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 December 31, 1998
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 January 31, 1999: 284,998
Common Stock Outstanding as of January 31, 1999: 8,146,619
<PAGE>
OSHKOSH TRUCK CORPORATION
FORM 10-Q INDEX
FOR THE QUARTER ENDED DECEMBER 31, 1998
Page
----
Part I. Financial Information
Item 1. Financial Statements
Condensed Consolidated Statements of Income................... 3
Condensed Consolidated Balance Sheets......................... 4
Condensed Consolidated Statement of Shareholders' Equity...... 5
Condensed Consolidated Statements of Cash Flows............... 6
Notes to Condensed Consolidated Financial Statements.......... 7
Item 2. Management's Discussion and Analysis of Consolidated
Financial Condition and Results of Operations.............. 17
Part II. Other Information
Item 1. Legal Proceedings............................................ 23
Item 6. Exhibits and Reports on Form 8-K............................. 23
Signatures................................................................... 24
2
<PAGE>
PART I. ITEM 1. FINANCIAL INFORMATION
OSHKOSH TRUCK CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
Three Months Ended
December 31,
------------
1998 1997
---- ----
(In thousands, except
per share amounts)
Net sales $22,693 $151,801
Cost of sales 90,585 131,803
------- --------
Gross income 32,108 19,998
Operating expenses:
Selling, general and administrative 16,545 11,510
Amortization of goodwill and other intangibles 2,735 1,126
------- --------
Total operating expenses 19,280 12,636
------- --------
Operating income 12,828 7,362
Other income (expense):
Interest expense (6,581) (2,504)
Interest income 186 165
Miscellaneous, net 142 72
------- --------
(6,253) (2,267)
------- --------
Income from operations before income taxes,
and equity in earnings of unconsolidated
partnership 6,575 5,095
Provision for income taxes 3,000 1,955
------- --------
3,575 3,140
Equity in earnings of unconsolidated
partnership, net of income taxes 337 ----
Net income $ 3,912 $ 3,140
======= ========
Earnings per share $ 0.46 $ 0.38
====== =======
Earnings per share assuming dilution $ 0.45 $ 0.37
Cash dividends:
Class A Common Stock $ 0.10875 $ 0.10875
Common Stock $ 0.12500 $ 0.12500
The accompanying notes are an integral part of these condensed consolidated
financial statements.
3
<PAGE>
OSHKOSH TRUCK CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
December 31, September 30,
1998 1998
(Unaudited)
ASSETS (In thousands)
Current assets:
Cash and cash equivalents $ 3,173 $ 3,622
Receivables, net 75,910 80,982
Inventories 185,225 149,191
Prepaid expenses and other 19,986 16,049
------------ ---------
Total current assets 284,294 249,844
Investment in unconsolidated partnership 14,368 13,496
Other long-term assets 14,629 14,198
Property, plant and equipment 158,542 156,783
Less accumulated depreciation (78,049) (75,947)
------------ ---------
Net property, plant and equipment 80,493 80,836
Goodwill and other intangible assets, net 324,268 326,665
------------ ---------
Total assets $ 718,052 $ 685,039
============ =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 68,944 $ 65,171
Floor plan notes payable 36,938 11,645
Customer advances 53,503 44,915
Payroll-related obligations 16,967 24,124
Accrued warranty 14,114 15,887
Other current liabilities 42,503 43,498
Current maturities of long-term debt 6,682 3,467
------------ ---------
Total current liabilities 239,651 208,707
Long-term debt 273,274 277,337
Deferred income taxes 49,279 47,832
Other long-term liabilities 21,490 19,867
Shareholders' equity 134,358 131,296
------------ ---------
Total liabilities and shareholders' equity $ 718,052 $ 685,039
============ =========
The accompanying notes are an integral part of these condensed
consolidated financial statements.
4
<PAGE>
<TABLE>
<CAPTION>
OSHKOSH TRUCK CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF SHAREHOLDERS'
EQUITY
THREE MONTHS ENDED DECEMBER 31, 1998
(Unaudited)
Accumulated
Other
Comprehensive
Income (Loss)
- Minimum
Pension
Common Paid-in Retained Common Stock 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 -- -- 3,912 -- -- --
Other -- -- -- -- -- --
---------
3,912
Cash dividends:
Class A Common Stock -- -- (32) -- -- (32)
Common Stock -- -- (1,017) -- -- (1,017)
Other -- 111 -- 88 -- 199
------ --------- --------- --------- --------- ---------
Balance at December 31,
1998 $ 93 $ 14,823 $ 133,822 $ (12,576) $ (1,804) $ 134,358
====== ========= ========= ========= ========= =========
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
5
<PAGE>
OSHKOSH TRUCK CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Three Months Ended
December 31,
1998 1997
---- ----
Operating activities: (In thousands)
Net income $ 3,912 $ 3,140
Non-cash adjustments 2,798 3,824
Changes in operating assets and liabilities (1,784) 9,815
-------- --------
Net cash provided from operating activities 4,926 16,779
Investing activities:
Acquisition of businesses, net of cash acquired ---- (3,461)
Additions to property, plant and equipment (1,853) (1,697)
Proceeds from sale of property, plant and equipment 27 66
Increase in other long-term assets (1,788) (1,005)
-------- --------
Net cash used for investing activities (3,614) (6,097)
Net cash used for discontinued operations ---- (491)
Financing activities:
Net borrowings (repayments) under revolving credit (700) 7,820
Facility
Repayments of long-term debt (148) (40,000)
Dividends paid (1,048) (1,032)
Other 135 ----
-------- --------
Net cash used for financing activities (1,761) (33,212)
-------- --------
Decrease in cash and cash equivalents (449) (23,021)
Cash and cash equivalents at beginning of period 3,622 23,219
-------- --------
Cash and cash equivalents at end of period $ 3,173 $ 198
======== ========
Supplementary disclosures:
Depreciation and amortization $ 5,373 $ 3,283
Cash paid for interest 4,252 2,498
Cash paid for income taxes 6,320 2,777
The accompanying notes are an integral part of these condensed consolidated
financial statements.
6
<PAGE>
OSHKOSH TRUCK CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
(Unaudited)
1. BASIS OF PRESENTATION AND NEW ACCOUNTING STANDARDS
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 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 the
financial position of the Company.
In June 1997, the FASB 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. 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 Company expects to adopt
this statement in the fourth quarter of fiscal 1999. 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 FASB issued SFAS No. 130, "Reporting Comprehensive Income"
which is effective for fiscal years beginning after December 15, 1997. 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. The Company adopted SFAS No. 130 on October 1, 1998.
Comprehensive income has been included in the Company's Consolidated Statement
of Shareholders' Equity.
7
<PAGE>
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:
Three Months Ended
December 31,
------------
1998 1997
---- ----
Denominator for basic earnings per share 8,423,903 8,340,854
Effect of dilutive options and incentive
compensation awards 177,702 96,621
-------------- ------------
Denominator for dilutive earnings per share 8,601,605 8,437,475
=============== ============
3. INVENTORIES
Inventories consist of the following:
December 31, September 30,
1998 1998
(In thousands)
Finished products $ 38,271 $ 27,916
Partially finished products 73,839 52,700
Raw materials, purchased chassis, and parts 82,516 77,675
---------- ----------
Inventories at FIFO cost 194,626 158,291
Excess of FIFO cost over LIFO cost (9,401) (9,100)
---------- ----------
$ 185,225 $ 149,191
========== ==========
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 $108.9 million and has been
accounted for as goodwill.
8
<PAGE>
Pro forma unaudited condensed consolidated operating results of the Company,
assuming McNeilus had been acquired as of October 1, 1997, are summarized below:
Three Months Ended
December 31, 1997
-----------------
(In thousands, except per share amounts)
Net sales $ 224,870
Net income $ 3,386
Earnings per share $ 0.41
Earnings per share assuming
dilution $ 0.41
5. LONG-TERM DEBT
The Company has outstanding a Senior Credit Facility and $100.0 million of 8
3/4% 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 December 31, 1998 on the
Revolving Credit Facility, Term Loan A, Term Loan B, and Term Loan C are $5.3
million, $87.0 million, $42.5 million, and $42.5 million, respectively.
At December 31, 1998, outstanding borrowings of $5.3 million and $12.1 million
of outstanding letters of credit reduced available capacity under the Revolving
Credit Facility to $82.6 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 of one Preferred Share Purchase Right
("Right") for each share of Common Stock and 20/23 of one Right for each share
of Class A Common Stock outstanding on February 8, 1999, and provided that one
Right and one 20/23 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
9
<PAGE>
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. COMMITMENTS AND CONTINGENCIES
The Company is 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. The Company has petitioned for review of this
decision by the Wisconsin Supreme Court. The ultimate outcome of this matter
cannot be predicted at the present time. During the quarter ended December 31,
1998, the Company established a reserve relating to this matter.
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 is one of 414 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 are to be completed
in February 1999. 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 December 31, 1998.
10
<PAGE>
Actual liability could vary based on results 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 are two of approximately 1,450 customers of one of the
potential 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 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 through
reserves established by the Company at December 31, 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.
The Company has guaranteed certain customers' obligations under deferred payment
contracts and lease purchase agreements totaling approximately $1,000 at
December 31, 1998. The Company is also contingently liable under bid,
performance and specialty bonds totaling approximately $97.9 million and open
standby letters of credit issued by the Company's bank in favor of third parties
totaling approximately $12.1 million at December 31, 1998.
8. 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
11
<PAGE>
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 February 26, 1998 because no Non-Guarantor
Subsidiaries existed prior to that date. 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 Pierce Manufacturing, Inc. through a
formal lending arrangement. There are presently no management fee arrangements
between the Company and its Non-Guarantor Subsidiaries.
12
<PAGE>
<TABLE>
<CAPTION>
OSHKOSH TRUCK CORPORATION
Condensed Consolidating Statements of Income
For the Three Months Ended December 31, 1998
(Unaudited)
Subsidiary Non-Guarantor
Company Guarantors Subsidiaries Eliminations Consolidated
(In thousands)
<S> <C> <C> <C> <C> <C>
Net sales $75,754 $146,939 $---- $ ---- $ 222,693
Cost of sales 65,362 125,223 ---- ---- 190,585
------- -------- ---- ---- ---------
Gross income 10,392 21,716 ---- ---- 32,108
Operating expenses:
Selling, general and
administrative 7,298 9,204 43 ---- 16,545
Amortization of goodwill and
other intangibles ---- 2,735 ---- ---- 2,735
------- -------- ---- ---- ---------
Total operating expenses 7,298 11,939 43 ---- 19,280
------- -------- ---- ---- ---------
Operating income (loss) 3,094 9,777 (43) ---- 12,828
Other income (expense):
Interest expense (6,184) (1,972) ---- 1,575 (6,581)
Interest income 74 1,675 12 (1,575) 186
Miscellaneous, net 72 38 32 ---- 142
------- -------- ---- ---- ---------
(6,038) (259) 44 ---- (6,253)
------- -------- ---- ---- ---------
Income from operations before
income taxes, and equity in
earnings of subsidiaries and
unconsolidated partnership (2,944) 9,518 1 ---- 6,575
Provision (credit) for income taxes (1,119) 4,119 ---- ---- 3,000
------- -------- ---- ------- -------
(1,825) 5,399 1 ---- 3,575
Equity in earnings of subsidiaries
and unconsolidated partnership,
net of income taxes 5,737 ---- 337 (5,737) 337
------- -------- ---- ------- --------
Net income $ 3,912 $ 5,399 $338 $ (5,737) $ 3,912
======= ======== ==== ======= ========
</TABLE>
13
<PAGE>
<TABLE>
<CAPTION>
OSHKOSH TRUCK CORPORATION
Condensed Consolidating Balance Sheets
December 31, 1998
(Unaudited)
Subsidiary Non-Guarantor
Company Guarantors Subsidiaries Eliminations Consolidated
(In thousands)
ASSETS
Current assets:
<S> <C> <C> <C> <C> <C>
Cash and cash equivalents $ 929 $ 1,053 $ 1,191 $ ---- $ 3,173
Receivables, net 33,838 41,965 107 ---- 75,910
Inventories 53,159 132,066 ---- ---- 185,225
Prepaid expenses and other 11,746 6,349 1,891 ---- 19,986
--------- ---------- --------- ------------ ------------
Total current assets 99,672 181,433 3,189 ---- 284,294
Investment in and advances to:
Subsidiaries 361,805 (2,498) ---- (359,307) ----
Unconsolidated partnership ---- ---- 14,368 ---- 14,368
Other long-term assets 8,653 5,963 13 ---- 14,629
Net property, plant and equipment 23,333 57,160 ---- ---- 80,493
Goodwill and other intangible
assets, net 1,108 323,160 ---- ---- 324,268
--------- ---------- --------- ------------ -----------
Total assets $ 494,571 $ 565,218 $ 17,570 $ (359,307) $ 718,052
========= ========== ========= ============= ===========
LIABILITIES AND
SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 28,684 $ 40,235 $ 25 $ ---- $ 68,944
Floor plan notes payable ---- 36,938 ---- ---- 36,938
Customer advances 1,777 51,726 ---- ---- 53,503
Payroll-related obligations 5,935 11,005 27 ---- 16,967
Accrued warranty 5,330 8,784 ---- ---- 14,114
Other current liabilities 23,733 14,394 4,376 ---- 42,503
Current maturities of long-term
debt 6,431 251 ---- ---- 6,682
--------- ---------- --------- -------- -----------
Total current liabilities 71,890 163,333 4,428 ---- 239,651
Long-term debt 270,869 2,405 ---- ---- 273,274
Deferred income taxes (2,493) 36,132 15,640 ---- 49,279
Other long-term liabilities 19,947 1,543 ---- ---- 21,490
Investments by and advances from
(to) parent ---- 361,805 (2,498) (359,307) ----
Shareholders' equity 134,358 ---- ---- ---- 134,358
--------- ----------- --------- -------- -----------
Total liabilities and shareholders'
equity $ 494,571 $ 565,218 $ 17,570 $(359,307) $ 718,052
========= ========== ========= ========== ===========
</TABLE>
14
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<TABLE>
<CAPTION>
OSHKOSH TRUCK CORPORATION
Condensed Consolidating Balance Sheets
September 30, 1998
(Unaudited)
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 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 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>
15
<PAGE>
<TABLE>
OSHKOSH TRUCK CORPORATION
Condensed Consolidating Statements of Cash Flows
For the Three Months Ended December 31, 1998
(Unaudited)
<CAPTION>
Subsidiary Non-Guarantor
Company Guarantors Subsidiaries Eliminations Consolidated
(In thousands)
Operating activities:
<S> <C> <C> <C> <C> <C>
Net income $ 3,912 $ 5,399 $ 338 $ (5,737) $ 3,912
Non-cash adjustments (1,170) 5,690 (1,722) ---- 2,798
Changes in operating assets and
liabilities (2,213) 810 (381) ---- (1,784)
-------- --------- ---------- -------- -----------
Net cash provided from (used for)
operating activities 529 11,899 (1,765) (5,737) 4,926
Investing activities:
Investments in and advances to
subsidiaries 1,384 (8,870) 1,749 5,737 ----
Additions to property, plant and
equipment (462) (1,391) ---- ---- (1,853)
Other 26 (1,416) (371) ---- (1,761)
------- ---------- ---------- -------- ----------
Net cash provided from (used for)
investing activities 948 (11,677) 1,378 5,737 (3,614)
Financing activities:
Net payments under revolving
credit facility (700) ---- ---- ---- (700)
Repayments of long term debt ---- (148) ---- ---- (148)
Dividends paid (1,048) ---- ---- ---- (1,048)
Other 135 ---- ---- ---- 135
------- --------- --------- -------- ----------
Net cash used for financing
activities (1,613) (148) ---- ---- (1,761)
-------- ---------- --------- -------- -----------
Increase (decrease) in cash and cash
equivalents (136) 74 (387) ---- (449)
Cash and cash equivalents at
beginning of period 1,065 979 1,578 ---- 3,622
------- --------- --------- -------- ----------
Cash and cash equivalents at end of
period $ 929 $ 1,053 $ 1,191 $ ---- $ 3,173
======= ========= ========= ======== ==========
</TABLE>
16
<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 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
First Quarter 1999 Compared to 1998
Oshkosh Truck Corporation (the "Company" or "Oshkosh") reported net income of
$3.9 million, or $0.45 per share, on sales of $222.7 million for the first
quarter of fiscal 1999, compared to net income of $3.1 million, or $0.37 per
share, on sales of $151.8 million for the first quarter of fiscal 1998.
Sales of commercial and fire and emergency products increased in the first
quarter of fiscal 1999 compared to the first quarter of fiscal 1998 while sales
of defense products decreased. Commercial and fire and emergency sales in the
first quarter of fiscal 1999 increased $89.6 million, or 110.5%, from the first
quarter of fiscal 1998 to $170.7 million. An increase of $82.6 million in sales
of construction and refuse vehicles and a $7.0 million increase in sales of fire
and emergency apparatus accounted
17
<PAGE>
for substantially all of the increase. Sales by McNeilus Companies Inc.
("McNeilus"), acquired on February 26, 1998, accounted for all the increase in
sales of construction and refuse vehicles. Sales of defense products totaled
$52.0 million in the first quarter of fiscal 1999, a decrease of $18.7 million,
or 26.4%, compared to the first 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 first quarter of fiscal 1999 totaled $32.1 million, or 14.4%
of sales, compared to $20.0 million, or 13.2% of sales, in the first quarter of
fiscal 1998. McNeilus contributed $13.4 million of gross income in the first
quarter of fiscal 1999.
Operating expenses totaled $19.3 million, or 8.7% of sales, in the first quarter
of fiscal 1999 compared to $12.6 million, or 8.3% of sales, in the first quarter
of fiscal 1998. Substantially all the increase in operating expenses in the
first quarter of fiscal 1999 related to the operations of McNeilus, including
$1.6 million in amortization expense, or 0.7% of sales.
Interest expense increased to $6.6 million in the first quarter of fiscal 1999
compared to $2.5 million in the first quarter of fiscal 1998. The increase in
interest expense is primarily due to additional borrowings to finance the
acquisition of McNeilus, net of debt repayment.
The effective income tax rate for combined federal and state income taxes for
the first quarter of fiscal 1999 was 45.6% compared to 38.4% for the first
quarter of fiscal 1998. The effective income tax rate for the first quarter of
fiscal 1999 was impacted by non-deductible goodwill amortization of $1.3
million. The effective income tax rate for the first quarter of fiscal 1998 was
impacted by non-deductible goodwill amortization of $0.7 million and the
reversal of $0.3 million of income tax provisions recognized in earlier periods.
Financial Condition
First Three Months of 1999
During the first three months of fiscal 1999, cash decreased by $0.4 million.
Cash provided from operations during the period of $4.9 million was used
primarily to fund $0.1 million of debt repayments,$0.7 reduction in borrowings
under the Company's revolving credit facility, capital additions of $1.9 million
and to pay dividends of $1.0 million.
First Three Months of 1998
During the first three months of fiscal 1998, cash decreased $23.0 million. Cash
of $23.0 million, cash provided from operations of $16.8 million and increases
in borrowings under the Company's revolving credit facility of $7.8 million, or
a total of $47.6 million was used primarily to fund the repayment of long-term
debt of $40.0 million, the acquisition of Nova Quintech for $3.5 million,
capital additions of $1.7 million and dividends of $1.0 million.
<PAGE>
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 the foreseeable future,
including the effect of the recently awarded U.S. Marine Corps Medium Tactical
Truck Replacement ("MTTR") Contract.
Backlog
The Company's backlog as of December 31, 1998 was $474 million, compared to $378
million at December 31, 1997. The backlog at December 31, 1998 includes $116
million with respect to U.S. Government contracts (including $45 million for the
funded portion of the MTTR contract), $174 million related to Pierce
Manufacturing Inc. ("Pierce"), $107 million with respect to McNeilus and the
remainder relates to other commercial and fire and emergency products. The
backlog excludes the unfunded portion of the MTTR contract ($739 million at
December 31, 1998). Approximately 10% 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.
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;
19
<PAGE>
(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 December 31, 1998, the initial inventory and priority assessment phases
for each area of Project 2000 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 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 was completed in December 1998. As of December 31,
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 completion by July 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 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.
20
<PAGE>
PC&I--The Company completed the assessment of all PC&I embedded computer
chips on February 5, 1999. Certain systems, such as telephone systems, have been
upgraded to be Year 2000 ready, or are planned to be upgraded by June 30, 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 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 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 is an extremely large organization. Certain
departments within the DoD, which interface with the Company, have communicated
targets to be Year 2000 compliant as early as 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 assessment 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 $8.7
million and $0.6 million, respectively, of which $5.0 million and $0.5 million,
respectively, have been expended as of December 31, 1998. Approximately $7.9
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
21
<PAGE>
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 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. The Company expects
contingency planning to be complete by August 1, 1999.
Market Risk
The Company has not experienced any material changes in its market risk
exposures since September 30, 1998.
24
<PAGE>
OSHKOSH TRUCK CORPORATION
PART II. OTHER INFORMATION
FORM 10-Q
December 31, 1998
ITEM 1 LEGAL PROCEEDINGS
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 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 $4,485 plus interest to
SSPC. The Company has petitioned for review of this decision by the Wisconsin
Supreme Court. The ultimate outcome of this matter cannot be predicted at the
present time. During the quarter ended December 31, 1998, the Company
established a reserve relating to this matter.
ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit 27 - Financial Data Schedule
(b) Reports on Form 8-K
None.
23
<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
February 12, 1999 /S/R. G. Bohn
R. G. Bohn
President and Chief Executive Officer
(Principal Executive Officer)
February 12, 1999 /S/ C. L. Szews
C. L. Szews
Executive Vice President and
Chief Financial Officer
(Principal Financial Officer)
February 12, 1999 /S/ T. J. Polnaszek
T. J. Polnaszek
Vice President and Controller
(Principal Accounting Officer)
24
<PAGE>
EXHIBIT INDEX
Exhibit No. Description
27 Financial Data Schedule
25
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY INFORMATION EXTRACTED FROM THE CONSOLIDATED
FINANCIAL STATEMENTS OF OSHKOSH TRUCK CORPORATION AS OF AND FOR THE PERIOD ENDED
DECEMBER 31, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENT.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-1999
<PERIOD-END> DEC-31-1998
<CASH> 3,173
<SECURITIES> 0
<RECEIVABLES> 78,083
<ALLOWANCES> 2,173
<INVENTORY> 185,225
<CURRENT-ASSETS> 284,294
<PP&E> 158,542
<DEPRECIATION> 78,049
<TOTAL-ASSETS> 718,052
<CURRENT-LIABILITIES> 239,651
<BONDS> 273,274
93
0
<COMMON> 0
<OTHER-SE> 134,265
<TOTAL-LIABILITY-AND-EQUITY> 718,052
<SALES> 222,693
<TOTAL-REVENUES> 222,693
<CGS> 190,585
<TOTAL-COSTS> 190,585
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 54
<INTEREST-EXPENSE> 6,581
<INCOME-PRETAX> 6,575
<INCOME-TAX> 3,000
<INCOME-CONTINUING> 3,912
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,912
<EPS-PRIMARY> 0.46
<EPS-DILUTED> 0.45
</TABLE>
