SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
(x) Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the quarterly period ended June 30, 1999
or
( ) Transaction 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
incorporation or organization] Identification No.]
2307 Oregon Street, P.O. Box 2566, Oshkosh, Wisconsin 54903
[Address of principal executive offices] [Zip Code]
Registrant's telephone number, including area code (920) 235-9151
None
[Former name, former address and former fiscal year,
if changed since last report]
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 the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class A Common Stock Outstanding as of July 31, 1999: 284,244
Common Stock Outstanding as of July 31, 1999: 8,236,588
<PAGE>
OSHKOSH TRUCK CORPORATION
FORM 10-Q INDEX
FOR THE QUARTER ENDED JUNE 30, 1999
Page
----
Part I. Financial Information
Item 1. Financial Statements (Unaudited)
Condensed Consolidated Statements of Income
- Three Months Ended June 30, 1999 and 1998;
Nine Months Ended June 30, 1999 and 1998 .......3
Condensed Consolidated Balance Sheets
- June 30, 1999 and September 30, 1998...............4
Condensed Consolidated Statement of Shareholders' Equity
- Nine Months Ended June 30, 1999 ...................5
Condensed Consolidated Statements of Cash Flows
- Nine Months Ended June 30, 1999 and 1998 ..........6
Notes to Condensed Consolidated Financial Statements
- June 30, 1999 .....................................7
Item 2. Management's Discussion and Analysis of Consolidated
Financial Condition and Results of Operations ......22
Item 3. Quantitative and Qualitative Disclosure of Market Risk ......30
Part II. Other Information
Item 1. Legal Proceedings ...........................................31
Item 6. Exhibits and Reports on Form 8-K ............................31
Signatures .................................................................32
2
<PAGE>
PART I. ITEM 1. FINANCIAL INFORMATION
OSHKOSH TRUCK CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
June 30, June 30,
-------- --------
1999 1998 1999 1998
---- ---- ---- ----
(In thousands, except per share amounts)
<S> <C> <C> <C> <C>
Net sales $ 329,821 $ 290,104 $ 851,048 $ 659,741
Cost of sales 281,529 250,525 726,128 572,630
------------ ------------ ------------ ------------
Gross income 48,292 39,579 124,920 87,111
Operating expenses:
Selling, general and administrative 22,023 21,506 63,322 47,665
Amortization of goodwill and other intangibles 2,775 2,764 8,400 5,559
------------ ------------ ------------ ------------
Total operating expenses 24,798 24,270 71,722 53,224
------------ ------------ ------------ ------------
Operating income 23,494 15,309 53,198 33,887
Other income (expense):
Interest expense (6,613) (7,082) (19,839) (14,273)
Interest income 187 10 614 544
Miscellaneous, net 224 (181) 564 (344)
------------ ------------- ------------ ------------
(6,202) (7,253) (18,661) (14,073)
------------ ------------ ------------ ------------
Income from operations before income taxes,
equity in earnings of unconsolidated
partnership and extraordinary item 17,292 8,056 34,537 19,814
Provision for income taxes 7,199 3,639 14,700 8,378
------------ ------------ ------------ ------------
10,093 4,417 19,837 11,436
Equity in earnings (loss) of unconsolidated
partnership, net of income taxes 452 583 1,169 (135)
------------ ------------ ------------ ------------
Income from operations 10,545 5,000 21,006 11,301
Extraordinary charge for early retirement of debt,
net of income tax benefit -- (450) -- (1,185)
------------ ------------ ------------ ------------
Net income $ 10,545 $ 4,550 $ 21,006 $ 10,116
============ ============ ============ ============
Earnings per share (see Note 7):
Income from operations $ 0.83 $ 0.40 $ 1.65 $ 0.89
Extraordinary item -- (0.04) -- (0.09)
------------ ------------ ------------ ------------
Net income $ 0.83 $ 0.36 $ 1.65 $ 0.80
============ ============ ============ ============
Earnings per share assuming dilution (see Note 7):
Income from operations $ 0.81 $ 0.39 $ 1.62 $ 0.88
Extraordinary item -- (0.04) -- (0.09)
------------ ------------ ------------ -------------
Net income $ 0.81 $ 0.35 $ 1.62 $ 0.79
============ ============ ============ ============
Cash dividends (see Note 7):
Class A Common Stock $ 0.07250 $ 0.07250 $ 0.21750 $ 0.21750
Common Stock $ 0.08333 $ 0.08333 $ 0.25000 $ 0.25000
The accompanying notes are an integral part of these condensed consolidated
financial statements.
</TABLE>
3
<PAGE>
OSHKOSH TRUCK CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
June, 30, September 30,
1999 1998
--- ----
(Unaudited)
(In thousands)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 5,441 $ 3,622
Receivables, net 107,220 80,982
Inventories 218,319 149,191
Prepaid expenses 3,836 3,768
Deferred income taxes 20,659 12,281
---------------- -----------------
Total current assets 355,475 249,844
Investment in unconsolidated partnership 16,643 13,496
Other long-term assets 16,850 14,198
Property, plant and equipment 162,547 156,783
Less accumulated depreciation (81,923) (75,947)
---------------- -----------------
Net property, plant and equipment 80,624 80,836
Goodwill and other intangible assets, net 324,471 326,665
---------------- -----------------
Total assets $ 794,063 $ 685,039
================ =================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 80,814 $ 65,171
Floor plan notes payable 35,971 11,645
Customer advances 64,084 44,915
Payroll-related obligations 24,688 24,124
Accrued warranty 16,091 15,887
Other current liabilities 61,493 43,498
Current maturities of long-term debt and
revolving credit facility 28,163 3,467
---------------- -----------------
Total current liabilities 311,304 208,707
Long-term debt 266,693 277,337
Deferred income taxes 43,677 47,832
Other long-term liabilities 21,246 19,867
Shareholders' equity 151,143 131,296
---------------- -----------------
Total liabilities and shareholders' equity $ 794,063 $ 685,039
================ =================
The accompanying notes are an integral part of these condensed consolidated
financial statements.
</TABLE>
4
<PAGE>
OSHKOSH TRUCK CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
NINE MONTHS ENDED JUNE 30, 1999
(Unaudited)
<TABLE>
<CAPTION>
Accumulated
Other
Comprehensive
Income (Loss)
- Minimum
Common Stock Pension
Common Paid-in Retained in Liability
Stock Capital Earnings Treasury Adjustment Total
----- ------- -------- -------- ---------- -----
(In thousands)
<S> <C> <C> <C> <C> <C> <C>
Balance at September 30, 1998 $ 93 $ 14,712 $ 130,959 $ (12,664) $ (1,804) $ 131,296
Comprehensive income:
Net income --- --- 21,006 --- --- 21,006
Other --- --- --- --- --- ---
-----------
21,006
Cash dividends:
Class A Common Stock --- --- (93) --- --- (93)
Common Stock --- --- (3,081) --- --- (3,081)
Other --- 911 --- 1,104 --- 2,015
------ --------- --------- ------------ ----------- -----------
Balance at June 30, 1999 $ 93 $ 15,623 $ 148,791 $ (11,560) $ (1,804) $ 151,143
====== ========= ========= ============ =========== ===========
The accompanying notes are an integral part of these condensed consolidated
financial statements.
</TABLE>
5
<PAGE>
OSHKOSH TRUCK CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
June 30,
1999 1998
---- ----
(In thousands)
<S> <C> <C>
Operating activities:
Income from operations $ 21,006 $ 11,301
Non-cash adjustments 6,165 15,854
Changes in operating assets and liabilities (26,102) 51,827
------------ ------------
Net cash provided from operating
activities 1,069 78,982
Investing activities:
Acquisition of businesses, net of cash acquired -- (217,954)
Additions to property, plant and equipment (6,900) (6,270)
Proceeds from sale of property, plant and equipment 58 320
Increase in other long-term assets (4,356) (2,232)
------------- -------------
Net cash used for investing activities (11,198) (226,136)
Net cash used for discontinued operations -- (872)
Financing activities:
Net borrowings under revolving credit
facility 14,300 --
Proceeds from issuance of long-term debt -- 325,000
Repayments of long-term debt (248) (163,931)
Debt issuance costs -- (8,507)
Dividends paid (3,163) (3,129)
Other 1,059 31
------------ ------------
Net cash provided from financing activities 11,948 149,464
------------ ------------
Increase in cash and cash equivalents 1,819 1,438
Cash and cash equivalents at beginning of period 3,622 23,219
------------ ------------
Cash and cash equivalents at end of period $ 5,441 $ 24,657
============ ============
Supplementary disclosures:
Depreciation and amortization $ 17,018 $ 12,995
Cash paid for interest 16,887 7,633
Cash paid for income taxes 20,342 7,162
The accompanying notes are an integral part of these condensed consolidated
financial statements.
</TABLE>
6
<PAGE>
OSHKOSH TRUCK CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. BASIS OF PRESENTATION
The condensed consolidated financial statements included herein have been
prepared by Oshkosh Truck Corporation (the "Company") without audit. However,
the foregoing financial statements contain all adjustments (consisting only of
normal recurring adjustments) which are, in the opinion of Company management,
necessary to present fairly the condensed consolidated financial statements.
Certain reclassifications have been made to the 1998 condensed consolidated
financial statements to conform to the 1999 presentation.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted pursuant to the rules and regulations of the
Securities and Exchange Commission. These consolidated financial statements
should be read in conjunction with the consolidated financial statements and
notes thereto included in the Company's 1998 annual report to shareholders.
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. Effective October 1, 1998, the Company adopted SFAS No.
130. Comprehensive income has been included in the Company's Consolidated
Statement of Shareholders' Equity and prior period amounts have been
reclassified to conform to SFAS No. 130 requirements.
2. EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted weighted
average shares used in the denominator of the per share calculations, as
restated to reflect the effects of a stock dividend effective August 5, 1999
(see Note 7):
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
June 30, June 30,
-------- --------
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Denominator for basic earnings per share 12,763,241 12,629,207 12,699,587 12,586,650
Effect of dilutive options and incentive
compensation awards 310,386 169,801 300,174 145,458
------------ ------------ ------------ -----------
Denominator for dilutive earnings per share 13,073,627 12,799,008 12,999,761 12,732,108
============ ============ ============ ===========
</TABLE>
7
<PAGE>
3. INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
June 30, September 30,
1999 1998
---- ----
(In thousands)
<S> <C> <C>
Finished products $ 58,493 $ 27,916
Partially finished products 80,075 52,700
Raw materials, purchased chassis, and parts 92,701 77,675
-------------------- ---------------------
Inventories at FIFO cost 231,269 158,291
Less: Progress payments on U.S. Government
contracts (1,694) --
Excess of FIFO cost over LIFO cost (11,256) (9,100)
-------------------- ---------------------
$ 218,319 $ 149,191
==================== =====================
</TABLE>
Title to all inventories related to government contracts which provide for
progress payments vests in the government to the extent of unliquidated progress
payments.
4. ACQUISITIONS
On February 26, 1998, the Company acquired for cash all of the issued and
outstanding capital stock of McNeilus Companies, Inc. ("McNeilus") and entered
into related non-compete and ancillary agreements for a net acquisition price of
$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.
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 $61.0 million of the purchase price was allocated to
the distribution network and other intangible assets, including non-competition
agreements. The excess of the purchase price over the estimated fair value of
net assets acquired amounted to approximately $114.6 million and has been
accounted for as goodwill.
Pro forma unaudited condensed consolidated operating results of the Company,
assuming McNeilus had been acquired as of October 1, 1997, are summarized below:
8
<PAGE>
<TABLE>
<CAPTION>
Nine Months Ended
June 30, 1998
-------------
(In thousands, except per share amounts)
<S> <C>
Net sales $ 797,935
Income before extraordinary item 13,752
Net income 12,567
Earnings per share:
Before extraordinary item $ 1.09
Net income 1.00
Earnings per share assuming dilution:
Before extraordinary item 1.08
Net income 0.99
</TABLE>
5. LONG-TERM DEBT
The Company has outstanding a Senior Credit Facility and $100.0 million of 8.75%
Senior Subordinated Notes due March 1, 2008. The Senior Credit Facility consists
of a six year $100.0 million revolving credit facility ("Revolving Credit
Facility") and three term loan facilities ("Term Loan A", "Term Loan B", and
"Term Loan C"). The outstanding balances as of June 30, 1999 on the Revolving
Credit Facility, Term Loan A, Term Loan B, and Term Loan C are $20.3 million,
$87.0 million, $42.5 million, and $42.5 million, respectively.
At June 30, 1999, outstanding borrowings of $20.3 million and $9.3 million of
outstanding letters of credit reduced available capacity under the Revolving
Credit Facility to $70.4 million.
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. The Senior Credit Facility includes
customary affirmative and negative covenants and requires mandatory prepayments
to the extent of "excess cash flows" as defined in the Senior Credit Facility.
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. 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.
6. SHAREHOLDER RIGHTS PLAN
On February 1, 1999, the Board of Directors of the Company adopted a shareholder
rights plan and declared a rights dividend (as subsequently
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<PAGE>
adjusted to reflect a stock dividend - see Note 7) of two-thirds Preferred Share
Purchase Right ("Right") for each share of Common Stock and 40/69 of one Right
for each share of Class A Common Stock outstanding on February 8, 1999, and
provided that two-thirds Right and one 40/69 Right would be issued with each
share of Common Stock and Class A Common Stock, respectively, thereafter issued.
The Rights are exercisable only if a person or group acquires 15% or more of the
Common Stock and Class A Common Stock or announces a tender offer for 15% or
more of the Common Stock and Class A Common Stock. Each Right entitles the
holder thereof to purchase from the Company one one-hundredth share of the
Company's Series A Junior Participating Preferred Stock at an initial exercise
price of $145 per one one-hundredth of a share (subject to adjustment), or, upon
the occurrence of certain events, Common Stock or common stock of an acquiring
company having a market value equivalent to two times the exercise price.
Subject to certain conditions, the Rights are redeemable by the Board of
Directors for $.01 per Right and are exchangeable for shares of Common Stock.
The Board of Directors is also authorized to reduce the 15% threshold referred
to above to not less than 10%. The Rights have no voting power and initially
expire on February 1, 2009.
7. STOCK DIVIDEND
Following the close of business on July 23, 1999, the Company's Board of
Directors declared a three-for-two split of both classes of Company common stock
to be effected in the form of a 50 percent stock dividend payable August 19,
1999 to shareholders of record on August 5, 1999. All per share and weighted
average share amounts have been restated in the accompanying financial
statements and related notes to reflect this split. As a part of its action to
declare this stock dividend, the Rights under the Shareholder Rights Plan were
proportionally adjusted, as were authorizations, outstanding options and option
exercise prices under the 1990 Incentive Stock Plan of the Company.
8. COMMITMENTS AND CONTINGENCIES
The Company was engaged in litigation against Super Steel Products Corp.
("SSPC"), the Company's former supplier of mixer systems for forward-discharge
concrete mixer trucks under a long-term supply contract. SSPC sued the Company
in state court claiming the Company breached the contract. The Company
counterclaimed for repudiation of the contract. On July 26, 1996, a jury
returned a verdict for SSPC awarding damages totaling $4.5 million. On October
10, 1996, the state court judge overturned the verdict against the Company,
granted judgment for the Company on its counterclaim, and ordered a new trial
for damages on the Company's counterclaim. Both SSPC and the Company appealed
the state court judge's decision to the Wisconsin Court of Appeals. On December
8, 1998, the Wisconsin Court of Appeals ordered the state court judge to
reinstate the jury verdict against the Company awarding damages totaling $4.5
million plus interest to SSPC. On April 6, 1999, the Company's petition for
review of this decision by the
10
<PAGE>
Wisconsin Supreme Court was denied. On April 12, 1999, the Company petitioned
the state court judge to act on the Company's previous motion for a retrial.
This petition was denied on June 18, 1999 and the state court judge directed
that judgment be entered. In lieu of further appeals, the Company paid $5.75
million on July 27, 1999 in final settlement of the matter. The Company had
recorded a liability for the full amount of the final settlement at June 30,
1999.
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 ("CERCLA") and similar
state laws, each potentially responsible party ("PRP") that contributed
hazardous substances may be jointly and severally liable for the costs
associated with cleaning up the site. Typically, PRPs negotiate a resolution
with the EPA and/or the state environmental agencies. PRPs also negotiate with
each other regarding allocation of the cleanup cost.
As to one such Superfund site, Pierce Manufacturing Inc. ("Pierce") is one of
431 PRPs participating in the costs of addressing the site and has been assigned
an allocation share of approximately 0.04%. A remedial investigation/
feasibility study was completed in September 1998. A feasibility study and
modeling report were submitted on April 30, 1999 to the state environmental
agency. A final acceptance of the remedial investigation/feasibility study will
not be available until late-1999, with the remedial design/remedial action phase
commencing after early 2000. 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 at June 30, 1999
through reserves established by the Company. Actual liability could vary based
on completion of the study, the resources of other PRPs and the Company's final
share of liability.
As to another such Superfund site, Oshkosh Truck Corporation and its former
Trailer Division and Pierce are three of approximately 1,450 customers of one of
the PRPs that have received notification of identification as such a PRP. No
further evidence concerning the site, its environmental issues or any other
information has been furnished. The Company believes that it will be a de
minimis level PRP, if any liability is established, so that any such liability
will not be material. Actual liability could vary based upon subsequently
available information.
The Company is addressing a regional trichloroethylene ("TCE") groundwater plume
on the south side of Oshkosh, Wisconsin. The Company believes there
11
<PAGE>
may be multiple sources in the area. TCE was detected in the groundwater 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 believes that it is adequately covered at June
30, 1999 through reserves established by the Company. However, this may change
as investigations proceed by the Company, other unrelated property owners, and
the government.
The Company is subject to other environmental matters and legal proceedings and
claims, including patent, antitrust, product liability and state dealership
regulation compliance proceedings, that arise in the ordinary course of
business. Although the final results of all such matters and claims cannot be
predicted with certainty, management believes that the ultimate resolution of
all such matters and claims, after taking into account the liabilities accrued
with respect to such matters and claims, will not have a material adverse effect
on the Company's financial condition or results of operations. Actual results
could vary, among other things, due to the uncertainties involved in litigation.
The Company has guaranteed certain customers' obligations under deferred payment
contracts and lease purchase agreements totaling approximately $1 million at
June 30, 1999. The Company is also contingently liable under bid, performance
and specialty bonds totaling approximately $107.8 million and open standby
letters of credit issued by the Company's bank in favor of third parties
totaling approximately $9.3 million at June 30, 1999.
9. CONDENSED CONSOLIDATING FINANCIAL INFORMATION
The following tables present condensed consolidating financial information 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. 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
12
<PAGE>
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 Pierce Manufacturing Inc. through a formal
lending arrangement. The Company is charged interest by its wholly-owned
subsidiary, McNeilus Companies, Inc. under a formal lending arrangement. There
are presently no management fee arrangements between the Company and its
Non-Guarantor Subsidiaries.
13
<PAGE>
OSHKOSH TRUCK CORPORATION
Condensed Consolidating Statements of Income
For the Three Months Ended June 30, 1999
(Unaudited)
<TABLE>
<CAPTION>
Subsidiary Non-Guarantor
Company Guarantors Subsidiaries Eliminations Consolidated
------- ---------- ------------ ------------ ------------
(In thousands)
<S> <C> <C> <C> <C> <C>
Net sales $ 117,247 $ 213,720 $ -- $ (1,146) $ 329,821
Cost of sales 103,831 178,844 -- (1,146) 281,529
---------- ---------- ----------- ----------- -----------
Gross income 13,416 34,876 -- -- 48,292
Operating expenses:
Selling, general and
administrative 10,399 11,519 105 -- 22,023
Amortization of goodwill and
other intangibles -- 2,775 -- -- 2,775
---------- ---------- ----------- ---------- -----------
Total operating expenses 10,399 14,294 105 -- 24,798
---------- ---------- ----------- ---------- -----------
Operating income (loss) 3,017 20,582 (105) -- 23,494
Other income (expense):
Interest expense (6,151) (2,037) -- 1,575 (6,613)
Interest income 48 1,701 13 (1,575) 187
Miscellaneous, net 19 57 148 -- 224
---------- ---------- ----------- ---------- -----------
(6,084) (279) 161 -- (6,202)
---------- ---------- ----------- ---------- -----------
Income (loss) from operations
before income taxes and equity
in earnings of subsidiaries and
unconsolidated partnership (3,067) 20,303 56 -- 17,292
Provision (credit) for income taxes (1,053) 8,231 21 -- 7,199
----------- ---------- ----------- ---------- -----------
(2,014) 12,072 35 -- 10,093
Equity in earnings of subsidiaries
and unconsolidated partnership,
net of income taxes 12,559 -- 452 (12,559) 452
---------- ---------- ----------- ---------- -----------
Net income $ 10,545 $ 12,072 $ 487 $ (12,559) $ 10,545
========== ========== =========== ========== ===========
</TABLE>
14
<PAGE>
OSHKOSH TRUCK CORPORATION
Condensed Consolidating Statements of Income
For the Nine Months Ended June 30, 1999
(Unaudited)
<TABLE>
<CAPTION>
Subsidiary Non-Guarantor
Company Guarantors Subsidiaries Eliminations Consolidated
------- ---------- ------------ ------------ ------------
(In thousands)
<S> <C> <C> <C> <C> <C>
Net sales $ 295,341 $ 559,294 $ -- $ (3,587) $ 851,048
Cost of sales 259,360 470,355 -- (3,587) 726,128
---------- ---------- ----------- ---------- -----------
Gross income 35,981 88,939 -- -- 124,920
Operating expenses:
Selling, general and
administrative 30,155 32,919 248 -- 63,322
Amortization of goodwill and
other intangibles -- 8,400 -- -- 8,400
---------- ---------- ----------- ---------- -----------
Total operating expenses 30,155 41,319 248 -- 71,722
---------- ---------- ----------- ---------- -----------
Operating income (loss) 5,826 47,620 (248) -- 53,198
Other income (expense):
Interest expense (18,493) (6,071) -- 4,725 (19,839)
Interest income 245 5,047 47 (4,725) 614
Miscellaneous, net 130 130 304 -- 564
---------- ---------- ----------- ---------- -----------
(18,118) (894) 351 -- (18,661)
---------- ---------- ----------- ---------- -----------
Income (loss) from operations
before income taxes and equity
in earnings of subsidiaries and
unconsolidated partnership (12,292) 46,726 103 -- 34,537
Provision (credit) for income taxes (4,671) 19,332 39 -- 14,700
---------- ---------- ----------- ---------- -----------
(7,621) 27,394 64 -- 19,837
Equity in earnings of subsidiaries
and unconsolidated partnership,
net of income taxes 28,627 -- 1,169 (28,627) 1,169
---------- ---------- ----------- ----------- -----------
Net income $ 21,006 $ 27,394 $ 1,233 $ (28,627) $ 21,006
========== ========== =========== =========== ===========
</TABLE>
15
<PAGE>
OSHKOSH TRUCK CORPORATION
Condensed Consolidating Statements of Income
For the Three Months Ended June 30, 1998
(Unaudited)
<TABLE>
<CAPTION>
Subsidiary Non-Guarantor
Company Guarantors Subsidiaries Eliminations Consolidated
------- ---------- ------------ ------------ ------------
(In thousands)
<S> <C> <C> <C> <C> <C>
Net sales $ 100,311 $ 189,793 $ -- $ -- $ 290,104
Cost of sales 92,015 158,510 -- -- 250,525
---------- ---------- ----------- ---------- -----------
Gross income 8,296 31,283 -- -- 39,579
Operating expenses:
Selling, general and
administrative 10,131 11,220 155 -- 21,506
Amortization of goodwill and
other intangibles -- 2,764 -- -- 2,764
---------- ---------- ----------- ---------- -----------
Total operating expenses 10,131 13,984 155 -- 24,270
---------- ---------- ----------- ---------- -----------
Operating income (loss) (1,835) 17,299 (155) -- 15,309
Other income (expense):
Interest expense (5,394) (1,868) 180 -- (7,082)
Interest income 120 110 (220) -- 10
Miscellaneous, net (159) (242) 220 -- (181)
---------- ---------- ----------- ---------- -----------
(5,433) (2,000) 180 -- (7,253)
---------- ---------- ----------- ---------- -----------
Income (loss) from operations
before income taxes, equity in
earnings of subsidiaries and
unconsolidated partnership and
extraordinary item (7,268) 15,299 25 -- 8,056
Provision for income taxes (2,826) 6,462 3 -- 3,639
---------- ---------- ----------- ---------- -----------
(4,442) 8,837 22 -- 4,417
Equity in earnings of subsidiaries
and unconsolidated partnership,
net of income taxes 9,442 -- 583 (9,442) 583
---------- ---------- ----------- ---------- -----------
Income from operations 5,000 8,837 605 (9,442) 5,000
Extraordinary charge for early
retirement of debt, net of income
tax benefit (450) -- -- -- (450)
---------- ---------- ----------- ---------- -----------
Net income $ 4,550 $ 8,837 $ 605 $ (9,442) $ 4,550
========== ========== =========== =========== ===========
</TABLE>
16
<PAGE>
OSHKOSH TRUCK CORPORATION
Condensed Consolidating Statements of Income
For the Nine Months Ended June 30, 1998
(Unaudited)
<TABLE>
<CAPTION>
Subsidiary Non-Guarantor
Company Guarantors Subsidiaries Eliminations Consolidated
------- ---------- ------------ ------------ ------------
(In thousands)
<S> <C> <C> <C> <C> <C>
Net sales $ 305,537 $ 354,204 $ -- $ -- $ 659,741
Cost of sales 274,524 298,106 -- -- 572,630
---------- ---------- ----------- ---------- -----------
Gross income 31,013 56,098 -- -- 87,111
Operating expenses:
Selling, general and
administrative 27,266 20,147 252 -- 47,665
Amortization of goodwill and
other intangibles -- 5,559 -- -- 5,559
---------- ---------- ----------- ---------- -----------
Total operating expenses 27,266 25,706 252 -- 53,224
---------- ---------- ----------- ---------- -----------
Operating income (loss) 3,747 30,392 (252) -- 33,887
Other income (expense):
Interest expense (9,117) (5,156) -- -- (14,273)
Interest income 274 270 -- -- 544
Miscellaneous, net (292) (416) 364 -- (344)
---------- ---------- ----------- ---------- -----------
(9,135) (5,302) 364 -- (14,073)
---------- ---------- ----------- ---------- -----------
Income from operations before
income taxes, equity in
earnings of subsidiaries and
unconsolidated partnership and
extraordinary item (5,388) 25,090 112 -- 19,814
Provision for income taxes (2,243) 10,584 37 -- 8,378
---------- ---------- ----------- ---------- -----------
(3,145) 14,506 75 -- 11,436
Equity in earnings (loss) of
subsidiaries and unconsolidated
partnership, net of income taxes 14,446 -- (135) (14,446) (135)
---------- ---------- ----------- ---------- -----------
Income from operations 11,301 14,506 (60) (14,446) 11,301
Extraordinary charge for early
retirement of debt, net of income
tax benefit (1,185) -- -- -- (1,185)
---------- ---------- ----------- ---------- -----------
Net income (loss) $ 10,116 $ 14,506 $ (60) $ (14,446) $ 10,116
========== ========== =========== ========== ===========
</TABLE>
17
<PAGE>
OSHKOSH TRUCK CORPORATION
Condensed Consolidating Balance Sheets
June 30, 1999
(Unaudited)
<TABLE>
<CAPTION>
Subsidiary Non-Guarantor
Company Guarantors Subsidiaries Eliminations Consolidated
------- ---------- ------------ ------------ ------------
(In thousands)
<S> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 4,110 $ 904 $ 427 $ -- $ 5,441
Receivables, net 52,216 54,938 66 -- 107,220
Inventories 60,048 158,271 -- -- 218,319
Prepaid expenses and other 3,174 662 -- -- 3,836
Deferred income taxes 9,164 7,007 4,488 -- 20,659
--------- ---------- --------- ---------- -----------
Total current assets 128,712 221,782 4,981 -- 355,475
Investment in and advances to:
Subsidiaries 382,141 (2,943) -- (379,198) --
Unconsolidated partnership -- -- 16,643 -- 16,643
Other long-term assets 9,977 6,825 48 -- 16,850
Net property, plant and equipment 23,252 57,372 -- -- 80,624
Goodwill and other intangible
assets, net 1,108 323,363 -- -- 324,471
--------- ---------- --------- ---------- -----------
Total assets $ 545,190 $ 606,399 $ 21,672 $ (379,198) $ 794,063
========= ========== ========= ========== ===========
LIABILITIES AND
SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 35,643 $ 45,139 $ 32 $ -- $ 80,814
Floor plan notes payable -- 35,971 -- -- 35,971
Customer advances 1,155 62,929 -- -- 64,084
Payroll-related obligations 10,459 14,205 24 -- 24,688
Accrued warranty 6,366 9,725 -- -- 16,091
Other current liabilities 32,424 18,148 10,921 -- 61,493
Current maturities of long-term
debt and revolving credit
facility 27,912 251 -- -- 28,163
--------- ---------- --------- ---------- -----------
Total current liabilities 113,959 186,368 10,977 -- 311,304
Long-term debt 264,388 2,305 -- -- 266,693
Deferred income taxes (4,017) 34,056 13,638 -- 43,677
Other long-term liabilities 19,717 1,529 -- -- 21,246
Investments by and advances from
(to) parent -- 382,141 (2,943) (379,198) --
Shareholders' equity 151,143 -- -- -- 151,143
--------- ---------- --------- ---------- -----------
Total liabilities and shareholders'
equity $ 545,190 $ 606,399 $ 21,672 $ (379,198) $ 794,063
========= ========== ========= ============ ===========
</TABLE>
18
<PAGE>
OSHKOSH TRUCK CORPORATION
Condensed Consolidating Balance Sheets
September 30, 1998
(Unaudited)
<TABLE>
<CAPTION>
Subsidiary Non-Guarantor
Company Guarantors Subsidiaries Eliminations Consolidated
------- ---------- ------------ ------------ ------------
(In thousands)
<S> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 1,065 $ 979 $ 1,578 $ ---- $ 3,622
Receivables, net 41,009 39,863 110 ---- 80,982
Inventories 47,191 102,000 ---- ---- 149,191
Prepaid expenses and other 3,298 470 ---- ---- 3,768
Deferred income taxes 5,761 4,629 1,891 ---- 12,281
--------- ---------- --------- ------------ -----------
Total current assets 98,324 147,941 3,579 ---- 249,844
Investment in and advances to:
Subsidiaries 363,189 (4,585) ---- (358,604) ----
Unconsolidated partnership ---- ---- 13,496 ---- 13,496
Other long-term assets 9,276 4,960 (38) ---- 14,198
Net property, plant and equipment 23,789 57,047 ---- ---- 80,836
Goodwill and other intangible
assets, net 1,108 325,557 ---- ---- 326,665
--------- ---------- --------- ------------ -----------
Total assets $ 495,686 $ 530,920 $ 17,037 $ (358,604) $ 685,039
========= ========== ========= ============ ===========
LIABILITIES AND
SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 30,843 $ 34,294 $ 34 $ ---- $ 65,171
Floor plan notes payable ---- 11,645 ---- ---- 11,645
Customer advances 1,689 43,226 ---- ---- 44,915
Payroll-related obligations 8,749 15,348 27 ---- 24,124
Accrued warranty 5,689 10,198 ---- ---- 15,887
Other current liabilities 23,710 15,037 4,751 ---- 43,498
Current maturities of long-term
debt and revolving credit
facility 3,216 251 ---- ---- 3,467
--------- ---------- --------- ------------ -----------
Total current liabilities 73,896 129,999 4,812 ---- 208,707
Long-term debt 274,784 2,553 ---- ---- 277,337
Deferred income taxes (2,394) 33,416 16,810 ---- 47,832
Other long-term liabilities 18,104 1,763 ---- ---- 19,867
Investments by and advances from
(to) parent ---- 363,189 (4,585) (358,604) ----
Shareholders' equity 131,296 ---- ---- ---- 131,296
--------- ---------- --------- ------------ -----------
Total liabilities and shareholders'
equity $ 495,686 $ 530,920 $ 17,037 $ (358,604) $ 685,039
========= ========== ========= ============ ============
</TABLE>
19
<PAGE>
OSHKOSH TRUCK CORPORATION
Condensed Consolidating Statements of Cash Flows
For the Nine Months Ended June 30, 1999
(Unaudited)
<TABLE>
<CAPTION>
Subsidiary Non-Guarantor
Company Guarantors Subsidiaries Eliminations Consolidated
------- ---------- ------------ ------------ ------------
(In thousands)
<S> <C> <C> <C> <C> <C>
Operating activities:
Income from operations $ 21,006 $ 27,394 $ 1,233 $ (28,627) $ 21,006
Non-cash adjustments (806) 11,614 (4,643) -- 6,165
Changes in operating assets and
liabilities (7,508) (17,003) (1,591) -- (26,102)
--------- ---------- ---------- ---------- -----------
Net cash provided from (used
for) operating activities 12,692 22,005 (5,001) (28,627) 1,069
Investing activities:
Investments in and advances to
subsidiaries (18,952) (14,842) 5,167 28,627 --
Additions to property, plant and
equipment (2,589) (4,311) -- -- (6,900)
Other (302) (2,679) (1,317) -- (4,298)
--------- ---------- ---------- ---------- -----------
Net cash provided from (used
for) investing activities (21,843) (21,832) 3,850 28,627 (11,198)
Financing activities:
Net borrowings under revolving
credit facility 14,300 -- -- -- 14,300
Repayments of long-term debt -- (248) -- -- (248)
Dividends paid (3,163) -- -- -- (3,163)
Other 1,059 -- -- -- 1,059
--------- ---------- ---------- ---------- ----------
Net cash provided from (used
for) financing activities 12,196 (248) -- -- 11,948
--------- ---------- ---------- ---------- ----------
Increase (decrease) in cash and cash
equivalents 3,045 (75) (1,151) -- 1,819
Cash and cash equivalents at
beginning of period 1,065 979 1,578 -- 3,622
--------- ---------- ---------- ---------- ----------
Cash and cash equivalents at end of
period $ 4,110 $ 904 $ 427 $ -- $ 5,441
========= ========== ========== ========== ==========
</TABLE>
20
<PAGE>
OSHKOSH TRUCK CORPORATION
Condensed Consolidating Statements of Cash Flows
For the Nine Months Ended June 30, 1998
(Unaudited)
<TABLE>
<CAPTION>
Subsidiary Non-Guarantor
Company Guarantors Subsidiaries Eliminations Consolidated
------- ---------- ------------ ------------ ------------
(In thousands)
<S> <C> <C> <C> <C> <C>
Operating activities:
Income (loss) from operations $ 11,301 $ 14,506 $ (60) $ (14,446) $ 11,301
Non-cash adjustments 7,042 8,552 260 -- 15,854
Changes in operating assets and
liabilities 32,445 21,010 (1,628) -- 51,827
--------- --------- ---------- --------- ----------
Net cash provided from (used
for) operating activities 50,788 44,068 (1,428) (14,446) 78,982
Investing activities:
Acquisition of businesses, net of
cash acquired (225,524) (3,535) 11,105 -- (217,954)
Investments in and advances to
subsidiaries 20,715 (32,702) (2,459) 14,446 --
Additions to property, plant and
equipment (1,488) (4,782) -- -- (6,270)
Other 386 (2,274) (24) -- (1,912)
--------- --------- ---------- --------- -----------
Net cash provided from (used
for) investing activities (205,911) (43,293) 8,622 14,446 (226,136)
Net cash used for discontinued
operations (872) -- -- -- (872)
Financing activities:
Proceeds from issuance of
long-term debt 325,000 -- -- -- 325,000
Repayments of long-term debt (164,000) 69 -- -- (163,931)
Debt issuance costs (8,507) -- -- -- (8,507)
Dividends paid (3,129) -- -- -- (3,129)
Other 31 -- -- -- 31
--------- --------- ---------- --------- -----------
Net cash provided from (used
for) financing activities 149,395 69 -- -- 149,464
--------- --------- ---------- --------- -----------
Increase (decrease) in cash and cash
equivalents (6,600) 844 7,194 -- 1,438
Cash and cash equivalents at
beginning of period 23,210 9 -- -- 23,219
--------- --------- ---------- --------- -----------
Cash and cash equivalents at end of
period $ 16,610 $ 853 $ 7,194 $ -- $ 24,657
========= ========= ========== ========= ===========
</TABLE>
21
<PAGE>
Item 2. Oshkosh Truck Corporation
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 report contain 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 (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 considered
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 identifying acquisition
candidates and integrating 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; (10) unanticipated events relating to the resolution of
Year 2000 issues; (11) competitive pricing pressures for the Company's products;
and (12) opportunities that may be presented to and pursued by the Company. 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.
Stock Dividend
Following the close of business on July 23, 1999, the Company's Board of
Directors declared a three-for-two stock split of both classes of Company common
stock to be effected in the form of a 50 percent stock dividend payable August
19, 1999 to shareholders of record on August 5, 1999. All per share amounts
presented in Management's Discussion and Analysis of Consolidated Financial
Condition and Results of Operations have been restated to reflect this stock
split.
Results of Operations
Third Quarter 1999 Compared to 1998
The Company reported net income of $10.5 million, or $0.81 per share, on sales
of $329.8 million for the third quarter of fiscal 1999, compared to net income
of $4.6 million, or $0.35 per share, on sales of $290.1 million for the third
quarter of fiscal 1998.
22
<PAGE>
Sales of commercial and fire and emergency products increased in the third
quarter of fiscal 1999 compared to the third quarter of fiscal 1998 while sales
of defense products decreased. Commercial and fire and emergency sales in the
third quarter of fiscal 1999 increased $46.3 million, or 19.8%, from the third
quarter of fiscal 1998 to $280.9 million. An increase of $41.9 million in sales
of construction and refuse vehicles and a $4.4 million increase in sales of fire
and emergency apparatus accounted for the increase. Commercial sales include
rear-discharge concrete mixers and refuse packers sold by McNeilus Companies,
Inc. ("McNeilus"), acquired on February 26, 1998, and front-discharge concrete
mixers sold under the Oshkosh brand. Total construction vehicle sales rose 22.1%
during the third quarter of 1999 due to strong end markets for the Company's
construction products and the introduction of a new cab and mixer package for
Oshkosh's front-discharge concrete mixer. Refuse packer sales rose 48.3% in the
third quarter of 1999. Management believes that commercial waste haulers
accelerated the replacement of refuse packers in their fleets in 1998 and 1999
and that the Company has increased its penetration with both commercial and
municipal accounts. Sales of fire and emergency vehicles rose 5.7% due to strong
market demand and an improved product mix. Sales of defense products totaled
$50.6 million in the third quarter of fiscal 1999, a decrease of $5.1 million,
or 9.1%, compared to the second quarter of fiscal 1998. Defense sales declined
due to the trend in lower heavy military truck spending in the federal budget
and the completion of the ISO-Compatible Palletized Flatrack contract in July
1998. Vehicle sales under the recently awarded U.S. Marine Corps Medium Tactical
Truck Replacement ("MTTR") contract will not begin until fiscal 2000.
Gross income in the third quarter of fiscal 1999 totaled $48.3 million, or 14.6%
of sales, compared to $39.6 million, or 13.6% of sales, in the third quarter of
fiscal 1998. Gross margins improved in the third quarter of fiscal 1999 due to
cost reduction realized by combining the purchasing requirements of Oshkosh and
McNeilus, and also due to an improved product mix in fire and emergency and
defense products.
Operating expenses increased $0.5 million to $24.8 million, or 7.5% of sales, in
the third quarter of fiscal 1999 compared to $24.3 million, or 8.4% of sales, in
the third quarter of fiscal 1998.
Interest expense decreased to $6.6 million in the third quarter of fiscal 1999
compared to $7.1 million in the third quarter of fiscal 1998. The decrease in
interest expense is due to fiscal 1998 debt repayments.
The effective income tax rate for combined federal and state income taxes for
the third quarter of fiscal 1999 was 41.6% compared to 45.2% for the third
quarter of fiscal 1998. The effective income tax rate for the third quarter of
fiscal 1999 was impacted by non-deductible goodwill amortization of $1.5 million
and a more favorable effective state income tax structure as a result of the
McNeilus acquisition. The effective income tax rate for
23
<PAGE>
the third quarter of fiscal 1998 was impacted by non-deductible goodwill
amortization of $1.3 million.
Equity in earnings of unconsolidated partnership was $0.5 million in the third
quarter of fiscal 1999 compared to $0.6 million in the third quarter of fiscal
1998.
The extraordinary charge of $0.5 million in the third quarter of fiscal 1998
related to the write-off of debt issuance costs as a result of early retirement
of debt.
First Nine Months of 1999 Compared to 1998
The Company reported net income of $21.0 million, or $1.62 per share, on sales
of $851.0 million for the first nine months of fiscal 1999, compared to net
income of $10.1 million, or $0.79 per share, on sales of $659.7 million for the
first nine months of fiscal 1998.
Sales of commercial and fire and emergency products increased in the first nine
months of fiscal 1999 compared to the first nine months of fiscal 1998 while
sales of defense products decreased. Commercial and fire and emergency sales for
the first nine months of fiscal 1999 increased $236.2 million, or 50%, from the
first nine months of fiscal 1998 to $708.6 million. An increase of $208.3
million in sales of construction and refuse vehicles and a $27.9 million
increase in sales of fire and emergency apparatus accounted for the increase.
The inclusion of McNeilus for a full nine months in fiscal 1999 compared to only
four months in fiscal 1998 accounted for $138.2 million of the increase in
fiscal 1999 sales. Construction vehicle sales benefited in the nine-month period
of fiscal 1999 from strong construction end markets and the introduction of a
new cab and mixer package for Oshkosh's front-discharge concrete mixer.
Management believes that commercial waste haulers accelerated the replacement of
refuse packers in their fleets in 1998 and 1999 and that the Company has
increased its penetration with both commercial and municipal accounts. Sales of
fire and emergency vehicles rose 13.0% due to strong market demand and an
improved product mix. Sales of defense products totaled $147.0 million for the
first nine months of fiscal 1999, a decrease of $40.7 million, or 21.7%,
compared to the first nine months of fiscal 1998. Defense sales declined due to
the trend in lower heavy military truck spending in the federal budget and the
completion of the ISO-Compatible Palletized Flatrack contract in July 1998.
Gross income in the first nine months of fiscal 1999 totaled $124.9 million, or
14.7% of sales, compared to $87.1 million, or 13.2% of sales, in the first nine
months of fiscal 1998. McNeilus contributed $58.1 million of gross income for
the first nine months of fiscal 1999 compared to $26.8 million for the first
nine months of fiscal 1998. Fiscal 1998 results included only four months of
McNeilus operations.
24
<PAGE>
Operating expenses increased $18.5 million to $71.7 million, or 8.4% of sales,
in the first nine months of fiscal 1999 compared to $53.2 million, or 8.1% of
sales, in the first nine months of fiscal 1998. Operating expenses for the first
nine months of fiscal 1999 included a $3.8 million non-recurring charge for
litigation, or 0.4% of sales, and a $2.9 million increase in amortization of
goodwill and other intangibles, or 0.3% of sales. The remainder of the increase
largely reflects the operating expenses of McNeilus, which the Company owned for
an additional five months in fiscal 1999.
Interest expense increased to $19.8 million in the first nine months of fiscal
1999 compared to $14.3 million in the first nine months of fiscal 1998. The
increase in interest expense was due to additional borrowings to finance the
acquisition of McNeilus, net of debt repayment.
The effective tax rate for combined federal and state income taxes for the first
nine months of fiscal 1999 was 42.6% compared to 42.3% for the first nine months
of fiscal 1998. The effective income tax rate for the first nine months of
fiscal 1999 was impacted by non-deductible goodwill amortization of $4.5
million. The effective income tax rate for the first nine months of fiscal 1998
was impacted by non-deductible goodwill amortization of $2.8 million and the
reversal of $0.5 million of income tax provisions recognized in earlier periods.
Equity in earnings of unconsolidated partnership increased to $1.2 million for
the first nine months of fiscal 1999 compared to a loss of $0.1 million for the
first nine months of fiscal 1998. The first nine months of fiscal 1998 included
a $0.9 million after-tax charge due to the early-adoption of a new accounting
standard related to start-up activities of the partnership. Also, results for
the first nine months of fiscal 1998 included only four months of operations of
the partnership following its formation on February 26, 1998.
The extraordinary charge of $1.2 million in the first nine months of fiscal 1998
was due to the previously discussed early retirement of debt.
Financial Condition
First Nine Months of 1999
During the first nine months of fiscal 1999, cash increased by $1.8 million.
Equipment and software purchases of $6.9 million, dividends of $3.2 million,
increases in long-term assets of $4.4 million generally related to the Pierce
enterprise resource planning system installed in fiscal 1999 and additional
equity investments in the Company's leasing partnership of $1.1 million were
funded by cash from operations of $1.1 million, a $14.3 million increase in
borrowings under the Company's revolving credit facility and $1.1 million of
proceeds from exercise of Common Stock options under the Company's Incentive
Stock Plan.
25
<PAGE>
First Nine Months of 1998
During the first nine months of fiscal 1998, cash increased $1.4 million. Cash
available at the beginning of the period of $23.2 million and cash provided from
operations during the period of $79.0 million or a total of $102.2 million were
used primarily to fund $53.9 million of debt repayments, the acquisition of Nova
Quintech for $3.5 million, capital additions of $6.3 million and the payment of
dividends of $3.1 million. The Company borrowed approximately $347.2 million in
February 1998 ($225.0 million under a multi-tranche senior term loan facility,
$100.0 million of senior subordinated notes and $22.2 million under a new $100.0
million revolving credit facility). Such borrowings were utilized to close the
McNeilus acquisition ($249.5 million purchase price and non-competition payments
plus $6.0 million in acquisition costs less cash acquired of $37.9 million, or
$217.6 million, plus restricted cash of $11.1 million), refinance $110.0 million
of outstanding indebtedness under the Company's previous credit facility and to
pay $8.5 million in debt issuance costs. In March 1998, the Company realized
approximately $5.5 million from the disposition of certain McNeilus assets.
Liquidity and Capital Resources
The Company's primary cash requirements are expected to include working capital,
interest and principal payments on indebtedness, capital expenditures, dividends
and, potentially, future acquisitions. The primary sources of cash are expected
to be cash flow from operations and borrowings under the Company's Senior Credit
Facility. Based upon current and anticipated future operations, the Company
believes that capital resources will be adequate to meet future working capital,
debt service and other capital requirements for fiscal 1999, including the
effect of the recently awarded MTTR contract.
Backlog
The Company's backlog as of June 30, 1999 was $455.3 million, compared to $420.9
million at June 30, 1998. The backlog at June 30, 1999 includes $129.5 million
with respect to U.S. Government contracts (including $45.0 million for the
funded portion of the MTTR contract), $199.7 million related to fire and
emergency apparatus and $126.1 million with respect to commercial products. The
backlog excludes the unfunded portion of the MTTR contract ($739 million at June
30, 1999). Approximately 44% of the Company's backlog orders will not be filled
within fiscal 1999. Most of the Company's revenues are derived from customer
orders prior to commencing production.
Reported backlog excludes purchase options and announced orders for which
definitive contracts have not been executed. Additionally, backlog
26
<PAGE>
excludes unfunded portions of U.S. Department of Defense ("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.
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. The Company believes
that all of its principal enterprise resource planning systems are Year 2000
ready. 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 September
30, 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; (6) testing of any upgrades or
replacements; and (7) design and implementation of contingency and business
continuation plans for each organization and facility.
As of June 30, 1999, the initial four phases for each of the four areas
of Project 2000 and remediation of all principal enterprise resource planning
systems are believed to have 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
27
<PAGE>
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 Manufacturing Inc.
("Pierce") and McNeilus and operations. In May 1999, the Company consolidated
its Florida computer operations into Oshkosh's computer operations. The Company
installed an upgraded release of software (which is certified by the software
vendor as being Year 2000 ready) to its ERP system for truck operations in
Oshkosh in July 1998. Programming to upgrade the remaining Oshkosh ERP system
for its parts operations was completed in December 1998. In April 1999, Pierce
completed the replacement of all of its hardware and business systems with a
new, vendor-certified Year 2000 ready, ERP system and related hardware. 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 completion by September 30, 1999.
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 has extended its plans to upgrade
or replace all such non-compliant systems to September 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. The
Company has not identified any material issues with respect to computer chips
embedded into its products. Nevertheless, there can be no assurance at this time
that its investigation is 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 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--Certain systems, such as telephone systems, have been upgraded to
be Year 2000 ready. Current indications are that the Company's remaining
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 has surveyed critical parts and all
chassis suppliers to assess the Year 2000 readiness of their products and
business systems. The Company's largest suppliers are large public companies
and, as such, generally have significant projects completed or underway similar
to 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
28
<PAGE>
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 is an extremely large organization. Certain
departments within the DoD, which interface with the Company, have communicated
that they were Year 2000 compliant as of March 31, 1999. However, the DoD has
not provided the Company with any assurances that its systems will be Year 2000
compliant, or whether DoD computer interfaces with other U.S. government
entities will be 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 activities to date and considering known items,
the Company does not expect the total cost associated with required hardware,
equipment and software modifications to become Year 2000 ready 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 $8.8
million and $0.9 million, respectively, of which $8.1 million and $0.6 million,
respectively, have been expended as of June 30, 1999. Approximately $7.9 million
of the estimated capital costs relate to the replacement of all the hardware and
business systems at Pierce, which was completed in April 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),
there is risk of underestimating the tasks and difficulties to be encountered,
or in obtaining necessary personnel. 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
29
<PAGE>
uncertainty about the Year 2000 problem and, in particular, about the Year 2000
compliance and readiness of its material External Parties. The Company believes
that, with the installation of new or upgraded ERP business systems and assuming
completion of Project 2000 as scheduled, the possibility of significant
interruptions of normal operations should be reduced. The Company has commenced
the establishment of contingency plans in the event that any unexpected issues
arise when the Year 2000 arrives. The Company expects contingency planning to be
complete by September 30, 1999.
Item 3. Quantitative and Qualitative Disclosure of Market Risk
The Company has not experienced any material changes in market risk
exposures since September 30, 1998.
30
<PAGE>
PART II. OTHER INFORMATION
ITEM 1 LEGAL PROCEEDINGS
The Company was engaged in litigation against Super Steel Products Corp.
("SSPC"), the Company's former supplier of mixer systems for forward-discharge
concrete mixer trucks under a long-term supply contract. SSPC sued the Company
in state court claiming the Company breached the contract. The Company
counterclaimed for repudiation of the contract. On July 26, 1996, a jury
returned a verdict for SSPC awarding damages totaling $4.5 million. On October
10, 1996, the state court judge overturned the verdict against the Company,
granted judgment for the Company on its counterclaim, and ordered a new trial
for damages on the Company's counterclaim. Both SSPC and the Company appealed
the state court judge's decision to the Wisconsin Court of Appeals. On December
8, 1998, the Wisconsin Court of Appeals ordered the state court judge to
reinstate the jury verdict against the Company awarding damages totaling $4.5
million plus interest to SSPC. On April 6, 1999, the Company's petition for
review of this decision by the Wisconsin Supreme Court was denied. On April 12,
1999, the Company petitioned the state court judge to act on the Company's
previous motion for a retrial. The petition was denied on June 18, 1999 and the
state court directed that judgment be entered. In lieu of further appeals, the
Company paid $5.75 million on July 27, 1999 in final settlement of the matter.
The Company had recorded a liability for the full amount of the final settlement
at June 30, 1999.
ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit 27 - Financial Data Schedule
(b) Reports on Form 8-K - None.
31
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
OSHKOSH TRUCK CORPORATION
August 6, 1999 /S/ R. G. Bohn
--------------------------------------------
R. G. Bohn
President and Chief Executive Officer
(Principal Executive Officer)
August 6, 1999 /S/ C. L. Szews
--------------------------------------------
C. L. Szews
Executive Vice President and
Chief Financial Officer
(Principal Financial Officer)
August 6, 1999 /S/ T. J. Polnaszek
--------------------------------------------
T. J. Polnaszek
Vice President and Controller
(Principal Accounting Officer)
32
<PAGE>
EXHIBIT INDEX
Exhibit No. Description
- ----------- -----------
27 Financial Data Schedule
33
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE FINANCIAL
STATEMENTS OF OSHKOSH TRUCK CORPORATION INC. AS OF AND FOR THE SIX MONTHS ENDED
JUNE 30, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> SEP-30-1999
<PERIOD-START> OCT-01-1998
<PERIOD-END> JUN-30-1999
<CASH> 5,441
<SECURITIES> 0
<RECEIVABLES> 109,461
<ALLOWANCES> 2,241
<INVENTORY> 218,319
<CURRENT-ASSETS> 355,475
<PP&E> 162,547
<DEPRECIATION> 81,923
<TOTAL-ASSETS> 794,063
<CURRENT-LIABILITIES> 311,304
<BONDS> 266,693
93
0
<COMMON> 0
<OTHER-SE> 151,050
<TOTAL-LIABILITY-AND-EQUITY> 794,063
<SALES> 851,048
<TOTAL-REVENUES> 851,048
<CGS> 726,128
<TOTAL-COSTS> 726,128
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 154
<INTEREST-EXPENSE> 19,839
<INCOME-PRETAX> 34,537
<INCOME-TAX> 14,700
<INCOME-CONTINUING> 21,006
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 21,006
<EPS-BASIC> 1.65
<EPS-DILUTED> 1.62
</TABLE>
