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, 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 January 31, 2000: 425,173 Common Stock Outstanding as of January 31, 2000: 16,202,983
OSHKOSH TRUCK CORPORATION FORM 10-Q INDEX FOR THE QUARTER ENDED DECEMBER 31, 1999 Page Part I. Financial Information Item 1. Financial Statements (Unaudited) Condensed Consolidated Statements of Income - Three Months Ended December 31, 1999 and 1998..........3 Condensed Consolidated Balance Sheets - December 31, 1999 and September 30, 1999...............4 Condensed Consolidated Statement of Shareholders' Equity - Three Months Ended December 31, 1999...................5 Condensed Consolidated Statements of Cash Flows - Three Months Ended December 31, 1999 and 1998 .........6 Notes to Condensed Consolidated Financial Statements - December 31, 1999......................................7 Item 2. Management's Discussion and Analysis of Consolidated Financial Condition and Results of Operations ..........18 Item 3. Quantitative and Qualitative Disclosure of Market Risk ........24 Part II. Other Information Item 1. Legal Proceedings .............................................25 Item 6. Exhibits and Reports on Form 8-K ..............................25 Signatures .................................................................26 2
PART I. ITEM 1. FINANCIAL INFORMATION OSHKOSH TRUCK CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Unaudited) Three Months Ended December 31, ------------------ 1999 1998 ---- ---- (In thousands, except per share amounts) Net sales $ 243,867 $ 222,693 Cost of sales 203,890 190,585 ------------ --------- Gross income 39,977 32,108 Operating expenses: Selling, general and administrative 20,578 16,545 Amortization of goodwill and other intangibles 2,772 2,735 ------------ --------- Total operating expenses 23,350 19,280 ------------ --------- Operating income 16,627 12,828 Other income (expense): Interest expense (5,786) (6,581) Interest income 166 186 Miscellaneous, net 114 142 ------------ --------- (5,506) (6,253) Income before income taxes, equity in earnings of unconsolidated partnership and extraordinary item 11,121 6,575 Provision for income taxes 4,740 3,000 ------------ --------- 6,381 3,575 Equity in earnings of unconsolidated partnership, net of income taxes 315 337 ------------ --------- Income before extraordinary item 6,696 3,912 Extraordinary charge for early retirement of debt, net of income tax benefit (581) -- ------------ --------- Net income $ 6,115 $ 3,912 ============ ========= Earnings per share: Income before extraordinary item $ 0.46 $ 0.31 Extraordinary item (0.04) -- ------------ --------- Net income $ 0.42 $ 0.31 ============ ========= Earnings per share assuming dilution: Income before extraordinary item $ 0.46 $ 0.30 Extraordinary item (0.04) -- ------------ --------- Net income $ 0.42 $ 0.30 ============ ========= Cash dividends: Class A Common Stock $ 0.07500 $ 0.07250 Common Stock $ 0.08625 $ 0.08333 The accompanying notes are an integral part of these condensed consolidated financial statements. 3
OSHKOSH TRUCK CORPORATION CONDENSED CONSOLIDATED BALANCE SHEETS December 31, September 30, 1999 1999 ------------ ------------- (Unaudited) (In thousands) ASSETS Current assets: Cash and cash equivalents $ 3,639 $ 5,137 Receivables, net 62,804 93,186 Inventories 231,946 198,446 Prepaid expenses 4,753 4,963 Deferred income taxes 15,050 14,558 --------- --------- Total current assets 318,192 316,290 Investment in unconsolidated partnership 13,754 12,335 Other long-term assets 20,717 20,853 Property, plant and equipment 162,278 154,597 Less accumulated depreciation (73,024) (70,606) --------- --------- Net property, plant and equipment 89,254 83,991 Goodwill and other intangible assets, net 317,049 319,821 --------- --------- Total assets $ 758,966 $ 753,290 ========= ========= LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Accounts payable $ 74,914 $ 84,727 Floor plan notes payable 38,285 26,616 Customer advances 68,690 68,364 Payroll-related obligations 16,280 24,734 Accrued warranty 13,886 14,623 Other current liabilities 50,931 48,462 Revolving credit facility and current maturities of long-term debt 13,057 5,259 --------- --------- Total current liabilities 276,043 272,785 Long-term debt 159,782 255,289 Deferred income taxes 43,695 44,265 Other long-term liabilities 18,435 18,071 Commitments and contingencies -- -- Shareholders' equity 261,011 162,880 --------- --------- Total liabilities and shareholders' equity $ 758,966 $ 753,290 ========= ========= The accompanying notes are an integral part of these condensed consolidated financial statements. 4
<TABLE> OSHKOSH TRUCK CORPORATION CONDENSED CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY THREE MONTHS ENDED DECEMBER 31, 1999 (Unaudited) <CAPTION> Cost of Common Paid-in Retained Common Stock Stock Capital Earnings in Treasury Total ------ ------- -------- ------------ ----- (In thousands) <S> <C> <C> <C> <C> <C> Balance at September 30, 1999 $ 140 $ 15,997 $ 157,810 $ (11,067) $ 162,880 Net income and comprehensive income -- -- 6,115 -- 6,115 Proceeds from Common Stock offering, net of expenses 38 93,357 -- -- 93,395 Cash dividends: Class A Common Stock -- -- (32) -- (32) Common Stock -- -- (1,397) -- (1,397) Other -- 21 -- 29 50 --------- --------- --------- --------- --------- Balance at December 31, 1999 $ 178 $ 109,375 $ 162,496 $ (11,038) $ 261,011 ========= ========= ========= ========= ========= </TABLE> The accompanying notes are an integral part of these condensed consolidated financial statements. 5
<TABLE> OSHKOSH TRUCK CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) <CAPTION> Three Months Ended December 31, 1999 1998 ---- ---- (In thousands) <S> <C> <C> Operating activities: Income before extraordinary item $ 6,696 $ 3,912 Non-cash adjustments 4,202 2,798 Changes in operating assets and liabilities (5,624) (1,784) --------------- ------------- Net cash provided from operating activities 5,274 4,926 Investing activities: Acquisition of business (5,893) -- Additions to property, plant and equipment (3,888) (1,853) Proceeds from sale of property, plant and equipment -- 27 Increase in other long-term assets (1,603) (1,788) --------------- -------------- Net cash used for investing activities (11,384) (3,614) Financing activities: Net borrowings (repayments) under revolving credit facility 6,000 (700) Repayments of long-term debt (93,709) (148) Proceeds from Common Stock offering 93,736 -- Costs of Common Stock offering (341) -- Dividends paid (1,102) (1,048) Other 28 135 -------------- ------------- Net cash provided from (used for) financing activities 4,612 (1,761) -------------- ------------- Decrease in cash and cash equivalents (1,498) (449) Cash and cash equivalents at beginning of period 5,137 3,622 -------------- ------------- Cash and cash equivalents at end of period $ 3,639 $ 3,173 ============== ============= Supplementary disclosures: Depreciation and amortization $ 5,780 $ 5,373 Cash paid for interest 4,566 4,252 Cash paid for income taxes 361 6,320 </TABLE> The accompanying notes are an integral part of these condensed consolidated financial statements. 6
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 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 1999 annual report to shareholders. 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, ------------------ 1999 1998 ---- ---- Denominator for basic earnings per share 14,398,921 12,635,636 Effect of dilutive options and incentive compensation awards 310,575 266,989 --------- ---------- Denominator for dilutive earnings per share 14,709,496 12,902,625 ========== ========== 3. INVENTORIES Inventories consist of the following: December 31, September 30, 1999 1999 ------------ ------------- (In thousands) Finished products $ 64,029 $ 59,649 Partially finished products 86,753 62,047 Raw materials 96,634 89,417 --------- --------- Inventories at FIFO cost 247,416 211,113 Less: Progress payments on U.S. government contracts (5,270) (2,951) Excess of FIFO cost over LIFO cost (10,200) (9,716) --------- --------- $ 231,946 $ 198,446 ========= ========= Title to all inventories related to government contracts, which provide for progress payments, vests with the government to the extent of unliquidated progress payments. 7
4. ACQUISITIONS On November 1, 1999, the Company acquired the manufacturing assets of Kewaunee Engineering Corporation ("Kewaunee") for $5.9 million in cash plus the assumption of certain liabilities aggregating approximately $2.3 million. Kewaunee is a fabricator of heavy-steel components for cranes, aerial devices and other equipment. The acquisition was financed from borrowings under the Company's senior credit facility. The acquisition was accounted for using the purchase method of accounting and, accordingly, the operating results of Kewaunee are included in the Company's consolidated statements of income beginning November 1, 1999. The purchase price, including acquisition costs, approximated the estimated fair value of the assets acquired and liabilities assumed as of the acquisition date. Had the acquisition occurred on October 1, 1999 or 1998, there would have been no material pro forma impact on the Company's consolidated net sales, net income or earnings per share in fiscal 2000 or 1999. 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 December 31, 1999 on the Revolving Credit Facility, Term Loan A, Term Loan B, and Term Loan C are $11.0 million, $32.5 million, $13.5 million, and $13.5 million, respectively. At December 31, 1999, outstanding borrowings of $11.0 million and $6.1 million of outstanding letters of credit reduced available capacity under the Revolving Credit Facility to $82.9 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. The Subsidiary Guarantors fully, unconditionally, jointly and severally guarantee the Company's obligations under the senior subordinated notes. 8
6. COMMON STOCK OFFERING On November 24, 1999, the Company sold 3,795,000 shares of its Common Stock at $26.00 per share. Proceeds from the offering, net of underwriting discounts and commissions, totaled $93.7 million with $93.5 million used to repay indebtedness under the Company's senior credit facility. Pro forma unaudited earnings per share of the Company, assuming that the net proceeds to the Company from the offering were used to repay term debt as of October 1, 1999 and 1998, are summarized below: Three Months Ended December 31, ------------------ 1999 1998 ---- ---- Earnings per share before extraordinary item Basic $ 0.44 $ 0.30 Assuming dilution 0.43 0.30 Weighted average shares Basic 16,626,421 16,430,636 Assuming dilution 16,936,996 16,697,625 7. COMMITMENTS AND CONTINGENCIES McNeilus Companies, Inc. ("McNeilus") was a defendant in litigation, which was commenced in 1993 prior to the acquisition of McNeilus by the Company. The litigation, which was brought by The Heil Co. ("Heil"), a McNeilus competitor, sought damages and claims that McNeilus infringed certain aspects of its patent. A settlement of the matter was reached in January 2000. The settlement included a payment to Heil, the amount of which was fully reserved for at December 31, 1999. As part of its routine business operations, the Company disposes of and recycles or reclaims certain industrial waste materials, chemicals and solvents at third party disposal and recycling facilities, which are licensed by appropriate governmental agencies. In some instances, these facilities have been and may be designated by the United States Environmental Protection Agency ("EPA") or a state environmental agency for remediation. Under the Comprehensive Environmental Response, Compensation, and Liability Act (the "Superfund" law) and similar state laws, each potentially responsible party ("PRP") that contributed hazardous substances may be jointly and severally liable for the costs associated with cleaning up the site. Typically, PRPs negotiate a resolution with the EPA and/or the state environmental agencies. PRPs also negotiate with each other regarding allocation of the cleanup cost. As to one such Superfund site, Pierce Manufacturing Inc. ("Pierce") is one of 431 PRPs participating in the costs of addressing the site and has been assigned an allocation share of approximately 0.04%. Currently, a report of the remedial investigation/ feasibility study is being completed, and as such, an estimate for the total cost of the remediation of this site has not been made to date. However, based on estimates and the assigned allocations, the Company believes its liability at the site will not be material and its share is adequately covered through reserves established by the Company at December 31, 1999. Actual liability could vary based on 9
results of the study, the resources of other PRPs, and the Company's final share of liability. The Company is addressing a regional trichloroethylene ("TCE") groundwater plume on the south side of Oshkosh, Wisconsin. The Company believes there may be multiple sources in the area. TCE was detected at the Company's North Plant facility with testing showing the highest concentrations in a monitoring well located on the upgradient property line. Because the investigation process is still ongoing, it is not possible for the Company to estimate its long-term total liability associated with this issue at this time. Also, as part of the regional TCE groundwater investigation, the Company conducted a groundwater investigation of a former landfill located on Company property. The landfill, acquired by the Company in 1972, is approximately 2.0 acres in size and is believed to have been used for the disposal of household waste. Based on the investigation, the Company does not believe the landfill is one of the sources of the TCE contamination. Based upon current knowledge, the Company believes its liability associated with the TCE issue will not be material and that it has established adequate reserves for the matter as of December 31, 1999. However, this may change as investigations proceed by the Company, other unrelated property owners, and the government. The Company is subject to other environmental matters and legal proceedings and claims, including patent, antitrust, product liability and state dealership regulation compliance proceedings, that arise in the ordinary course of business. Although the final results of all such matters and claims cannot be predicted with certainty, management believes that the ultimate resolution of all such matters and claims, after taking into account the liabilities accrued with respect to such matters and claims, will not have a material adverse effect on the Company's financial condition or results of operations. Actual results could vary, among other things, due to the uncertainties involved in litigation. The Company has guaranteed certain customers' obligations under deferred payment contracts and lease purchase agreements totaling approximately $1 million at December 31, 1999. The Company is also contingently liable under bid, performance and specialty bonds totaling approximately $132.2 million and open standby letters of credit issued by the Company's bank in favor of third parties totaling approximately $6.1 million at December 31, 1999. 10
8. BUSINESS SEGMENT INFORMATION <TABLE> <CAPTION> Three Months Ended December 31, ------------------ 1999 1998 ---- ---- (in thousands) <S> <C> <C> Net sales to unaffiliated customers: Commercial $ 115,394 $ 96,819 Fire and emergency 75,577 73,849 Defense 52,896 52,025 ------------ ------------- Consolidated $ 243,867 $ 222,693 ============ ============= Operating income (loss): Commercial $ 9,054 $ 4,794 Fire and emergency 3,915 4,819 Defense 7,495 6,164 Corporate and other (3,837) (2,949) ------------ ------------- Consolidated operating income 16,627 12,828 Net interest expense (5,620) (6,395) Miscellaneous other 114 142 ------------ ------------- Income before income taxes, equity in earnings of unconsolidated partnership and extraordinary item $ 11,121 $ 6,575 ============ ============= December 31, September 30, 1999 1999 ------------ ------------- (in thousands) Identifiable assets: Commercial $ 415,318 $ 381,199 Fire and emergency 278,536 276,692 Defense 63,305 85,796 Corporate and other 1,807 9,603 ------------ ------------- Consolidated $ 758,966 $ 753,290 ============ ============= </TABLE> 9. CONDENSED CONSOLIDATING FINANCIAL INFORMATION The following tables present condensed consolidating financial information for: (a) the Company; (b) on a combined basis, the guarantors of the senior subordinated notes, which include all wholly-owned subsidiaries of the Company ("Subsidiary Guarantors") other than McNeilus Financial Services, Inc. and Oshkosh/McNeilus Financial Services, 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 Subsidiary Guarantors are jointly, severally and unconditionally liable under the guarantees, and the Company believes separate financial statements and other disclosures regarding the Subsidiary Guarantors are not material to investors. The Company is comprised of Wisconsin and Florida manufacturing operations and certain corporate management, information services and finance functions. Borrowings and related interest expense under the senior credit facility and the senior subordinated notes are charged to the Company. The Company has allocated a portion of this interest expense to certain Subsidiary Guarantors through formal lending arrangements. There are no management fee arrangements between the Company and its Non-Guarantor Subsidiaries. 11
<TABLE> OSHKOSH TRUCK CORPORATION Condensed Consolidating Statements of Income For the Three Months Ended December 31, 1999 (Unaudited) <CAPTION> Subsidiary Non-Guarantor Company Guarantors Subsidiaries Eliminations Consolidated (In thousands) <S> <C> <C> <C> <C> <C> Net sales $ 80,794 $167,714 $ -- $ (4,641) $ 243,867 Cost of sales 67,993 140,538 -- (4,641) 203,890 -------- -------- --------- --------- --------- Gross income 12,801 27,176 -- -- 39,977 Operating expenses: Selling, general and administrative 8,398 12,096 84 -- 20,578 Amortization of goodwill and other intangibles -- 2,772 -- -- 2,772 -------- -------- --------- -------- --------- Total operating expenses 8,398 14,868 84 -- 23,350 -------- -------- --------- -------- --------- Operating income (loss) 4,403 12,308 (84) -- 16,627 Other income (expense): Interest expense (5,406) (1,955) -- 1,575 (5,786) Interest income 32 1,668 41 (1,575) 166 Miscellaneous, net 8 (12) 118 -- 114 -------- -------- --------- -------- --------- (5,366) (299) 159 -- (5,506) --------- --------- --------- -------- ---------- Income (loss) before income taxes, equity in earnings of subsidiaries and unconsolidated partnership and extraordinary item (963) 12,009 75 -- 11,121 Provision (credit) for income taxes (366) 5,078 28 -- 4,740 --------- -------- --------- -------- --------- (597) 6,931 47 -- 6,381 Equity in earnings of subsidiaries and unconsolidated partnership, net of income taxes 7,293 -- 315 (7,293) 315 -------- -------- --------- --------- --------- Income before extraordinary item 6,696 6,931 362 (7,293) 6,696 Extraordinary charge for early retirement of debt, net of income tax benefit (581) -- -- -- (581) -------- -------- --------- -------- --------- Net income $ 6,115 $ 6,931 $ 362 $ (7,293) $ 6,115 ======== ======== ========= ========= ========= </TABLE> 12
<TABLE> OSHKOSH TRUCK CORPORATION Condensed Consolidating Statements of Income For the Three Months Ended December 31, 1998 (Unaudited) <CAPTION> Subsidiary Non-Guarantor Company Guarantors Subsidiaries Eliminations Consolidated (In thousands) <S> <C> <C> <C> <C> <C> Net sales $ 76,734 $146,939 $ -- $ (980) $ 222,693 Cost of sales 66,342 125,223 -- (980) 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 (loss) 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
<TABLE> OSHKOSH TRUCK CORPORATION Condensed Consolidating Balance Sheets December 31, 1999 (Unaudited) <CAPTION> Subsidiary Non-Guarantor Company Guarantors Subsidiaries Eliminations Consolidated (In thousands) <S> <C> <C> <C> <C> <C> ASSETS Current assets: Cash and cash equivalents $ 2,168 $ 1,350 $ 121 $ -- $ 3,639 Receivables, net 28,879 38,488 (20) (4,543) 62,804 Inventories 62,428 169,518 -- -- 231,946 Prepaid expenses 3,898 855 -- -- 4,753 Deferred income taxes 4,974 6,309 3,767 -- 15,050 ------- -------- ------- ---------- ---------- Total current assets 102,347 216,520 3,868 (4,543) 318,192 Investment in and advances to: Subsidiaries 377,216 (3,926) -- (373,290) -- Unconsolidated partnership -- -- 13,754 -- 13,754 Other long-term assets 11,774 8,902 41 -- 20,717 Net property, plant and equipment 22,859 66,395 -- -- 89,254 Goodwill and other intangible assets, net -- 317,049 -- -- 317,049 ------- -------- ------- ---------- ---------- Total assets $514,196 $604,940 $17,663 $ (377,833) $ 758,966 ======== ======== ======= =========== ========== LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Accounts payable $32,902 $ 43,841 $ 35 $ (1,864) $ 74,914 Floor plan notes payable -- 40,964 -- (2,679) 38,285 Customer advances 987 67,703 -- -- 68,690 Payroll-related obligations 5,241 11,009 30 -- 16,280 Accrued warranty 6,440 7,446 -- -- 13,886 Other current liabilities 23,955 17,511 9,465 -- 50,931 Revolving credit facility and current maturities of long-term debt 12,798 259 -- -- 13,057 ------- -------- ------- ---------- ---------- Total current liabilities 82,323 188,733 9,530 (4,543) 276,043 Long-term debt 157,702 2,080 -- -- 159,782 Deferred income taxes (4,583) 36,219 12,059 -- 43,695 Other long-term liabilities 17,743 692 -- -- 18,435 Commitments and contingencies -- -- -- -- -- Investments by and advances from (to) parent -- 377,216 (3,926) (373,290) -- Shareholders' equity 261,011 -- -- -- 261,011 ------- --------- ------- ---------- ---------- Total liabilities and shareholders' equity $514,196 $604,940 $17,663 $ (377,833) $ 758,966 ======== ======== ======= =========== ========== </TABLE> 14
<TABLE> OSHKOSH TRUCK CORPORATION Condensed Consolidating Balance Sheets September 30, 1999 (Unaudited) <CAPTION> Subsidiary Non-Guarantor Company Guarantors Subsidiaries Eliminations Consolidated (In thousands) <S> <C> <C> <C> <C> <C> ASSETS Current assets: Cash and cash equivalents $ 3,698 $ 1,337 $ 102 $ -- $ 5,137 Receivables, net 49,311 43,837 38 -- 93,186 Inventories 49,988 148,458 -- -- 198,446 Prepaid expenses 3,791 1,172 -- -- 4,963 Deferred income taxes 3,818 6,523 4,217 -- 14,558 --------- --------- --------- --------- --------- Total current assets 110,606 201,327 4,357 -- 316,290 Investment in and advances to: Subsidiaries 357,575 (7,590) -- (349,985) -- Unconsolidated partnership -- -- 12,335 -- 12,335 Other long-term assets 11,902 8,899 52 -- 20,853 Net property, plant and equipment 22,803 61,188 -- -- 83,991 Goodwill and other intangible assets, net -- 319,821 -- -- 319,821 --------- --------- --------- --------- --------- Total assets $ 502,886 $ 583,645 $ 16,744 $(349,985) $ 753,290 ========= ========= ========= ========= ========= LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Accounts payable $ 34,261 $ 50,234 $ 232 $ -- $ 84,727 Floor plan notes payable -- 26,616 -- -- 26,616 Customer advances 1,669 66,695 -- -- 68,364 Payroll-related obligations 9,172 15,532 30 -- 24,734 Accrued warranty 6,785 7,838 -- -- 14,623 Other current liabilities 17,940 19,894 10,628 -- 48,462 Revolving credit facility and current maturities of long-term debt 5,000 259 -- -- 5,259 --------- --------- --------- --------- --------- Total current liabilities 74,827 187,068 10,890 -- 272,785 Long-term debt 253,000 2,289 -- -- 255,289 Deferred income taxes (5,407) 36,228 13,444 -- 44,265 Other long-term liabilities 17,586 485 -- -- 18,071 Commitments and contingencies -- -- -- -- -- Investments by and advances from (to) parent -- 357,575 (7,590) (349,985) -- Shareholders' equity 162,880 -- -- -- 162,880 --------- --------- --------- --------- --------- Total liabilities and shareholders' equity $ 502,886 $ 583,645 $ 16,744 $(349,985) $ 753,290 ========= ========= ========= ========= ========= </TABLE> 15
<TABLE> OSHKOSH TRUCK CORPORATION Condensed Consolidating Statements of Cash Flows For the Three Months Ended December 31, 1999 (Unaudited) <CAPTION> Subsidiary Non-Guarantor Company Guarantors Subsidiaries Eliminations Consolidated (In thousands) <S> <C> <C> <C> <C> <C> Operating activities: Income before extraordinary item $ 6,696 $ 6,931 $ 362 $ (7,293) $ 6,696 Non-cash adjustments 961 4,692 (1,451) -- 4,202 Changes in operating assets and liabilities 7,104 (11,426) (1,302) -- (5,624) ------- -------- --------- -------- --------- Net cash provided from (used for) operating activities 14,761 197 (2,391) (7,293) 5,274 Investing activities: Acquisition of business (5,893) -- -- -- (5,893) Investments in and advances to subsidiaries (13,748) 3,153 3,302 7,293 -- Additions to property, plant and equipment (989) (2,899) -- -- (3,888) Other (482) (229) (892) -- (1,603) -------- -------- --------- -------- --------- Net cash provided from (used for) investing activities (21,112) 25 2,410 7,293 (11,384) Financing activities: Net borrowings under revolving credit facility 6,000 -- -- -- 6,000 Repayments of long-term debt (93,500) (209) -- -- (93,709) Proceeds from Common Stock offering 93,736 -- -- -- 93,736 Costs of Common Stock offering (341) -- -- -- (341) Dividends paid (1,102) -- -- -- (1,102) Other 28 -- -- -- 28 ------- ------- -------- -------- -------- Net cash provided from (used for) financing activities 4,821 (209) -- -- 4,612 ------- -------- -------- -------- -------- Increase (decrease) in cash and cash equivalents (1,530) 13 19 -- (1,498) Cash and cash equivalents at beginning of period 3,698 1,337 102 -- 5,137 ------- ------- -------- -------- -------- Cash and cash equivalents at end of period $ 2,168 $ 1,350 $ 121 $ -- $ 3,639 ======= ======= ======== ======== ======== </TABLE> 16
<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) <S> <C> <C> <C> <C> <C> Operating activities: 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 repayments 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> 17
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 Form 10-Q contain "forward-looking statements" that are believed to be within the meaning of the Private Securities Litigation Reform Act of 1995. All statements other than statements of historical fact included in this report, including, without limitation, statements regarding Oshkosh Truck Corporation's (the "Company" or "Oshkosh") future financial position, business strategy, budgets, targets, projected costs and plans and objectives of management for future operations are forward-looking statements. In addition, forward-looking statements generally can be identified by the use of forward-looking terminology such as "may", "will", "expect", "intend", "estimates", "anticipate", "believe", "should", "plans", or "continue", or the negative thereof or variations thereon or similar terminology. Although the Company believes the expectations reflected in such forward-looking statements are reasonable, it can give no assurance that such expectations will prove to have been correct. Important factors that could cause actual results to differ materially from the Company's expectations include, without limitation, the following: (1) the cyclical nature of the concrete placement industry; (2) the risks related to reductions or changes in government expenditures; (3) the potential for actual costs to exceed projected costs with long-term, fixed-price government contracts; (4) the uncertainty inherent in government contracts; (5) the challenges of identifying, completing and integrating future acquisitions; (6) competition; (7) disruptions in the supply of parts or components from sole source suppliers and subcontractors; (8) product liability and warranty claims; and (9) labor relations and market conditions. Additional information concerning factors that could cause actual results to differ materially from those in the forward-looking statements is contained from time to time in the Company's SEC filings, including, but not limited to, the Company's prospectus dated November 18, 1999 included in the Company's Registration Statement on Form S-3 No. 333-87149. All subsequent written and oral forward-looking statements attributable to the Company, or persons acting on its behalf, are expressly qualified in their entirety by these cautionary statements. General The major products manufactured and marketed by each of the Company's business segments are as follows: Commercial -- concrete mixer systems, refuse truck bodies, portable concrete batch plants and truck components sold to commercial ready-mix companies and commercial and municipal waste haulers in the U. S. and abroad. Fire and emergency -- commercial and custom fire trucks, aircraft rescue and firefighting trucks, snow removal trucks and other emergency vehicles primarily sold to fire departments, airports and other governmental units in the U. S. and abroad. 18
Defense -- heavy-and medium-payload tactical trucks and supply parts sold to the U. S. Military and to other militaries around the world. Results of Operations Analysis of Consolidated Net Sales The following table presents net sales by business segment: First Quarter Fiscal 2000 1999 ---- ---- (in thousands) Net sales to unaffiliated customers: Commercial $115,394 $ 96,819 Fire and emergency 75,577 73,849 Defense 52,896 52,025 -------- -------- Consolidated total $243,867 $222,693 ======== ======== First Quarter 2000 Compared to 1999 Consolidated net sales increased $21.2 million, or 9.5%, to $243.9 million for the first quarter of fiscal 2000, compared to the first quarter of fiscal 1999. The November 1999 acquisition of Kewaunee Engineering Corporation ("Kewaunee") contributed 0.5% of the increase in net sales. Commercial segment net sales increased $18.6 million, or 19.2%, to $115.4 million for the first quarter of fiscal 2000 compared to the first quarter of fiscal 1999. Continued strong end-markets in the concrete placement industry, the growing popularity of Oshkosh's front-discharge concrete mixer and sales, marketing and distribution synergies created through the February 1998 acquisition of McNeilus Companies, Inc. ("McNeilus") contributed to an 18.2% increase in concrete mixer sales for the first quarter of fiscal 2000 compared to the first quarter of fiscal 1999. Refuse truck body sales increased 21.1% for the first quarter of fiscal 2000 compared to the first quarter of fiscal 1999, generally as a result of commercial waste haulers accelerating the replacement of refuse packers in their fleets and as a result of increased sales penetration with both commercial and municipal accounts. Fire and emergency segment net sales increased $1.7 million, or 2.3%, to $75.6 million for the first quarter of fiscal 2000 compared to the first quarter of fiscal 1999. Pierce Manufacturing Inc. ("Pierce") comprises a substantial majority of the revenue of this segment. Pierce's sales increased 5.5% in the first quarter of fiscal 2000 compared to the first quarter of fiscal 1999. Pierce's sales were limited in the first quarter of fiscal 2000 by the late receipt of commercial chassis from truck suppliers and by production inefficiencies resulting from the installation of an enterprise-wide resource planning ("ERP") system at Pierce. Defense segment net sales increased $0.9 million, or 1.7%, to $52.9 million for the first quarter of fiscal 2000 compared to the first quarter of fiscal 1999. A slight decrease in defense vehicle sales was offset by an increase in parts sales. Vehicle sales under the Medium Tactical Vehicle 19
Replacement ("MTVR") contract awarded to Oshkosh in December 1998 began in the second quarter of fiscal 2000, with sales under this contract expected to increase throughout fiscal 2000. Analysis of Consolidated Operating Income The following table presents operating income by business segment: First Quarter Fiscal 2000 1999 ---- ---- (in thousands) Operating income (loss): Commercial $ 9,054 $ 4,794 Fire and emergency 3,915 4,819 Defense 7,495 6,164 Corporate and other (3,837) (2,949) ---------- ---------- Consolidated operating income $ 16,627 $ 12,828 ========== ========== First Quarter Fiscal 2000 Compared to 1999 Consolidated operating income increased $3.8 million, or 29.6%, for the first quarter of fiscal 2000 compared to the first quarter of fiscal 1999. Excluding the impact of the November 1999 acquisition of Kewaunee, consolidated operating income increased $3.7 million, or 28.6% compared to consolidated operating income for the first quarter of fiscal 1999. Commercial segment operating income increased $4.3 million, or 88.9%, for the first quarter of fiscal 2000 compared to the first quarter of fiscal 1999. Operating income as a percent of segment sales ("operating income margin") increased to 7.8% of commercial segment sales for the first quarter of fiscal 2000 compared to 5.0% of commercial segment sales for the first quarter of fiscal 1999. Increased concrete mixer unit volume and manufacturing, purchasing and distribution synergies generated as a result of the acquisition of McNeilus contributed to the improvement in the operating income margin. Fire and emergency segment operating income decreased $0.9 million, or 18.8%, for the first quarter of fiscal 2000 compared to the first quarter of fiscal 1999. The operating income margin decreased from 6.5% to 5.2% during this same time period. Reduced operating income margins were attributable to commercial chassis shortages from suppliers and short-term production inefficiencies following the installation at Pierce of the final modules of a new enterprise-wide resource planning system during the third quarter of fiscal 1999. Management believes that any lingering effects from the system conversion were substantially resolved by the end of the first quarter of fiscal 2000. Defense segment operating income increased $1.3 million, or 21.6%, for the first quarter of fiscal 2000 compared to the first quarter of fiscal 1999. Operating income margin increased to 14.2% of defense segment sales for the first quarter of fiscal 2000 compared to 11.8% of defense segment sales for the first quarter of fiscal 1999. Increases in higher margin parts sales, prior year pre-contract bid-and-proposal costs on the MTVR contract and 20
current year less than expected costs on the prototype Family of Medium Tactical Vehicles ("FMTV") contract contributed to the increased operating income margins for the first quarter of fiscal 2000 compared to the first quarter of fiscal 1999. Corporate and other expenses increased $0.9 million to $3.8 million, or 1.6% of consolidated net sales for the first quarter of fiscal 2000, from $2.9 million, or 1.3% of consolidated net sales for the first quarter of fiscal 1999. Increases in corporate expenses generally relate to increased staffing to support the higher level of sales. Analysis of Non-Operating Income Statement Items First Quarter of Fiscal 2000 Compared to 1999 Interest expense decreased $0.8 million, or 12.1%, in the first quarter of fiscal 2000 compared to the first quarter of fiscal 1999. Lower interest expense resulted from the prepayment of $93.5 million of term debt from proceeds of the Company's November 24, 1999 public offering of Common Stock. The effective tax rate for combined federal and state income taxes for the first quarter of fiscal 2000 was 42.6% compared to 45.6% in the first quarter of fiscal 1999. The Company's effective income tax rate was 38% in the first quarter of fiscal 2000 and 1999 excluding the impact of $1.3 million of nondeductible goodwill. Equity in earnings of an unconsolidated partnership of $0.3 million in the first quarter of fiscal 2000 and fiscal 1999 represents the equity in earnings of the Company's interest in its lease financing partnership. The $0.6 million extraordinary charge in the first quarter of fiscal 2000 represents the write-off of deferred financing costs for that portion of debt prepaid during the quarter. Financial Condition First Quarter of Fiscal 2000 During the quarter, cash decreased by $1.5 million to $3.6 million at December 31, 1999. Cash provided from operating activities of $5.3 million was used to fund capital expenditures of $3.9 million, increase long-term assets by $1.6 million and pay dividends of $1.1 million. Net borrowings of $6.0 million during the quarter were used to fund the acquisition of Kewaunee for $5.9 million. In November 1999, the Company completed a public offering of 3,795,000 shares of Common Stock at $26.00 per share, before commissions and expenses. Proceeds to the Company, net of underwriting discounts and commissions, were used to prepay $93.5 million of term debt under the Company's senior credit facility. The Company's debt-to-capital ratio at December 31, 1999 was 39.8%. During the quarter, inventory increased $33.5 million, including $27.0 million in the commercial segment as a result of seasonal build requirements. Fire and emergency inventories increased $9.9 million during the quarter, generally as a result of commercial chassis and systems-related production inefficiencies at Pierce. 21
Defense segment inventories were down slightly due to timing of inventory purchases. Increases in inventory were offset by reductions in defense receivables ($19.5 million reduction) related to one-time accelerated payments by the U.S. government to minimize Year 2000 concerns and a $11.7 million increase in floor plans notes payable related to commercial segment chassis purchases. First Quarter of Fiscal 1999 During the quarter, cash decreased by $0.4 million to $3.2 million at December 31, 1998. Cash provided from operating activities of $4.9 million was used primarily to fund $0.1 million of debt repayments, a $0.7 million reduction in borrowings under the Company's revolving credit facility, capital additions of $1.9 million and to pay dividends of $1.0 million. Liquidity and Capital Resources The Company had $82.9 million of unused availability under the terms of its revolving credit facility as of December 31, 1999. The Company's primary cash requirements include working capital, interest and principal payments on indebtedness, capital expenditures, dividends, and, potentially, future acquisitions. The primary sources of cash are expected to be cash flow from operations and borrowings under the Company's senior credit facility. As indicated above, in November 1999, the Company completed the sale of 3,795,000 shares of Common Stock. Proceeds to the Company, net of underwriting discounts and commissions, were used to prepay $93.5 million of term indebtedness under the Company's senior credit facility. In addition, the Company purchased the manufacturing assets of Kewaunee. The Kewaunee acquisition was financed through borrowings under the Company's revolving credit facility. The senior credit facility requires prepayment of indebtedness to the extent of "excess cash flows" as defined in the senior credit agreement. Based upon current and anticipated future operations, management believes that capital resources will be adequate to meet future working capital, debt service and other capital requirements for fiscal 2000, including the working capital requirements associated with the start-up of production under the MTVR contract and the acquisition of Kewaunee. There can be no assurance, however, that the Company will generate cash flow that, together with the other sources of capital, will enable it to meet those requirements. The Company's cash flow from operations has fluctuated, and will likely continue to fluctuate, significantly from quarter to quarter due to changes in working capital arising principally from seasonal fluctuations in sales. Capital expenditures are expected to approximate $20 million in fiscal 2000 and $15 million in fiscal 2001. Fiscal 2000 capital expenditures include approximately $4 million of an $8 million expansion of the Company's production facilities in Oshkosh. The remaining $4 million of the expansion will be incurred early in fiscal 2001. 22
New Accounting Standards The Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative Instruments and Hedging Activities," which was amended by SFAS No. 137. Provisions of these standards are required to be adopted in years beginning after June 15, 2000. Because of the Company's minimal use of derivatives, management does not anticipate that the adoption of the new statement will have a significant effect on the Company's financial condition, profitability or cash flows. Customers and Backlog Sales to the U. S. Department of Defense comprised approximately 22% of the Company's net sales in the first quarter of fiscal 2000. No other single customer accounted for more than 10% of the Company's net sales for this period. A substantial majority of the Company's net sales are derived from customer orders prior to commencing production. The Company's backlog at December 31, 1999 increased 17.8% to $558.7 million compared to $474.4 million at December 31, 1998. Commercial segment backlogs increased by $19.0 million or 10.8% to $195.4 million at December 31, 1999 compared to December 31, 1998. Fire and emergency segment backlog increased $31.4 million or 17.3% to $213.3 million at December 31, 1999 compared to December 31, 1998. The defense segment backlog increased by $33.9 million or 29.2% to $150.0 million at December 31, 1999 compared to December 31, 1998. Approximately 10% of the December 31, 1999 backlog is not expected to be filled in fiscal 2000. Reported backlog excludes purchase options and announced orders for which definitive contracts have not been executed. Additionally, backlog excludes unfunded portions of the U. S. Department of Defense long-term family and MTVR contracts. Backlog information and comparisons thereof as of different dates may not be accurate indicators of future sales or the ratio of the Company's future sales to the U. S. Department of Defense versus its sales to other customers. Year 2000 As described in the Company's 1999 Annual Report, the Company commenced a corporate-wide Year 2000 project in 1997 to address issues related to the Year 2000 problem. As of the date of this Form 10-Q, the Company has not experienced any material business disruptions as a result of Year 2000 issues arising from its systems nor is it aware of any material Year 2000 related business disruptions impacting its material third-party suppliers, service providers and customers. While no such issues have developed as of the date of this Form 10-Q, it is possible that Year 2000 issues may still arise. The Company will continue to monitor Year 2000 considerations and work diligently to remediate any Year 2000 issues that arise. To the extent that either the Company or third parties may have any ongoing Year 2000 issues that arise at a later date, the Company has contingency plans in place to address any such material issues. However, the Company cannot be certain that it will not suffer business interruptions, either 23
due to its own Year 2000 issues that may develop or those of its third-party suppliers, services providers and customers. Accordingly, there can be no assurance that the Company or any third parties will not have ongoing Year 2000 issues that may have a material adverse effect on the Company's business, results of operations or financial condition in the future. The total estimated capital costs of the Company's Year 2000 project, which would have been incurred regardless of Year 2000 issues and which had the incidental consequence of Year 2000 readiness, were $9.7 million. The Company incurred an additional $1.0 million in period costs since inception of the Year 2000 project, which amounts were expensed as incurred. The Company does not expect any additional Year 2000 costs in fiscal 2000. Item 3. Quantitative and Qualitative Disclosure of Market Risk The Company's quantitative and qualitative disclosures about market risk for changes in interest rates and foreign exchange risk are incorporated by reference in Item 7A of the Company's Annual Report on Form 10-K for the year ended September 30, 1999 and have not materially changed since that report was filed. 24
OSHKOSH TRUCK CORPORATION PART II. OTHER INFORMATION FORM 10-Q DECEMBER 31, 1999 ITEM 1 LEGAL PROCEEDINGS None. ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits Exhibit 27 - Financial Data Schedule (b) Reports on Form 8-K Current Report on Form 8-K dated October 25, 1999, reporting the announcement of the Company's earnings for the fourth quarter and the fiscal year ended September 30, 1999. Current Report on Form 8-K dated November 2, 1999, reporting the announcement of the Company's acquisition of manufacturing assets of Kewaunee Engineering Corporation. 25
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 11, 2000 /S/ R. G. Bohn -------------------------------------------- R. G. Bohn Chairman, President and Chief Executive Officer (Principal Executive Officer) February 11, 2000 /S/ C. L. Szews -------------------------------------------- C. L. Szews Executive Vice President and Chief Financial Officer (Principal Financial Officer) February 11, 2000 /S/ T. J. Polnaszek -------------------------------------------- T. J. Polnaszek Vice President and Controller (Principal Accounting Officer)
EXHIBIT INDEX Exhibit No. Description 27 Financial Data Schedule