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 March 31, 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 April 30, 1999: 284,773
- ------------------------------------------------------------------------------
Common Stock Outstanding as of April 30, 1999: 8,213,260
- ------------------------------------------------------------------------------
<PAGE>
OSHKOSH TRUCK CORPORATION
FORM 10-Q INDEX
FOR THE QUARTER ENDED MARCH 31, 1999
Page
Part I. Financial Information
Item 1. Financial Statements (Unaudited)
Condensed Consolidated Statements of Income
- Three Months Ended March 31, 1999 and 1998;
Six Months Ended March 31, 1999 and 1998 ......3
Condensed Consolidated Balance Sheets
- March 31, 1999 and September 30, 1998.............4
Condensed Consolidated Statement of Shareholders' Equity
- Six Months Ended March 31, 1999 ..................5
Condensed Consolidated Statements of Cash Flows
- Six Months Ended March 31, 1999 and 1998 .........6
Notes to Condensed Consolidated Financial Statements
- March 31, 1999 ...................................7
Item 2. Management's Discussion and Analysis of Consolidated
Financial Condition and Results of Operations ......21
Item 3. Quantitative and Qualitative Disclosure of Market Risk ......27
Part II. Other Information
Item 1. Legal Proceedings ...........................................28
Item 4. Submission of Matters to a Vote of Security Holders..........28
Item 6. Exhibits and Reports on Form 8-K ............................29
Signatures ...................................................................30
2
<PAGE>
PART I. ITEM 1. FINANCIAL INFORMATION
OSHKOSH TRUCK CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
March 31, March 31,
--------- ---------
1999 1998 1999 1998
---- ---- ---- ----
(In thousands, except per share amounts)
<S> <C> <C> <C> <C>
Net sales $ 298,534 $ 217,836 $ 521,227 $ 369,637
Cost of sales 254,014 190,302 444,599 322,105
------------ ------------ ------------ ------------
Gross income 44,520 27,534 76,628 47,532
Operating expenses:
Selling, general and administrative 24,754 14,649 41,299 26,159
Amortization of goodwill and other intangibles 2,890 1,669 5,625 2,795
------------ ------------ ------------ ------------
Total operating expenses 27,644 16,318 46,924 28,954
------------ ------------ ------------ ------------
Operating income 16,876 11,216 29,704 18,578
Other income (expense):
Interest expense (6,645) (4,687) (13,226) (7,191)
Interest income 241 369 427 534
Miscellaneous, net 198 (235) 340 (163)
------------ ------------ ------------ ------------
(6,206) (4,553) (12,459) (6,820)
------------ ------------ ------------ ------------
Income from operations before income taxes,
equity in earnings of unconsolidated
partnership and extraordinary item 10,670 6,663 17,245 11,758
Provision for income taxes 4,501 2,784 7,501 4,739
------------ ------------ ------------ ------------
6,169 3,879 9,744 7,019
Equity in earnings of unconsolidated
partnership, net of income taxes 380 (718) 717 (718)
------------ ------------ ------------ ------------
Income from operations 6,549 3,161 10,461 6,301
Extraordinary charge for early retirement of debt,
net of income tax benefit -- (735) -- (735)
------------ ------------ ------------ ------------
Net income $ 6,549 $ 2,426 $ 10,461 $ 5,566
============ ============ ============ ============
Earnings per share:
Income from operations $ 0.77 $ 0.38 $ 1.24 $ 0.75
Extraordinary item -- (0.09) -- (0.09)
------------ ------------ ------------ ------------
Net income $ 0.77 $ 0.29 $ 1.24 $ 0.66
============ ============ ============ ============
Earnings per share assuming dilution:
Income from operations $ 0.76 $ 0.37 $ 1.21 $ 0.74
Extraordinary item -- (0.09) -- (0.09)
------------ ------------ ------------ ------------
Net income $ 0.76 $ 0.28 $ 1.21 $ 0.65
============ ============ ============ ============
Cash dividends:
Class A Common Stock $ 0.10875 $ 0.10875 $ 0.21750 $ 0.21750
Common Stock $ 0.12500 $ 0.12500 $ 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>
March, 31, September 30,
1999 1998
---- ----
(Unaudited)
(In thousands)
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 4,386 $ 3,622
Receivables, net 118,674 80,982
Inventories 210,374 149,191
Prepaid expenses 4,311 3,768
Deferred income taxes 21,583 12,281
---------------- -----------------
Total current assets 359,328 249,844
Investment in unconsolidated partnership 14,461 13,496
Other long-term assets 16,066 14,198
Property, plant and equipment 161,394 156,783
Less accumulated depreciation (80,369) (75,947)
---------------- -----------------
Net property, plant and equipment 81,025 80,836
Goodwill and other intangible assets, net 327,166 326,665
---------------- -----------------
Total assets $ 798,046 $ 685,039
================ =================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 88,484 $ 65,171
Floor plan notes payable 47,639 11,645
Customer advances 64,780 44,915
Payroll-related obligations 21,704 24,124
Accrued warranty 15,119 15,887
Other current liabilities 57,597 43,498
Current maturities of long-term debt and
revolving credit facility 23,198 3,467
---------------- -----------------
Total current liabilities 318,521 208,707
Long-term debt 270,665 277,337
Deferred income taxes 47,861 47,832
Other long-term liabilities 19,817 19,867
Shareholders' equity 141,182 131,296
---------------- -----------------
Total liabilities and shareholders' equity $ 798,046 $ 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
SIX MONTHS ENDED MARCH 31, 1999
(Unaudited)
<TABLE>
<CAPTION>
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 ---- ---- 10,461 ---- ---- 10,461
Other ---- ---- ---- ---- ---- ----
-----------
10,461
Cash dividends:
Class A Common Stock ---- ---- (62) ---- ---- (62)
Common Stock ---- ---- (2,050) ---- ---- (2,050)
Other ---- 732 ---- 805 ---- 1,537
----- --------- ----------- ------------ ---------- -----------
Balance at March, 31, 1999 $ 93 $ 15,444 $ 139,308 $ (11,859) $ (1,804) $ 141,182
===== ========= =========== ============ ========== ===========
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>
Six Months Ended
March 31,
1999 1998
---- ----
(In thousands)
Operating activities:
<S> <C> <C>
Income from operations $ 10,461 $ 6,301
Non-cash adjustments 4,252 12,422
Changes in operating assets and liabilities (18,560) 10,327
------------- ------------
Net cash provided from (used for) operating
activities (3,847) 29,050
Investing activities:
Acquisition of businesses, net of cash acquired -- (217,954)
Additions to property, plant and equipment (4,712) (4,355)
Proceeds from sale of property, plant and equipment 30 119
(Increase) decrease in other long-term assets (2,482) 1,868
------------- ------------
Net cash used for investing activities (7,164) (220,322)
Net cash used for discontinued operations -- (811)
Financing activities:
Net borrowings under revolving credit
facility 13,300 --
Proceeds from issuance of long-term debt -- 325,000
Repayments of long-term debt (241) (135,037)
Debt issuance costs -- (8,479)
Dividends paid (2,103) (2,083)
Other 819 18
------------- ------------
Net cash provided from financing activities 11,775 179,419
------------- ------------
Increase (decrease) in cash and cash equivalents 764 (12,664)
Cash and cash equivalents at beginning of period 3,622 23,219
------------- ------------
Cash and cash equivalents at end of period $ 4,386 $ 10,555
============= ============
Supplementary disclosures:
Depreciation and amortization $ 11,085 $ 7,398
Cash paid for interest 12,986 5,171
Cash paid for income taxes 14,028 6,601
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. The Company adopted SFAS No. 130 during the three month
period ended December 31, 1998. 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:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
March 31, March 31,
--------- ---------
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Denominator for basic earnings per share 8,466,912 8,413,774 8,445,171 8,376,914
Effect of dilutive options and incentive
compensation awards 203,295 83,051 193,055 90,705
-------------- ------------ -------------- ------------
Denominator for dilutive earnings per share 8,670,207 8,496,825 8,638,226 8,467,619
============== ============ ============== ============
</TABLE>
7
<PAGE>
3. INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
March 31, September 30,
1999 1998
---- ----
(In thousands)
<S> <C> <C>
Finished products $ 52,774 $ 27,916
Partially finished products 89,312 52,700
Raw materials, purchased chassis, and parts 78,376 77,675
-------------------- ---------------------
Inventories at FIFO cost 220,462 158,291
Excess of FIFO cost over LIFO cost (10,088) (9,100)
-------------------- ---------------------
$ 210,374 $ 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 (includes certain costs paid
subsequent to March 31, 1998) 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>
Six Months Ended
March 31, 1998
--------------
(In thousands, except per share amounts)
Net sales $ 507,831
Income before extraordinary item 8,636
Net income 7,901
Earnings per share:
Before extraordinary item $ 1.03
Net income 0.94
Earnings per share assuming dilution:
Before extraordinary item 1.02
Net income 0.93
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 March 31, 1999 on the Revolving
Credit Facility, Term Loan A, Term Loan B, and Term Loan C are $19.3 million,
$87.0 million, $42.5 million, and $42.5 million, respectively.
At March 31, 1999, outstanding borrowings of $19.3 million and $11.1 million of
outstanding letters of credit reduced available capacity under the Revolving
Credit Facility to $69.6 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
9
<PAGE>
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. 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. 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 Company expects a decision on the retrial
motion shortly. The ultimate outcome of this matter cannot be predicted at the
present time. During the quarter ended March 31, 1999, the Company increased its
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 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
10
<PAGE>
acceptance of the remedial investigation/feasibility study will not be available
until mid-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 through reserves established by the Company
at March 31, 1999. 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 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 March
31, 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
March 31, 1999. The Company is also contingently liable under bid, performance
and specialty bonds totaling approximately $106.6 million
11
<PAGE>
and open standby letters of credit issued by the Company's bank in favor of
third parties totaling approximately $11.1 million at March 31, 1999.
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
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 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.
12
<PAGE>
OSHKOSH TRUCK CORPORATION
Condensed Consolidating Statements of Income
For the Three Months Ended March 31, 1999
(Unaudited)
<TABLE>
<CAPTION>
Subsidiary Non-Guarantor
Company Guarantors Subsidiaries Eliminations Consolidated
------- ---------- ------------ ------------ -------------
(In thousands)
<S> <C> <C> <C> <C> <C>
Net sales $ 101,360 $ 198,635 $ -- $ (1,461) $ 298,534
Cost of sales 89,187 166,288 -- (1,461) 254,014
---------- ---------- ----------- ---------- ----------
Gross income 12,173 32,347 -- -- 44,520
Operating expenses:
Selling, general and
administrative 12,458 12,196 100 -- 24,754
Amortization of goodwill and
other intangibles -- 2,890 -- -- 2,890
---------- ---------- ----------- ---------- ----------
Total operating expenses 12,458 15,086 100 -- 27,644
---------- ---------- ----------- ---------- ----------
Operating income (loss) (285) 17,261 (100) -- 16,876
Other income (expense):
Interest expense (6,158) (2,062) -- 1,575 (6,645)
Interest income 123 1,671 22 (1,575) 241
Miscellaneous, net 39 35 124 -- 198
---------- ---------- ----------- ---------- ----------
(5,996) (356) 146 -- (6,206)
---------- ---------- ----------- ---------- ----------
Income (loss) from operations
before income taxes, and equity
in earnings of subsidiaries and
unconsolidated partnership (6,281) 16,905 46 -- 10,670
Provision (credit) for income taxes (2,499) 6,982 18 -- 4,501
---------- ---------- ----------- ---------- ----------
(3,782) 9,923 28 -- 6,169
Equity in earnings of subsidiaries
and unconsolidated partnership,
net of income taxes 10,331 ---- 380 (10,331) 380
---------- ---------- ----------- ---------- ----------
Net income $ 6,549 $ 9,923 $ 408 $ (10,331) $ 6,549
========== ========== =========== ========== ==========
</TABLE>
13
<PAGE>
OSHKOSH TRUCK CORPORATION
Condensed Consolidating Statements of Income
For the Six Months Ended March 31, 1999
(Unaudited)
<TABLE>
<CAPTION>
Subsidiary Non-Guarantor
Company Guarantors Subsidiaries Eliminations Consolidated
------- ---------- ------------ ------------ ------------
(In thousands)
<S> <C> <C> <C> <C> <C>
Net sales $ 178,094 $ 345,574 $ -- $ (2,441) $ 521,227
Cost of sales 155,529 291,511 -- (2,441) 444,599
---------- ---------- ----------- ---------- -----------
Gross income 22,565 54,063 -- -- 76,628
Operating expenses:
Selling, general and
administrative 19,756 21,400 143 -- 41,299
Amortization of goodwill and
other intangibles -- 5,625 -- -- 5,625
---------- ---------- ----------- ---------- -----------
Total operating expenses 19,756 27,025 143 -- 46,924
---------- ---------- ----------- ---------- -----------
Operating income (loss) 2,809 27,038 (143) -- 29,704
Other income (expense):
Interest expense (12,342) (4,034) -- 3,150 (13,226)
Interest income 197 3,346 34 (3,150) 427
Miscellaneous, net 111 73 156 -- 340
---------- ---------- ----------- ---------- -----------
(12,034) (615) 190 -- (12,459)
---------- ---------- ----------- ---------- -----------
Income (loss) from operations
before income taxes, and equity
in earnings of subsidiaries and
unconsolidated partnership (9,225) 26,423 47 -- 17,245
Provision (credit) for income taxes (3,618) 11,101 18 -- 7,501
---------- ---------- ----------- ---------- -----------
(5,607) 15,322 29 -- 9,744
Equity in earnings of subsidiaries
and unconsolidated partnership,
net of income taxes 16,068 -- 717 (16,068) 717
---------- ---------- ----------- ---------- -----------
Net income $ 10,461 $ 15,322 $ 746 $ (16,068) $ 10,461
========== ========== =========== ========== ===========
</TABLE>
14
<PAGE>
OSHKOSH TRUCK CORPORATION
Condensed Consolidating Statements of Income
For the Three Months Ended March 31, 1998
(Unaudited)
<TABLE>
<CAPTION>
Subsidiary Non-Guarantor
Company Guarantors Subsidiaries Eliminations Consolidated
------- ---------- ------------ ------------ -------------
(In thousands)
<S> <C> <C> <C> <C> <C>
Net sales $ 114,291 $ 103,545 $ -- $ -- $ 217,836
Cost of sales 102,204 88,098 -- -- 190,302
---------- ---------- ----------- ---------- -----------
Gross income 12,087 15,447 -- -- 27,534
Operating expenses:
Selling, general and
administrative 8,811 5,741 97 -- 14,649
Amortization of goodwill and
other intangibles -- 1,669 -- -- 1,669
---------- ---------- ----------- ---------- -----------
Total operating expenses 8,811 7,410 97 -- 16,318
---------- ---------- ----------- ---------- -----------
Operating income (loss) 3,276 8,037 (97) -- 11,216
Other income (expense):
Interest expense (2,734) (1,773) (180) -- (4,687)
Interest income 58 91 220 -- 369
Miscellaneous, net (155) (224) 144 -- (235)
---------- ---------- ----------- ---------- -----------
(2,831) (1,906) 184 -- (4,553)
---------- ---------- ----------- ---------- -----------
Income from operations before
income taxes, equity in
earnings of subsidiaries and
unconsolidated partnership and
extraordinary item 445 6,131 87 -- 6,663
Provision for income taxes 9 2,741 34 -- 2,784
---------- ---------- ----------- ---------- -----------
436 3,390 53 -- 3,879
Equity in earnings (loss) of
subsidiaries and unconsolidated
partnership, net of income taxes 2,725 -- (718) (2,725) (718)
---------- ---------- ----------- ---------- -----------
Income from operations 3,161 3,390 (665) (2,725) 3,161
Extraordinary charge for early
retirement of debt, net of income
tax benefit (735) -- -- -- (735)
---------- ---------- ----------- ---------- -----------
Net income $ 2,426 $ 3,390 $ (665) $ (2,725) $ 2,426
========== ========== =========== ========== ===========
</TABLE>
15
<PAGE>
OSHKOSH TRUCK CORPORATION
Condensed Consolidating Statements of Income
For the Six Months Ended March 31, 1998
(Unaudited)
<TABLE>
<CAPTION>
Subsidiary Non-Guarantor
Company Guarantors Subsidiaries Eliminations Consolidated
------- ---------- ------------ ------------ ------------
(In thousands)
<S> <C> <C> <C> <C> <C>
Net sales $ 205,226 $ 164,411 $ -- $ -- $ 369,637
Cost of sales 182,509 139,596 -- -- 322,105
---------- ---------- ----------- ---------- -----------
Gross income 22,717 24,815 -- -- 47,532
Operating expenses:
Selling, general and
administrative 17,135 8,927 97 -- 26,159
Amortization of goodwill and
other intangibles -- 2,795 -- -- 2,795
---------- ---------- ----------- ---------- -----------
Total operating expenses 17,135 11,722 97 -- 28,954
---------- ---------- ----------- ---------- -----------
Operating income (loss) 5,582 13,093 (97) -- 18,578
Other income (expense):
Interest expense (3,723) (3,288) (180) -- (7,191)
Interest income 154 160 220 -- 534
Miscellaneous, net (133) (174) 144 -- (163)
---------- ---------- ----------- ---------- -----------
(3,702) (3,302) 184 -- (6,820)
---------- ---------- ----------- ---------- -----------
Income from operations before
income taxes, equity in
earnings of subsidiaries and
unconsolidated partnership and
extraordinary item 1,880 9,791 87 -- 11,758
Provision for income taxes 583 4,122 34 -- 4,739
---------- ---------- ----------- ---------- -----------
1,297 5,669 53 -- 7,019
Equity in earnings (loss) of
subsidiaries and unconsolidated
partnership, net of income taxes 5,004 -- (718) (5,004) (718)
---------- ---------- ----------- ---------- -----------
Income from operations 6,301 5,669 (665) (5,004) 6,301
Extraordinary charge for early
retirement of debt, net of income
tax benefit (735) -- -- ---- (735)
---------- ---------- ----------- ---------- -----------
Net income $ 5,566 $ 5,669 $ (665) $ (5,004) $ 5,566
========== ========== =========== ========== ===========
</TABLE>
<PAGE>
OSHKOSH TRUCK CORPORATION
Condensed Consolidating Balance Sheets
March 31, 1999
(Unaudited)
<TABLE>
<CAPTION>
Subsidiary Non-Guarantor
Company Guarantors Subsidiaries Eliminations Consolidated
------- ---------- ------------ ------------ ------------
(In thousands)
ASSETS
Current assets:
<S> <C> <C> <C> <C> <C>
Cash and cash equivalents $ 975 $ 1,678 $ 1,733 $ -- $ 4,386
Receivables, net 60,569 58,025 80 -- 118,674
Inventories 59,477 150,897 -- -- 210,374
Prepaid expenses and other 3,422 889 -- -- 4,311
Deferred income taxes 9,423 7,227 4,933 -- 21,583
--------- ---------- --------- ------------ ------------
Total current assets 133,866 218,716 6,746 -- 359,328
Investment in and advances to:
Subsidiaries 361,321 (4,788) -- (356,533) --
Unconsolidated partnership -- -- 14,461 -- 14,461
Other long-term assets 9,328 6,655 83 -- 16,066
Net property, plant and equipment 23,734 57,291 -- -- 81,025
Goodwill and other intangible
assets, net 1,108 326,058 -- -- 327,166
--------- ---------- --------- ------------ ------------
Total assets $ 529,357 $ 603,932 $ 21,290 $ (356,533) $ 798,046
========= ========== ========= ============ ============
LIABILITIES AND
SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 38,779 $ 49,682 $ 23 $ -- $ 88,484
Floor plan notes payable -- 47,639 -- -- 47,639
Customer advances 1,714 63,066 -- -- 64,780
Payroll-related obligations 8,237 13,443 24 -- 21,704
Accrued warranty 5,599 9,520 -- -- 15,119
Other current liabilities 26,532 19,504 11,561 -- 57,597
Current maturities of long-term
debt and revolving credit
facility 22,947 251 -- -- 23,198
--------- ---------- --------- ------------ ------------
Total current liabilities 103,808 203,105 11,608 -- 318,521
Long-term debt 268,353 2,312 -- -- 270,665
Deferred income taxes (2,444) 35,835 14,470 -- 47,861
Other long-term liabilities 18,458 1,359 -- -- 19,817
Investments by and advances from
(to) parent -- 361,321 (4,788) (356,533) --
Shareholders' equity 141,182 -- ---- -- 141,182
--------- ----------- --------- ------------ ------------
Total liabilities and shareholders'
equity $ 529,357 $ 603,932 $ 21,290 $ (356,533) $ 798,046
========= ========== ========= ============ ============
</TABLE>
17
<PAGE>
OSHKOSH TRUCK CORPORATION
Condensed Consolidating Balance Sheets
September 30, 1998
(Unaudited)
<TABLE>
<CAPTION>
Subsidiary Non-Guarantor
Company Guarantors Subsidiaries Eliminations Consolidated
------- ---------- ------------ ------------ ------------
(In thousands)
ASSETS
Current assets:
<S> <C> <C> <C> <C> <C>
Cash and cash equivalents $ 1,065 $ 979 $ 1,578 $ -- $ 3,622
Receivables, net 41,009 39,863 110 -- 80,982
Inventories 47,191 102,000 -- -- 149,191
Prepaid expenses and other 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>
18
<PAGE>
OSHKOSH TRUCK CORPORATION
Condensed Consolidating Statements of Cash Flows
For the Six Months Ended March 31, 1999
(Unaudited)
<TABLE>
<CAPTION>
Subsidiary Non-Guarantor
Company Guarantors Subsidiaries Eliminations Consolidated
------- ---------- ------------ ------------ ------------
(In thousands)
Operating activities:
<S> <C> <C> <C> <C> <C>
Income from operations $ 10,461 $ 15,322 $ 746 $ (16,068) $ 10,461
Non-cash adjustments (1,048) 8,816 (3,516) -- 4,252
Changes in operating assets and
liabilities (21,210) 3,624 (974) -- (18,560)
--------- --------- ---------- ---------- -----------
Net cash provided from (used
for) operating activities (11,797) 27,762 (3,744) (16,068) (3,847)
Investing activities:
Investments in and advances to
subsidiaries 1,868 (21,745) 3,809 16,068 --
Additions to property, plant and
equipment (1,867) (2,845) -- -- (4,712)
Other (310) (2,232) 90 -- (2,452)
--------- --------- ---------- ---------- ----------
Net cash provided from (used
for) investing activities (309) (26,822) 3,899 16,068 (7,164)
Financing activities:
Net borrowings under revolving
credit facility 13,300 ---- -- -- 13,300
Repayments of long term debt -- (241) -- -- (241)
Dividends paid (2,103) -- -- -- (2,103)
Other 819 -- -- -- 819
--------- --------- ---------- ---------- ----------
Net cash provided from (used
for) financing activities 12,016 (241) -- -- 11,775
--------- --------- ---------- ---------- ----------
Increase (decrease) in cash and cash
equivalents (90) 699 155 -- 764
Cash and cash equivalents at
beginning of period 1,065 979 1,578 -- 3,622
--------- --------- ---------- ---------- ----------
Cash and cash equivalents at end of
period $ 975 $ 1,678 $ 1,733 $ -- $ 4,386
========= ========= ========== ========== ==========
</TABLE>
19
<PAGE>
OSHKOSH TRUCK CORPORATION
Condensed Consolidating Statements of Cash Flows
For the Six Months Ended March 31, 1998
(Unaudited)
<TABLE>
<CAPTION>
Subsidiary Non-Guarantor
Company Guarantors Subsidiaries Eliminations Consolidated
------- ---------- ------------ ------------ ------------
(In thousands)
Operating activities:
<S> <C> <C> <C> <C> <C>
Income (loss) from operations $ 6,301 $ 5,669 $ (665) $ (5,004) $ 6,301
Non-cash adjustments 4,109 7,429 884 -- 12,422
Changes in operating assets and
liabilities 8,503 3,251 (1,427) -- 10,327
--------- --------- ---------- -------- ----------
Net cash provided from (used
for) operating activities 18,913 16,349 (1,208) (5,004) 29,050
Investing activities:
Acquisition of businesses, net of
cash acquired (225,524) (3,535) 11,105 -- (217,954)
Investments in and advances to
subsidiaries 6,859 (11,918) 55 5,004 --
Additions to property, plant and
equipment (1,206) (3,149) -- -- (4,355)
Other (328) 2,513 (198) -- 1,987
--------- --------- ---------- -------- ----------
Net cash provided from (used
for) investing activities (220,199) (16,089) 10,962 5,004 (220,322)
Net cash used for discontinued
operations (811) -- -- -- (811)
Financing activities:
Proceeds from issuance of
long term debt 325,000 -- -- -- 325,000
Repayments of long-term debt (135,000) (37) -- -- (135,037)
Debt issuance costs (8,479) -- -- -- (8,479)
Dividends paid (2,083) -- -- -- (2,083)
Other 18 -- -- -- 18
--------- --------- ---------- -------- ----------
Net cash provided from (used
for) financing activities 179,456 (37) -- -- 179,419
--------- --------- ---------- -------- ----------
Increase (decrease) in cash and cash
equivalents (22,641) 223 9,754 -- (12,664)
Cash and cash equivalents at
beginning of period 23,210 9 -- -- 23,219
--------- --------- ---------- -------- ----------
Cash and cash equivalents at end of
period $ 569 $ 232 $ 9,754 $ -- $ 10,555
========= ========= ========== ======== ==========
</TABLE>
20
<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.
Results of Operations
Second Quarter 1999 Compared to 1998
The Company reported net income of $6.5 million, or $0.76 per share, on sales of
$298.5 million for the second quarter of fiscal 1999, compared to net income of
$2.4 million, or $0.28 per share, on sales of $217.8 million for the second
quarter of fiscal 1998.
Sales of commercial and fire and emergency products increased in the second
quarter of fiscal 1999 compared to the second quarter of fiscal 1998 while sales
of defense products decreased. Commercial and fire and emergency sales in the
second quarter of fiscal 1999 increased $97.7 million, or 62.5%, from the second
quarter of fiscal 1998 to $254.1 million. An increase of $81.2 million in sales
of construction and refuse vehicles and
21
<PAGE>
a $16.5 million increase in sales of fire and emergency apparatus accounted for
the increase. Sales of construction and refuse vehicles increased largely due to
the acquisition of McNeilus Companies, Inc. ("McNeilus") on February 26, 1998.
Sales of fire and emergency vehicles rose due to strong market-demand and
improved product mix. Sales of defense products totaled $44.4 million in the
second quarter of fiscal 1999, a decrease of $17.0 million, or 27.7%, 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 second quarter of fiscal 1999 totaled $44.5 million, or
14.9% of sales, compared to $27.5 million, or 12.6% of sales, in the second
quarter of fiscal 1998. McNeilus contributed $21.5 million of gross income in
the second quarter of fiscal 1999 compared to $4.8 million in the second quarter
of fiscal 1998.
Operating expenses increased $11.3 million to $27.6 million, or 9.3% of sales,
in the second quarter of fiscal 1999 compared to $16.3 million, or 7.5% of
sales, in the second quarter of fiscal 1998. The Company recorded a
non-recurring charge for litigation of $3.8 million, or 1.3% of sales, during
the second quarter of fiscal 1999. Excluding the $3.8 million charge, all the
remaining increase in operating expenses in the second quarter of fiscal 1999
related to the operations of McNeilus, including $1.2 million of amortization of
goodwill and other intangibles, or 0.4% of sales.
Interest expense increased to $6.6 million in the second quarter of fiscal 1999
compared to $4.7 million in the second quarter of fiscal 1998. The increase in
interest expense is 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 second quarter of fiscal 1999 was 42.2% compared to 41.8% for the second
quarter of fiscal 1998. The effective income tax rate for the second quarter of
fiscal 1999 was impacted by non-deductible goodwill amortization of $1.5
million. The effective income tax rate for the second quarter of fiscal 1998 was
impacted by non-deductible goodwill amortization of $0.9 million and the
reversal of $0.2 million of income tax provisions recognized in earlier periods.
Equity in earnings of unconsolidated partnership increased to $0.4 million in
the second quarter of fiscal 1999 compared to a loss of $0.7 million in the
second quarter of fiscal 1998. The second quarter of fiscal 1998 results
included only one month of operations following the formation of the partnership
on February 26, 1998 and also includes a $0.9 million after-tax charge as a
result of early-adoption of a new accounting standard related to start-up
activities of the partnership.
The extraordinary charge of $0.8 million in the second quarter of fiscal 1998
relates to the write-off of debt issuance costs as a result of early retirement
of debt.
First Six Months of 1999 Compared to 1998
The Company reported net income of $10.5 million, or $1.21 per share, on sales
of $521.2 million for the first six months of fiscal 1999, compared to net
income of $5.6 million, or $0.65 per share, on sales of $369.6 million for the
first six months of fiscal 1998.
Sales of commercial and fire and emergency products increased in the first six
months of fiscal 1999 compared to the first six months of fiscal 1998 while
sales of defense products decreased. Commercial and fire and emergency sales for
the first six months of fiscal 1999 increased $187.3 million, or 78.8%, from the
first six months of fiscal 1998 to $424.8
22
<PAGE>
million. An increase of $163.8 million in sales of construction and refuse
vehicles and a $23.5 million increase in sales of fire and emergency apparatus
accounted for the increase. Sales by McNeilus accounted for all of the increase
in sales of construction and refuse vehicles. Sales of fire and emergency
vehicles rose due to strong market demand and improved product mix. Sales of
defense products totaled $96.4 million for the first six months of fiscal 1999,
a decrease of $35.7 million, or 27.0%, compared to the first six 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 six months of fiscal 1999 totaled $76.6 million, or
14.7% of sales, compared to $47.5 million, or 12.9% of sales, in the first six
months of fiscal 1998. McNeilus contributed $34.9 million of gross income for
the first six months of fiscal 1999 compared to $6.0 million for the first six
months of fiscal 1998.
Operating expenses increased $17.9 million to $46.9 million, or 9.0% of sales,
in the first six months of fiscal 1999 compared to $29.0 million, or 7.8% of
sales, in the first six months of fiscal 1998. Operating expenses for the first
six months of fiscal 1999 include a $3.8 million non-recurring charge for
litigation, or 0.7% of sales. Excluding the $3.8 million charge, all of the
remaining increase in operating expenses related to the operations of McNeilus,
including a $2.8 million increase in amortization of goodwill and other
intangibles, or 0.5% of sales.
Interest expense increased to $13.2 million in the first six months of fiscal
1999 compared to $7.2 million in the first six months of fiscal 1998. The
increase in interest expense is 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
six months of fiscal 1999 was 43.5% compared to 40.3% for the first six months
of fiscal 1998. The effective income tax rate for the first six months of fiscal
1999 was impacted by non-deductible goodwill amortization of $2.8 million. The
effective income tax rate for the first six months of fiscal 1998 was impacted
by non-deductible goodwill amortization of $1.5 million and the reversal of $0.5
million of income tax provisions recognized in earlier periods.
Equity in earnings of unconsolidated partnership increased to $0.7 million for
the first six months of fiscal 1999 compared to a loss of $0.7 million for the
first six months of fiscal 1998. The first six months of fiscal 1998 includes 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 six months of fiscal 1998 include only one month of operations of the
partnership following its formation on February 26, 1998.
The extraordinary charge of $0.8 million in the first six months of fiscal 1998
is due to the previously discussed early retirement of debt.
Financial Condition
First Six Months of 1999
During the first six months of fiscal 1999, cash increased by $0.8 million. Cash
used in operations during the period of $3.8 million, equipment and software
purchases of $7.2 million and dividend and scheduled debt payments of $2.1
million and $0.2 million, respectively, were funded by a $13.3 million increase
in borrowings under the Company's revolving credit facility and $0.8 million of
proceeds from exercise of Common Stock options under the Company's Incentive
Stock Plan.
First Six Months of 1998
23
<PAGE>
During the first six months of fiscal 1998, cash decreased $12.7 million. Cash
available at the beginning of the period of $23.2 million, cash provided from
operations during the period of $29.0 million and a $1.8 million reduction in
other long-term assets, or a total of $54.0 million were used primarily to fund
$43.0 million of debt repayments, the acquisition of Nova Quintech for $3.5
million, capital additions of $4.4 million and the payment of dividends of $2.1
million. The Company borrowed approximately $344.0 million in February 1998
($225.0 million under a multi-tranche senior term loan facility, $100.0 million
of senior subordinated notes and $19.0 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
$2.8 million in acquisition costs less cash acquired of $37.9 million, or $214.4
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 March 31, 1999 was $572.2 million, compared to
$476.9 million at March 31, 1998. The backlog at March 31, 1999 includes $185.4
million with respect to U.S. Government contracts (including $45.0 million for
the funded portion of the MTTR contract), $177.1 million related to Pierce
Manufacturing Inc. ("Pierce"), $122.2 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
March 31, 1999). Approximately 18% 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 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.
24
<PAGE>
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. As of May 4, 1999, all of the
Company's 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 mid-1999. Issues
with respect to embedded computer chips will continue to be addressed throughout
1999 based on a prioritization of risks. Tests have been and will continue to be
conducted with respect to information systems, telephone systems, manufacturing
equipment, Company-produced trucks and equipment and other systems and equipment
which might exhibit Year 2000 issues in order to determine the extent of any
continuing corrective action required.
Project 2000
Project 2000 is addressing four principal areas--Infrastructure and
Applications Software; Company-produced trucks and equipment; Process Controls
and Instrumentation ("PC&I"); and third-party suppliers and customers ("External
Parties"). The project phases common to each area include: (1) development of an
inventory of Year 2000 risks; (2) assignment of priorities to identified risks;
(3) assessment of Year 2000 compliance and impact of noncompliance; (4) tests to
determine whether any upgrade or replacement is required; (5) upgrade or
replacement of items that are determined not to be Year 2000 compliant if the
impact of noncompliance is material; (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 March 31, 1999, the initial four phases for each of the four areas
of Project 2000 and remediation of all principal enterprise resource planning
systems 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 and McNeilus and operations. In May
1999, the Company consolidated its Florida computer operations into Oshkosh's
Year 2000 ready 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 replaced 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
25
<PAGE>
the upgrade is Year 2000 ready is scheduled for completion by July 31, 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 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 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 (or are unable to certify that their
products are Year 2000 compliant) and the Company is unable to source alternate
suppliers, changes to the Company's products may be necessary to avoid warranty
and liability, both as to products already in use, and as to products to be
shipped in the future.
PC&I--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 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 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.
26
<PAGE>
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 $0.7 million, respectively, of which $8.1 million and $0.6 million,
respectively, have been expended as of March 31, 1999. Approximately $7.6
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
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 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.
Item 3. Quantitative and Qualitative Disclosure of Market Risk
The Company has not experienced any material changes in its market risk
exposures since September 30, 1998.
27
<PAGE>
PART II. OTHER INFORMATION
ITEM 1 LEGAL PROCEEDINGS
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. 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 Company expects a decision on the retrial
motion shortly. The ultimate outcome of this matter cannot be predicted at the
present time. During the quarter ended March 31, 1999, the Company increased its
reserve relating to this matter.
ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS
At the annual meeting of shareholders held on February 1, 1999, all of the
persons nominated as directors were elected. The following table sets forth
certain information with respect to such election.
Shares
Shares Withholding Other Shares
Name of Nominee Voted For Authority Not Voted
--------------- --------- --------- ---------
Class A Nominees
----------------
J.W. Andersen 273,087 0 23,669
R.G. Bohn 272,412 675 23,669
F.M. Franks 273,087 0 23,669
M.W. Grebe 273,087 0 23,669
K.J. Hempel 273,087 0 23,669
S.P. Mosling 273,087 0 23,669
J.P. Mosling, Jr. 273,087 0 23,669
Common Stock Nominees
D.T. Carroll 6,719,450 4,408 1,400,887
R.G. Sim 6,720,000 3,858 1,400,887
In addition, Class A Shareholders approved the Oshkosh Truck Corporation 1990
Incentive Stock Plan, as amended, by a vote of 260,739 in favor, 787 against or
witheld, and 11,561 abstentions and broker non-votes.
28
<PAGE>
ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit 27 - Financial Data Schedule
(b) Reports on Form 8-K - On February 2, 1999, the Company filed a Current
Report on Form 8-K, dated February 1, 1999, to report the adoption of a
shareholder rights plan pursuant to Item 5.
29
<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
May 14, 1999 /S/ R. G. Bohn
--------------------------------------------
R. G. Bohn
President and Chief Executive Officer
(Principal Executive Officer)
May 14, 1999 /S/ C. L. Szews
--------------------------------------------
C. L. Szews
Executive Vice President and
Chief Financial Officer
(Principal Financial Officer)
May 14, 1999 /S/ T. J. Polnaszek
--------------------------------------------
T. J. Polnaszek
Vice President and Controller
(Principal Accounting Officer)
30
<PAGE>
EXHIBIT INDEX
Exhibit No. Description
27 Financial Data Schedule
31
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS OF OSHKOSH TRUCK CORPORATION AS OF AND FOR THE
THREE MONTHS ENDED MARCH 31, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-1999
<PERIOD-START> OCT-01-1998
<PERIOD-END> MAR-31-1999
<CASH> 4,386
<SECURITIES> 0
<RECEIVABLES> 120,880
<ALLOWANCES> 2,206
<INVENTORY> 210,374
<CURRENT-ASSETS> 359,328
<PP&E> 161,394
<DEPRECIATION> 80,369
<TOTAL-ASSETS> 798,046
<CURRENT-LIABILITIES> 318,521
<BONDS> 293,863
93
0
<COMMON> 0
<OTHER-SE> 141,089
<TOTAL-LIABILITY-AND-EQUITY> 798,046
<SALES> 521,227
<TOTAL-REVENUES> 521,227
<CGS> 444,599
<TOTAL-COSTS> 444,599
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 84
<INTEREST-EXPENSE> 13,226
<INCOME-PRETAX> 17,245
<INCOME-TAX> 7,501
<INCOME-CONTINUING> 10,461
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 10,461
<EPS-PRIMARY> 1.24
<EPS-DILUTED> 1.21
</TABLE>
