete mixers and
ready-mix batch plants to Oshkosh's international dealers for sales and
service worldwide. McNeilus' international sales have historically been
limited because McNeilus has focused on the domestic market. However,
management believes that refuse body exports are a significant
percentage of certain competitors' sales, and represents a meaningful
opportunity for the Company. The Company has trained its international
Oshkosh and Pierce dealers to sell and service the McNeilus product line
and has commenced sales of McNeilus products through these dealers in
the first seven months following the acquisition.
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
efforts in order to maintain existing levels of defense business and to succeed
in bid competitions for available contracts. In the refuse truck body and
concrete mixer markets, the Company also faces intense competition on the basis
of price, innovation, quality, service and product performance capabilities. As
the Company seeks to expand its sales of refuse truck bodies to municipal
customers, management believes the principal basis of competition for such
business will be lowest qualified bid.
In all of the Company's markets, competitors include smaller, specialized
manufacturers as well as large, mass producers. The Company believes that, in
its specialized truck markets, it has been able to effectively compete against
large, mass producers due to its manufacturing flexibility and specialized
distribution systems. The Company believes that its competitive cost structure,
engineering expertise and global distribution systems have enabled it to
effectively compete with other specialized manufacturers.
9
<PAGE>
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. 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., Rexworks, Inc., and
T.L. Smith Machine Co., Inc. Oshkosh's principal competitors in snow removal
markets include Monroe Truck Equipment, Inc. and Stewart & Stevenson Services,
Inc. Oshkosh's principal competitors for DoD contracts include AM General
Corporation and Stewart & Stevenson Services, Inc. The Company also faces
competition from its competitors for acquisition opportunities.
Several of the Company's competitors have greater financial, marketing,
manufacturing and distribution resources than the Company. There can be no
assurance that the Company's products will continue to compete successfully with
the products of competitors or that the Company will be able to retain its
customer base or to improve or maintain its profit margins on sales to its
customers, all of which could materially adversely affect the Company's
financial condition, results of operations and debt service capability.
Customers and Backlog
Sales to the DoD comprised approximately 28% of the Company's net sales for
fiscal 1998. No other single customer accounted for more than 2% of the
Company's 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, 1998 was $377.5 million compared
to $361.1 million at September 30, 1997. Backlog related to DoD contracts
decreased by $94.1 million in 1998 compared to 1997 due to the completion of the
IPF contract and because the Company's family contracts are coming up for
renewal. The Company's fire and emergency and commercial backlogs increased by
$51.2 million and $59.3 million, respectively, generally due to higher sales
volumes for Pierce and due to the inclusion of McNeilus in 1998. Substantially
all of the Company's backlog at September 30, 1998 pertains to fiscal 1999
business and is expected to be filled in fiscal 1999.
Reported backlog excludes purchase options and announced orders for which
definitive contracts have not been executed. Additionally, backlog excludes
unfunded portions of DoD long-term family contracts. Backlog information and
comparisons thereof as of different dates may not be accurate indicators of
future sales or the ratio of the Company's future sales to the DoD versus its
sales to other customers.
Government Contracts
Approximately 28% of the Company's net sales for fiscal 1998 were made to
the U.S. government under long-term contracts and programs, substantially all of
which were in the defense truck market. Accordingly, a significant portion of
the Company's sales are subject to inherent risks, including uncertainty of
economic conditions, changes in government policies and requirements that may
reflect rapidly changing military and political developments and the
availability of funds.
The Company's sales into defense truck markets are substantially dependent
upon periodic awards of new contracts and the purchase of base vehicle
quantities and the exercise of options under existing contracts. The Company's
existing contracts with the DoD may be terminated at any time for the
convenience of the government. Upon such termination, the Company would
generally be entitled to reimbursement of its incurred costs and, in general, to
payment of a reasonable profit for work actually performed.
In November 1996, the U.S. Army Tank Automotive and Armaments Command
awarded the Company and one other defense contractor $6.9 million prototype
contracts for Phase I competition of the MTTR program. The MTTR program was
initiated to update and modernize the 5-ton tactical vehicle fleet of the U.S.
Marine Corps and the U.S. Army. The goal of the U.S. Marine Corps portion of the
program is to remanufacture the current configuration to carry a much greater
payload with substantially increased cross-country mobility. The U.S. Army
portion of the program was designed to increase the useful life and decrease
operation and support costs of a portion of the U.S. Army's existing fleet but
this portion of the program was subsequently cancelled. Phase I covers the
design, development, and production of five prototype test vehicles for the U.S.
Marine Corps and five additional prototype test vehicles for the U.S. Army.
Testing of the ten-prototype test vehicles commenced August 1997 and was
concluded in fiscal 1998. Phase II of the program is currently expected to
include the production of up to 8,168 vehicles for the U.S. Marine Corps at a
value that could exceed $1.0 billion over a period of years. Competition for the
Phase II production contract is intense between the two Phase I contractors.
Phase I testing along with the Phase II proposal will determine the single
supplier of any production contract awarded. No assurance can be given that the
DoD will award a Phase II Contract or that federal budgets will provide future
funding for a Phase II contract. The DoD has targeted to announce an award of
the MTTR contract to either Oshkosh or its competition in December 1998.
10
<PAGE>
The U.S. Army has announced a competition to add a second supplier to build
FMTV trucks. Oshkosh and one competitor have been awarded contracts to build
three trucks for testing by the DoD. Based on current plans announced by the
DoD, the winner of the competition would be awarded an initial production
contract for approximately 763 vehicles. Upon completion of this production
contract and the current supplier's present contract, the U.S. Army is expected
to conduct a competition between these two manufacturers for the production of
approximately 50,000 FMTV trucks. No assurance can be given that the DoD will
award the FMTV second source contract or that federal budgets will provide
future funding for the FMTV program.
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. In the event that the
Company is unable to negotiate a satisfactory agreement to provide such
increased compensation, the Company may file an appeal with the Armed Services
Board of Contract Appeals or the U.S. Claims Court. The Company has no such
appeals pending.
The Company, as a U.S. government contractor, is subject to financial
audits and other reviews by the U.S. government of performance of, and the
accounting and general practices relating to, U.S. government contracts, and
like most large government contractors, the Company is audited and reviewed on a
continual 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
of certain components, the Company is able to avoid many of the preproduction
and fixed costs associated with the manufacture of those components. The Company
maintains an extensive qualification and performance measurement system to
control risks associated with such reliance on suppliers. The Company
occasionally experiences problems with supplier and subcontractor performance
and must identify alternate sources of supply and/or address related warranty
claims from customers.
While the Company purchases many costly components such as engines,
transmissions and axles, it manufactures certain proprietary components that are
deemed material to the Company's business. These components include front drive
and steer axles, transfer cases, cabs, the ALL-STEER electronic all-wheel
steering system, independent suspension, the Sky-Arm articulating aerial ladder,
the McNeilus Auto Reach Arm, body structures and many smaller parts which add
uniqueness and value to the Company's products. Some of these proprietary
components are marketed to other manufacturers.
Engineering, Research and Development
The Company maintains three facilities for new product development and
testing with a staff of 46 engineers and technicians who are responsible for
improving existing products and development and testing of new trucks, truck
bodies and components. The Company prepares annual new product development and
improvement plans for each of its markets and measures progress against those
plans.
Virtually all of the Company's sales of fire apparatus require some custom
engineering to meet the customer's specifications. Engineering is also a
critical factor in defense truck markets due to the severe operating conditions
under which the Company's trucks are utilized, new customer requirements and
stringent government documentation requirements. In the refuse truck body,
concrete mixer and snow equipment markets, product innovation is highly
important to meet customers' changing requirements. Accordingly, the Company
maintains a permanent staff of over 240 engineers and engineering technicians,
and it regularly outsources significant engineering activities in connection
with major DoD bids and proposals.
For fiscal years 1998, 1997, and 1996, Oshkosh incurred engineering,
research and development expenditures of $9.7 million, $7.8 million and $6.3
million, respectively, portions of which were recoverable from customers,
principally the U.S. government.
11
<PAGE>
Intellectual Property
Patents and licenses are important in the operation of the Company's
business, as one of management's key objectives is developing proprietary
components in order to provide the Company's customers with advanced
technological solutions at attractive prices. The Company holds in excess of 50
active domestic patents. Management believes patents for all-wheel steer and
independent suspension systems, which have remaining lives of 9 to 19 years,
provide the Company with a competitive advantage in the fire apparatus business
and the sale of ARFF and snow removal vehicles. The independent suspension
system was also added to the U.S. Marine Corps portion of the MTTR program,
which the Company believes should be a competitive advantage in the competition
for the Phase II production contract. While other proprietary components provide
the Company a competitive advantage, management believes that none of the
Company's other patents individually are significant to the business.
The Company holds trademarks for "Oshkosh," "Pierce," "McNeilus" and "MTM."
These trademarks are considered to be important to the future success of the
Company's business.
Quality Management
In 1994, Oshkosh commenced a program to educate and train all employees at
its Oshkosh facilities in quality principles and to seek ISO 9001 certification
to improve the Company's competitiveness in its global markets. ISO 9001 is a
set of internationally accepted quality requirements, established by the
International Organization for Standardization, which indicates that a company
has established and follows a rigouous 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 April 1998. The Company is evaluating whether to pursue ISO
9001 certification for McNeilus. Although management does not consider such
certification essential for McNeilus' domestic markets, the Company may conclude
it is valuable in marketing to certain international customers.
Employees
As of September 30, 1998, the Company had approximately 3,500 employees, of
which approximately 1,300, 1300 and 900 employees are located at its principal
facilities in Oshkosh, Wisconsin, Appleton, Wisconsin and Dodge Center,
Minnesota, respectively. Production workers totaling approximately 800 employees
at the Company's Oshkosh facilities are represented by the United Auto Workers
union. The Company's five-year contract with the United Auto Workers union
extends through September 30, 2001. The Company believes its relationship with
employees is satisfactory.
Manufacturing
The Company manufactures trucks and truck bodies at ten manufacturing
facilities. Employee involvement is encouraged to improve production processes
and product quality. In order to reduce production costs, the Company maintains
a continuing emphasis on the development of proprietary components,
self-sufficiency in fabrication, just-in-time inventory management, improvement
in production flows, interchangeability and simplification of components among
product lines, creation of jigs and fixtures to ensure repeatability of quality
processes, utilization of robotics, and performance measurement to assure
progress toward cost reduction targets.
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 additional robots, commenced re-arrangement of weld and mount
activities and developed plans to expand paint capacity in order to improve
production facilities, all in the first seven months following the acquisition.
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 September
30, 1998, the Company operated in eleven manufacturing plants. The Company's
manufacturing plants include: The Company's manufacturing plants include:
<TABLE>
<CAPTION>
Approximate
Square Footage Principal
Location (# of facilities) Owned Leased Products Manufactured
<S> <C> <C> <C>
Oshkosh, Wisconsin(3).... 688,000 Defense Trucks; Front-Discharge Mixers;
Snow removal Vehicles; ARFF Vehicles
Appleton, Wisconsin(2)... 589,000 19,000 Fire Apparatus
Rear-Discharge Mixers; Refuse Truck
Dodge Center, Minnesota(1) 604,000 Bodies
Bradenton, Florida(1).... 287,000 Defense Trucks;
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
</TABLE>
The Company's facilities are pledged as collateral under the terms of the
Senior Credit Facility.
The Company's manufacturing facilities generally operate five days per week
on one shift, except for one-week shutdowns in July and December. Management
believes the Company's manufacturing capacity could be approximately doubled
with limited capital spending by working an additional shift at each facility.
The Company maintains twelve sales and service centers throughout 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; and Oshkosh, Wisconsin. The Company
leases such facilities in Tacoma, Washington; Salt Lake City, Utah; Aurora,
Illinois; and East Granby, Connecticut. These facilities range in size from
approximately 5,450 square feet to approximately 36,000 square feet and are
used primarily for sales and service of concrete mixers and refuse bodies.
13
<PAGE>
EXECUTIVE OFFICERS OF THE REGISTRANT
The following table sets forth certain information as of November 15, 1998
concerning the Company's executive officers and other officers. All of the
Company's officers serve terms of one year and until their successors are
elected and qualified.
<TABLE>
<CAPTION>
Name Age Title
-------------------------- ----------------------------------
<S> <C> <C>
Robert G. Bohn............ 45 President and Chief Executive Officer
Timothy M. Dempsey........ 58 Executive Vice President, General Counsel and Secretary
Paul C. Hollowell......... 57 Executive Vice President and President, Defense
Business
Dan J. Lanzdorf........... 50 Executive Vice President and President, McNeilus Companies, Inc.
John W. Randjelovic....... 54 Executive Vice President and President, Pierce
Manufacturing, Inc.
Charles L. Szews.......... 41 Executive Vice President and Chief Financial
Officer
Matthew J. Zolnowski...... 45 Executive Vice President, Corporate
Administration, Strategic Planning and Marketing
J. David Brantingham...... 40 Vice President, Information Systems
Fred C. Fielding.......... 64 Vice President, Government Operations, Washington
D.C.Office
Ted Henson................ 47 Vice President, International Sales
Mark A. Meaders........... 40 Vice President, Corporate Purchasing and Logistics
Scott L. Ney.............. 47 Vice President and Treasurer
Thomas J. Polnaszek....... 41 Vice President and Controller
Donald H. Verhoff......... 52 Vice President, Technology
James D. Voss............. 57 Vice President, Human Resources
</TABLE>
Robert G. Bohn. Mr. Bohn joined the Company in 1992 as Vice
President-Operations. He was appointed President and Chief Operating Officer in
1994. He was appointed President and Chief Executive Officer in October 1997.
Prior to joining the Company, Mr. Bohn was Director-European Operations for
Johnson Controls, Inc., Milwaukee, Wisconsin, which manufactures, among other
things, automotive products. He worked for Johnson Controls from 1984 until
1992. He was elected a Director of the Company in June 1995.
Timothy M. Dempsey. Mr. Dempsey joined the Company in October 1995 as Vice
President, General Counsel and Secretary. Mr. Dempsey has been and continues to
be a partner in the law firm of Dempsey, Magnusen, Williamson and Lampe in
Oshkosh, Wisconsin.
Paul C. Hollowell. Mr. Hollowell joined the Company in April 1989 as Vice
President-Defense Products and assumed his present position in February 1994.
Dan J. Lanzdorf. Mr. Lanzdorf joined the Company in 1973 as a design
engineer and has served in various assignments including Chief Engineer --
Defense, Director of Defense Engineering, Director of the Defense Business unit,
and Vice President of Manufacturing prior to assuming his current position in
September 1998.
14
<PAGE>
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.
J. David Brantingham. Mr. Brantingham joined the Company in April 1995 as
Manager of Technical Services and assumed his present position in November 1997.
Mr. Brantingham was previously employed by Western Publishing, Inc., a printer
and publisher of children's books and a manufacturer of adult games, in various
positions including Director of Technical Services from May 1989 through April
1995.
Fred C. Fielding. Mr. Fielding joined the Company in October 1989 and
assumed his present position in January 1991.
Ted Henson. Mr. Henson joined the Company in January 1990 as Contract
Specialist and assumed his current position in September 1998. Prior to joining
the Company, Mr. Henson served in the U.S. Army, most recently as Brigade
Commander Sargent Major.
Mark A. Meaders. Mr. Meaders joined the Company as Director of Purchasing
for Pierce in September 1996 and assumed his present position as Vice
President-Corporate Purchasing and Logistics in November 1997. Prior to joining
the Company, Mr. Meaders was Vice President-Purchasing for the CA Short Co.,
Inc., a marketer and distributor of novelty consumer items, from 1995 until
joining Pierce. Mr. Meaders began his career at the Company's former Chassis
Division as the plant manager from 1993-1995. He previously served 13 years in
the U.S. Army and departed after attaining the rank of Major.
Scott L. Ney. Mr. Ney joined the Company in May 1973 as Credit Manager. He
served as Treasurer prior to assuming his present position in September 1998.
Thomas J. Polnaszek. Mr. Polnaszek joined the Company in January 1998 as
Corporate Controller and assumed his present position in September 1998. Mr.
Polnaszek was previously employed by Wisconsin Pharmacal Company, Inc., a
consumer products manufacturer and marketer, from July 1991 to January 1998 as
Vice President - Finance and Chief Financial Officer.
Donald H. Verhoff. Mr. Verhoff joined the Company in May 1973 as a
development engineer. He has held positions as Manager of the Test Lab, and
Director of New Product Development prior to assuming his present position in
November 1997.
James D. Voss. Mr. Voss joined the Company in March 1992 as Director of
Human Resources. Prior to joining the Company, Mr. Voss was employed by the
University of Wisconsin as Human Resource Coordinator. Mr. Voss 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 Notes 7 and
12 to the Consolidated Financial Statements contained in the company's Annual
Report to Shareholders for the fiscal year ended September 30, 1998, is hereby
incorporated by reference in answer to this item.
The approximate number of record holders of the Company's Class A Common
Stock and Common Stock was 114 and 930, respectively, as of November 6, 1998.
In July 1995, the company's board of directors authorized the repurchase of
up to 1,000,000 shares of Common Stock. As of December 17, 1998, the Company has
repurchased 461,535 shares under this program at a cost of $6.6 million.
15
<PAGE>
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 of
Consolidated Financial Condition and Results of Operations" contained in the
company's Annual Report to Shareholders for the fiscal year ended September 30,
1998, 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, 1998, are hereby
incorporated by reference in answer to this item. Data regarding quarterly
results of operations included in Note 12 to the Consolidated Financial
Statements contained in the Company's Annual Report to Shareholders for the
fiscal year ended September 30, 1998, is hereby incorporated by reference.
PART III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The information under the captions "Election of Directors" and "Section
16(a) Beneficial Ownership Reporting Compliance" of the company's definitive
proxy statement for the annual meeting of shareholders on February 1, 1999, 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.
16
<PAGE>
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, 1998, are
incorporated by reference in Item 8:
Report of Ernst & Young LLP, Independent Auditors
Consolidated Statements of Income (Loss) for the years ended September
30, 1998, 1997, and 1996 Consolidated Balance Sheets at September 30,
1998, and 1997 Consolidated Statements of Shareholders' Equity for the
years ended September 30, 1998, 1997, and 1996. Consolidated Statements
of Cash Flows for the years ended September 30, 1998, 1997, and 1996
Notes to Consolidated Financial Statements
2.Financial Statement Schedules:
Schedule II - Valuation & Qualifying Accounts (Previously filed and
incorporated by reference to the Company's Form 10-K for the year ended
September 30, 1998.)
All other schedules are omitted because they are not applicable, or the
required information is included in the consolidated financial
statements or notes thereto.
3. Exhibits:
2.1 Stock Purchase Agreement by and among McNeilus
Companies, Inc., the shareholders of McNeilus
Companies, Inc., and Oshkosh Truck Corporation dated
December 8, 1997 (incorporated by reference to
Exhibit 2.1 to the Company's Annual Report on Form
10-K for the year ended September 30, 1997 (File No.
0-13886)).
2.2 First Amendment to Stock Purchase Agreement dated
February 26, 1998, by and among McNeilus Companies,
Inc., the shareholders of McNeilus Companies, Inc.
and Oshkosh Truck Corporation (incorporated by
reference to Exhibit 2.2 to the Company' Current
Report on Form 8-K dated February 26, 1998 (File No.
0-13886)).
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)).
10.1 1990 Incentive Stock Plan for Key Employees, as
amended, subject to shareholder approval at the
Company's 1999 Annual Meeting of Shareholders.* +
17
<PAGE>
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 Employment Agreement with P.C. Hollowell, Executive
Vice President (incorporated by reference to Exhibit
10.10 to the Company's Annual Report on Form 10-K
for the year ended September 30, 1997 (File No.
0-13886)).*
10.5 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)).*
10.6 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)).*
10.7 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)).*
10.8 Stock Purchase Agreement, dated April 26, 1996,
among Oshkosh Truck Corporation, J. Peter Mosling,
Jr. and Stephen P. Mosling, and consented to by R.
Eugene Goodson (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)).
10.9 Employment Agreement dated as of October 15, 1998,
between Oshkosh Truck Corporation and Robert G.
Bohn.* +
10.10 Letter Agreement dated as of June 5, 1998, between
Oshkosh Truck Corporation and R. Eugene Goodson.* +
10.11 Employment Agreement with R. E. Goodson as of April
16, 1992 (incorporated by reference to the Company's
Annual Report on Form 10-K for the year ended
September 30, 1992 (File No. 0-13886)).*
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, 1998).
13. 1998 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+
99. Management's Discussion and Analysis of
Consolidated Financial Condition and Results of
Operations and Financial Statements and
Supplementary Data.
*Denotes a management contract or compensatory plan or arrangement.
+Previously filed.
(b) The company was not required to file a report on Form 8-K during the
quarter ended September 30, 1998.
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 amendment to be signed
on its behalf by the undersigned, thereunto duly authorized.
OSHKOSH TRUCK CORPORATION
February 12, 1999 /S/ C. L. Szews
------------------------------------------------------
C. L. Szews, Executive Vice President and Chief
Financial Officer
(Principal Financial Officer)
19
<PAGE>
INDEX TO EXHIBITS
3. Exhibits:
2.1 Stock Purchase Agreement by and among McNeilus Companies,
Inc., the shareholders of McNeilus Companies, Inc., and
Oshkosh Truck Corporation dated December 8, 1997 (incorporated
by reference to Exhibit 2.1 to the Company's Annual Report on
Form 10-K for the year ended September 30, 1997 (File No.
0-13886)).
2.2 First Amendment to Stock Purchase Agreement dated February 26,
1998, by and among McNeilus Companies, Inc., the shareholders
of McNeilus Companies, Inc. and Oshkosh Truck Corporation
(incorporated by reference to Exhibit 2.2 to the Company'
Current Report on Form 8-K dated February 26, 1998 (File No.
0-13886)).
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)).
10.1 1990 Incentive Stock Plan for Key Employees, as amended,
subject to shareholder approval at the Company's 1999 Annual
Meeting of Shareholders.*+
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 Employment Agreement with P.C. Hollowell, Executive Vice
President (incorporated by reference to Exhibit 10.10 to the
Company's Annual Report on Form 10-K for the year ended
September 30, 1997 (File No. 0-13886)).*
10.5 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)).*
10.6 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)).*
10.7 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)).*
21
<PAGE>
10.8 Stock Purchase Agreement, dated April 26, 1996, among Oshkosh
Truck Corporation, J. Peter Mosling, Jr. and Stephen P.
Mosling, and consented to by R. Eugene Goodson (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)).
10.9 Employment Agreement dated as of October 15, 1998, between
Oshkosh Truck Corporation and Robert G. Bohn.* +
10.10 Letter Agreement dated as of June 5, 1998, between Oshkosh
Truck Corporation and R. Eugene Goodson.* +
10.11 Employment Agreement with R. E. Goodson as of April; 16, 1992
(incorporated by reference to the Company's Annual Report on
Form 10-K for the year ended September 30, 1992 (File No.
0-13886)).*
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, 1998).
13. 1998 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 +
99. Management's Discussion and Analysis of Consolidated Financial
Condition and Results of Operations and Financial Statements
and Supplementary Data.
*Denotes a management contract or compensatory plan or arrangement.
+ Previously filed.
22
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the use of our report dated October 30, 1998, except for Note 11,
as to which the date is December 8, 1998, included in the Annual Report on Form
10-K of Oshkosh truck Corporation for the year ended September 30, 1998, with
respect to the consolidated financial statements, as amended, included in this
Form 10-K/A.
/s/ Ernst & Young LLP
Milwaukee, Wisconsin
February 9, 1999
Exhibit 99
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
CONSOLIDATED FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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" within the meaning of Section 27A of the
Securities Act and Section 21E of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"). All statements other than statements of historical
fact included in this report, including, without limitation, statements
regarding Oshkosh Truck Corporation's (the "Company" or "Oshkosh") future
financial position, business strategy, budgets, projected costs and plans and
objectives of management for future operations, are forward-looking statements.
In addition, forward-looking statements generally can be identified by the use
of forward-looking terminology such as "may", "will", "expect", "intend",
"estimates", "anticipate", "believe", "should", "plans", or "continue", or the
negative thereof or variations thereon or similar terminology. 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 consequences of financial leverage; (2) the cyclical nature
of the construction industry; (3) the risks related to reductions or changes in
government expenditures; (4) the uncertainty inherent in government contracts;
(5) the challenges of integration of acquired businesses; (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 resolving Year
2000 issues. 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.
RESULTS OF OPERATIONS
Fiscal 1998 Compared to Fiscal 1997
The Company reported net income of $15.1 million, or $1.77 per share, on net
sales of $902.8 million for the year ended September 30, 1998, compared to net
income of $10.0 million, or $1.17 per share, on sales of $683.2 million for the
year ended September 30, 1997. Fiscal 1998 results include seven months of sales
and earnings of McNeilus Companies, Inc. ("McNeilus"), 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, which
was acquired on February 26, 1998 (see Acquisitions). Fiscal 1998 results were
adversely affected by after-tax charges of $5.6 million, including $1.2 million
related to early repayment of debt, $3.5 million related to impairment losses
with respect to the Company's Florida manufacturing facilities and its Summit
brand mixer system technology intangible asset (see Note 13 to Notes to
Consolidated Financial Statements) and $0.9 million of organization start-up
costs incurred in connection with establishing a lease financing partnership.
These charges were partially offset by a $2.1 million after-tax gain on the sale
of an interest in a Mexican bus manufacturer.
Sales of commercial products in fiscal 1998 were $653.8 million, an increase
of $259.2 million, or 65.7%, from fiscal 1997, largely as a result of the
inclusion of McNeilus sales of $240.0 million since the date of its acquisition
and a $25.6 million increase in sales of Pierce Manufacturing, Inc. ("Pierce").
Commercial export sales increased $13.9 million to $34.6 million in fiscal 1998
compared to fiscal 1997, primarily as a result of increases in exports of fire
apparatus by Pierce following the introduction of Pierce products to Oshkosh's
international dealer network. Sales of defense products totaled $249.0 million
in fiscal 1998, a decrease of $39.6 million, or 13.7%, compared to fiscal 1997.
The decrease in defense sales is primarily due to a decline in heavy tactical
truck procurement by the U.S. Department of Defense (the "DoD"). Fiscal 1998 and
1997 defense sales included $32.0 million and $41.4 million, respectively, of
ISO-Compatible Palletized Flatracks ("IPF") for which the production was
subcontracted to Steeltech Manufacturing, Inc. ("Steeltech"). This contract was
completed in July 1998. Company management expects that its defense-related
sales will decline by approximately $20.0 to $30.0 million in fiscal 1999.
Defense export sales decreased to $0.5 million in fiscal 1998 compared to $16.6
million in fiscal 1997. Fiscal 1997 defense export sales include $13.0 million
from a sale of Heavy Expanded Mobility Tactical Truck ("HEMTT") vehicles to
Taiwan. Company management expects that its defense-related sales will decline
by approximately $20.0 to $30.0 million in fiscal 1999.
Gross income in fiscal 1998 totaled $136.4 million, or 15.1% of net sales,
compared to $88.8 million, or 13.0% of net sales, in fiscal 1997. The increase
in gross income and gross margins in fiscal 1998 was principally due to
inclusion of McNeilus operating results since the date of its acquisition.
1
<PAGE>
Operating expenses totaled $87.7 million, or 9.7% of net sales, in fiscal
1998 compared to $60.1 million, or 8.8% of net sales in fiscal 1997. The
increase principally reflects the expenses of McNeilus since the date of its
acquisition. Operating expenses also were adversely impacted by net pre-tax
charges of $2.4 million involving the impairment of the Company's Florida
manufacturing facility ($3.9 million) and the impairment of its Summit brand
mixer system technology intangible asset ($1.9 million), which were partially
offset by the gain on sale of the Company's interest in a Mexican bus
manufacturer ($3.4 million).
Interest expense increased 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 and fiscal 1997 was adversely
affected by non-deductible goodwill of $4.2 million and $2.6 million,
respectively, related to the acquisitions of Pierce in September 1996 and
McNeilus in February 1998. Fiscal 1997 also benefited from the reversal of $0.9
million of prior years' provisions for income taxes.
Equity in earnings of unconsolidated partnership of $0.3 million in fiscal
1998 represents the Company's after-tax share of income of the lease financing
partnership. These results include 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. See Note 12 of the Notes to Consolidated
Financial Statements.
The $1.2 million after-tax extraordinary charge recorded in fiscal 1998
represents the write-off of deferred financing costs for that portion of debt
prepaid during the year.
Fiscal 1997 Compared to Fiscal 1996
The Company reported net income of $10.0 million, or $1.17 per share, on
sales of $683.2 million for the year ended September 30, 1997, compared to a net
loss of $3.1 million, or $0.35 per share, on sales of $413.5 million for the
year ended September 30, 1996. The fiscal 1997 results include a full year of
sales and earnings of Pierce, a leading manufacturer and marketer of fire trucks
and other fire apparatus in the U.S., which was acquired on September 18, 1996.
The fiscal 1996 results were adversely affected by after-tax charges of $11.3
million, including $3.2 million related to the IPF subcontract to Steeltech,
$3.5 million associated with the Company's Mexican bus affiliates, and warranty
and other related costs of $4.6 million. In fiscal 1996, the Company also
recognized after-tax benefits of $2.0 million on the reversal of income tax
provisions and related accrued interest.
Sales of both commercial and defense products increased in fiscal 1997
compared to fiscal 1996. Commercial sales in fiscal 1997 were $394.6 million, an
increase of $232.6 million, or 143.6% from 1996, principally due to inclusion of
a full year of Pierce sales in fiscal 1997. Commercial export sales totaled
$20.7 million and $20.4 million, respectively, in fiscal 1997 and fiscal 1996.
Sales of defense products totaled $288.6 million in fiscal 1997, an increase of
$37.2 million, or 14.8%, compared to fiscal 1996. The increase in defense sales
was primarily due to an increase in IPF sales which were produced by Steeltech
(which increased from $8.7 million in fiscal 1996 to $41.4 million in fiscal
1997). Defense export sales also increased to $16.6 million in fiscal 1997
compared to $2.1 million in fiscal 1996.
Gross income in fiscal 1997 totaled $88.8 million, or 13.0% of sales,
compared to $35.1 million, or 8.5% of sales, in fiscal 1996. The increase in
gross income in fiscal 1997 was principally due to increased sales volume as a
result of the acquisition of Pierce. In addition, fiscal 1996 gross income was
reduced by pre-tax charges of $5.1 million related to production delays and cost
overruns associated with the IPF subcontract to Steeltech and increased warranty
and other related costs of $5.5 million (pre-tax).
Operating expenses totaled $60.1 million, or 8.8% of sales, in fiscal 1997
compared to $38.7 million, or 9.4% of sales, in fiscal 1996. The increase in
operating expenses in fiscal 1997 related principally to the operating expenses
of Pierce and amortization of goodwill and other intangible assets associated
with the acquisition of Pierce. The Company recognized pre-tax charges of $3.2
million in fiscal 1996 to write off its investment in Steeltech and to write off
its remaining investments and advances associated with its Mexican bus
affiliates due to prolonged weakness in the Mexican economy and continuing high
losses and high leverage reported by the Mexican affiliates.
Interest expense increased to $12.7 million in fiscal 1997 compared to $0.9
million in fiscal 1996 as a result of the financing for the Pierce acquisition.
Miscellaneous expense was $0.3 million in fiscal 1997 compared to
miscellaneous income of $1.5 million in fiscal 1996. The miscellaneous income in
fiscal 1996 arose primarily from the reversal of accrued interest related to
income taxes.
2
<PAGE>
The provision for income taxes in fiscal 1997 was $6.5 million, or 39.4% of
pre-tax income, compared to a credit for income taxes of $1.7 million in fiscal
1996. Fiscal 1997 and fiscal 1996 benefited from the reversal of $0.9 million
and $1.0 million, respectively, of prior years' provisions for income taxes. In
addition, the effective income tax rate in fiscal 1997 was adversely affected by
non-deductible goodwill of $2.6 million arising from the Pierce acquisition.
The $2.9 million after-tax loss from discontinued operations ($4.7 million
pre-tax) in fiscal 1996 resulted from the write-off of receivables of $2.6
million (pre-tax) related to the Company's Mexican bus affiliates and from a
$2.1 million pre-tax charge for additional warranty and other related costs with
respect to the Company's former U.S. chassis business which was sold in June
1995.
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 $217.6 million, including acquisition costs and net of
cash acquired. The acquisition was financed from borrowings under a Senior
Credit Facility and the issuance of Senior Subordinated Notes. 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. 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 $3.5 million. Nova Quintech was engaged in the manufacture and sale of
aerial devices for fire trucks.
On September 18, 1996, the Company acquired for cash all of the issued and
outstanding stock of Pierce, a leading manufacturer and marketer of fire trucks
and other fire apparatus in the U.S. The acquisition price of $156.9 million,
including acquisition costs and net of cash acquired, was financed from
borrowings under a bank credit facility. On November 9, 1995, Oshkosh, through
its wholly owned subsidiary, Summit Performance Systems, Inc. ("Summit"),
acquired the inventory, land, buildings, machinery and equipment, and technology
of Friesz Manufacturing Company ("Friesz"), a manufacturer of concrete mixer
systems and related after-market replacement parts, using available cash for
$3.9 million.
FINANCIAL CONDITION
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 not used
to reduce the McNeilus acquisition indebtedness and cash provided from
operations 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 Revolving Credit Facility, the acquisition of
Nova Quintech for $3.5 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 ($225.0 million under a multi-tranche Senior Term Loan Facility,
$100.0 million of Senior Subordinated Notes and $22.3 million under a new $100.0
million Revolving Credit Facility). Borrowings were utilized to refinance
outstanding indebtedness under the Company's previous credit facility ($110.0
million), close the McNeilus transaction ($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), and to pay $8.6
million of debt issuance costs.
Year Ended September 30, 1997
During fiscal 1997, cash increased $23.1 million. Cash provided from
operating activities of $65.8 million was used primarily to fund $6.3 million of
property, plant and equipment additions, $1.7 million of payments related to
discontinued operations, $22.9 million of long-term debt and revolving credit it
payments, $6.5 million of purchases of Common Stock and Common Stock warrants
(net of stock option exercise proceeds) and $4.2 million of dividends.
Liquidity and Capital Resources
The Company had approximately $81.9 million of unused availability under the
terms of its Revolving Credit Facility as of September 30, 1998. The Company's
primary cash requirements include working capital, interest and principal
payments on indebtedness, capital expenditures, dividends and potentially future
acquisitions. The primary sources of cash are cash flow from operations and
borrowings under the Senior Credit Facility. Based upon current and anticipated
future operations, the Company believes capital resources will be adequate to
meet future working capital, debt service and other capital requirements for the
3
<PAGE>
foreseeable future. There can be no assurance, however, that the Company's
business will generate cash flow that, together with the other sources of
capital, will enable the Company to meet those requirements.
The Company's cash flow from operations has fluctuated, and will likely
continue to fluctuate, significantly from quarter to quarter due to changes in
working capital arising principally from seasonal fluctuations in sales of the
Company's construction products. If received, an award of the Medium Tactical
Truck Replacement ("MTTR") contract or any other major DoD contract would likely
entail increases in the Company's working capital needs as it uses working
capital to produce vehicles or other equipment for shipment.
The Senior Credit Facility and the Senior Subordinated Notes pose various
restrictions and covenants on the Company that could potentially limit the
Company's ability to respond to market conditions, to provide for unanticipated
capital investments, to raise additional debt or equity capital or to take
advantage of business opportunities. See Note 4 to Notes to Consolidated
Financial Statements.
The Senior Credit Facility accrues interest at variable rates. The Company
presently has no plans to enter into interest rate swap arrangements to limit
its exposure to future increases in interest rates.
The Company's capital expenditures for fiscal years 1999 through 2001 are
expected to be approximately $12.0 to $15.0 million annually.
Year 2000
General
The Company commenced a corporate-wide Year 2000 project ("Project 2000")
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. Project
2000 is on schedule in all material respects. All of the Company's principal,
enterprise resource planning systems are scheduled to be Year 2000 ready by
March 31, 1999. Other information systems that are believed to pose lesser risks
in the event of Year 2000 failure are scheduled to be upgraded or replaced by
mid-1999. Issues with respect to embedded computer chips will continue to be
addressed throughout 1999 based on a prioritization of risks. Tests have been
and will continue to be conducted with respect to information systems, telephone
systems, manufacturing equipment, Company-produced trucks and equipment and
other systems and equipment which might exhibit Year 2000 issues in order to
determine the extent of any continuing corrective action required.
Project 2000
Project 2000 is addressing four principal areas--Infrastructure and
Applications Software; Company-produced trucks and equipment; Process Controls
and Instrumentation ("PC&I"); and third-party suppliers and customers ("External
Parties"). The project phases common to each area include: (1) development of an
inventory of Year 2000 risks; (2) assignment of priorities to identified risks;
(3) assessment of Year 2000 compliance and impact of noncompliance; (4) tests to
determine whether any upgrade or replacement is required; (5) upgrade or
replacement of items that are determined not to be Year 2000 compliant if the
impact of noncompliance is material; and (6) design and implementation of
contingency and business continuation plans for each organization and facility.
At September 30, 1998, the inventory and priority assessment phases for each
area of Project 2000 had been completed. Material items are those believed by
the Company to have a risk involving the safety of individuals, or that may
cause damage to property or affect revenues and expenses.
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 ("ERP") computer systems at its Oshkosh
operations and one system each at its Pierce, McNeilus and Florida operations.
The Company installed an upgraded release of software (which is certified by the
software vendor as being Year 2000 ready) to its ERP system for truck operations
in Oshkosh in July 1998. Programming to upgrade the remaining Oshkosh ERP system
for its parts operations is targeted to be completed by December 31, 1998. As of
November 1, 1998, Pierce was approximately two-thirds complete with respect to a
project to replace all of its hardware and business systems with a new, Year
2000 ready, ERP system and related hardware. This project is scheduled for
completion by March 31, 1999. McNeilus installed an upgraded release to its ERP
systems in August and September 1998. Validation testing at McNeilus to assure
that the upgrade is Year 2000 ready is scheduled for
4
<PAGE>
completion by March 31, 1999. The Company is planning the consolidation of its
Florida computer operations into Oshkosh's computer operations by September 30,
1999 and, accordingly, will not upgrade the ERP systems currently in use at this
facility.
Other infrastructure and applications software, including engineering
systems, are believed to 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 is generally in the assessment
phase as it relates to non-ERP infrastructure and applications software and
plans to upgrade or replace all such non-compliant systems by June 30, 1999.
Company-Produced Trucks and Equipment--The Company has communicated with
suppliers that are critical to the manufacture of its products to verify whether
computer chips embedded in its trucks and equipment are Year 2000 ready, and has
issued Service Bulletins to customers with respect to the findings. While the
Company has not identified any material issues with respect to computer chips
embedded into its products, investigations as to such issues, if any, will
continue. Nevertheless, there can be no assurance at this time that its
investigation was complete or that material warranty and product liability
issues will not develop with respect to this matter. To the extent that
suppliers of the Company experience Year 2000 problems (or are unable to certify
that their products are Year 2000 compliant) and the Company is unable to source
alternate suppliers, changes to the Company's 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.
PC&I--The Company expects to complete the assessment of all PC&I embedded
computer chips by December 31, 1998. Certain systems, such as telephone systems,
have been upgraded to be Year 2000 ready, or are planned to be upgraded by March
31, 1999. Current indications are that the Company's critical equipment and
systems will not require material upgrades or replacements. The testing and
necessary improvements of PC&I equipment will continue throughout 1999.
External Parties--The Company is surveying all parts and 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 underway similar to Project 2000. There can be no
assurance that these suppliers or the Company's smaller suppliers will not have
Year 2000 issues with their processes or business systems that ultimately could
have a material effect on the Company in spite of such projects. Where suppliers
are deemed to pose significant risk to the Company, alternate suppliers or
contingency plans are being developed.
The Company does not maintain significant computer interfaces with its
customers, except with the DoD, where invoices and remittances are sent by
electronic data interchange. The DoD has not provided the Company with any
assurances that its systems are Year 2000 compliant, or whether DoD computer
interfaces with other U.S. government entities are Year 2000 ready. Should the
DoD encounter Year 2000 difficulties, the Company's sales and cash flows could
be materially adversely affected. There also can be no assurance that the
Company's other customers will not lose business or otherwise encounter Year
2000 issues that could ultimately affect the sales and earnings of the Company.
Costs
Based on the Company's assessment to date and considering known items, the
total cost associated with required hardware, equipment and software
modifications to become Year 2000 ready is not expected to be material to the
Company's financial position. The total estimated capital costs (which would
have been incurred regardless of Year 2000 issues and which have the incidental
consequence of Year 2000 readiness) and period expenses of Project 2000 are $8.0
million and $0.6 million, respectively, of which $5.0 million and $0.5 million,
respectively, have been expended as of September 30, 1998. Approximately $7.3
million of the estimated capital costs relate to the replacement of all the
hardware and business systems at Pierce, which is scheduled for completion by
March 31, 1999. To date, none of the Company's other information systems
projects have been delayed due to Project 2000.
Risks
Under Project 2000 (as in any project of this magnitude and scope), the risk
of underestimating the tasks and difficulties to be encountered, or in obtaining
necessary personnel, exist. Risk also exists in that the failure to correct a
material Year 2000 problem could result in an interruption in, or a failure of,
certain normal business activities or operations. Such failures could materially
and adversely affect the Company's results of operations, cash flows and
financial condition. Due to the general uncertainty inherent in the Year 2000
problem, resulting in part from the uncertainty of the Year 2000 readiness of
third-party suppliers 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 results of operations, cash flows or financial condition.
Project 2000 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
5
<PAGE>
of its material External Parties. The Company believes that, with the
installation of new or upgraded ERP business systems and completion of Project
2000 as scheduled, the possibility of significant interruptions of normal
operations should be reduced. The Company is in the process of establishing
contingency plans in the event that any unexpected issues arise when the Year
2000 arrives.
New Accounting Standards
In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting for
Derivative Instruments and Hedging Activities," which is required to be adopted
in years beginning after June 15, 1999. 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 results of operations or on the
financial position of the Company.
In June 1997, the FASB also issued SFAS No. 131, "Disclosures about Segments
of an Enterprise and Related Information." SFAS No. 131 establishes the
standards for the manner in which public enterprises are required to report
financial and descriptive information about their operating segments. The
statement defines operating segments as components of an enterprise for which
separate financial information is available and evaluated regularly as a means
for assessing segment performance and allocating resources to segments. A
measure of profit or loss, total assets and other related information are
required to be disclosed for each operating segment. In addition, this statement
requires the annual disclosure of information concerning revenues derived from
the enterprise's products or services, countries in which it earns revenue or
holds assets, and major customers. The statement is also effective for fiscal
years beginning after December 15, 1997. The adoption of SFAS No. 131 will not
affect the Company's results of operations or financial position, but will
affect the disclosure of its segment information.
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive
Income." SFAS No. 130 establishes the standards for reporting and displaying
comprehensive income and its components (revenues, expenses, gains, and losses)
as part of a full set of financial statements. This statement requires that all
elements of comprehensive income be reported in a financial statement that is
displayed with the same prominence as other financial statements. The statement
is effective for fiscal years beginning after December 15, 1997. Since this
statement applies only to the presentation of comprehensive income, it will not
have any impact on the Company's results of operations, financial position or
cash flows.
Customers and Backlog
Sales to the DoD comprised approximately 28% of the Company's net sales for
fiscal 1998. No other single customer accounted for more than 2% 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, 1998 was $377.5 million compared to
$361.1 million at September 30, 1997. Backlog related to DoD contracts decreased
by $94.1 million in 1998 compared to 1997 due to the completion of the IPF
contract and because the Company's family contracts are coming up for renewal.
The Company's fire and emergency and commercial backlogs increased by $51.2
million and $59.3 million, respectively, generally due to higher sales volumes
for Pierce and due to the inclusion of McNeilus in 1998. Substantially all of
the Company's backlog pertains to fiscal 1999 business and is expected to be
filled in fiscal 1999.
Reported backlog excludes purchase options and announced orders for which
definitive contracts have not been executed. Additionally, backlog excludes
unfunded portions of DoD long-term family contracts. Backlog information and
comparisons thereof as of different dates may not be accurate indicators of
future sales or the ratio of the Company's future sales to the DoD versus its
sales to other customers.
Subsequent Event
On December 8, 1998, the Wisconsin Court of Appeals ordered a state court
judge to reinstate a jury verdict against the Company awarding damages totaling
approximately $4.5 million plus interest to Super Steel Products Corporation,
the Company's former supplier of mixer systems for front-discharge concrete
mixer trucks (see Note 11 to Notes to Consolidated Financial Statements). The
Company intends to petition for review of this decision by the Wisconsin Supreme
Court. The ultimate outcome of this matter cannot be predicted at the present
time. At September 30, 1998, the Company does not have a reserve relating to
this matter.
6
<PAGE>
Market Risk
The Company's primary 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 (see Note 4 to the Consolidated Financial
Statements). Likewise, changes in U.S. interest rates affect the fair value of
the Company's $100 million Senior Subordinated 8 3/4% Notes due March 1, 2008.
Increases in interest rates generally result in a reduction in the fair value of
the long-term, fixed-rate notes (and decreases in interest rates generally
result in an increase in the fair value of the long-term, fixed-rate notes). The
Company has not historically utilized derivative securities to fix variable rate
interest obligations or to make fixed-rate interest obligations variable.
Generally, if short-term interest rates averaged 2% more in fiscal 1999 than in
fiscal 1998, the Company's interest expense would increase, and pre-tax income
would decrease by approximately $3 million. Similarly, the fair value of the
Company's $100 million fixed rate, long-term notes at September 30, 1998, would
decrease by $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.
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 4% of overall sales in fiscal 1998. 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.
7
<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, 1998 and 1997, and the related
consolidated statements of income (loss), shareholders' equity and cash flows
for each of the three years in the period ended September 30, 1998. 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, 1998 and 1997, and the consolidated results of its operations and
its cash flows for each of the three years in the period ended September 30,
1998, in conformity with generally accepted accounting principles.
ERNST & YOUNG LLP
Milwaukee, Wisconsin
October 30, 1998, except for
Note 11, as to which the date
is December 8, 1998
8
<PAGE>
<TABLE>
OSHKOSH TRUCK CORPORATION
Consolidated Statements of Income (Loss)
<CAPTION>
Fiscal Year Ended September 30,
1998 1997 1996
(In thousands, except per share
amounts)
Continuing operations:
<S> <C> <C> <C>
Net sales............................................ $ 902,792 $ 683,234 $ 413,455
Cost of sales....................................... 766,348 594,390 378,376
------- ------- -------
Gross income.................................... 136,444 88,844 35,079
Operating expenses:
Selling, general and administrative.................. 69,728 47,742 32,205
Engineering research and development................. 9,681 7,847 6,304
Amortization of goodwill and other intangibles....... 8,315 4,470 171
------- ------- -------
Total operating expenses...................... 87,724 60,059 38,680
------- ------- -------
Operating income (loss)................................... 48,720 28,785 (3,601)
Other income (expense):
Interest expense...................................... (21,490) (12,722) (929)
Interest income....................................... 1,326 717 1,040
Miscellaneous, net.................................... 92 (278) 1,508
------- ------- -------
(20,072) (12,283) 1,619
------- ------- -------
Income (loss) from continuing operations before income
taxes, equity in earnings of unconsolidated partnership
and extraordinary item................................. 28,648 16,502 (1,982)
Provision (credit) for income taxes....................... 12,655 6,496 (1,741)
------- ------- -------
15,993 10,006 (241)
Equity in earnings of unconsolidated partnership, net of
income taxes of $166................................... 260 -- --
------- ------- -------
Income (loss) from continuing operations.................. 16,253 10,006 (241)
Discontinued operations--loss on disposal of operations, net
of income tax benefit of $1,827........................ -- -- (2,859)
Extraordinary charge for early retirement of debt, net of
income tax benefit of $757............................. (1,185) -- --
------- ------- -------
Net income (loss) ........................................ $ 15,068 $ 10,006 $ (3,100)
======= ======= =======
Earnings (loss) per share:
Continuing operations................................. $ 1.93 $ 1.18 $ (0.03)
Discontinued operations............................... -- -- (0.32)
Extraordinary item.................................... (0.14) -- --
------- ------- -------
Net income (loss) .................................... $ 1.79 $ 1.18 $ (0.35)
======= ======= =======
Earnings (loss) per share assuming dilution:
Continuing operations................................. $ 1.91 $ 1.17 $ (0.03)
Discontinued operations............................... -- -- (0.32)
Extraordinary item.................................... (0.14) -- --
------- ------- -------
Net income (loss) .................................... $ 1.77 $ 1.17 $ (0.35)
======= ======= =======
</TABLE>
See accompanying notes.
9
<PAGE>
OSHKOSH TRUCK CORPORATION
Consolidated Balance Sheets
September 30,
1998 1997
(In thousands, except
` share amounts)
Assets
Current assets:
Cash and cash equivalents................ $ 3,622 $ 23,219
Receivables, net......................... 80,982 81,235
Inventories.............................. 149,191 76,497
Prepaid expenses......................... 3,768 3,405
Deferred income taxes.................... 12,281 9,479
------- -------
Total current assets.................. 249,844 193,835
Deferred charges............................. 342 1,067
Investment in unconsolidated partnership..... 13,496 --
Other long-term assets....................... 13,856 6,660
Property, plant and equipment:
Land..................................... 7,574 7,172
Buildings................................ 64,566 42,220
Machinery and equipment.................. 84,643 78,270
------- -------
156,783 127,662
Less accumulated depreciation............ (75,947) (72,174)
------- -------
Net property, plant and equipment..... 80,836 55,488
Goodwill and other intangible assets, net.... 326,665 163,344
------- -------
Total assets................................. $685,039 $420,394
======= =======
Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable......................... $ 65,171 $ 48,220
Floor plan notes payable................. 11,645 --
Customer advances........................ 44,915 30,124
Payroll-related obligations.............. 24,124 15,157
Accrued warranty......................... 15,887 12,320
Other current liabilities................ 43,498 22,901
Current maturities of long-term debt..... 3,467 15,000
------- -------
Total current liabilities........... 208,707 143,722
Long-term debt............................... 277,337 120,000
Postretirement benefit obligations........... 10,935 10,147
Deferred income taxes........................ 47,832 22,452
Other long-term liabilities.................. 8,932 3,173
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 -
296,888 in 1998 and 406,878 in 1997..... 3 4
Common Stock, $.01 par value; authorized -
18,000,000 shares; issued - 9,061,277 in
1998 and 8,951,287 in 1997.............. 90 89
Paid-in capital.......................... 14,712 13,591
Retained earnings........................ 130,959 120,085
------- -------
145,764 133,769
Common Stock in treasury, at cost:
1998-937,664; 1997-1,050,806............ (12,664) (12,869)
Minimum pension liability adjustment..... (1,804) --
------- -------
Total shareholders' equity........... 131,296 120,900
------- -------
Total liabilities and shareholders' equity... $685,039 $420,394
======= =======
See accompanying notes.
10
<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, 1995........ $ 93 $16,533 $ 121,697 $ (3,403) $(1,507) $ 133,413
Net loss............................. -- -- (3,100) -- -- (3,100)
Cash dividends:
Class A Common Stock
($.435 per share)............ -- -- (177) -- -- (177)
Common Stock ($.500 per share)... -- -- (4,174) -- -- (4,174)
Purchase of Common Stock for treasury -- -- -- (5,618) -- (5,618)
Exercise of stock options............ -- 43 -- 225 -- 268
Termination of incentive compensation
awards........................... -- (517) -- -- -- (517)
Minimum pension liability adjustment. -- -- -- -- 1,507 1,507
----- ------- ------- ------- ------- -------
Balance at September 30, 1996........ 93 16,059 114,246 (8,796) -- 121,602
Net income........................... -- -- 10,006 -- -- 10,006
Cash dividends:
Class A Common Stock
($.435 per share)............ -- -- (177) -- -- (177)
Common Stock ($.500 per share)... -- -- (3,990) -- -- (3,990)
Purchase of Common Stock for treasury -- -- -- (4,246) -- (4,246)
Purchase of 1,250,000 stock warrants. -- (2,504) -- -- -- (2,504)
Exercise of stock options............ -- 36 -- 173 -- 209
----- ------- ------- ------- ------- -------
Balance at September 30, 1997........ 93 13,591 120,085 (12,869) -- 120,900
Net income........................... -- -- 15,068 -- -- 15,068
Cash dividends:
Class A Common Stock
($.435 per share)............ -- -- (153) -- -- (153)
Common Stock ($.500 per share)... -- -- (4,041) -- -- (4,041)
Exercise of stock options............ -- 255 -- (217) -- 38
Tax effect of stock options exercised -- 468 -- -- -- 468
Issuance of Common Stock under
incentive compensation plan...... -- 398 -- 422 -- 820
Minimum pension liability adjustment. -- -- -- -- (1,804) (1,804)
----- ------- ------- ------- ------- -------
Balance at September 30, 1998........ $ 93 $14,712 $ 130,959 $ (12,664) $(1,804) $ 131,296
===== ======= ======= ======= ======= =======
</TABLE>
See accompanying notes.
11
<PAGE>
<TABLE>
OSHKOSH TRUCK CORPORATION
Consolidated Statements of Cash Flows
<CAPTION>
Fiscal Year Ended September 30,
1998 1997 1996
(In thousands)
Operating activities:
<S> <C> <C> <C>
Income (loss) from continuing operations.......... $ 16,253 $ 10,006 $ (241)
Provision for impairment of assets................ 5,800 -- --
Depreciation and amortization..................... 18,698 14,070 8,798
Write-off (gain from sale) of investments......... (3,375) 200 4,125
Deferred income taxes............................. 26 (3,980) (1,381)
Equity in earnings of unconsolidated partnership.. (427) -- --
(Gain) loss on disposal of property, plant and
equipment................................... 122 (43) 77
Changes in operating assets and liabilities:
Receivables, net.............................. 20,900 (4,611) (10,648)
Inventories................................... 9,958 29,792 (25,071)
Prepaid expenses.............................. (260) 214 469
Deferred charges.............................. 725 1,578 333
Accounts payable.............................. 956 (958) 13,314
Floor plan notes payable...................... (11,377) -- --
Customer advances............................. 10,718 2,331 930
Payroll-related obligations................... 3,480 2,314 213
Accrued warranty.............................. (1,883) 3,378 2,094
Other current liabilities..................... 6,750 10,893 (9,914)
Other long-term liabilities................... 2,877 598 665
-------- --------- ---------
Net cash provided from (used for) operating
activities............................ 79,941 65,782 (16,237)
Investing activities:
Acquisitions of businesses, net of cash acquired.. (221,144) -- (160,838)
Additions to property, plant and equipment........ (8,555) (6,263) (5,355)
Proceeds from sale of investments................. 3,375 -- --
Proceeds from sale of property, plant and equipment 1,524 395 2,086
Increase in other long-term assets................ (3,817) (1,532) (2,124)
-------- --------- ----------
Net cash used for investing activities...... (228,617) (7,400) (166,231)
Net cash provided from (used for) discontinued
operations.................................... (1,093) (1,658) 4,743
Financing activities:
Net borrowings (repayment) under revolving credit
facility.......................................... 6,000 (7,882) 7,882
Proceeds from issuance of long-term debt.......... 325,000 -- 150,000
Repayment of long-term debt....................... (188,049) (15,000) --
Debt issuance costs............................... (8,641) -- --
Purchase of Common Stock, Common Stock warrants and
proceeds from exercise of stock options, net.. 38 (6,541) (5,350)
Dividends paid.................................... (4,176) (4,209) (4,396)
-------- --------- ----------
Net cash provided from (used for) financing
activities................................ 130,172 (33,632) 148,136
-------- --------- ----------
Increase (decrease) in cash and cash equivalents.. (19,597) 23,092 (29,589)
Cash and cash equivalents at beginning of period.. 23,219 127 29,716
-------- --------- ----------
Cash and cash equivalents at end of period........ $ 3,622 $ 23,219 $ 127
======== ========= ==========
Supplemental disclosures:
Cash paid for interest........................ $ 17,240 $ 12,974 $ 538
Cash paid for income taxes.................... 11,097 2,998 3,116
</TABLE>
See accompanying notes.
12
<PAGE>
OSHKOSH TRUCK CORPORATION
Notes to Consolidated Financial Statements
September 30, 1998
(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 markets -- fire and
emergency, defense, and other commercial truck markets. The Company's fire and
emergency business is principally conducted through its wholly-owned subsidiary,
Pierce Manufacturing Inc. ("Pierce"). The Company's commercial truck business is
principally conducted through its wholly-owned subsidiary, McNeilus Companies,
Inc. ("McNeilus"). 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 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 its
wholly-owned subsidiaries and are prepared in conformity with U.S. generally
accepted accounting principles. The preparation of financial statements in
conformity with generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
All significant intercompany accounts and transactions have been eliminated.
Cash and Cash Equivalents -- The Company considers all highly liquid
investments with a maturity of three months or less when purchased to be cash
equivalents. Cash equivalents, consisting principally of commercial paper,
totaled $785 and $23,022 at September 30, 1998 and 1997, respectively. The cost
of these securities, which are considered "available for sale" for financial
reporting purposes, approximates fair value at September 30, 1998 and 1997.
Inventories -- The Company values its inventories at the lower of cost,
computed principally on the last-in, first-out (LIFO) method, or market.
Property, Plant and Equipment -- Property, plant and equipment are recorded
at cost. Depreciation is provided over the estimated useful lives of the
respective assets 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.
Deferred Charges -- Deferred charges include certain engineering and
technical support costs incurred in connection with multi-year government
contracts. These costs are charged to cost of sales when the related project is
billable to the government, or are amortized to cost of sales as base units are
delivered under the related contracts.
Other Long-Term Assets -- Other long-term assets include capitalized
software and related costs which are amortized on a straight-line method over a
three-to-ten year period, deferred financing costs which are amortized using the
interest method over the term of the debt, prepaid funding of pension costs and
certain investments.
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 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 13.
13
<PAGE>
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 under fixed-price defense contracts are
recorded as units are accepted by the government. Change orders are not invoiced
until agreed upon by the government. Recognition of profit on change orders and
on contracts that do not involve fixed prices is based upon estimates, which may
be revised during the terms of the contracts. Sales to fire and emergency and
commercial customers are recorded when the goods or services are billable at
time of shipment or delivery of the trucks.
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 1998, 1997, and 1996 were $9,403, $9,658
and $7,741, respectively.
Income Taxes -- Deferred income taxes are provided to recognize temporary
differences between the financial reporting basis and the income tax basis of
the Company's assets and liabilities using currently enacted tax rates and laws.
Fair Values -- The carrying amounts of receivables, accounts payable and
long-term debt approximated fair value as of September 30, 1998 and 1997.
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, investments, 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 credit risk associated with these receivables.
Environmental Remediation Costs -- Statement of Position ("SOP") 96-1,
"Environmental Remediation Liabilities," became effective for the Company in
fiscal 1997. In accordance with SOP 96-1, the Company accrues for losses
associated with environmental remediation obligations when such losses are
probable and reasonably estimable. Costs of future expenditures for
environmental remediation obligations are not discounted to their present value.
Recoveries of environmental remediation costs from other parties are recorded as
assets when their receipt is deemed probable. The accruals are adjusted as
further information develops or circumstances change.
Earnings (Loss) Per Share -- Statement of Financial Accounting Standards
("SFAS") No. 128, "Earnings per Share," became effective for the Company in
fiscal 1998. SFAS No. 128 replaced the calculation of primary and fully diluted
earnings per share with basic and diluted earnings per share. Unlike primary
earnings per share, basic earnings per share excludes any dilutive effects of
options, warrants and convertible securities. Earnings per share amounts for all
periods have been presented and, where appropriate, restated to conform to SFAS
No. 128 requirements.
The following table sets forth the computation of basic and diluted weighted
average shares used in the per share calculations:
Fiscal Year Ended September 30,
1998 1997 1996
Denominator for basic earnings per
share......................... 8,398,399 8,502,166 8,828,224
Effect of dilutive options,
warrants and incentive
compensation awards........... 107,934 43,916 --
--------- --------- ---------
Denominator for dilutive earnings
per share....................... 8,506,333 8,546,082 8,828,224
========= ========= =========
14
<PAGE>
New Accounting Standards -- In June 1998, the Financial Accounting Standards
Board issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging
Activities," which is required to be adopted in years beginning after June 15,
1999. 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 results of operations or on the financial position of the Company.
In June 1997, the Financial Accounting Standards Board issued SFAS No. 131,
"Disclosures about Segments of an Enterprise and Related Information." SFAS No.
131 establishes the standards for the manner in which public enterprises are
required to report financial and descriptive information about their operating
segments. The statement defines operating segments as components of an
enterprise for which separate financial information is available and evaluated
regularly as a means for assessing segment performance and allocating resources
to segments. A measure of profit or loss, total assets and other related
information are required to be disclosed for each operating segment. In
addition, this statement requires the annual disclosure of information
concerning revenues derived from the enterprise's products or services,
countries in which it earns revenue or holds assets, and major customers. The
statement is effective for fiscal years beginning after December 15, 1997. The
adoption of SFAS No. 131 will not affect the Company's results of operations,
financial position or cash flows, but will affect the disclosure of segment
information.
In June 1997, the Financial Accounting Standards Board issued SFAS No. 130,
"Reporting Comprehensive Income." SFAS No. 130 establishes the standards for
reporting and displaying comprehensive income and its components (revenues,
expenses, gains, and losses) as part of a full set of financial statements. This
statement requires that all elements of comprehensive income be reported in a
financial statement that is displayed with the same prominence as other
financial statements. The statement is effective for fiscal years beginning
after December 15, 1997. Since this statement applies only to the presentation
of comprehensive income, it will not have any impact on the Company's results of
operations, financial position or cash flows.
2. Balance Sheet Information
September 30,
Receivables 1998 1997
U.S. Government:
Amounts billed..................... $ 22,197 $ 34,399
Amounts unbilled................... -- 1,782
------- -------
22,197 36,181
Commercial customers................... 58,776 45,603
Other.................................. 2,077 1,421
------- -------
83,050 83,205
Less allowance for doubtful accounts... (2,068) (1,970)
------- -------
$ 80,982 $ 81,235
======= =======
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 1998 1997
Finished products...................... $27,916 $ 6,430
Partially finished products............ 52,700 36,661
Raw materials.......................... 77,675 44,455
------- -------
Inventories at FIFO cost............... 158,291 87,546
Less: Progress payments on U.S.
government contracts............... -- (2,988)
------- -------
Excess of FIFO cost over LIFO cost (9,100) (8,061)
$149,191 $76,497
======= =======
15
<PAGE>
Title to all inventories related to government contracts, which provide for
progress payments, vests with the government to the extent of unliquidated
progress payments.
September 30,
Goodwill and Other Intangible Assets 1998 1997
Useful Lives
Goodwill 40 Years............ $212,746 $103,887
Distribution network 40 Years............ 63,800 53,000
Non-compete agreements 15 Years............ 38,000 --
Other 5-40 Years.......... 24,860 11,098
------- -------
339,406 167,985
Less accumulated amortization............ (12,741) (4,641)
------- -------
$326,665 $163,344
======= =======
The Company engaged third party business valuation appraisers to determine
the fair value of the distribution network in connection with its acquisition of
Pierce (see Note 3). The Company believes Pierce maintains the largest North
American fire apparatus distribution network and has exclusive contracts with
each distributor related to the fire apparatus product offerings manufactured by
Pierce. To establish the useful lives of the distribution network, a historical
turnover analysis was performed.
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. The
partners finance purchases of trucks to be leased to user-customers by investing
equity in an amount equal to approximately 11.0% to 14.0% of the cost of the
trucks. Banks and other financial institutions lend to OMFSP the remaining
percentage, with recourse solely to OMFSP, secured by a pledge of the
user-lessees. Each partner funds one-half of the equity needed to finance the
new truck 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, 1998 (its
fiscal year end) and for the period February 26, 1998 (the date OMFSP was
formed) to September 30, 1998, is as follows:
September 30, 1998
------------------
Cash and cash equivalents............................ $ 4,584
Investment in sales type leases, net................. 123,973
Other................................................ 204
--------
$ 128,761
========
Notes payable........................................ $ 105,473
Other liabilities.................................... 2,908
Partners' equity..................................... 20,380
--------
$ 128,761
========
Period From
February 26, 1998 to
September 30, 1998
---------------------
Interest income...................................... $ 6,605
Net interest income.................................. 1,622
Excess of revenue over expenses...................... 644
Excess of revenues over expenses includes a $1,466 nonrecurring, non-cash
charge to write off start-up expenses incurred in fiscal 1998 to establish OMFSP
(see Note 12).
16
<PAGE>
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. 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
$108,859, which has been accounted for as goodwill.
Pro forma unaudited consolidated operating results of the Company, assuming
McNeilus had been acquired as of October 1, 1997 and 1996, are summarized below:
Fiscal Year Ended September 30,
1998 1997
--------------- ------------
Net sales....................................... $1,040,986 $998,031
Income before extraordinary item................ 18,590 14,954
Net income...................................... 17,405 14,954
Earnings per share:
Before extraordinary item.................. 2.21 1.76
Net income................................. 2.07 1.76
Earnings per share assuming dilution:
Before extraordinary item.................. 2.19 1.75
Net income................................. 2.05 1.75
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. Anticipated
efficiencies from the consolidation of certain manufacturing activities between
the Company and McNeilus and anticipated lower material costs related to the
consolidation of purchasing between the Company and McNeilus have been excluded
from the amounts included in the pro forma operating results. These pro forma
results do not purport to be indicative of the results of operations which would
have resulted had the combination been in effect as of October 1, 1997 and 1996
or of the future results of operations of the consolidated entities.
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 statement of income since the date of the
acquisition. Had the acquisition occurred as of October 1, 1997 or 1996, there
would have been no material pro forma effect on net sales, net income, or
earnings per share in fiscal 1998 or 1997.
On September 18, 1996, the Company acquired for cash all of the issued and
outstanding stock of Pierce, a leading manufacturer and marketer of fire trucks
and other fire apparatus in the U.S. The acquisition price of $156,926,
including acquisition costs and net of cash acquired, was financed from
borrowings under a subsequently retired bank credit facility. The acquisition
was accounted for using the purchase method of accounting, and accordingly, the
operating results of Pierce are included in the Company's consolidated
statements of income 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
were subsequently adjusted during fiscal 1997. Approximately $62,000 of the
purchase price was allocated to the distribution network and other intangible
assets. The
17
<PAGE>
excess of the purchase price over the estimated fair value of net assets
acquired amounted to $103,887, which has been accounted for as goodwill.
On November 9, 1995, the Company, through its wholly-owned subsidiary,
Summit Performance Systems, Inc. ("Summit"), acquired the land, buildings,
machinery and equipment, and technology of Friesz Manufacturing Company
("Friesz") using available cash for $3,912. Friesz was engaged in the
manufacture and sale of concrete mixer systems and related aftermarket
replacements parts. Approximately $2,150 of the purchase price was allocated to
intangible assets, principally designs and related technology (see Note 13). The
acquisition was accounted for using the purchase method of accounting, and
accordingly, the operating results of Friesz are included in the Company's
consolidated statements of income (loss) since the date of acquisition.
4. 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.
Term Loan A required principal payments of $5,000 in fiscal 1998, and
requires principal payments of $11,000 in fiscal 1999, $13,500 in fiscal 2000,
$15,000 in fiscal 2001, $19,500 in fiscal 2002 and $24,000 in fiscal 2003, with
the remaining outstanding principal amount of $12,000 due in fiscal 2004. Term
Loans B and C each require principal payments of $200 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.
From February 26, 1998 through September 30, 1998, the Company has paid from
available cash $53,000 on the Term Loan Facility. 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. All
mandatory principal payments have been paid through June 1999. The outstanding
balances as of September 30, 1998 on Term Loan A, Term Loan B, and Term Loan C
are $87,000, $42,500, and $42,500, respectively, after prepayments.
At September 30, 1998, borrowings of $6,000 and letters of credit of
$12,146 reduced available capacity under the Company's Revolving Credit Facility
to $81,854.
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, 1998. 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, 1998 were
7.417% on the Revolving Credit Facility and 7.435%, 7.923% and 8.173% 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
18
<PAGE>
a premium after March 1, 2003. However, the Company may redeem up to $35,000 of
the Senior Subordinated Notes at any time prior to March 1, 2001, at a
redemption price of 108.75% of the principal amount redeemed, with net cash
proceeds of any public offerings of Common Stock, provided that such redemption
occurs within 45 days of the date of the closing of such public offering. In
addition to the Company, certain of the Company's subsidiaries, fully,
unconditionally, jointly and severally guarantee the Company's obligations under
the Senior Subordinated Notes.
McNeilus has unsecured notes payable to several of its former shareholders
aggregating $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, 1998, are as follows: 1999 -- $3,472; 2000 -- $14,621;
2001 -- $16,099; 2002 -- $20,602; and 2003 -- $25,088.
5. Income Taxes
Fiscal Year Ended September 30,
1998 1997 1996
Income Tax Provision (Credit)
Current:
Federal.............................. $ 10,555 $ 8,236 $ 2,988
State................................ 2,162 1,866 368
------- ------- ------
Total current..................... 12,717 10,102 3,356
Deferred:
Federal.............................. (53) (3,271) (4,630)
State................................ (9) (335) (467)
------- ------- ------
Total deferred.................... (62) (3,606) (5,097)
------- ------- ------
$ 12,655 $ 6,496 $ (1,741)
======= ======= ======
Fiscal Year Ended September 30,
1998 1997 1996
Effective Rate Reconciliation
U.S. federal tax rate................... 35.0% 35.0% (34.0)%
State income taxes, net................. 4.9 6.0 (5.0)
Reduction of prior years' excess tax
provisions.............................. -- (5.5) (50.5)
Foreign sales corporation............... (1.5) (1.5) (5.2)
Goodwill amortization................... 5.1 5.4 --
Other, net.............................. 0.7 -- 6.9
------ ------ ------
44.2% 39.4% (87.8)%
====== ====== ======
September 30,
1998 1997
Deferred Tax Assets and Liabilities
Deferred tax assets:
Other current liabilities..................... $ 6,284 $ 5,277
Accrued warranty.............................. 8,625 4,439
Postretirement benefit obligations............ 4,219 3,916
Payroll-related obligations................... 3,177 1,846
Investments................................... 406 1,887
Other......................................... 949 729
------- -------
Total deferred tax assets................. 23,660 18,094
Deferred tax liabilities:
Intangible assets............................. 31,498 23,402
Investment in unconsolidated partnership...... 16,496 --
Property, plant and equipment................. 7,288 4,175
Inventories................................... 3,038 2,341
Deferred charges.............................. 850 1,091
Other......................................... 41 58
------- -------
Total deferred tax liabilities............ 59,211 31,067
------- -------
Net deferred tax liability................ $ (35,551) $ (12,973)
======== ========
The Company has not recorded a valuation allowance with respect to any
deferred tax assets.
19
<PAGE>
6. Employee Benefit Plans
The Company has defined benefit pension plans covering substantially all
employees, except McNeilus employees. The plans provide benefits based on
compensation, years of service and date of birth. The Company's policy is to
fund the plans in amounts which comply with contribution limits imposed by law.
Components of net periodic pension cost for these plans for fiscal 1998,
1997, and 1996, including costs of discontinued operations for 1996 which are
not significant, but excluding Pierce pension costs for 1996 due to the
proximity of its acquisition to the Company's fiscal year end, are as follows:
Fiscal Year Ended September 30,
1998 1997 1996
Service cost-- benefits earned during year $ 1,744 $ 1,387 $ 1,149
Interest cost on projected benefit
obligations............................. 2,751 2,439 1,979
Actual return on plan assets............ 1,647 (8,789) (3,347)
Net amortization and deferral........... (4,575) 6,123 1,232
------ ------ ------
Net periodic pension cost............... $ 1,567 $ 1,160 $ 1,013
====== ====== ======
The following table summarizes the funded status of the pension plans and
the amounts recognized in the Company's consolidated balance sheets at September
30, 1998 and 1997:
<TABLE>
<CAPTION>
1998 1997
-------------------------------------------- ---------------------
Assets Exceed Accumulated Benefits Assets Exceed
Accumulated Benefits Exceed Assets Accumulated Benefits
Actuarial present value of benefit obligations:
<S> <C> <C> <C>
Vested........................................... $ 17,355 $ 16,953 $ 29,334
Nonvested........................................ 318 1,515 694
------- ------- -------
Accumulated benefit obligations...................... 17,673 18,468 30,028
Adjustment for projected benefit obligations......... 5,719 -- 4,759
------- ------- -------
Projected benefit obligations........................ 23,392 18,468 34,787
Plan assets at fair value............................ 21,907 15,862 39,556
------- ------- -------
Plan assets in excess of (less than) projected benefit
Obligations...................................... (1,485) (2,606) 4,769
Unrecognized net transition asset.................... (173) (354) (594)
Unrecognized net (gain) loss......................... 2,729 3,311 (1,538)
Unrecognized prior service cost...................... 36 1,878 1,229
Adjustment required to recognize minimum pension
liability........................................ -- (4,835) --
------- ------- -------
Prepaid pension asset (accrued liability)............ $ 1,107 $ (2,606) $ 3,866
======= ======= =======
</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 reduction of shareholders'
equity 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.
The plans' assets consist of investments in commingled equity and fixed
income funds and individually managed equity portfolios. Actuarial assumptions
are as follows:
September 30,
1998 1997 1996
Discount rate........................... 7.25% 7.25% 7.75%
Rate of increase in compensation........ 4.50 4.50 4.50
Expected long-term rate of
return on plan assets................ 9.25 9.25 9.25
20
<PAGE>
The Company provides health benefits to certain of its retirees and their
eligible spouses. Approximately 35% of the Company's employees become eligible
for these benefits if they reach normal retirement age while working for the
Company.
The following table summarizes the status of the postretirement benefit plan
and the amounts recognized in the Company's consolidated balance sheets for the
periods indicated:
September 30,
1998 1997
Postretirement benefit obligations:
Retirees........................................ $ 3,055 $ 2,828
Fully eligible active participants.............. 563 522
Other active participants....................... 6,453 5,647
------ ------
10,071 8,997
Unrecognized net gain............................... 864 1,150
------ ------
Postretirement benefit obligations.................. $10,935 $10,147
====== ======
Net periodic postretirement benefit cost for fiscal 1998, 1997, and 1996,
including discontinued operations for 1996 which are not significant, includes
the following components:
Fiscal Year Ended
September 30,
1998 1997 1996
Service cost................................... $ 397 $ 366 $ 353
Interest cost on the accumulated
postretirement benefit obligation........... 676 613 580
Amortization of unrecognized net gain.......... (13) (32) --
------ ------ -----
Net periodic postretirement benefit cost....... $1,060 $ 947 $ 933
====== ====== =====
Net change in postretirement benefit obligations includes the following:
Fiscal Year Ended
September 30,
1998 1997
Balance at beginning of year.......................... $ 10,147 $ 9,517
Benefits paid......................................... (272) (317)
Net periodic postretirement benefit cost.............. 1,060 947
------- ------
Balance at end of year................................ $ 10,935 $10,147
======= ======
The assumed health care cost trend rate used in measuring the accumulated
postretirement benefit obligation was 9.8% in fiscal 1998, declining to 6.5% in
fiscal 2006. The weighted average discount rate used in determining the
postretirement benefit obligation was 7.25% and 7.75% in fiscal 1998 and 1997,
respectively. If the health care cost trend rate was increased by 1%, the
postretirement benefit obligation at September 30, 1998 would increase by $896
and net periodic postretirement benefit cost for fiscal 1998 would increase by
$120.
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 $1,345, $825, and $401 in fiscal 1998, 1997, and 1996,
respectively.
21
<PAGE>
7. Shareholders' Equity
On May 2, 1997, the Company and Freightliner Corporation ("Freightliner")
formally terminated a strategic alliance formed on June 2, 1995. The Company
repurchased from Freightliner 350,000 shares of its Common Stock and 1,250,000
warrants for the purchase of additional shares of Common Stock for a total of
$6,750.
The Company 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
150,000 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. As of September 30, 1998, 296,888 shares of Common Stock are
reserved for the conversion of Class A Common Stock. In July 1995, the Company
authorized the buyback of up to one million shares of the Company's Common
Stock. As of September 30, 1998 and 1997, the Company had purchased 461,535
shares of its Common Stock at an aggregate cost of $6,551.
Dividends are required to be paid on both the Class A Common Stock and
Common Stock at any time that dividends are paid on either. Each share of Common
Stock is entitled to receive 115% of any dividend paid on each share of Class A
Common Stock, rounded up or down to the nearest $0.0025 per share.
Holders of the Common Stock have the right to elect or remove as a class 25%
of the entire Board of Directors of the Company rounded to the nearest whole
number of directors, but not less than one. Holders of Common Stock are not
entitled to vote on any other Company matters, except as may be required by law
in connection with certain significant actions such as certain mergers and
amendments to the Company's Articles of Incorporation, and are entitled to one
vote per share on all matters upon which they are entitled to vote. Holders of
Class A Common Stock are entitled to elect the remaining directors (subject to
any rights granted to any series of Preferred Stock) and are entitled to one
vote per share for the election of directors and on all matters presented to the
shareholders for vote.
The Common Stock shareholders are entitled to receive a liquidation
preference of $7.50 per share before any payment or distribution to holders of
the Class A Common Stock. Thereafter, holders of the Class A Common Stock are
entitled to receive $7.50 per share before any further payment or distribution
to holders of the Common Stock. Thereafter, holders of the Class A Common Stock
and Common Stock share on a pro rata basis in all payments or distributions upon
liquidation, dissolution or winding up of the Company.
8. Stock Option Plan
The Company has reserved 992,168 shares of Common Stock at September 30,
1998 to provide for the exercise of outstanding stock options and the issuance
of Common Stock under incentive compensation awards. Under the 1990 Incentive
Stock Plan for the Key Employees (the "Plan"), officers, other key employees and
directors may be granted options to purchase up to an aggregate of 1,250,000
shares of the Company's Common Stock (including 425,000 shares for which
approval from the holders of the Class A Common Stock will be obtained at the
Company's 1999 Annual Shareholders' Meeting) at not less than the fair market
value of such shares on the date of grant. Participants may also be awarded
grants of restricted stock under the Plan. The Plan expires on April 9, 2000.
Options become exercisable ratably on the first, second, 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.
22
<PAGE>
The following table summarizes the transactions of the Plan for the
three-year period ended September 30, 1998.
Weighted-
Average
Number of Exercise
Options Price
Unexercised options outstanding September 30, 1995..... 477,068 $ 10.96
Options granted................................... 14,500 14.68
Options exercised................................. (24,515) 9.72
Options forfeited................................. (6,251) 12.58
-------
Unexercised options outstanding September 30, 1996..... 460,802 11.12
Options granted................................... 5,000 12.00
Options exercised................................. (20,331) 10.34
Options forfeited................................. (7,570) 12.97
-------
Unexercised options outstanding September 30, 1997..... 437,901 11.14
Options granted................................... 414,000 20.35
Options exercised................................. (139,200) 10.50
Options forfeited................................. (1,000) 13.88
-------
Unexercised options outstanding September 30, 1998..... 711,701 $ 16.62
=======
Price range $7.88-- $11.25 (weighted-average
contractual life of 5.3 years)........................ 187,951 $ 9.82
Price range $12.00-- $16.75 (weighted-average
contractual life of 7.8 years)........................ 214,750 15.44
Price range $19.13-- $23.63 (weighted-average
contractual life of 9.8 years)........................ 309,000 21.57
Exercisable options at September 30, 1998.............. 289,869 11.37
Shares available for grant at September 30, 1998....... 280,467
SFAS No. 123, "Accounting for Stock-Based Compensation," became effective
for the Company in fiscal 1997. As allowed by SFAS 123, the Company has elected
to continue to follow Accounting Principles Board Opinion ("APB") No. 25,
"Accounting for Stock Issued to Employees" in accounting for the Plan. Under APB
No. 25, the Company does not recognize compensation expense on the issuance of
its stock options because the option terms are fixed and the exercise price
equals the market price of the underlying stock on the grant date.
As required by SFAS 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 5.87%, 5.44% and 4.62% in 1998, 6.27%
in 1997, and 5.39% and 6.38% in 1996; dividend yield of 2.99%, 2.61% and 2.12%
in 1998, 4.17% in 1997 and 3.60% and 3.28% in 1996; expected common stock market
price volatility factor of .308 in 1998 and .305 in 1997 and 1996; and a
weighted-average expected life of the options of six years. The weighted-average
fair value of options granted in 1998, 1997, and 1996 was $6.11, $3.07 and $4.08
per share, respectively. The pro forma effect of these options on net earnings
and earnings per share was not material. These pro forma calculations only
include the effects of 1998, 1997, and 1996 grants. As such, the impacts are not
necessarily indicative of the effects on reported net income of future years.
9. Operating Leases and Related Party Transactions
Total rental expense for plant and equipment charged to continuing
operations under noncancelable operating leases was $1,114, $886, and $797 in
fiscal 1998, 1997, and 1996, respectively. Minimum rental payments due under
operating leases for subsequent fiscal years are: 1999 -- $842; 2000 -- $382;
2001 -- $281; 2002 -- $206; and 2003 -- $137.
Included in rental expense are charges of $128, $128, and $128 in fiscal
1998, 1997, and 1996, respectively, 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 Company's
new product development operations are conducted in the building. The purchase
price was based on the average of two independent appraisals.
10. Discontinued Operations
On June 2, 1995, Freightliner acquired certain assets of the Company's motor
home, bus and van chassis business. The consideration included cash of $23,815
and the assumption by Freightliner of certain liabilities. The assets sold to
Freightliner consisted of inventories, property, plant and equipment and an
option to buy the Company's joint venture ownership interest in a Mexican
chassis manufacturer, which option has subsequently expired. The liabilities
assumed by Freightliner included certain warranty obligations related to
previously produced chassis in excess of certain specified amounts for which the
Company retained
23
<PAGE>
liability and industrial revenue bonds that were secured by the underlying real
estate. The disposition of the chassis business has been accounted for as a
discontinued operation.
In fiscal 1996, the Company incurred charges totaling $2,623 arising from
the write-off of receivables and other obligations related to the Company's
former joint venture in Mexico. In addition, in fiscal 1996, the Company
recognized additional warranty and other related costs totaling $2,063 with
respect to the Company's former U.S. chassis business.
11. Contingencies, Significant Estimates and Concentrations
The Company is engaged in litigation against Super Steel Products
Corporation ("SSPC"), the Company's former supplier of mixer systems for front
discharge concrete mixer trucks under a long-term supply contract. SSPC sued the
Company in state court claiming that the Company breached the contract. The
Company counterclaimed for repudiation of contract. On July 26, 1996, a jury
returned a verdict for SSPC awarding damages totaling $4,485. On October 10,
1996, the state court judge overturned the verdict against the Company, granted
judgment for the Company on its counterclaim, and ordered a new trial for
damages on the Company's counterclaim. Both SSPC and the Company 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. The Company
intends to petition for review of this decision by the Wisconsin Supreme Court.
The outcome of this matter cannot be predicted at the present time. The Company
does not have a reserve relating to this matter.
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 skeletal container chassis. 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 414 PRPs participating in
the costs of addressing the site and has been assigned an allocation share of
approximately 0.04%. Currently a remedial investigation/ feasibility study is
being completed, and as such, an estimate for the total cost of the remediation
of this site has not been made to date. However, based on estimates and the
assigned allocations, the Company believes its liability at the site will not be
material and its share is adequately covered through reserves established by the
Company at September 30, 1998. Actual liability could vary based on results of
the study, the resources of other PRPs, and the Company's final share of
liability.
The Company is addressing a regional trichloroethylene ("TCE") groundwater
plume on the south side of Oshkosh, Wisconsin. The Company believes there may be
multiple sources in the area. TCE was detected at the Company's North Plant
facility with recent testing showing the highest concentrations in a monitoring
well located on the upgradient property line. Because the investigation process
is still ongoing, it is not possible for the Company to estimate its long-term
total liability associated with this issue at this time. Also, as part of the
regional TCE groundwater investigation, the Company conducted a groundwater
investigation of a former landfill located on Company property. The landfill,
acquired by the Company in 1972, is approximately 2.0 acres in size and is
believed to have been used for the disposal of household waste. Based on the
investigation, the Company does not believe the landfill is one of the sources
of the TCE contamination. Based upon current knowledge, the Company believes its
liability associated with the TCE issue will not be material and is adequately
covered through reserves established by the Company at September 30, 1998.
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.
24
<PAGE>
The Company has guaranteed certain customers' obligations under deferred
payment contracts and lease purchase agreements totaling approximately $1,000 at
September 30, 1998. The Company is also contingently liable under bid,
performance and specialty bonds totaling approximately $86,885 and open standby
letters of credit issued by the Company's bank in favor of third parties
totaling $12,146 at September 30, 1998.
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, 1998 and 1997, the Company has accrued $15,887 and $12,320 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, 1997 and 1996, the
Company recorded warranty and other related costs for matters beyond the
Company's historical experience totaling $3,200, $3,770 and $5,602,
respectively, with respect to continuing operations and $2,063 with respect to
discontinued operations in fiscal 1996 (see Note 10). The additional charges in
fiscal 1998, 1997 and 1996 with regard to continuing operations principally
related to a dispute involving the Company's former trailer manufacturing
operations with OV, which was settled in fiscal 1998, and secondarily to repair
certain matters related to refuse and front-discharge chassis. The additional
warranty charges with respect to discontinued operations in fiscal 1996 resulted
from the underestimation of the warranty liabilities retained by the Company
upon the sale of the Company's former chassis business. It is reasonably
possible that additional warranty and other related claims could arise from
disputes or other matters beyond the scope of the Company's historical
experience.
The Company subcontracted production under an $85,000 ISO-Compatible
Palletized Flatracks ("IPF") contract for the U.S. Army to Steeltech
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 in fiscal 1995 and 1996. As a result of delays in the start-up of
full-scale production under the IPF contract, the Company wrote off certain of
its advances and an investment in Steeltech totaling $3,300 in fiscal 1996. Such
charges were determined based on the amount of advances that were deemed to be
unrealizable based on a projection of Steeltech's cash flows through completion
of the IPF contract. Steeltech's IPF production was completed in July 1998. In
fiscal 1996, the Company also wrote off an investment of $900 in a joint
venture, which leases equipment to Steeltech and accrued $1,084 for the
potential satisfaction of a guarantee of 50% of the outstanding indebtedness of
the joint venture. Such charges were based on a projection of Steeltech's cash
flows, which indicated that Steeltech could not sustain its lease payments to
the joint venture, and because the Company believed that there was not a market
for the sale of the leased equipment. Given the completion of the IPF contract,
the Company is attempting to dispose of its investment in the joint venture and
simultaneously satisfy in cash the remainder of its guarantee. The Company
believes that it is adequately reserved at September 30, 1998, for any matters
relating to the disposition of such investment and guarantee.
The Company derives a significant portion of its revenue from the U.S.
Department of Defense, as follows:
Fiscal Year Ended September 30,
1998 1997 1996
Defense:
U.S. Department of Defense $ 248,577 $ 272,042 $ 249,413
Export.................. 452 16,584 2,059
--------- --------- ---------
249,029 288,626 251,472
Commercial:
Domestic................ 619,170 373,946 141,540
Export.................. 34,593 20,662 20,443
--------- --------- ---------
653,763 394,608 161,983
--------- --------- ---------
Net sales.................... $ 902,792 $ 683,234 $ 413,455
========= ========= =========
U.S. Department of Defense sales include $10,437, $17,723 and $58,855 in
fiscal 1998, 1997 and 1996, respectively, for products sold internationally
under the Foreign Military Sales ("FMS") Program.
Inherent in doing business with the U.S. Department of Defense are certain
risks, including technological changes and changes in levels of defense
spending. All U.S. Department of Defense contracts contain a provision that they
may be terminated at any time at the convenience of the government. In such an
event, the Company is entitled to recover allowable costs plus a reasonable
profit earned to the date of termination.
Various actions or claims have been asserted or may be asserted in the
future by the government against the Company. A potential action by the
government against the Company in connection with a grand jury investigation was
commenced in 1989. In 1996, the
25
<PAGE>
government discontinued this investigation without any action against the
Company or its employees. A subsequent, related civil investigation was
dismissed in fiscal 1998.
12. Unaudited Quarterly Results
<TABLE>
<CAPTION>
Fiscal 1998 Fiscal 1997
------------------------------------------ -----------------------------------------------
4th 3rd 2nd 1st 4th 3rd 2nd 1st
Quarter Quarter Quarter Quarter Quarter Quarter Quarter Quarter
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales............... $243,051 $290,104 $217,836 $151,801 $185,853 $176,596 $170,465 $150,320
Gross income............ 42,138 42,071 29,928 22,307 24,496 21,897 22,868 19,583
Income from
continuing
operations............. 4,952 5,000 3,161 3,140 3,116 2,792 2,474 1,624
Extraordinary item...... -- (450) (735) -- -- -- -- --
Net income.............. 4,952 4,550 2,426 3,140 3,116 2,792 2,474 1,624
Earnings per share:
Continuing operations $ .59 $ .59 $ .38 $ .38 $ .38 $ .33 $ .28 $ .19
Extraordinary item..... -- (.05) (.09) -- -- -- -- --
Net income............. .59 .54 .29 .38 .38 .33 .28 .19
Earnings per share
assuming dilution:
Continuing operations .58 .58 .38 .37 .37 .33 .28 .19
Extraordinary item..... -- (.05) (.09) -- -- -- -- --
Net income............. .58 .53 .29 .37 .37 .33 .28 .19
Dividends per share:
Class A Common Stock... $ 0.10875 $ 0.10875 $ 0.10875 $ 0.10875 $ 0.10875 $ 0.10875 $ 0.10875 $ 0.10875
Common Stock........... 0.12500 0.12500 0.12500 0.12500 0.12500 0.12500 0.12500 0.12500
</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 13).
In April 1998, the AICPA issued SOP No. 98-5, "Reporting on the Costs of
Start-up Activities." Prior to fiscal 1998, the Company had not capitalized any
costs covered by SOP 98-5. In February 1998, OMFSP, which the Company accounts
for using the equity method, incurred and capitalized approximately $1,466 of
costs ($895 net of income taxes) related to the organization of the partnership.
In the fourth quarter of fiscal 1998, OMFSP elected to adopt early the
provisions of SOP 98-5 which requires that adoption be as of the beginning of
the year. As a result, the Company has restated the previously reported results
for the second quarter of fiscal 1998 to write-off its share of the costs
previously capitalized by 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."
13. 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 the previously acquired concrete mixer
technology of Friesz (see Note 3). 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 Friez 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, respectively, were recognized in
fiscal 1998 and are included in selling, general and administrative expense. The
fair value of the Florida facility was based on a third party appraisal. The
fair value of the mixer intangible asset was based on the absence of future cash
flows.
26
<PAGE>
During fiscal 1996, 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 fiscal
1996, 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 11).
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 has been
recorded as a reduction of selling, general and administrative expense in fiscal
1998.
14. Subsidiary Guarantors
The following tables present condensed consolidating financial information
for fiscal 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., 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.
27
<PAGE>
<TABLE>
Condensed Consolidating Statement of Income
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............................ 342,978 423,370 -- -- 766,348
--------- -------- ---------- -------- ----------
Gross income............................. 50,742 85,702 -- -- 136,444
Operating expenses:......................
Selling, general and administrative.. 37,861 31,844 23 -- 69,728
Engineering research and development. 7,161 2,520 -- -- 9,681
Amortization of goodwill and other
intangibles.................... -- 8,315 -- -- 8,315
--------- -------- ---------- -------- ----------
Total operating expenses................. 45,022 42,679 23 -- 87,724
--------- -------- ---------- -------- ----------
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) from operations 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 (loss) from continuing operations. 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>
28
<PAGE>
<TABLE>
Condensed Consolidating Balance Sheet
September 30, 1998
<CAPTION>
Subsidiary Non-Guarantor
Company Guarantors Subsidiaries Eliminations Consolidated
(In thousands)
ASSETS
Current assets:
<S> <C> <C> <C> <C> <C>
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........................... 338,720 (7,161) -- (331,559) --
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............................... $ 471,217 $ 528,344 $ 17,037 $ (331,559) $ 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.............. (759) 36,930 7,327 -- 43,498
Current maturities of long-term debt... 3,216 251 -- -- 3,467
--------- -------- -------- -------- ---------
Total current liabilities.......... 49,427 151,892 7,388 -- 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................................. -- 338,720 (7,161) (331,559) --
Shareholders' equity....................... 131,296 -- -- -- 131,296
--------- -------- -------- -------- ---------
Total liabilities and shareholders' equity. $ 471,217 $ 528,344 $ 17,037 $ (331,559) $ 685,039
========= ======== ======== ======== =========
</TABLE>
29
<PAGE>
<TABLE>
Condensed Consolidating Statement of Cash Flows
Year Ended September 30, 1998
<CAPTION>
Subsidiary Non-Guarantor
Company Guarantors Subsidiaries Eliminations Consolidated
(In thousands)
Operating activities:
<S> <C> <C> <C> <C> <C>
Income (loss) from continuing operations $ 16,253 $ 22,516 $ 498 $(23,014) $ 16,253
Non-cash adjustments.................... 9,707 14,292 (3,155) -- 20,844
Changes in operating assets and
liabilities......................... 21,655 21,101 88 -- 42,844
--------- -------- -------- ------- ---------
Net cash provided from (used for)
operating activities................ 47,615 57,909 (2,569) (23,014) 79,941
Investing activities:
Acquisitions of businesses, net of
cash acquired....................... (217,581) (3,563) -- -- (221,144)
Investments in and advances to
subsidiaries........................ 17,101 (44,749) 4,634 23,014 --
Additions to property, plant and
equipment........................... (2,585) (5,970) -- -- (8,555)
Other................................... 4,177 (2,608) (487) -- 1,082
--------- -------- -------- ------- ---------
Net cash provided from (used for)
investing activities................ (198,888) (56,890) 4,147 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
Repayment 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
period.................................. 23,210 9 -- -- 23,219
--------- -------- -------- ------- ---------
Cash and cash equivalents at end of period.. $ 1,065 $ 979 $ 1,578 $ -- $ 3,622
========= ======== ======== ======= =========
</TABLE>
30